Sorry for a very late response, but I did promise... In modern economies, money is not necessarily govt debt. The Central Bank is an exchange, through which paper and electronic money clears. The amount of that money is not directly related to govt spending or borrowing. It's a function of monetary policy (hence, the term and the distinction between monetary and fiscal). The govt is simply one of the exchange counterparties, albeit a somewhat special one. As to your point, Misthos, the scarcity value attached to any medium of exchange is established by fiat, regardless of whether it's a coin, a seashell or a piece of paper. That's all there is to it... Ciao, folks.
Martingouhl, I don't know exactly what post of mine you are responding to, but it would not be my intention to confuse monetary policy with fiscal policy. I recognize the distinctions that seperate the two and the interactions that link the two. When I spoke of the 'dollar' as a debt instrument I was making a philosphical and moral point. As I explained it before, perhaps stated differently here: the dollar is essentially an I.O.U. contract for the maintenance of a unit of account. From that point of view you can judge how the government is holding up its end and you can decide if you want to hold that paper or exchange it for something else. The only thing that makes that piece of paper valuable is the credibilty of the government to maintain that exchange value over time. I say that relationship between the paper holder and the government issue is a promise of the maintenance of value in exchange...like debt, like a contract. The paper still has the identificaton of a note document as it would have when the notes were issued by private banks. It should not be so hard to see that debt can circulate as money in that any unit of account, even in a metal form or shell form is in its use and operation a means to transfer a unit of value in exchange over time...that is essentially how a debt instrument operates in its simplist form. If you would gladly pay me next tuesday for a hamburger today, couldn't I have a piece of paper to present for the value of that hamburger next week? Having said this I do not want to suggest that the dollar supply is the same as the supply of treasury instruments. Clearly, govenment interest bearing term debt is not managed or created the same way as the currency. Thier link is only the link between based currency, base money supply and leveraged money supply in the fractional reserve banking system. I understand that the supply of government debt is a market event and the supply of government currency is a policy of the issuer. There is a relationshp between the money supply and government debt in that the government guarantees by law that its currency must be accepted for the payment of all debts. You can see that if the government bends or breaks its promise to maintain the value of account it does translate into the fiscal world by changing the value of term debts both private and public because they are payable in currency that may be worth more or less than it was when the term debt was issued. In turn these changes in the currency that denominates the term debt ecourages rational behavioral changes in the fiscal world impacting the demand for debt and or goods. These behavioral changes then impact velocity, capital flows between asset classes, market interest rates, and government revenues.