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Here are two facts about the dollar that a lot of people don't know: 1. The Federal Reserve holds assets (mainly stocks and bonds) whose value exceeds the valu

Here are two facts about the dollar that a lot of people don't know: 1. The Federal Reserve holds assets (mainly stocks and bonds) whose value exceeds the value of all the dollars that have been issued. 2. If they anticipate that inflation will be greater than their 2% target then they sell these assets in order to push the value of the dollar back up. So even though the dollar isn't backed 1-to-1, it's value also isn't an arbitrary social decision like some people seem to think. It's being supported by assets with real value. Of course many of the bonds owned by the Fed are US government bonds, and so the dollars value is partially dependent on the ability of the US's government to tax wealth from its citizens.

ccortes 6y ago
> It's being supported by assets with real value. What does "real" value means?
- OscarCunningham 6y ago
  Good question. Here I meant it in opposition to the 'fake' kind of value that gold and bitcoin have, where people value them purely because other people value them. Of course gold and bitcoin do have real value in the sense that the market is willing to buy them for a certain price, but the social network effects that give them value are different from how the dollar obtains its value.
Hypocritelefty 6y ago
Fed doesn't buy stocks
qeternity 6y ago
> 1. The Federal Reserve holds assets (mainly stocks and bonds) whose value exceeds the value of all the dollars that have been issued. This is not true at all. The Fed does not hold equity (stock) and the Fed is also not the only entity that can create money. Lots of money is created by regular banks lending out deposits. This is called fractional reserve banking and until recently was the primary mechanism for money creation.
- OscarCunningham 6y ago
  > The Fed does not hold equity (stock) Thanks for pointing out this error. I thought the Fed had been buying stock as part of their recent expansion, but checking their balance sheet https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm I see that you're right. > Lots of money is created by regular banks lending out deposits I was only counting Federal Reserve accounts and printed money as dollars. Dollar-denominated accounts at regular banks have value because of the assets held by those banks.
kiney 6y ago
The Fed does NOT hold stocks. And dollar denominated bonds as backing for the dollar are basically a short-circuit.
- jevgeni 6y ago
  It's not a short circuit if you consider asset liquidity.
- OscarCunningham 6y ago
  > The Fed does NOT hold stocks. Correct, this was my mistake. > And dollar denominated bonds as backing for the dollar are basically a short-circuit. The difference between dollars and dollar-denominated bonds is the time delay. Suppose you issue 100 kineyCoins and give them to me, and we have a contract that I have to give them back to you in a year. Then those coins will have value to third parties, because they know that if they hold them then as the deadline approaches I will have to buy those kineyCoins back in exchange for whatever those third parties value.
prox 6y ago
Thanks for this comment, so you got money exchange (I accept your value token) , the token itself, and it has got be backed for it have to have worth. So I accept a dollar, but not a bottle cap. So the expert was wrong in that sense, that’s what I am trying to determine.

ccortes 6y ago

> It's being supported by assets with real value. What does "real" value means?

OscarCunningham 6y ago
Good question. Here I meant it in opposition to the 'fake' kind of value that gold and bitcoin have, where people value them purely because other people value them. Of course gold and bitcoin do have real value in the sense that the market is willing to buy them for a certain price, but the social network effects that give them value are different from how the dollar obtains its value.

Hypocritelefty 6y ago

Fed doesn't buy stocks

qeternity 6y ago

> 1. The Federal Reserve holds assets (mainly stocks and bonds) whose value exceeds the value of all the dollars that have been issued. This is not true at all. The Fed does not hold equity (stock) and the Fed is also not the only entity that can create money. Lots of money is created by regular banks lending out deposits. This is called fractional reserve banking and until recently was the primary mechanism for money creation.

OscarCunningham 6y ago
> The Fed does not hold equity (stock) Thanks for pointing out this error. I thought the Fed had been buying stock as part of their recent expansion, but checking their balance sheet https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm I see that you're right. > Lots of money is created by regular banks lending out deposits I was only counting Federal Reserve accounts and printed money as dollars. Dollar-denominated accounts at regular banks have value because of the assets held by those banks.

kiney 6y ago

The Fed does NOT hold stocks. And dollar denominated bonds as backing for the dollar are basically a short-circuit.

jevgeni 6y ago
It's not a short circuit if you consider asset liquidity.
OscarCunningham 6y ago
> The Fed does NOT hold stocks. Correct, this was my mistake. > And dollar denominated bonds as backing for the dollar are basically a short-circuit. The difference between dollars and dollar-denominated bonds is the time delay. Suppose you issue 100 kineyCoins and give them to me, and we have a contract that I have to give them back to you in a year. Then those coins will have value to third parties, because they know that if they hold them then as the deadline approaches I will have to buy those kineyCoins back in exchange for whatever those third parties value.

prox 6y ago

Thanks for this comment, so you got money exchange (I accept your value token) , the token itself, and it has got be backed for it have to have worth. So I accept a dollar, but not a bottle cap. So the expert was wrong in that sense, that’s what I am trying to determine.