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The difference between relying on credit backed by a physical item (gold bricks) versus credit backed by "the Full Faith and Credit" clause of the Constitution
by arrosenberg 6y ago
The difference between relying on credit backed by a physical item (gold bricks) versus credit backed by "the Full Faith and Credit" clause of the Constitution is what happens in the event of default by the issuer of the credit. If the wheels stop turning at some point, there is no recoverable asset.
- boh 6y agoYou're confusing macro-economics with micro-economics. There is "no recoverable asset" with currencies and currencies aren't debts that demand payments.
- arrosenberg 6y agoAm I? From 1861-1933 you could redeem paper currency for gold. I agree you can’t do that today, which was the original distinction I was making.
- boh 6y agoYou are. You are conceptualizing currency as debt, as if currencies represented finite deposits of gold which implies the value of the currency. Even with the gold standard, governments still decide the value of the currency.
- arrosenberg 6y agoDoesn't seem like I'm confusing the two. Regardless of how the value was decided, you could still get gold in exchange for paper currency through the Treasury at the fixed rate. You can't do that today, because the money isn't backed by gold.
- throwaway_kufu 6y ago> credit backed by "the Full Faith and Credit" clause of the Constitution Can you or someone explain why “the full faith and credit clause” of the Constitution is commonly associated with “financial credit”? The full faith and credit clause has to do with the states generally honoring court judgements, public licenses, etc... from the other States. What does that have to do with a default by an issuer of credit?