transaction.

But to get to the original intent of this post -- by having the world trade for oil in dollars, has that kept the value of a dollar higher than it would otherwise be?  Is the convertibility of the currency, the ability to exchange it from one medium to another, like used to be done in the US with dollars and gold, now done with dollars and oil?

Everyone ''knows'' that people put their cash into gold during recessions, so the smart money does too.

That sort of begs the question, doesn't it? Are people really so mindless that they just buy gold during tough times because everyone else is? Might there be something else behind it?

Our government is attempting to deal with a vicious bear market -- one created by massive debts and inflation -- by printing ever more paper and pumping billions of dollars into the economy, creating ever more debt and inflation.  People will wonder if this will work; their confidence is being shaken and the market is showing that.  There is an underlying fear that the monetary system we've created, where we create limitless amount of fiat paper, cannot continue to function.

As one writer put it, the whole system is illogical and based on a contradiction:

The real contradiction is that we are forced to use a command money -- which can be produced in unlimited quantities by central bankers -- as the medium of exchange in a free market in which goods and services are scarce.

Before we left the gold standard the arguments against it were instructive. This, from 1892:

"If the Government can create money why should not it create all that everybody wants? Why should anybody work for a living?  Why should we have any limit put to the volume of our currency?"

Even if we did mine all the gold from the ocean, gold would still be scarce, and it would be the most likely candidate to replace or anchor fiat paper.  Sure, we could use any scarce good as the medium of exchange, whale teeth or diamonds or bear skins, but it's gold that has been used for thousand of years.

It's true that the assignation of value is completely subjective.  Many may value gold, but that's an agreement among interested parties, and in its absence, people bartered for trade, yet it's still much more convenient to carry a few pieces of metal rather than 5 or 6 chickens.  Historically, going on some kind of exchange standard was (is?) critical for trade.  Then it became even more convenient to substitute paper for metal.  There was a time in these United States you could walk into a bank, plunk down your federal notes, and walk out with its equivalent in gold or silver. Then, at least for the government, it became convenient to "promise" to uphold the currency, as it did in 1934 when the US went off the Gold Standard.  That process completed in the 1970's, but did oil became the new "gold standard" in 1971?  Certainly if the US didn't control oil supplies outright, creating the situation (or forcing?) the world to trade for oil in dollars seems to be the equivalent of backing the dollar with oil, despite what the government says about fiat "promises." Could the "Oil Standard"  (...and not Standard Oil :) be the real reason for the war? This is an exploration in both the economic and philosophical quandaries;  thank you for your responses -- More thoughts?

All of the above raise an interesting question, though it's only vaguely related to petrodollars vs. Gold standard. With the economy in the dumper as it is, many people are reverting to gold and silver as a secure means of financial gain. However, will gold and silver remain as valuable in a more stable economy? What are the factors that influence such rises and falls? It is mainly in times of financial crisis that people begin to grow conscious of precious metals' worth, so, will that value be as high when things regulate themselves once more? Just a thought -- this is why I don't teach economics... 

I think you've quoted me a little out of context. I said
The value of money isn't real. Gold has no value. Dollars have no value. Nothing has any genuine monetary value.
Gold has no inherent monetary value in itself. It is only in the human mind that it is endowed with value. You say so yourself in your final sentence.
Money doesn't exist so how can gold have any real value.

At this level, it becomes almost a philosophical debate about the meaning of the word "value". People have always "valued" gold for its many properties, including simply that it looks beautiful in jewelry. On an abstract level you could say nothing has any inherent value other then the bare necessities to survive. People have created metal jewlery since the dawn of the metal age, and gold has usually been considered the most desireable metal. Today, gold is valuable in many applications including gold, electronics, etc. As long as there is such thing as value, gold (along with, perhaps wood, iron, etc.) will have value. Given the many uses of gold, the difficulty in obtaining it, etc. I think it's safe to say that gold's value will remain for the foreseeable future.

Gold has no value

Many people would disagree with that that; in fact, 5,000 years of history would disagree with that. Gold has been intrinsic money for thousands of years in virtually every culture that has existed.

The difference between fiat currency and gold is that gold doesn't need the backing of any government to tell you it's worth something; it doesn't need collective trust. The sight and possession of gold has been ingrained in the human psyche as being worth something since it was the time it was discovered.

When the US abandoned the Gold Standard, it did not "create" the petrodollar. The petrodollar refers to the process where a nation sells oil in a price of US dollars, then deposits that money in Western banks. This term was coined by Dr. Ibrahim Oweiss, a professor of economics at Georgetown University.

Since the US has abandoned the gold standard, the currency has become a fiat currency. The money is no longer "worth something" except the promise to be paid for the dollar itself(Fiat currencies are still useful for debt and the exchange of goods and services, but they are no longer directly redeemable for gold or silver). As such, the money system relies on debt as a key component. The governing body which regulates the US currency is called the Federal(not a government institution) Reserve. The "Fed", as it's known, is a private bank which regulates the USD through various means. Also, Fiat Currency only functions if the people using it agree on it as a common means of transaction.

That's an excellent explanation.

I would add that one of the only reasons the US Dollar remains a viable fiat currency is because it is also the world's reserve currency. Countries around the world hold their reserves in dollars, hence they have a huge stake in making sure the dollar remains viable. But you are exactly right -- it is backed by nothing other than the government's promise that is legal tender to pay debt, and everyone accepts that promise.

One form in which countries hold their reserves is in U.S. Treasury bonds, especially China, but including many countries in the Middle East who use petrodollars to buy these bonds.

The United States finances its huge debts by selling the bonds, which for the most part the rest of the world has continued to buy. Thus, the huge advantage of the U.S. economy. Because it prints the reserve currency, it can finance massive debt.

Is it possible that people might lose faith in the fiat currency and want to hold their wealth in something other than paper dollars? Absolutely. This is something that gives the Federal Reserve and the U.S. Treasury nightmares. A likely candidate is gold. Gold is virtually the only asset in today's market demonstrating a substantial primary bull trend, largely unnoticed for many years, but now gaining more attention. As I noted in a previous post, the closing price of gold annually for the last 8 years is illustrative.