The US is off the gold standard, the dollar is still an IOU. - Politics Forum.org | PoFo

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#14958355
I hold these statements as obviously true ---
1] Gold has real valuse because we all agree it does.
2] In the 1800s so called Bank Notes were IOUs issued by local banks and they were IOUs.
3] In the 1960s when I was in high school, all the US paper money was IOUs. The $1 bill was a silver certificate and the Gov. promised and to give you (and did give my dad) a bag full of silver pellets for them. Larger size bills could easily be converted into Ones so you could get sivler for them also.
4] Through all this time the US Gov. sold US Bonds and T-Bills and everyone (then and now) saw them correctly as IOUs. Everyone knows that the US Gov. does not to get them back to be able to reuse them because the US Gov. can create new ones when it needs them.
5] The US Gov. went totally off the Gold Standard in 1971.
6] In a friendly poker game where IOUs are allowed, the issuer of an IOU does not need to get it back from the borrower to be able to issue another IOU. He can just create another without limit. It follows from that, that when an IOU is redeemed by the borrower with cash during or after the poker game the IOU in some sense ceases to exist. That is, the issuer has no need to save it because he can create another one and keeping it runs the risk of someone getting it in some improper way and demanding payment. So, they are often torn up as soon as they are redeemed.

7] Today there is some confusion about if the dollar bills we use are still IOUs.

I don't understand this confusion. The US Gov. promises to give you $1 off whatever you owe in taxes for your dollar bills or dollar denominated bank deposits. This is still “something”. MMT makes a big deal out of this and uses it to explain just why we all accept dollars as being as good as gold (sort of). We didn't always do this you know. [Well, maybe you don't know.] During the Revolutionary War and until Washington became President there was a law on the books that made US issued paper dollars legal tender; however, these dollars were not accepted at par. They were reduced in value because the Gov. had no gold to back them and (under the Articles of Confederation) had no power to tax the people either.
. . So, I accept the MMT assertion that it is taxes that gives dollars their value. That is why we accept them as being as good as gold. Even people who don't pay any taxes to the US Gov. still accept them as being as good as gold because they KNOW that people with more money than them (like a store owner) will take their dollars because the store owners do pay taxes and so they need them for that as well as to buy their stock to sell from their distributors, who buy the stuff from the manufacturers, etc.

I hope I have convinced you that US paper money is still IOUs.
. . Now the question becomes --- are dollars the same as IOUs in a poker game and cease to exist as soon as they reach the issuer? In this case the issuer is the US Treasury or the Fed. Res. Bank depending on who you think issues the dollars. It doesn't really matter though because the Treasury deposits them into its bank account at the Fed. Res. Bank.
. . So, do you think that US dollars are destroyed when you pay your taxes with them? And so, then must do all its spending with newly issued/created dollars.
. . Or, does the US Gov. need to get your dollars away from you to spend them? Either with taxes or by borrowing them from you?
,
#14959720
The Dollar is not an IOU.
It's a trade good.

You cannot take the Dollar to a government institution such as the Federal Reserve and have them cash it for goods.

The value of the Dollar is entirely subjective to the person you are trading with.
5 minutes work, a can of coke, a pencil whatever you can get for it.

US taxes can be paid in dollars but also the bailiffs will take goods and a great many people in the world don't pay any US taxes but are still able and willing to trade with dollars.

So money today, fiat money is simply a trade good. A medium of exchange.
I could take a bag of sweeties to trade with or some gold coins as my medium of exchange, but Dollars are more widely accepted.


This money is not backed by the government as an IOU.
The government does not promise to trade you for it.


The answer to your question is three.
The government needs to take possession of your dollars to spend them. Through trade, taxation or borrowing typically. Occasionally by stealth devaluation. Money printing.
#14959728
No mate, it isn't.

Bitcoin is a trading medium, but it isn't a very stable one and not many places accept it.
The value of the Dollar in your pocket today will be redeemable for the same goods at your local shop tomorrow.
Bitcoin, probably won't be. If indeed they will accept it as a medium of exchange at all.

The backing your government does to your currency is to manipulate it's stability.
Control inflation for example.

You can't take your Pounds to the Bank of England and exchange them for anything.
There is no promise to pay out on them by your government.
You government doesn't own property and services = to the number of Dollars or Pounds in the economy.
Far from it.
#14959732
B0ycey wrote:The only reason it has any worth is because it is backed up with government assets.


I disagree with this. It's not because the government has assets, it's simply because the government is capable of providing a stable environment for which business can be done.
#14959734
There was a time you could trade it in for Gold actually.

But correct, currency is usually Fiat. Nonetheless currency is legal tender and backed up by the governments assets and GDP. They also pay interest on this tender (bonds). If the government defaults on their debt the value of their currency plummets. There is a number of reasons I could go into in why it is an IOU, but as you don't have a basic understanding in economics (as you question currency being an IOU) I won't bore you with the details.
#14959739
B0ycey wrote:Currency is essentially an IOU from the government @Baff. The only reason it has any worth is because it is backed up with government assets. :roll:

You may as well use Bitcoin if you think it is just a trading medium.

The professional economists who have created MMT clearly say that it is taxes not gov. assets or GDP that give dollars [or other fiat currency] its value.
. . I explained this in the OP. "I don't understand this confusion. The US Gov. promises to give you $1 off whatever you owe in taxes for your dollar bills or dollar denominated bank deposits. This is still “something”. MMT makes a big deal out of this and uses it to explain just why we all accept dollars as being as good as gold (sort of)." So, the Gov. does give you something for your dollar. I went on.
. . "So, I accept the MMT assertion that it is taxes that gives dollars their value. That is why we accept them as being as good as gold. Even people who don't pay any taxes to the US Gov. still accept them as being as good as gold because they KNOW that people with more money than them (like a store owner) will take their dollars because the store owners do pay taxes and so they need them for that as well as to buy their stock to sell from their distributors, who buy the stuff from the manufacturers, etc." That is, you can always find a wealthy person who wants your dollar. So, dollars have some value. Baff is correct that their value in the economy is not fixed. This is why there can be inflation or deflation.

BTW --- It is useless to discuss economics with Baff. He will double down, then triple down, and finally quadrupling down on his wrong idea and then run away and hide.
#14959759
Steve what value does a Dollar then hold to someone who owes no taxes?
It is then worth nothing.
And given that only 40% of GDP is paid in taxes, is the other 60% of the money worthless?

So I am correcting you.
I know you don't like that.
I know it's hard for you to swallow. But there you are.


Now, I don't have the time and patience to explain things to you if you are going to be argumentative. So if you want to argue. That's fine, but it won't be with me. Attitude at this point ends your free education.
Something I am in every way happy for you to be glad about.


B0ycey wrote:There was a time you could trade it in for Gold actually.

But correct, currency is usually Fiat. Nonetheless currency is legal tender and backed up by the governments assets and GDP. They also pay interest on this tender (bonds). If the government defaults on their debt the value of their currency plummets. There is a number of reasons I could go into in why it is an IOU, but as you don't have a basic understanding in economics (as you question currency being an IOU) I won't bore you with the details.

I don't actually know if you could exchange Dollars for gold at the Fed in the days of the Gold Standard. But even if you could, those days are long since past. A century ago.
You can't trade it in for gold today.

Let's tighten up your definitions.
If government defaults on their debt the value of their debt plummets.
The cost of their borrowing increases.

An investor in government bonds, is not buying government assets or borrowing against them or GDP. He is lending money against the governments ability to tax people in the future.

You could go into why currency is an IOU. But it would be a mistake for you to do so.
It isn't.

I think you may be getting confused with a promissory note.
https://www.investopedia.com/terms/p/promissorynote.asp

In ye olden days money may have taken the form of a promissory note.
But not in our lifetimes.
#14959764
Baff wrote:Steve what value does a Dollar then hold to someone who owes no taxes?
It is then worth nothing.
And given that only 40% of GDP is paid in taxes, is the other 60% of the money worthless?

So I am correcting you.
I know you don't like that.
I know it's hard for to swallow. But there you are.

Now I don't have the time and patience to explain things to you if you are going to be argumentative. So if you want to argue. That's fine, but it won't be with me. Attitude at this point ends your free education.

Like I said, you triple down on your error. I explained it twice. You don't respond to the explanation, you just repeat your assertion. I am not going to back down. I have the MMT experts on my side.

Below you admit that you don't understand how the gold standard worked before FDR 85 years ago sort of ended it for the American people. This is not a good way to give your readers/lurkers confidence that you are right about a dollar not being an IOU.
I don't actually know if you could exchange Dollars for gold at the Fed in the days of the Gold Standard. But even if you could, those days are long since past. A century ago.
You can't trade it in for gold today.

Let's tighten up your definitions.
If government defaults on their debt the value of their debt plummets.
The cost of their borrowing increases.

An investor in government bonds, is not buying government assets or borrowing against them or GDP. He is lending money against the governments ability to tax people in the future.

You could go into why currency is an IOU. But it would be a mistake for you to do so.
It isn't.

I think you may be getting confused with a promissory note.
https://www.investopedia.com/terms/p/promissorynote.asp
#14959765
To cut a long story short @Baff, currency is an IOU because it is a mediator between two parties and is backed up by the government. It has value because the government says it has value and allows it to be legal tender in which it can be exchanged.

Nonetheless its value is solely based on what someone is willing to exchange for it. High taxes or high tax receipts does not equal high exchange rates. Being that the dollar is Fiat, confidence in its value is down to US assets and GDP. There are other factors in its demand such as being the global reserve currency and its use in commodity exchange. Taxes only allows the fed to recorp their own IOU and redistribute it via lending and bonds. They can also print more notes. Yardy yardy yar. That's the gist.
#14959769
No. It has value because the two parties trading agree it has value.
The government is not involved.

I do not need legal tender to trade.
I may trade my apple for your pear.

I may trade bitcoins or foreign currency.
I may trade my labour for a meal.
A diamond ring for a girls heart.
Legal tender is not a requirement in trade.

At no point anywhere is there a government policy to decide and set the value of currency.
No price controls. No declaration of £ value in every budget.

This absolutely does not happen.

It is 100% set by the individual parties involved in the transaction as you have identified.


Confidence in currency value is due to many things yes. None of which are government promissory obligations. Because there aren't any.

Value of £ = number of £/available things to spend it on.

Supply/demand.

There is no government price fixing. It doesn't occur.
In the US, you might have a few fixed rents. Not enough to count.

The government has a few economic levers to pull to affect the value of it's currency. The price it sets for it's services. The amount of money it prints or destroys. But it does not control the economy 100% and it does not back every £ or every $.
It can't. It's not even close to being able to meet that kind of demand with it's supply.

That would be an instant default. Economic collapse world wide. A writing off of very high percentages of all currency. Well over 60%, possibly high 90's.
#14959772
If all you want is a mediator to trade with, then Bitcoin is as good as anything else. But Bitcoin is essentially worthless. It has value because people think it has value. But it doesn't. It is nothing more than code. Currency is different. It is backed up by the government. It is their debt. It is their IOU. Their assets bring confidence they won't default. Their GDP gives confidence they will maintain tax receipts. And if things take a downturn they can sell their assets to pay back their borrowing.

But why educate you. You are ignorant and believe your own shit. So if that is what you believe, I don't care. I know different and that is all that matters to me.
#14959774
I trade with £.
Bitcoin is useless.
Unstable and no one accepts it.

Currency is not UK debt.
When I trade for a £. That Pound is mine.
I may trade it on or keep it.

The government may owe someone else £, but it is not my £. My Pound is mine. I own it.

The government doesn't owe me £1's worth of anything because I have it.
If I take that Pound to any government department, none of them is required to exchange it for anything.

GDP and confidence are GDP and confidence.
Tax receipts don't affect the value of the £ I traded for.
A government bond is not related to the £ in my hand. It is an obligation to repay £'s to someone who lent them.
How much tax the government took, does not affect the value of the £1 in my hand.

I go down the shop I buy a can of Coke and and that is that.
I value the Coke at £1 and so does the shop keeper.

How much the country produced in one year, doesn't much affect the value of my £1 because the government prints(or deletes) extra money to counter any such changes.

If you can be arsed, I challenge to find me a government statement saying that they will honour the debt of any UK currency.
That they views £ as promissory notes of their obligation.
You won't find a single guarantee out there. Not one.

It's a trade good.
Money is a trade commodity. Like oil and chickens but easier to carry.
Last edited by Baff on 03 Nov 2018 21:44, edited 2 times in total.
#14959778
Government debt is money borrowed by the government.
It could be lent in actual currency but also in the form of goods and services.

1,000 barrels of oil for example.

The borrowing and repaying of debts is net neutral to the value of the £ in my pocket.



Quantitative easing.
Money printing.

Value of currency = Total number of £/ total amount of goods and services available in the economy.

Money printing increases the total number of £ and hence decreases it's tradable value.

In the specific case of the pound in my pocket, £2 trillion may or may not affect that depending on the total number of £ in circulation. if it is less than 1% for example less than 1p in the Pound my £ is unaffected.
But in general it reduces the value of currency

At no point in your red herrings have we got on to IOU's.
Because there are none involved.
So I';m glad you understand quantitative easing. Well done.
I'm glad you under stand depreciation. Well done.

But neither Quantitative easing or depreciation = an IOU backed by the government. Sorry.

When we depreciate money through money printing, the value of all existing money is reduced.
The debt paid by money printing is not paid by the government. It is paid by the holders of existing currency.

Their money is devalued by £2 trillion and the value given to the new owner of the £2 trillion.
It redistributes money not from the government, but to the government. Who then spends this appropriated wealth... on repaying it's debt.


But while interesting, none of this has anything to do with IOU's.
Last edited by Baff on 03 Nov 2018 22:00, edited 1 time in total.
#14959824
@B0ycey,
I did warn you that discussions with Baff are not going to convince him of anything.
In another thread 3 of us could not convince him that the Reserve Requirement System set at 10% has the effect that $100 of deposits at a bank allows the bank system as a whole to lend out $1000. He claimed it was just $100. As far as I can tell he never did become convinced.
#14959859
The dollar always was an IOU when we were on the gold standard. The Gov. promised you gold in exchange on demand.
. . Now with the fiat dollar, when the Gov. pays an employee or buys something from a supplier, it gives them a paper dollar or a bank deposit reserve dollar. It can create both kinds of dollars just like a poker player can create an IOU to get a loan. That is the Gov. is giving you a piece of paper in exchange for your time or your product. It seems like an IOU in that sense. And (for the lurkers) the Gov. does promise to give you something under the right circumstances. It gives you $1 off what you owe in taxes.
. . Historically in England, tally sticks were given by the King's representative in exchange for goods that the King/Gov. needed; and those tally sticks were used as currency until they were given the the "Chancellor of the Exchequer" to pay someone's taxes. Today, dollars are used in exactly the same way.
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