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Subject: Geek Gold (GG) is a fiat currency, so . . . rss

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Steve
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GG is a fiat currency. This means that Octavian has an infinite supply of GG.

This means that when someone gives him some GG (for example for draining the swamp) he doesn't bother keeping track of what he got back.

This is true of all IOUs in the world. As soon as it is returned to the issuer, the issuer tears it up. This is because he can easily make a new one when he needs it and there is a slight risk that someone could steal it.

Some would say this is a characteristic of IOUs or even a natural law about IOUs.

Then why does the US Gov. not do this?
Why does the US Gov. keep careful track of just how many dollar IOUs it has received and therefore how many dollar IOUs it can spend?
Why does the natural law of IOUs not apply to dollar IOUs issued by the US Gov.?
What is different about dollar IOUs?

 
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Andre
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The government issues IOUs in the form of government bonds. They pay back the principal plus interest on the bonds, when they default on that (and it has not happened yet, to my knowledge), people may stop putting faith in IOUs.

The IOUs the government can spend have no direct relation to those that the government issues. All else remaining the same, that would mean neutral income, but that is not a requirement that the government places on themselves, I may be wrong here, but I suspect that America issues a lot more IOU's then they currently take in, hence incurring a deficit.

Unclear what you are defining as a natural law of IOU's, that the govt tears them up when it gets them back?

Dollar IOU's will continue to be valued, as long as the bill continues to be paid, by the one granting the IOU. There is nothing mystical about that.
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Steve
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abadolato01 wrote:
The government issues IOUs in the form of government bonds. They pay back the principal plus interest on the bonds, when they default on that (and it has not happened yet, to my knowledge), people may stop putting faith in IOUs.

The IOUs the government can spend have no direct relation to those that the government issues. All else remaining the same, that would mean neutral income, but that is not a requirement that the government places on themselves, I may be wrong here, but I suspect that America issues a lot more IOU's then they currently take in, hence incurring a deficit.

Unclear what you are defining as a natural law of IOU's, that the govt tears them up when it gets them back?

Dollar IOU's will continue to be valued, as long as the bill continues to be paid, by the one granting the IOU. There is nothing mystical about that.

Yes, US Gov. Bonds are an IOU.
But, aren't dollars bills also an IOU?

Before FDR changed it all dollars could be exchanged for gold. They were literally an IOU $1 worth of gold.

After Nixon changed it again, now the US Gov. just promises to give you $1 off what your tax bill is for a dollar. But that is still just anther form of IOU, right?

The US Gov. is very unlikely to default on the national debt. That would be just stupid because the Gov. can just create dollars to pay off any Bond that matures on any given day. The US has a fiat currency like BGG's GG. It has an infinite amount.

 
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Steve1501 wrote:
abadolato01 wrote:
The government issues IOUs in the form of government bonds. They pay back the principal plus interest on the bonds, when they default on that (and it has not happened yet, to my knowledge), people may stop putting faith in IOUs.

The IOUs the government can spend have no direct relation to those that the government issues. All else remaining the same, that would mean neutral income, but that is not a requirement that the government places on themselves, I may be wrong here, but I suspect that America issues a lot more IOU's then they currently take in, hence incurring a deficit.

Unclear what you are defining as a natural law of IOU's, that the govt tears them up when it gets them back?

Dollar IOU's will continue to be valued, as long as the bill continues to be paid, by the one granting the IOU. There is nothing mystical about that.

Yes, US Gov. Bonds are an IOU.
But, aren't dollars bills also an IOU?

Before FDR changed it all dollars could be exchanged for gold. They were literally an IOU $1 worth of gold.

After Nixon changed it again, now the US Gov. just promises to give you $1 off what your tax bill is for a dollar. But that is still just anther form of IOU, right?

The US Gov. is very unlikely to default on the national debt. That would be just stupid because the Gov. can just create dollars to pay off any Bond that matures on any given day. The US has a fiat currency like BGG's GG. It has an infinite amount.



Which part of fiat currency is confusing? Are you suggesting the return to a standard?

Perhaps pork bellies or coal?
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J.D. Hall
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darthhugo wrote:
Steve1501 wrote:
abadolato01 wrote:
The government issues IOUs in the form of government bonds. They pay back the principal plus interest on the bonds, when they default on that (and it has not happened yet, to my knowledge), people may stop putting faith in IOUs.

The IOUs the government can spend have no direct relation to those that the government issues. All else remaining the same, that would mean neutral income, but that is not a requirement that the government places on themselves, I may be wrong here, but I suspect that America issues a lot more IOU's then they currently take in, hence incurring a deficit.

Unclear what you are defining as a natural law of IOU's, that the govt tears them up when it gets them back?

Dollar IOU's will continue to be valued, as long as the bill continues to be paid, by the one granting the IOU. There is nothing mystical about that.

Yes, US Gov. Bonds are an IOU.
But, aren't dollars bills also an IOU?

Before FDR changed it all dollars could be exchanged for gold. They were literally an IOU $1 worth of gold.

After Nixon changed it again, now the US Gov. just promises to give you $1 off what your tax bill is for a dollar. But that is still just anther form of IOU, right?

The US Gov. is very unlikely to default on the national debt. That would be just stupid because the Gov. can just create dollars to pay off any Bond that matures on any given day. The US has a fiat currency like BGG's GG. It has an infinite amount.



Which part of fiat currency is confusing? Are you suggesting the return to a standard?

Perhaps pork bellies or coal?

Dude, that's so like 20th Century.

Stripper thongs.
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remorseless1 wrote:
darthhugo wrote:
Steve1501 wrote:
abadolato01 wrote:
The government issues IOUs in the form of government bonds. They pay back the principal plus interest on the bonds, when they default on that (and it has not happened yet, to my knowledge), people may stop putting faith in IOUs.

The IOUs the government can spend have no direct relation to those that the government issues. All else remaining the same, that would mean neutral income, but that is not a requirement that the government places on themselves, I may be wrong here, but I suspect that America issues a lot more IOU's then they currently take in, hence incurring a deficit.

Unclear what you are defining as a natural law of IOU's, that the govt tears them up when it gets them back?

Dollar IOU's will continue to be valued, as long as the bill continues to be paid, by the one granting the IOU. There is nothing mystical about that.

Yes, US Gov. Bonds are an IOU.
But, aren't dollars bills also an IOU?

Before FDR changed it all dollars could be exchanged for gold. They were literally an IOU $1 worth of gold.

After Nixon changed it again, now the US Gov. just promises to give you $1 off what your tax bill is for a dollar. But that is still just anther form of IOU, right?

The US Gov. is very unlikely to default on the national debt. That would be just stupid because the Gov. can just create dollars to pay off any Bond that matures on any given day. The US has a fiat currency like BGG's GG. It has an infinite amount.



Which part of fiat currency is confusing? Are you suggesting the return to a standard?

Perhaps pork bellies or coal?

Dude, that's so like 20th Century.

Stripper thongs.


Great! I have a collection from years past. Perhaps Sparkle's is nicer, but I'm not sure if has the same value as Candi's (spelled correctly).

Is there a pink book published by the Gov, so I can see how much I gotst?



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Jorge Montero
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You are making the trumpian assumption that "the government" is one, authoritarian thing with one brain. Separate the treasury and the fed, and run the model again, realizing that the fed can act in ways that are contrary to what congress wants.
 
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Andre
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Yes, the U.S. can simply print money to honor it's obligations, but that is not the way fiscal policy works. And simply injecting more money into the stream can have negative effects on the economy. In any event, fiat currency is only as valuable as it's purchasing power. Fiat currency can devaluate (African countries continue to have this problem, often with significant, negative consequences). In the U.S.A, this has not happened in the extreme, but that is not to say that it cannot happen in the future.
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and the magical, bullet-proof monetary system is????


A. Bitcoin
B. Silver ingot strips (always get a chuckle out of that)
C. Bacon weaves (always get a chuckle out of that, but are OK with the health effects, within the bigger plan).
D. Somethin' else

 
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J.D. Hall
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darthhugo wrote:
and the magical, bullet-proof monetary system is????


A. Bitcoin
B. Silver ingot strips (always get a chuckle out of that)
C. Bacon weaves (always get a chuckle out of that, but are OK with the health effects, within the bigger plan).
D. Somethin' else


I'll go with E, Alex, for $500.
 
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Steve
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None of you answered the question.

Is this because --
1] You didn't understand the question.
2] You didn't want to answer it.
3] You couldn't answer it.
4] All of the above.

In case it was #1 I will elaborate it.
. . . Currently the US doesn't accept actual dollar bills for payments [in most cases], you make payments with checks or money orders, etc.
. . . This means that the US Gov. is paid by computers by numbers in computer memories. Not by real currency dollars.
. . . So, the Gov. gets a payment in nonexistent imaginary dollars and deposits it in its bank account at the Fed. Res. Bank. Then it spends those [and other] dollars by cutting a check or making a direct deposit to a bank account. In both cases the imaginary dollars are transferred to a person or company by computers by changing numbers in computer memories.
. . . This is done just as if the US Gov. was just another company. But, it isn't just another company. It is the issuer of the fiat dollars. The claim is being made that dollars [either paper dollars or computer memory dollars] are just a 2nd form of IOU that the US Gov. issues or spends or creates. As an IOU the "natural law of IOUs" might be invoked. If it is proper to do this then as soon as the Gov. deposits a check into its account at the Fed. those dollars cease to exist just like all other IOUs when they reach the "hand" of the issuer of that IOU.
. . . All the fiction that the dollars don't cease to exist does is --
1] Allow the Gov. to not spend more or less than it took in with taxes, fees, and in other ways; without knowing that it is doing that.
2] Provide a different reason for why the Gov. collects taxes at all. Namely, so that it must tax to get dollars to spend them. This then leads to people not understanding what taxing the people is really for*.
3] Allows people to demand that their tax dollars not be used in certain ways. Like to support the lazy poor, or to kill innocent babies, etc. People don't make this demand of Comp. after they buy something from the Comp., but some people do make this demand of the Gov.
4] Any other ideas you want to add.


.* . Taxing the people and Comp. is really for 1 minor and 3 major purposes.
1] The 1st major reason is to control or regulate the supply of cash in the economy to some extent. If a Gov. just spend its fiat dollars to buy things and pay its workers and soldiers; then there will be more and more dollars in the economy and this will lead to a general rise in prices.
2] To give their fiat dollars value. The theory for why we accept fiat dollars is that we need them to pay taxes with [also fees, etc.]. So, If there were no taxes then the fiat dollars would have just about zero value. This theory is backed by examples where colonial govs. motivated subsistence farming villages to provide workers on gov. work projects by imposing a tax on the village [or its leaders] that could only be paid with some token that was paid to the workers on the work projects. Ad this worked just fine. Soon those tokens were uses as money.
3] To keep the inherent power of current wealth from growing without limit and crushing all other types of power. All economic or social systems [in fact all systems] are unstable without some negative feedback elements. In societies this will lead to civil wars or revolutions if they are the only negative feedback elements. So, taxes are intended to avoid the destruction that revolutions always bring.
4] The minor one is to allow the Gov. to apply pressure on people to act in "good" ways. Like, buying a house with a tax break. Or, installing solar electric panels with a tax break. Or, buying new machines with a tax break. Etc.

 
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Hmmmm.... LightRider?

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Jon M
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To address your key point - why does the US government account for the dollars in and out and report its deficit?

The answer is simple - so that everyone can see how many dollars the US government has created to fund its activities so they can judge how devalued the dollar is likely to become from this activity.

Of course a government can inflate its way out of debt. One example springs to mind is the 1970s Labour government in the UK. That did not end well. As the banking crisis shows so much of economic activity is based upon trust and confidence. If those start to slip it is very hard to get them back and get an economy moving again.
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Steve
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Jon_1066 wrote:
To address your key point - why does the US government account for the dollars in and out and report its deficit?

The answer is simple - so that everyone can see how many dollars the US government has created to fund its activities so they can judge how devalued the dollar is likely to become from this activity.

Of course a government can inflate its way out of debt. One example springs to mind is the 1970s Labour government in the UK. That did not end well. As the banking crisis shows so much of economic activity is based upon trust and confidence. If those start to slip it is very hard to get them back and get an economy moving again.

That is true.

However, it could do this without claiming it is spending the dollars that it collects.

I think part of the reason the Gov. doesn't want people to know what is going on is that many people would not support taxes at all for any the 4 reasons I gave if the 5th one [which is that the Gov. needs the money and is claimed to be false] was understood to be false. It seems to be true that most Americans are dolts.

Not me though. I was smart enough to oppose every policy of the Repubs in my adult life. [Except the 2nd invasion of Iraq where I said that the WMD had better be there or it will turn out bad. And that assessment turned out to be exactly correct.]

 
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Jon M
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I think you have misjudged what enormous levels of inflation that would entail. Businesses and investment would be unable to function.
 
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Steve
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Jon_1066 wrote:
I think you have misjudged what enormous levels of inflation that would entail. Businesses and investment would be unable to function.

In this thread I didn't really make any policy suggestions. So, I have no idea what your "that" as in 'that policy' refers to.

If basically the Gov. still spent all that it took in plus just what it borrowed, I don't think how that policy would be inflationary.

MMT on the other hand says that there should be a huge Gov. jobs program that will be paid for with about maybe 50% newly created dollars. They claim this will not be inflationary until there is full employment. This I can see would probably be inflationary [= lead to a general rise in prices].

 
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Jon M
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Steve1501 wrote:
...

However, it could do this without claiming it is spending the dollars that it collects.

...[which is that the Gov. needs the money and is claimed to be false] ...



I took this to mean that the Government had no reason to collect taxes - just print money to spend on things. Is that in fact not what you are arguing? I can't even tell what you are arguing if that is not the case.

It is clear that the Government has to account for spending and it can't just "make" new dollars as it feels since beyond a certain level it will generate rampant inflation. Exactly where that level is the market essentially decides by the willingness of people to hold dollars.
 
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Steve
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Jon_1066 wrote:
Steve1501 wrote:
...

However, it could do this without claiming it is spending the dollars that it collects.

...[which is that the Gov. needs the money and is claimed to be false] ...



I took this to mean that the Government had no reason to collect taxes - just print money to spend on things. Is that in fact not what you are arguing? I can't even tell what you are arguing if that is not the case.

It is clear that the Government has to account for spending and it can't just "make" new dollars as it feels since beyond a certain level it will generate rampant inflation. Exactly where that level is the market essentially decides by the willingness of people to hold dollars.

Please go back and read the note at the bottom of that post. The part in italics with #3 being bold also. There I gave 4 reasons that the Gov. needs to collect taxes. I thought I was being very clear.

 
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Jon M
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Yet you argued that the claim that the Government needs to collect taxes is false. So which is it - does the Government need to collect taxes or not? If it has four reasons to do so then arguing that only suckers believe it needs to seems a little odd.
 
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Steve
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Jon_1066 wrote:
Yet you argued that the claim that the Government needs to collect taxes is false. So which is it - does the Government need to collect taxes or not? If it has four reasons to do so then arguing that only suckers believe it needs to seems a little odd.

If you understoodme to say that the US didn't need to collect taxes then you misunderstood me.

The US needs to collect taxes to do the 4 things that I listed.

My OP was asking about what happens to the dollars that are collected. Do they just disappear as soon as they are deposited into the US Gov. account as MMT claims, because as IOUs they can't survive being returned to the issuer.

Or, are dollar IOUs different from all other IOUs in the world? If so why?

 
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Steve1501 wrote:
Jon_1066 wrote:
Yet you argued that the claim that the Government needs to collect taxes is false. So which is it - does the Government need to collect taxes or not? If it has four reasons to do so then arguing that only suckers believe it needs to seems a little odd.

If you understood me to say that the US didn't need to collect taxes then you misunderstood me.

The US needs to collect taxes to do the 4 things that I listed.

My OP was asking about what happens to the dollars that are collected. Do they just disappear as soon as they are deposited into the US Gov. account as MMT claims, because as IOUs they can't survive being returned to the issuer.

Or, are dollar IOUs different from all other IOUs in the world? If so why?

I think you'e looking at this the wrong way.

Money (regardless of what kind) doesn't primarily exist so that taxes can be paid.

This is the usual list (from the wikipedia page):
* Medium of exchange
* Unit of account
* Store of value

These features contribute significantly to economic efficiency. That would still be true if there were no taxes.

Your points about the practical reasons for taxation are ok (though I don't fully agree). We can summarize by saying that the government needs money so it can spend money.

It could just create money, but if the government spends a significant amount of money (and they always do), creating it and adding to the stock of money would tend to cause inappropriately high inflation, and would make it harder to manage inflation to a target.

Taxation is the "tried and true" approach to funding government expenditure. It transfers "base money" from the rest of the economy to the government. Not always fairly, but in principle a tax system can be a useful instrument of economic and social policy.

"Just printing more money" isn't likely to be fair. The same amount of resources would be transferred as a result of creating additional base money, but those who were more exposed to inflation (poorer people, non-property owners, fixed income earners, etc) would pay proportionally more than those who can mitigate the effects of inflation.

And if taxation is the chosen means to reserve resources for government use, I don't think it matters if the income from taxation is used unchanged, or destroyed and the same amount created. All that matters is the rule "spend what you get, borrow to cover any deficit".

That rule was broken with QE of course. Hopefully the consequences will be manageable.
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Steve
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Vapix wrote:
Steve1501 wrote:
Jon_1066 wrote:
Yet you argued that the claim that the Government needs to collect taxes is false. So which is it - does the Government need to collect taxes or not? If it has four reasons to do so then arguing that only suckers believe it needs to seems a little odd.

If you understood me to say that the US didn't need to collect taxes then you misunderstood me.

The US needs to collect taxes to do the 4 things that I listed.

My OP was asking about what happens to the dollars that are collected. Do they just disappear as soon as they are deposited into the US Gov. account as MMT claims, because as IOUs they can't survive being returned to the issuer.

Or, are dollar IOUs different from all other IOUs in the world? If so why?

I think you'e looking at this the wrong way.

Money (ragardless of what kind) doesn't primarily exist so that taxes can be paid.

This is the usual list (from the wikipedia page):
* Medium of exchange
* Unit of account
* Store of value

These features contribute significantly to economic efficiency. That would still be true if there were no taxes.

Your points about the practical reasons for taxation are ok (though I don't fully agree). We can summarize by saying that the government needs money so it can spend money.

It could just create money, but if the government spends a significant amount of money (and they always do), creating it and adding to the stock of money would tend to cause inappropriately high inflation, and would make it harder to manage inflation to a target.

Taxation is the "tried and true" approach to funding government expenditure. It transfers "base money" from the rest of the economy to the government. Not always fairly, but in principle a tax system can be a useful instrument of economic and social policy.

"Just printing more money" isn't likely to be fair. The same amount of resources would be transferred as a resuklt of creating additional base money, but those who were more exposed to inflation (poorer people, non-property owners, fixed income earners, etc) would pay proportionally more than those who can mitigate the effects of inflation.

And if taxation is the chosen means to reserve resources for government use, I don't think it matters if the income from taxation is used unchanged, or destroyed and the same amount created. All that matters is the rule "spend what you get, borrow to cover any deficit".

That rule was broken with QE of course. Hopefully the consequences will be manageable.

I really wish that I was a better communicator. I hope those 2 typoes didn't confuse everyone.

I wish I could write things and every reader would magically understand what I meant.

MMT is so radical that most can't wrap their head around it on a 1st reading.

I didn't say that money exists to make taxes possible. I tried to say that if any currency is not backed by gold [or another currency or some real thing] then it will be about worthless unless the issuer has a strong effective taxation system in place. In 1777 the US Gov. had no power to tax and so the paper money it issued was about worthless. Any nation in which the taxing system breaks down had better have a stock of gold because its fiat currency will become about worthless. People will not accept it in exchange for real stuff. This was #2 on my list of why the US should collect taxes [in the post above].

Your list of what money is good for is neither here nor there, IF the money is worthless. It is only after it is agreed that the money has value that your 3 points become relevant. So, why do people accept fiat dollars? MMT has a tangible reason. Many economists hand wave the question away with a platitude, like "We agree it has value so it has value". This is a meaningless statement if I ever read one. It assumes what is trying to be proven all in the 9 words of 1 sentence.

 
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Ken
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Steve1501 wrote:
But, aren't dollars bills also an IOU?


No, they're a unit of exchange. The US government doesn't "owe" anyone holding a dollar anything. It doesn't promise them anything other than to recognize the currency as legal tender and take steps to protect said currency. If we were on a commodity-backed currency, then the IOU argument makes some sense.

Quote:
After Nixon changed it again, now the US Gov. just promises to give you $1 off what your tax bill is for a dollar. But that is still just anther form of IOU, right?


That's simply bizarre logic. By this definition, every currency is an IOU of some form, which makes the definition meaningless. Currencies are means of exchange and are only IOUs when you can actually get something from the government by turning in the currency.

Quote:
The US Gov. is very unlikely to default on the national debt. That would be just stupid because the Gov. can just create dollars to pay off any Bond that matures on any given day. The US has a fiat currency like BGG's GG. It has an infinite amount.


It only has an infinite amount if the government is willing to completely ruin the economy and demolish confidence in the currency, wiping out its value. A huge reason the US can sustain its debt is that it's an recognized reserve currency for just about every other nation in the world, which gives us a huge market for dollars and US debt. Devalue the dollar in the way you're describing and you'll make inflation in the Wiemar Republic look like a small blip economically.
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Ken
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Steve1501 wrote:
In 1777 the US Gov. had no power to tax and so the paper money it issued was about worthless.


This is simply wrong. The reason the money was worthless was that there was no reason to expect that you could actually use the money issued as currency with everyone - perhaps even anyone. There was no reason to expect that the US government would even exist, so the money was basically the same as accepting a note from "The Bank of Steve" that the crazy man on the corner prints up. The Continental Congress wasn't even recognized as the legitimate government by everyone in the US, let alone internationally, so why would the currency be worth anything? And that's before you get into issues like counterfeiting (at various points through the war, there was more fake US money than real circulating).

I don't think you understand money very well.
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Steve1501 wrote:
In case it was #1 I will elaborate it.
. . . Currently the US doesn't accept actual dollar bills for payments [in most cases], you make payments with checks or money orders, etc.
. . . This means that the US Gov. is paid by computers by numbers in computer memories. Not by real currency dollars.


I think you're conflating two meanings of "real" here. Both an electronic ledger (e.g. a bank account) and a physical bill are representations of the same thing -- ownership of a dollar. One is not more real than the other.

Quote:
. . . So, the Gov. gets a payment in nonexistent imaginary dollars and deposits it in its bank account at the Fed. Res. Bank. Then it spends those [and other] dollars by cutting a check or making a direct deposit to a bank account. In both cases the imaginary dollars are transferred to a person or company by computers by changing numbers in computer memories.


Again, they are not nonexistent or imaginary.

To make an analogy, suppose you and I have dinner. The check comes and one of us realizes they've left their wallet at home. The other says, "I'll pay the check this time if you promise to pay it next time," and the other agrees.

There is nothing physical but there is still a real debt.

Quote:
. . This is done just as if the US Gov. was just another company. But, it isn't just another company. It is the issuer of the fiat dollars. The claim is being made that dollars [either paper dollars or computer memory dollars] are just a 2nd form of IOU that the US Gov. issues or spends or creates. As an IOU the "natural law of IOUs" might be invoked. If it is proper to do this then as soon as the Gov. deposits a check into its account at the Fed. those dollars cease to exist just like all other IOUs when they reach the "hand" of the issuer of that IOU.


I think this is a huge oversimplification, but OK.

Quote:
. . . All the fiction that the dollars don't cease to exist does is --
1] Allow the Gov. to not spend more or less than it took in with taxes, fees, and in other ways; without knowing that it is doing that.
2] Provide a different reason for why the Gov. collects taxes at all. Namely, so that it must tax to get dollars to spend them. This then leads to people not understanding what taxing the people is really for*.
3] Allows people to demand that their tax dollars not be used in certain ways. Like to support the lazy poor, or to kill innocent babies, etc. People don't make this demand of Comp. after they buy something from the Comp., but some people do make this demand of the Gov.
4] Any other ideas you want to add.


I think this whole section is wildly wrong and betrays a lack of understanding of what it means to have a currency that operates on both a national and a global scale. It's so removed from reality that I'm just going to stop my reply here.
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