Hey everybody, today I am revealing something that many people probably do not realize. The US dollar is imaginary. What exactly does that mean? Watch today’s video taken from our upcoming podcast episode to find out.
“The US Dollar is imaginary. If you put a $100 bill on the table right now, that really doesn’t mean anything. We just printed 30% more dollar bills. That $100 bill four years ago would have been worth $100, but today it’s worth $70. So, what’s the difference between having a physical dollar bill and a digital one? Nothing.”
The key to understanding that the US dollar is imaginary is found in understanding the difference between intrinsic and extrinsic value. Intrinsic value is the value that an item has in and of its own while extrinsic value is the value that an item has because that value has been assigned to it.
The US dollar has virtually no intrinsic value when used in a transaction. What really matters is its extrinsic value. This is to say that the US dollar only has value because we have assigned it a value and agree on that value as a society. A $1 bill and a $100 bill have the same intrinsic value because they are both essentially a slip of paper. However, they have very different extrinsic values because the values that we’ve assigned to them are very different.
Furthermore, the value of the US dollar changes from year to year due to inflation. Inflation makes it so that the US dollar is worth less and less each year, hence why things become more and more expensive every year. This is what I am referring to when I mention in the video that a $100 bill placed on the table today has a different value than it did four years ago.
People often assume inflation is a bad thing because it lowers the value of their money, but it is not inherently a bad thing. Inflation is generally a sign that the economy is doing well. If inflation is about 2% a year, then that is good for us. Inflation can become problematic when the wages that people earn do not increase with it. Otherwise, the value of the dollar decreases but the amount earned remains the same. This really means that the amount earned also decreases because each dollar is worth less. This is where the problem lies. Often, wages do not increase with the rate of inflation.
The US dollar is imaginary. Its value is made up.
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