Re: Long article on the dollar -- but worth reading

On Tue, 21 Feb 2006 12:06:25 -0600, Harlow Wilcox
<Harcox_Willow@xxxxxxxxxxxxx> wrote:

Rumpelstiltskin wrote:

It didn't make a difference while governments were at least
making a good try at balancing the money it spent with the
money it brought in through taxation and other means, but the
temptation to run up excessive debt because there's nothing
like "gold" to force governments to keep accounts in line with
the real state of national wealth has now poisoned the well of
trust in viability.

I certainly agree that the fiscal irresponsibility of government is
reprehensible, but what does that have to do with the concept of
'money'? Many commentators rail incessantly about 'fiat money', but how
would backing a currency with commodity X improve the deficit/debt
situation?



Because the paper can be exchanged for the commodity, and
the commodity does have real value. That's assuming, of course,
that the paper isn't false, and that the commodity (or commodities)
actually could be exchanged when the time came. When we
run up national debt, that means the paper is false to the extent
of the debt.



Whether I obtain a good or service with government notes or
bits and bytes seems immaterial to the willing exchange I make with the
vendor. Whether or not the government takes in enough in taxes to
support its spending habits is a totally different animal.

If there were sufficient a supply available of a commodity such as gold
to represent the 'national wealth', there would have been no valid
reason to discontinue commodity backed currency. There is no way that
the world's total economic worth can be expressed in such a manner. That
is a big reason why the reputation of country 'X' is so important in
world markets. For instance, the wild speculation that the U.S.
government will repudiate the debt represented by the bonds it issues is
totally laughable.



They're trying to do it right now, with Social Security.



If the bonds and notes issued by the government
represent 'fiat money', so be it. They are backed by the full faith and
credit of the taxpayers.


"Faith" is necessary, but not what the money is supposed
to represent. The money is supposed to represent goods.
"Fiat money" is money that has no such backing, as I
understand the term.



.

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