Thursday, January 19, 2006

Cognitive Dissonance Gold vs Dollar

Cognitive dissonance is an uncomfortable feeling caused by holding two contradictory ideas simultaneously. Dissonance occurs when a person perceives a logical inconsistency in their beliefs, when one idea implies the opposite of another. The dissonance might be experienced as guilt, anger, frustration, or even embarrassment.

The example for Gold vs Dollar is the two contradictory ideas value of the Dollar.

First idea is that physical dollar is a good legal tender to represent money. The contradictory idea is that dollar is not based on any physical quantity like gold and Federal bank can use Quantitative Easing to print as much money as it requires. So the second idea is because of Quantative Easing the dollar doesn't represent real value but dependent on whatever FED decides.

Dissonance causes either person to be angry at Fed for printing money and then debasing the currency so looks at gold standard as the savior.


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