Saturday Morning Muse: Trust, Confidence & Money

Host: Dr. Andrew Temte, CFA
Release Date: June 7, 2025

Introduction

In the episode titled "Trust, Confidence & Money," Dr. Andrew Temte delves into the foundational aspects of money, emphasizing the critical roles of trust and confidence in sustaining any economic system. Drawing from historical contexts and modern economic frameworks, Dr. Temte elucidates why governments have traditionally been the primary issuers of money.

The Evolution of Money and the Importance of Trust

Dr. Temte begins by revisiting the credit theory of money, asserting that money fundamentally represents a promise to repay a debt. He explains:

"[00:01:25] Dr. Temte: The coins that I'm stamping or minting represent a promise that I've made to repay a debt."

This perspective underscores that the value of money hinges on the mutual trust between trading parties. If an individual, like himself in the example, mints their own currency, its acceptability and value are entirely dependent on the issuer's reliability.

Understanding the Velocity of Money

A significant portion of the discussion centers on the velocity of money, a key economic indicator measuring how frequently money circulates within an economy over a specific period. Dr. Temte illustrates this concept with a hypothetical scenario:

"[00:13:45] Dr. Temte: If I minted 50 Tempte coins in return for two cows, and those coins are subsequently used in multiple transactions, the economy can function with a higher value of transactions than the physical amount of money in circulation.

He emphasizes that "the velocity of money is a measure of economic activity in an economy," highlighting its importance in gauging the health and dynamism of economic systems.

The Role of Government in Enhancing Trust and Confidence

Transitioning from individual reliability, Dr. Temte discusses the pivotal role governments play in issuing and regulating money to bolster trust and confidence on a larger scale. He references historical legal frameworks, notably the Code of Hammurabi, to illustrate how early governments established laws to manage economic transactions:

"[00:09:30] Dr. Temte: The Code of Hammurabi is the first written example of laws enacted by a government to control what we would think of as money.

By institutionalizing the issuance and regulation of money, governments mitigate the risks associated with individual issuers potentially undermining economic stability.

Historical Context: From Ancient Civilizations to Modern Times

Dr. Temte provides a brief overview of the evolution of money through different civilizations:

• Babylonian Empire: Introduction of the Code of Hammurabi, laying the groundwork for regulated economic transactions.
• Roman and Chinese Economies: Exploration of how these civilizations managed and standardized their currencies.
• Medieval Europe: Discussion on the interplay between governmental stability and the trustworthiness of issued money.

He teases that the following week's episode will delve deeper into these historical instances, particularly focusing on the consequences of governmental collapse on economic trust.

Modern Implications: The US Dollar as the Dominant Reserve Currency

Shifting to contemporary times, Dr. Temte examines the status of the US Dollar as the world's dominant reserve currency since the end of World War II. He explains the significance of this status:

"[00:16:50] Dr. Temte: The US Dollar is held by central banks worldwide for international transactions and investments, relying heavily on the stability and economic strength of the United States.

He traces this dominance back to the Bretton Woods Agreement of 1944, which established the US Dollar as the cornerstone of the new global economic framework.

Challenges to the US Dollar's Dominance: National Debt and Trust Erosion

A critical part of the discussion centers on the burgeoning US national debt and its potential threat to the Dollar's reserve currency status. Dr. Temte warns:

"[00:19:10] Dr. Temte: If we don't get our national debt under control, central banks, investors, traders, and consumers will ultimately lose trust and confidence in the US Dollar.

He underscores that the sustainability of the reserve currency depends on the US government's ability to manage its debt and maintain economic stability. The erosion of trust could lead to severe global economic repercussions, though Dr. Temte notes that time constraints prevent a detailed exploration of these potential outcomes in this episode.

Recommended Resources and Future Topics

Towards the conclusion, Dr. Temte recommends following economic thought leaders such as Ray Dalio, particularly his book "How Countries Go the Big Cycle," which provides deeper insights into the loss of trust and confidence in global powers.

He also previews the next episode, which will explore specific types of money issued by different governments and the detrimental effects when those governments falter.

Conclusion

Dr. Andrew Temte wraps up the episode by reiterating the paramount importance of trust and confidence in the functioning of any monetary system. By understanding the historical evolution of money and the role of governmental institutions in maintaining economic stability, listeners gain valuable insights into the complexities of financial systems and the factors that underpin their resilience.

Notable Quotes:

• Dr. Temte (00:03:15): "Money the coins that I minted represent a debt."
• Dr. Temte (00:13:45): "The velocity of money is a measure of economic activity in an economy."
• Dr. Temte (00:09:30): "The Code of Hammurabi is the first written example of laws enacted by a government to control what we would think of as money."
• Dr. Temte (00:16:50): "The US Dollar is held by central banks worldwide for international transactions and investments."
• Dr. Temte (00:19:10): "If we don't get our national debt under control, central banks, investors, traders, and consumers will ultimately lose trust and confidence in the US Dollar."

For more insights and episodes, visit www.andrewtemte.com and subscribe to Saturday Morning Muse on your preferred streaming platform or YouTube.