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correct in a sense- the US dollar is backed by the full faith and credit of the US Government, nothing more. Would I still have that faith in the US $ if the go

correct in a sense- the US dollar is backed by the full faith and credit of the US Government, nothing more. Would I still have that faith in the US $ if the government did not collect taxes / did not seem like a stable entity? Probably not, but your point is still valid

jessriedel 14y ago
> the US dollar is backed by the full faith and credit of the US Government Huh? What does this mean? This phrase can be applied to government bond ("The US gov't promises to pay you back") or to FDIC insurance ("The US gov't promises to refund your money if your bank closes"). But it doesn't have any meaning for dollars, unless it were to mean that the gov't would exchange it for gold, which of course is false.
- encoderer 14y ago
  Not true. The fact that you're somewhat informed on these matters is working against you here. If the US Gov't stopped collecting taxes -- or had some other substantial liquidity crisis -- the very real issue is debt service. Since the USD is the global reserve currency, we are in the rather unique situation of having our debt denominated in our own currency under control of our own central bank. This is where the "full faith and credit" of the USA enters the discussion of our currency. If we had issues servicing our public debt, the government has the option of devaluing our currency. In other words, inflating away our debt. In such a scenario, the value of USD plunges against foreign currencies, and there would be a massive effort by everybody with substantial USD holdings to sell. This, among other reasons, is why Keynes envisioned a super-national reserve currency traded among central banks. If the US public debt was denominated in Bancor, the option of inflating it away wouldn't exist.
  - khuey 14y ago
    That situation is not rather unique at all. Most developed nations issue debt in a currency controlled by their central bank, with the notable exception of the Eurozone.
    - encoderer 14y ago
      Your point is a little misleading I think. How big is the list of "most developed nations" after you remove the US and Euro Zone from the list? Yes, every country CAN issue national debt. But issuing sovereign debt is more common largely because investors prefer it. Either way, I didn't mean to sound misleading by calling it "rather unique." Thanks for helping me clarify.
      - kragen 14y ago
        Japan, South Korea, Taiwan, Singapore, England, Russia, Canada, Australia, Switzerland, Iceland, Israel, Sweden, Norway, Denmark, New Zealand, and arguably PRC, Brazil, Argentina, Turkey, India, Mexico, Indonesia, Qatar, and Chile, are all developed nations not in the US or Eurozone. You are, however, correct that most of these countries issue their debt in US dollars ("sovereign debt") rather than their national currencies.
  - jessriedel 14y ago
    First, I think the interesting question is just about fiat currencies, not the US in particular. The global reserve currency aspect is a secondary effect. Let's concentrate on a generic fiat currency issued by a government. So you're saying that "full faith and credit" just means "The gov't promises not to crazily inflate the money by printing lots of it". Fine. (That doesn't explain what process determines the street value, it just acknowledges that the government can destroy it.) I don't really see how the rest of what you are talking about applies to my comment. Are you claiming that fiat currencies are impossible in countries without debt?
    - encoderer 14y ago
      No, you don't have to have debt to have good credit.
      - jessriedel 14y ago
        It sounds like you are suggesting that fiat currency functions like debt, but I've never understood this claim.
- crapshoot101 14y ago
  it means it is not backed by a hard asset or a promise - the dollar is not redeemable for anything.
- betterunix 14y ago
  "it doesn't have any meaning for dollars, unless it were to mean that the gov't would exchange it for gold, which of course is false." It means, "The government will accept it for tax payment," and for the payment of various other debts and fees.
mcherm 14y ago
Um, no. The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts and by US law requiring taxes to be paid in USD. All of which, as the parent post points out, is dwarfed by the backing provided by all the merchants, banks, and consumers in the world who are using USD today. The corner grocery store in Pottsville, PA backs the USD by accepting it as payment for frozen pizza and toothpaste. The drug dealer in Venezuela backs the USD by accepting payment in $100 USD bills. These are the most important backing for the USD (the "Nash equilibrium" that the parent post mentioned. And that kind of backing is what the community is TRYING to build for BTC.
- jessriedel 14y ago
  > The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts I believe this doesn't stop people from creating special obligations through contracts that are denominated in other currencies. It more means that if I run over your mailbox and a judge orders me to compensate you, I can use dollars.
  - mcherm 14y ago
    Precisely. It means that if you sue me for ANY reason (including failure to live up to my end of a contract) the state will allow me to pay in dollars.
    - jessriedel 14y ago
      Ahh, this is a good point. Thanks.
- danudey 14y ago
  > The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts If you're referring to the 'legal tender for all debts public and private' clause on the notes themselves, that means that it can be used for such purposes, not that it must be accepted. If we agree that I'll do your deck and you'll give me your car, you can't just say 'I want to keep my car, here's some cash instead'.

jessriedel 14y ago

> the US dollar is backed by the full faith and credit of the US Government Huh? What does this mean? This phrase can be applied to government bond ("The US gov't promises to pay you back") or to FDIC insurance ("The US gov't promises to refund your money if your bank closes"). But it doesn't have any meaning for dollars, unless it were to mean that the gov't would exchange it for gold, which of course is false.

encoderer 14y ago
Not true. The fact that you're somewhat informed on these matters is working against you here. If the US Gov't stopped collecting taxes -- or had some other substantial liquidity crisis -- the very real issue is debt service. Since the USD is the global reserve currency, we are in the rather unique situation of having our debt denominated in our own currency under control of our own central bank. This is where the "full faith and credit" of the USA enters the discussion of our currency. If we had issues servicing our public debt, the government has the option of devaluing our currency. In other words, inflating away our debt. In such a scenario, the value of USD plunges against foreign currencies, and there would be a massive effort by everybody with substantial USD holdings to sell. This, among other reasons, is why Keynes envisioned a super-national reserve currency traded among central banks. If the US public debt was denominated in Bancor, the option of inflating it away wouldn't exist.
- khuey 14y ago
  That situation is not rather unique at all. Most developed nations issue debt in a currency controlled by their central bank, with the notable exception of the Eurozone.
  - encoderer 14y ago
    Your point is a little misleading I think. How big is the list of "most developed nations" after you remove the US and Euro Zone from the list? Yes, every country CAN issue national debt. But issuing sovereign debt is more common largely because investors prefer it. Either way, I didn't mean to sound misleading by calling it "rather unique." Thanks for helping me clarify.
    - kragen 14y ago
      Japan, South Korea, Taiwan, Singapore, England, Russia, Canada, Australia, Switzerland, Iceland, Israel, Sweden, Norway, Denmark, New Zealand, and arguably PRC, Brazil, Argentina, Turkey, India, Mexico, Indonesia, Qatar, and Chile, are all developed nations not in the US or Eurozone. You are, however, correct that most of these countries issue their debt in US dollars ("sovereign debt") rather than their national currencies.
- jessriedel 14y ago
  First, I think the interesting question is just about fiat currencies, not the US in particular. The global reserve currency aspect is a secondary effect. Let's concentrate on a generic fiat currency issued by a government. So you're saying that "full faith and credit" just means "The gov't promises not to crazily inflate the money by printing lots of it". Fine. (That doesn't explain what process determines the street value, it just acknowledges that the government can destroy it.) I don't really see how the rest of what you are talking about applies to my comment. Are you claiming that fiat currencies are impossible in countries without debt?
  - encoderer 14y ago
    No, you don't have to have debt to have good credit.
    - jessriedel 14y ago
      It sounds like you are suggesting that fiat currency functions like debt, but I've never understood this claim.
crapshoot101 14y ago
it means it is not backed by a hard asset or a promise - the dollar is not redeemable for anything.
betterunix 14y ago
"it doesn't have any meaning for dollars, unless it were to mean that the gov't would exchange it for gold, which of course is false." It means, "The government will accept it for tax payment," and for the payment of various other debts and fees.

mcherm 14y ago

Um, no. The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts and by US law requiring taxes to be paid in USD. All of which, as the parent post points out, is dwarfed by the backing provided by all the merchants, banks, and consumers in the world who are using USD today. The corner grocery store in Pottsville, PA backs the USD by accepting it as payment for frozen pizza and toothpaste. The drug dealer in Venezuela backs the USD by accepting payment in $100 USD bills. These are the most important backing for the USD (the "Nash equilibrium" that the parent post mentioned. And that kind of backing is what the community is TRYING to build for BTC.

jessriedel 14y ago
> The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts I believe this doesn't stop people from creating special obligations through contracts that are denominated in other currencies. It more means that if I run over your mailbox and a judge orders me to compensate you, I can use dollars.
- mcherm 14y ago
  Precisely. It means that if you sue me for ANY reason (including failure to live up to my end of a contract) the state will allow me to pay in dollars.
  - jessriedel 14y ago
    Ahh, this is a good point. Thanks.
danudey 14y ago
> The US dollar is backed by US law guaranteeing that it must be accepted as payment for all debts If you're referring to the 'legal tender for all debts public and private' clause on the notes themselves, that means that it can be used for such purposes, not that it must be accepted. If we agree that I'll do your deck and you'll give me your car, you can't just say 'I want to keep my car, here's some cash instead'.