3 ms·

This seems to be the paper referenced http://www.sciencedirect.com/science/article/pii/S1877343517300015?via%3Dihub http://www.sciencedirect.com/science/article

by asar 9y ago

This seems to be the paper referenced http://www.sciencedirect.com/science/article/pii/S1877343517300015?via%3Dihub http://www.sciencedirect.com/science/article/pii/S1877343517... >Not true. Massive gold reserves are still held by all central banks, so I'd say it is true. Gold and the military back the US currency.

pjc50 9y ago
This is not how "backing" is normally understood, though; the currency is not exchangeable for gold at a fixed rate. People like to say the military "backs" the currency too, but I've never understood what this means in practice. The stability of the US dollar has caused it to be used by all sorts of countries as a reference, entirely voluntarily.
- asar 9y ago
  Receiving tax payments is essential to countries in our current global monetary system. USD are spent by citizens but also by the government itself, both depend on system stability. Now assume that one day a large enough number of people/corporations decides not to pay their USD taxes anymore. The FED would issue new bonds to ensure liquidity of the government. Banks would have to buy these bonds from the government and how would these banks be convinced that this is a one time event and tax payers will return to normal behavior and their large USD reserves don't turn worthless? The military. Trust in the military force is also what gives foreign and domestic investors trust in the dollar.
  - pjc50 9y ago
    So you're saying the US would become a military dictatorship, and this is supposed to be reassuring? It's a weird kind of fantasy scenario about a tax strike.
    - asar 9y ago
      I agree that it's far fetched and an extreme example, but still interesting to think it through. As it does shed some light on the different actors and their potential motivations.
      - pjc50 9y ago
        > interesting to think it through I see a pre-determined conclusion there rather than very much kind of thought. Tax strikes are hard to organise and much tax is collected automatically. If some organisation has the power to organise a tax strike, what are their political demands? Why wouldn't this just result in electoral victory for the Anti-Tax Party? Is there a general strike as well? There's no need to force people to buy US treasuries either, the open market can support a lot of demand and there is a lot of room to increase yields if they're not selling. Finally there is the option to simply "print", physically or virtually, in order to support operations. This runs the exchange rate down but since the US is pretty physically self-sufficient, especially in terms of oil production, food and pharmaceuticals, that's less of an immediate problem.

by asar 9y ago

pjc50 9y ago

This is not how "backing" is normally understood, though; the currency is not exchangeable for gold at a fixed rate. People like to say the military "backs" the currency too, but I've never understood what this means in practice. The stability of the US dollar has caused it to be used by all sorts of countries as a reference, entirely voluntarily.

asar 9y ago
Receiving tax payments is essential to countries in our current global monetary system. USD are spent by citizens but also by the government itself, both depend on system stability. Now assume that one day a large enough number of people/corporations decides not to pay their USD taxes anymore. The FED would issue new bonds to ensure liquidity of the government. Banks would have to buy these bonds from the government and how would these banks be convinced that this is a one time event and tax payers will return to normal behavior and their large USD reserves don't turn worthless? The military. Trust in the military force is also what gives foreign and domestic investors trust in the dollar.
- pjc50 9y ago
  So you're saying the US would become a military dictatorship, and this is supposed to be reassuring? It's a weird kind of fantasy scenario about a tax strike.
  - asar 9y ago
    I agree that it's far fetched and an extreme example, but still interesting to think it through. As it does shed some light on the different actors and their potential motivations.
    - pjc50 9y ago
      > interesting to think it through I see a pre-determined conclusion there rather than very much kind of thought. Tax strikes are hard to organise and much tax is collected automatically. If some organisation has the power to organise a tax strike, what are their political demands? Why wouldn't this just result in electoral victory for the Anti-Tax Party? Is there a general strike as well? There's no need to force people to buy US treasuries either, the open market can support a lot of demand and there is a lot of room to increase yields if they're not selling. Finally there is the option to simply "print", physically or virtually, in order to support operations. This runs the exchange rate down but since the US is pretty physically self-sufficient, especially in terms of oil production, food and pharmaceuticals, that's less of an immediate problem.