If you pull a $10 bill out of your pocket right
now, you are actually looking at a piece of paper
that has lost about 97 % of its purchasing power
since this country was founded. Yeah, it's wild.
Right. And yet, the entire global economy basically
depends on you and, well, everyone else on Earth
believing it's worth exactly $10. So today's
deep dive is all about what I like to call the
greatest collective hallucination in human history,
the United States dollar. I mean, it really is
the absolute definition of shifting sands. We
tend to treat cash as this static, mathematically
precise object, you know, but it's history and
really is underlying macroeconomic mechanics.
They tell a completely different story. Totally.
And we are taking a massive stack of source material
today, a really comprehensive Wikipedia deep
dive to track how a silver coin from this random
Bohemian Valley transformed into the bedrock
of the modern world. Our mission here is to reveal
the bizarre historical quirks behind the money
you spend every single day and how modern monetary
policy actually dictates the reality of your
wallet. Honestly, I couldn't ask for a better
expert guide to help connect all these crazy
historical dots to modern macroeconomics. Well,
thanks. The evolution of this currency is, honestly,
one of the best lenses we have for understanding
global power, human psychology, and just the
entire concept of value itself. Yes. So to really
understand that collective hallucination, we
actually have to cross the Atlantic first, because
the word dollar itself isn't even American. No,
not at all. The sources trace it back to a 16th
century Bohemian valley called Yo Capemstal.
OK, let's unpack this. How did we get it from
Jokumstal to dollar? Right. So Count Haranama
-Schlick was minting these silver crines there,
and they became known as Jokumstalers, named
directly after the valley. But naturally, people
shortened that massive mouthful to just taler.
Makes sense. Taler is a lot easier to say. Exactly.
And as the coin spread across trade routes, the
Dutch began calling it dolder. And then English
speakers eventually settled on the pronunciation
dollar. Wow. Yeah. But here's the kicker. While
the name came from Bohemia, the physical model
for our actual money was entirely Spanish. The
Spanish -American eight real coin. That's the
one. The famous piece of eight, right? Or the
Spanish peso. Because those were minted in places
like Mexico City and Lima and they just flooded
global trade networks for centuries. Was the
Spanish peso essentially the universal colonial
credit card? Oh, absolutely. It was everywhere.
Like, did the newly formed U .S. government basically
just copy -paste a dominant foreign currency
to jumpstart its own economy? What's fascinating
here is that Alexander Hamilton took that copy
-paste job quite literally with the 1792 Coinage
Act. Oh, really? Yeah. Instead of inventing a
brand new monetary standard from thin air, he
gathered a random selection of worn Spanish dollars
that were, you know, actively circulating in
the colonies at the time, and he essayed them.
Wait, so he literally just weighed the local
pocket change. He literally weighed the change
in people's pockets. He wanted to find their
average fine silver content, and he found the
average was exactly 371 .25 grains of fine silver.
So he just locked that exact weight in as the
foundational standard for the new U .S. silver
dollar. That is amazing. And it wasn't just the
physical way we copied either. I was reading
the source material on the origins of the dollar
symbol, and it totally debunks that popular myth
I learned in school. Oh, the one about the letters
U and S being layered on top of each other. Yeah.
like UNS for United States. But the most accepted
historical theory in our sources is that clerks
in the 18th century would just write a P and
an S for pesos. And over time they got lazy or
efficient and started writing the S over the
P and that mutated into the dollar sign. Right,
right. Though there is also an alternative theory
in the text that had evolved from the Spanish
coat of arms. Oh right, the one stamped on the
silver coins. Exactly. The imagery featured the
pillars of Hercules, which are these two vertical
bars with a ribbon wrapping around them in an
S -shape. Oh wow, I can totally see that. Yeah,
either way, the DNA of our money is deeply, deeply
Spanish. Which actually perfectly explains the
weird math of the modern quarter. Oh, the two
bits thing? Yes. because the U .S. was setting
up a very logical decimal system, right? Cents,
dimes, dollars. If you were building a decimal
system from scratch, you logically introduce
a 20 -cent coin. You would think so. But the
Spanish dollar was divided into eight reales,
which the colonists colloquially called bits.
Yeah, and because people were just so entrenched
in spending two bits to buy a drink or like a
loaf of bread, the U .S. government just yielded
to human habit. They just gave up on the pure
decimal idea. Pretty much. They created a 25
cent coin simply because the colonial mind was
completely hardwired to divide things into eighths
instead of tenths. So the math of a quarter was
driven entirely by human habit. And you see that
exact same human psychology bleeding into the
paper money we carry today, too. Even the slang
we use to describe it. Oh, for sure. The slang
is great. Like I was reading in the source that
the term greenback actually started with Abraham
Lincoln. Yeah, during the Civil War. Right. To
fund the war, he issued these demand notes and
the reverse sides are printed with a patented
black and green ink to prevent photographic counterfeiting.
And it's stuck. I mean, the global financial
press still uses greenback as shorthand for the
U .S. dollar today. It's crazy how sticky these
terms are. It is. And if you look at the term
buck, that has even older roots. The sources
say it dates back to the 18th century frontier
leather trade, where buckskins were an actual
primary unit of exchange. Though some historians
do argue it might also tie back to old poker
terminology. Yeah, we have so many of these phrases.
A sawbuck for a 10, a Benjamin for 100, dead
presidents. But it's funny, our early money,
specifically. avoided presidents. Right, they
hated that idea. The founding government felt
that putting a leader's face on currency was
dangerously close to the policies of European
monarchs. Which they had just fought a war to
escape. Exactly. So they used Greek and Roman
mythology instead, or composite Native American
figures. We really didn't see presidents take
over our pocket change until the 20th century.
Well currency design is always a reflection of
national identity at any given moment. Definitely.
And the physical dimensions of the bills used
to reflect that too. Like before 1928 paper bills
were about 30 percent larger than they are today.
People colloquially called them horse blankets
or saddle blankets. Horse blankets. The massive
size of the old bills is funny, but the historical
denominations are what really caught my eye in
the reading. Oh, the giant bills. Yes. The government
used to print a $500 bill, a $1000, even a $10
,000 bill, but the absolute peak was a $100 ,000
note. the series 1934 gold certificate. Right,
but the source explicitly notes that it was illegal
for a regular person to own and it was never
circulated to the public. So I have to ask, if
you are printing a bill that no citizen is legally
allowed to hold, what is the actual mechanical
purpose of it? Why even go through the trouble?
It's a great question. You have to remember,
this was before the era of secure electronic
banking and digital ledgers. The various branches
of the Federal Reserve still had to settle massive
debts with one another. Oh, OK. So it was for
the banks. Exactly. If the New York Fed owed
the Chicago Fed, say, $50 million, moving physical
gold or trainloads of small bills was just a
logistical nightmare. Right. Security risk alone.
Huge risk. So the $100 ,000 bill was strictly
a physical tool for interbank transfers. A clerk
could just put a stack of them in a briefcase,
move it under heavy guard. and clear the ledger.
That is wild. Yeah. And once secure wire transfers
were developed, those massive denominations just
lost their utility entirely. Because the physical
tech of money is always adapting. Always. I mean,
the source notes a really recent update. As of
2025, the U .S. Mint finally halted the production
of pennies for circulation. And Venera. Truly.
And the Bureau of Engraving and Printing is rolling
out raised tactile features on paper notes to
help the visually impaired identify denominations.
Because cache is just a technology. And like
any technology, its physical form eventually
has to match the real -world needs of its users.
But the physical tech is really just the surface
layer, right? The real mind -bender in these
sources is how the backing of that paper, the
thing that actually gives it value, has completely
shape -shifted over time. Oh, drastically. We
start with the American Revolution and continental
currency, which depreciated so fast that people
started saying worthless things were, quote,
not worth a continental. Yeah, the Continental
Congress was essentially printing paper money
to fund a war, but they lacked the centralized
power to tax the colonies to pull that money
back out of circulation. Oh, so the money just
piled up. Exactly. The supply of paper exploded
and the value naturally plummeted. Right. So
to fix that instability, the 1792 Coinage Act
established a bimetallic standard. The dollar
was officially defined by a physical weight of
gold or silver. Right. Then the Coinage Act of
1873 ends the standard silver dollar, which people
actually called the Crime of 73, shifting the
country toward just gold. And by 1900, we are
fully on the gold standard. Yes. Now, my understanding
of the gold standard is that your paper dollar
is essentially a coat check ticket. You hand
the paper to the bank, and they hand you your
physical gold. That coat check ticket analogy
is actually perfectly accurate. A gold standard
puts a hard physical leash on a government. How
so? Well, you can only print as many claim tickets
as you have coats in the closet. So it restrains
runaway inflation, but it also means during a
severe economic crisis, the government cannot
simply print more money to stimulate the economy
or bail out failing institutions. Ah. which leads
directly to FDR in 1933, literally confiscating
gold coins from the public, just to give the
government more economic breathing room during
the Depression. Exactly. They needed to print
more tickets, so they needed all the coats. Here's
where it gets really interesting. Then we get
the ultimate break. 1971, President Nixon severs
all ties between the dollar and gold. The Nixon
shock. A huge moment. The dollar officially becomes
a free -sloting currency. So, if we trace this
timeline, we went from money being an actual
shiny piece of silver to a paper receipt for
a shiny piece of gold to just a collective hallucination
backed by the government's word. If we connect
this to the bigger picture, yeah, that is exactly
what happened. This is the exact moment we transitioned
from a physical claim ticket to pure fiat currency.
We severed the anchor. Wow. And severing that
tie was a monumental transfer of power and responsibility.
It gave the United States the flexibility to
manage its economy dynamically, but it placed
the entire burden of maintaining that hallucination
of value squarely on the central bank. Because
there's no gold in the vault backing it up anymore.
Right. If the public loses faith in the purchasing
power of the dollar, the underlying math won't
save it, because the underlying math is just
a ledger of trust. OK, so. If the Federal Reserve
is managing this ledger to make sure our collective
belief doesn't collapse, let's look at the actual
levers they pull. The sources categorize the
money supply into M0, M1, and M2. Before we talk
about how they manipulate those supplies, what
do those categories actually mean for the money
I use? Simply put, they measure the liquidity
of money, basically how easily you can spend
it. M0 is the physical cash in your wallet and
the vault cash sitting at banks. Okay, pure cash.
Right. Then M1 is M0 plus your checking accounts.
Money you can access and spend instantly with
a debit card. M2 includes all of M1 plus your
savings accounts, money market funds, and mutual
funds. So M2 is money that takes a little extra
effort to turn into spendable cash. Exactly.
And when the Fed wants to adjust the temperature
of the economy, they manipulate how much money
flows through these different liquidity buckets.
Got it. And the sources outline three main tools
the Fed uses for this. requirements, the discount
window, and open market operation. Let's start
with reserve requirements. If a bank has a billion
dollars in customer deposits, the Fed dictates
how much of that cash they actually have to keep
in the vault. Right. Imagine a commercial bank
is a bucket of water with a spigot at the bottom.
The Fed dictates how much water must stay in
the bucket at all times. If the Fed raises the
reserve requirement, the bank has to close the
spigot and lend out less money, which dries up
credit and slows the broader economy down. And
if they lower it? If they lower the requirement,
the bank opens the spigot, money flows out into
business loans and mortgages, and the economy
speeds up. OK, that makes sense. Then there's
the discount window, which kind of sounds like
a fast food drive through for commercial banks.
Honestly, it serves a very similar function of
quick access. It is the interest rate the Fed
charges banks for short term overnight loans.
So if the Fed lowers that rate. Borrowing gets
cheaper for banks and banks subsequently pass
those cheaper loan rates on to consumers and
businesses. Right. But open market operations
seem to be the heavy hitter for controlling the
money supply. This is where the Fed buys and
sells treasury bonds. That's their primary tool,
yeah. But wait, when the Fed buys bonds from
banks to inject money into the system, where
does that cash actually come from? Like, they
aren't moving physical pallets of $100 bills
from a vault, are they? No, they literally just
type it into existence. Wait, really? Just keystrokes?
Just keystrokes. When the Federal Reserve dyes
a treasury bond from a commercial bank, they
simply... hit a few keys on a computer and credit
that bank's reserve account. That is insane.
They create high -powered M -Zero money out of
thin air and they manipulate all of these levers
to balance their dual mandate. keep unemployment
low, and keep prices stable. OK, here's where
I really have to push back hard on this idea
of stable prices. Yeah. Because the source material
shows a genuinely terrifying chart regarding
inflation. Yeah, the purchasing power chart.
Exactly. Since 1774, the dollar has lost about
97 % of its buying power. Just between 1981 and
2009, it lost over half its value. So what does
this all mean for you and me? How can modern
economists possibly view the Fed's management
of inflation as a success when the currency is
constantly bleeding value? It sounds like a total
paradox, I know, but you have to separate...
Sudden destructive inflation from controlled
intentional inflation. Okay, well I'll be through
that. Well, destructive inflation like the continental
currency or the stagflation in the 1970s wipes
out your purchasing power overnight and ruins
economies. Nobody can plan for it. Right. But
the Federal Reserve actively targets a low steady
inflation rate, usually around 2%. They engineered
the economic period since the 1980s, which is
often called the Great Moderation, to be entirely
predictable. But why target any loss of value
at all? Why not target absolute zero inflation
so my $10 bill is guaranteed to buy exactly $10
worth of goods next year? Think about your own
savings account. If you know that your cash is
going to buy 2 % fewer groceries next year, you
aren't going to just leave it sitting under a
mattress. No, I'd want to invest it to beat that
2%. Exactly. You are going to put it in an index
fund, buy a house, or use it to start a business.
The Fed is purposely putting a tiny ticking clock
on your money to force you to participate in
the economy. Oh, wow. So it punishes hoarding.
Yes, it punishes hoarding and incentivizes investment.
Furthermore, that 2 % gives the Fed a cushion.
A cushion for what? Deflation. If inflation was
at zero and a recession hit, the economy would
instantly fall into deflation. And deflation
freezes economic activity completely. Because
consumers delay their purchases, waiting for
prices to drop even further tomorrow. Precisely.
Why buy a car today if it'll be cheaper next
month? The whole economy just stalls. So the
97 % loss of value over a couple of centuries
is basically just the exhaust fume of an engine?
designed to keep moving forward. That's a great
way to put it. So the Federal Reserve manages
that engine domestically. But to truly grasp
the dollar superpower, we have to look outside
the borders of the United States. Following World
War One, the dollar displaced the British pound.
And then the 1944 Bretton Woods agreement essentially
crowned the U .S. dollar as the world's primary
reserve currency. Yeah. At Bretton Woods, 44
allied nations agreed to peg their own national
currencies to the U .S. dollar. while the dollar
remained ped to gold. And even after Nixon severed
that gold tie in 1971, the geopolitical habit
was just firmly set. Exactly. The dollar remained
the unquestioned global standard for trade. And
the sheer scale of that dominance today is staggering.
Entire countries like Ecuador, El Salvador, and
Micronesia use the U .S. dollar as their official
currency. And unofficially in places like Cambodia
and Venezuela, too. Right. But what really fascinated
me in the sources was this concept of euro dollars.
The sources note that foreign companies and individuals
hold trillions in euro dollars. What exactly
is a euro dollar and how does it work if it exists
entirely outside the United States? The term
is actually a bit misleading because a euro dollar
has absolutely nothing to do with the euro currency
used in Europe. OK, good to know. It simply refers
to any US dollar denominated deposit held at
a foreign bank or at a foreign branch of an American
bank. Give me an example. So if a manufacturing
company in Tokyo deposits US dollars into a bank
account in London, those funds are classified
as euro dollars. So it is basically an offshore
shadow economy. Precisely. Because those dollars
are sitting in a bank in London, they fall completely
outside the jurisdiction of the Federal Reserve.
Oh, wow. Yeah. They are not subject to the Fed's
reserve requirements. This creates a massive,
largely unregulated global pool of liquidity
that fuels international trade, operating entirely
separate from the domestic money supply we were
just talking about. And it is not just digital
ledgers sitting in London. The source points
out that 80 % of actual physical U .S. $100 bills
are currently held overseas. 80%. Yeah. If you
look at an emerging market experiencing hyperinflation,
local citizens are actively buying U .S. $100
bills on the black market as a lifeboat to protect
their life savings from their own government's
disastrous monetary policy. The physical $100
bill is arguably one of America's most successful
exports. But the U .S. government's real international
leverage comes from the digital infrastructure,
right? Like the Swift network. Oh, absolutely.
Banks use Swift to securely transmit information
and settle international transactions. Because
so much of the world's trade from oil to agriculture
is priced and settled in dollars, the U .S. Treasury
exercises immense oversight and influence over
Swift. Which basically turns the dollar into
a geopolitical weapon. The U .S. can literally
lock a foreign nation or a rogue entity out of
the global banking system with targeted sanctions.
Exactly. But beyond the weaponization, the biggest
domestic benefit mentioned in the sources is
something called exorbitant privilege. Because
everyone needs dollars to trade, the U .S. government
can borrow trillions of dollars on the global
capital markets in its own currency at incredibly
low interest rates. It is an unparalleled macroeconomic
advantage. I mean, think about it. If an emerging
nation wants to borrow money internationally
to build infrastructure, global investors won't
trust their local currency because it's too volatile.
Right. So they force that nation to issue debt
denominated in U .S. dollars. This exposes the
foreign government to massive risk. If their
local currency weakens against the strong dollar,
their debt suddenly becomes much more expensive
to pay off, which often leads to default. But
the United States never faces exchange rate risk
on its own national debt. Never. Because our
debt is in our own currency. It sounds like the
US is the only player at a high -stakes global
poker table who is legally allowed to print their
own chips to cover their bets. Isn't that an
incredibly dangerous amount of leverage? Well,
this raises an important question, and it sparks
a fierce debate among modern macroeconomists
today. Is this strong dollar policy actually
a net positive for everyone? Right, because it
seems heavily skewed. It is. Yes, the United
States gets cheap borrowing and immense geopolitical
leverage. But a globally dominant, highly valued
dollar makes American -made exports much more
expensive for the rest of the world to buy, which
arguably guts domestic manufacturing. I hadn't
thought of that. And for the rest of the world,
it creates a delicate, deeply intertwined system
where a decision made by the Federal Reserve
to curb inflation in Ohio can accidentally trigger
a sovereign debt crisis in South America. Because
their dollar -denominated debt just got more
expensive. Exactly. The ripples are entirely
global. Well, we have tracked an incredible journey
today. We started with silver jocum stalers in
a Bohemian valley, watched the U .S. adopt Spanish
pesos and count their quarters in two bits, traced
the quirky evolution of greenbacks and Don't
forget the $100 ,000 bills. Oh, right, the giant
bank notes. And we explored how severing the
gold standard forced the Fed to actively manage
our economic hallucination with reserve buckets
and keystrokes. And finally, we saw how that
very hallucination conquered the globe, building
offshore shadow economies of euro dollars and
giving the U .S. unparalleled exorbitant privilege.
It truly highlights that money is a living, breathing
technology. It reflects human psychology, habit,
and geopolitical power far more than it reflects
simple mathematics. Absolutely. But I want to
leave you with one final provocative thought
to mull over, building on just a brief mention
in our source material. We have seen how the
dollar supremacy relies entirely on the US government's
geographic and geopolitical borders. Right. But
as decentralized, digital currencies continue
to evolve in the background. What happens to
this exorbitant privilege when the technology
of money completely erases the geographic borders
that gave national currencies their power in
the first place? The collective hallucination
might just be preparing for its most radical
shift yet. We will definitely have to wait and
see. Thanks for joining us on this deep dive
into the real mechanics of your wallet. Stay
curious and keep exploring.