In the early days of the U.S.A., every dollar was exchangeable for 412.5 grains of 90% silver. Paper money was merely a conveniently portable 'place holder'. It was a certificate of entitlement to precious metals held by the U.S. Treasury. Up until 1933, a U.S. dollar represented a fixed amount of silver or gold. During the Great Depression, the government stopped this- but still, one could always exchange paper dollars for silver coinage. In 1965, the government stopped that too. <b>At that point the dollar went from currency to illusion.</b> Since people were already <i>used</i> to accepting paper dollars as currency, they kept doing so, purely out of habit. If the dollar had started out as the unbacked paper it is today, it never would have gained widespread acceptance in the first place. It isn't money anymore, but rather a temporary psychological trick.
exactly. i think that's really all there is to it. we're all sitting on a mountain of claims against the assets and future income of the US economy
In the U.S. it's a green piece of paper (Crane 100% cotton paper to be exact) that stands as a promisary note backed by the U.S. government. The note is backed in good faith and overseen by the government and is acceptable to be used in settlement of debts and obligations by its users.
backed with what? what is promised by such a "promissory note"? as Rearden said, it's just a piece of paper - it's not redeemable for anything anymore.
As more people realise what Rearden is talking about, you will see the price of gold and other material commodities rise. The dollar is much like a check you write to your neighbor who can redeem it with your other neighbor who will later come to you to get another check with a bit more money in the amount space. As a trader and an investor in gold, uranium and other commodities, I sometimes wonder how it will all be reconciled at some point. Pretty scary thought really to know that our citizens are spending more than they earn and so does our country. Loaning against future earnings makes sense, but I think the proportions we have reached at dangerous as other countries wonder how worthless their reserves will be when it all come down to it. (shivers...)
it's almost like the bankruptcy of the country is a foregone conclusion, inherent in its money creation process history says so in any case
Indeed. Fiat currency is only as good as the issuing countries ability to produce valued goods and services. We could have a boatload of Russian Rubles, but if Russia is nuked tomorrow, what good does it do us? Nada. IMO, its good advice to keep a good part of your wealth in precious metal - buried. Seriously.
If you take it even further, 'wealth' is nothing more than a psychological illusion created by human perception. Gold is the assumed 'failsafe reserve'. But golds value is completely reliant on the existence of other people to confirm its worth (and therefore, be willing to exchange for it). If you have all the gold in the world, yet no one to exchange it with, how 'wealthy' are you? Of course, that scenario begs the question: why we would even care if we were the last person on earth?? BUT THATS IRRELEVANT!!!!!!
Interesting aside. A good portion of income tax is simply 'retired' (aka extinguished, destroyed) to 'service the debt'. In reality, the Government doesn't need tax to generate revenue. The Government can circumvent us altogether; when they need revenue, they simply print it. (The Wonders of Fiat currency). The income tax was only established to secure interest on debt created out of nothing. And two. Provide a mechanism for withdrawing money out of the economy - which can only 'absorb' so much at a time. The reason is simple. When the Government prints money without taking some out of your pocket, theres too much money to go around. Inflation soon spirals and the economy implodes (Russian, post WW2 Germany etc).
Does it even makes sense to own gold stock? I would think that one would have to have physical delivery of something that is marketable to hedge against a fall in currency. I'm not a dooms-dayer, but I would certainly expect that someone running their personal finance this way is getting into more trouble than they can handle. In a way, I think the way our gov't runs its finances is synonymous with how the average American does. Would you guys disagree? (borrowing against assets, credit cards, equity lines of credit to afford a life outside of the value of our current services) Does that make any sense?