Tubbergen's radio show can also be heard as a podcast on his website.
Grand Rapids, MI -- (SBWIRE) -- 07/24/2013 -- With so much going on in the economy, it can be hard to keep up with everything that is happening in the world today.
Dennis Tubbergen, a financial advisor, author, radio show host and CEO of PLP Advisors, LLC gives a hand.
Whether people enjoy his weekly newsletter at http://www.moving-markets.com or his blog at http://www.dennistubbergen.com, Tubbergen is dedicated to sharing his viewpoints and opinions. On July 23, 2013 his blog was titled The Economy and Outlook - Part Two.
"Throughout history, a money pattern that we call the money cycle has existed," began Tubbergen. "Historically speaking, money has always been something of value." The text below is from Tubbergen's blog.
The first systems of commerce were based on the barter system, which is the trading of goods and services. These systems were cumbersome and awkward. As time passed certain items became recognized as widely exchangeable for goods and services.
Early settlers in the United States used beaver pelts as money. As recently as the 1800s in the far-east, tea leaves compressed into bricks were used as money. For centuries gold and silver have been used as money. Something as tangible as money is the first stage in the money cycle.
The next stage in the money cycle is paper money with a link to something tangible like gold or silver. An example of this type of money is evident as far back as the seventeenth century. Gold was being used as currency at this time in Europe and the business of being a goldsmith developed. For a fee, the goldsmith would store your gold for you in a secure vault and give you a receipt to present to claim your gold whenever you wanted to reappear at the vault.
After a time, these receipts were used as money since they could be redeemed by the holder for a specific quantity of gold
This was the system of money in the United States during much of the 1800’s. One ounce of gold was redeemable for $20.67 and $20.67 was redeemable for one ounce of gold. Gold remained at this price of $20.67 for 99 years, much to the surprise of many people.
As time passes, this direct link between paper money and a tangible asset like gold or silver is often weakened by policymakers. Instead of backing paper money with gold at a rate of 100%, money rules are changed to have the paper money backed by gold at some lesser ratio. A great example of this weakened link between paper money and gold occurred shortly after the Federal Reserve was established in 1913.
The Federal Reserve is the central bank of the United States. It is controlled by private sector bankers who determine monetary policy. There have been three central banks in the history of the United States. The first two were abandoned after their initial 20-year charter expired. A central bank can elect to weaken the link between paper money and a tangible asset like gold or silver, or even decide to eliminate the link.
That is what occurred shortly after the Federal Reserve was established. Instead of having the U.S. Dollar backed 100% by gold the backing was reduced to 40%. This resulted in a massive increase in the money supply and the illusion of prosperity for a time. An increase in the money supply leads to easy credit which in turn leads to increasing debt levels as consumers borrow to consume. This is the autumn economic season which turns to winter once the system reaches its capacity for debt. The autumn season of the Roaring Twenties turned into the winter economic season of the 1930’s.
Finally, the last stage of the money cycle has the weakened link between paper money and something tangible completely eliminated resulting in the creation of a fiat currency. This happened in the United States in 1971 when then President Richard Nixon suspended the redemption of U..S Dollars for gold. At that point the U.S. Dollar became a fiat currency. Historically speaking, fiat currencies survive for a period but there has never been a fiat currency in the history of the world that has survived.
We believe there is a significant link between the money cycle and the economic seasons.
Technically defined, inflation is an increase in the money supply. A symptom of inflation is rising prices. If there is more money in the system chasing the same quantity of goods and services, prices rise. One of the stated goals of central banks is modest inflation. The central bank attempts to produce inflation by reducing interest rates to encourage borrowing to fuel consumption and through money printing.
If inflation is defined as an increase in the money supply, deflation is the exact opposite; a decrease in the money supply. When the money supply decreases prices fall. Massive levels of debt are deflationary since defaults by borrowers pull money from the financial system. This process is known as deleveraging by economists.
The War on Deflation by Central Banks
Central bankers and politicians hate deflation. During deflationary periods wages fall and workers that have accumulated debt find it harder to make ends meet as debt payments remain constant while wages fall.Consequently, central bankers try to combat deflation by creating inflation through loose money policies. Initially, they reduce interest rates and bank reserve requirements. If that doesn’t produce the desired result, they may resort to money printing or “quantitative easing” in an attempt to create inflation.
"At the present time all around the world, many central banks are printing money in an attempt to combat deflation," concludes Tubbergen. "Collectively, world central bankers have printed the equivalent of $10 trillion1 in an attempt to stave off deflation and its painful consequences. However, the debt that causes deflation hasn’t gone away."
To read the blog in its entirety go to http://www.dennistubbergen.com and select his July 23, 2013 entry.
Tubbergen’s syndicated radio show can be heard on metro Michigan stations WTKG 1230 AM and WOOD Newsradio1300 AM and 106.9 FM.
About Dennis Tubbergen
Dennis Tubbergen has been in the financial industry for over 25 years and has his corporate offices in Grand Rapids, Michigan. Tubbergen is CEO of PLP Advisors, LLC and has an online blog that can be read at http://www.dennistubbergen.com. To view Tubbergen’s latest Moving Markets? newsletter, go to http://www.moving-markets.com.
The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.