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The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?

by Cushman 14y ago

Houshalter 14y ago
No, it's not backed in the sense that it has a concrete value. No one is guaranteeing that a US dollar will buy you exactly a gallon of gas, an ounce of gold, or a bushel of wheat or anything like that. It is "backed" in the sense that people need it to pay taxes, but exactly how much value that gives it is completely uncertain and only determined by the supply and demand of people spending it/accepting it. If there were to be a major economic shift, the value could change to be literally anything relative to the value of other goods (without the supply and demand of those goods actually changing.) It could even completely collapse and be worth nothing under the right conditions. If it was actually backed in the traditional sense it would be guaranteed to be worth some amount of some good or combination of goods, regardless what happens, regardless how many people are spending it or accepting it.
- Cushman 14y ago
  And who guarantees that an ounce of gold will buy me some amount of wheat? Or that a bushel of wheat will give me some amount of energy when eaten? Only a very powerful entity can make such guarantees. On that basis I would say that the word of the United States is far more intrinsically valuable than any physical object.
  - Houshalter 14y ago
    Gold has generally had stable value throughout history, but you are right that it isn't guaranteed. Other commodities like wheat are a little harder to use to back a currency, but from year to year they are fairly stable and pretty much guaranteed to have some value whatever happens. But US dollars aren't guaranteed to do anything for you either in such a situation. The currency could hyper-inflate tomorrow for all anyone knows, and it has no intrinsic value other than the requirement to pay taxes with it. It seems to work fine as a currency and maintain stable value, but the point is it really isn't backed by anything.
    - Cushman 14y ago
      Gold has been stabilized through history because it has been used as currency by powerful governments. If the powerful governments of the world collapse, they will lose control of their large gold reserves at the same time they lose the ability to feed their citizens. What do you suppose will happen to the commodity markets then? Nothing, neither gold nor grain, is backed by anything but power. Fiat currency is just the government accepting that responsibility de jure.
- thatthatis 14y ago
  You do realize that modern fiscal policy near zero. Ergo, a dollar today is guaranteed, on the average, to buy just under a today's dollar worth of things next year. Ergo, a modern dollar is about the closest thing to a guaranteed exchange value that the world has ever seen.
  - Houshalter 14y ago
    Yes, it is a huge economy that has decades to stabilize, unlike bitcoin. My point is that it still isn't backed by anything. There is absolutely no guarantee that it will buy anything next year except what people next year are willing to give you in exchange for it (which could change due to a lot of factors.) Being stable in value, and being guaranteed to have value are two very different things.
kragen 14y ago
First, the word of the powerful is worthless, because power corrupts. People might keep their word because they're honest, or because they're accountable, but the "most powerful organization in the history of civilization" is by definition not accountable, and being an organization, neither is it honest. Second, the US government doesn't give its word that dollars are usable for anything other than paying dollar-denominated debts to people inside its jurisdiction. If you owe somebody in the US €100, that's currently US$130.50. But if the dollar collapses tomorrow, you might need US$1300 to pay that debt, even to somebody in the US. The US government has not given its word that you can exchange those US$130.50 for €100 tomorrow, or for anything else, except for debts already denominated in dollars. It doesn't even require that businesses allow you to buy things with any particular currency (this is a FAQ on the Fed's web site) — just that they accept payment for debts already contracted.
- Cushman 14y ago
  The very concept of debt, of exchange, is one enforced by the United States. If the United States says that I owe a million dollars or none, that is just as true whether it is measured in gold, or hens, or the capricious will of the Federal Reserve. What matters is the power of the United States to force me to pay, and that power is unparalleled by any other entity that has ever existed. To say that the word of the United States is worthless is to ignore reality.
  - waps 14y ago
    That only really goes for people on American soil. Of course, most governments that owe money to the US are in such deep shit that they couldn't pay the cleaning lady next week without a new loan this week. New loans tend to be problematic if you don't pay interest on your current loan.
  - kragen 14y ago
    This may be news to you, but debt and exchange still take place internationally, have taken place internationally since long before there were superpowers, and also take place in zones where no law is enforced. As for the word of the United States, I'm guessing you've never been to an Indian reservation.

The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?

by Cushman 14y ago

The dollar is backed by the word of the most powerful organization in the history of civilization. If that doesn't have value, what does?

Houshalter 14y ago

No, it's not backed in the sense that it has a concrete value. No one is guaranteeing that a US dollar will buy you exactly a gallon of gas, an ounce of gold, or a bushel of wheat or anything like that. It is "backed" in the sense that people need it to pay taxes, but exactly how much value that gives it is completely uncertain and only determined by the supply and demand of people spending it/accepting it. If there were to be a major economic shift, the value could change to be literally anything relative to the value of other goods (without the supply and demand of those goods actually changing.) It could even completely collapse and be worth nothing under the right conditions. If it was actually backed in the traditional sense it would be guaranteed to be worth some amount of some good or combination of goods, regardless what happens, regardless how many people are spending it or accepting it.

Cushman 14y ago
And who guarantees that an ounce of gold will buy me some amount of wheat? Or that a bushel of wheat will give me some amount of energy when eaten? Only a very powerful entity can make such guarantees. On that basis I would say that the word of the United States is far more intrinsically valuable than any physical object.
- Houshalter 14y ago
  Gold has generally had stable value throughout history, but you are right that it isn't guaranteed. Other commodities like wheat are a little harder to use to back a currency, but from year to year they are fairly stable and pretty much guaranteed to have some value whatever happens. But US dollars aren't guaranteed to do anything for you either in such a situation. The currency could hyper-inflate tomorrow for all anyone knows, and it has no intrinsic value other than the requirement to pay taxes with it. It seems to work fine as a currency and maintain stable value, but the point is it really isn't backed by anything.
  - Cushman 14y ago
    Gold has been stabilized through history because it has been used as currency by powerful governments. If the powerful governments of the world collapse, they will lose control of their large gold reserves at the same time they lose the ability to feed their citizens. What do you suppose will happen to the commodity markets then? Nothing, neither gold nor grain, is backed by anything but power. Fiat currency is just the government accepting that responsibility de jure.
thatthatis 14y ago
You do realize that modern fiscal policy near zero. Ergo, a dollar today is guaranteed, on the average, to buy just under a today's dollar worth of things next year. Ergo, a modern dollar is about the closest thing to a guaranteed exchange value that the world has ever seen.
- Houshalter 14y ago
  Yes, it is a huge economy that has decades to stabilize, unlike bitcoin. My point is that it still isn't backed by anything. There is absolutely no guarantee that it will buy anything next year except what people next year are willing to give you in exchange for it (which could change due to a lot of factors.) Being stable in value, and being guaranteed to have value are two very different things.

kragen 14y ago

First, the word of the powerful is worthless, because power corrupts. People might keep their word because they're honest, or because they're accountable, but the "most powerful organization in the history of civilization" is by definition not accountable, and being an organization, neither is it honest. Second, the US government doesn't give its word that dollars are usable for anything other than paying dollar-denominated debts to people inside its jurisdiction. If you owe somebody in the US €100, that's currently US$130.50. But if the dollar collapses tomorrow, you might need US$1300 to pay that debt, even to somebody in the US. The US government has not given its word that you can exchange those US$130.50 for €100 tomorrow, or for anything else, except for debts already denominated in dollars. It doesn't even require that businesses allow you to buy things with any particular currency (this is a FAQ on the Fed's web site) — just that they accept payment for debts already contracted.

Cushman 14y ago
The very concept of debt, of exchange, is one enforced by the United States. If the United States says that I owe a million dollars or none, that is just as true whether it is measured in gold, or hens, or the capricious will of the Federal Reserve. What matters is the power of the United States to force me to pay, and that power is unparalleled by any other entity that has ever existed. To say that the word of the United States is worthless is to ignore reality.
- waps 14y ago
  That only really goes for people on American soil. Of course, most governments that owe money to the US are in such deep shit that they couldn't pay the cleaning lady next week without a new loan this week. New loans tend to be problematic if you don't pay interest on your current loan.
- kragen 14y ago
  This may be news to you, but debt and exchange still take place internationally, have taken place internationally since long before there were superpowers, and also take place in zones where no law is enforced. As for the word of the United States, I'm guessing you've never been to an Indian reservation.