$15 Trillion in 5 Days

I'm not so sure that currency started as debt. I mean, at least initially when it was gold and silver coins you didn't have to worry about the whole promissary note aspect. Otherwise though I do agree with you on all points. I just don't consider treasury notes to be dollars, again back to the difficulty of definitions. Yes they can be exchanged like dollars, but not at your local grocery store, at least not yet. If that does happen, I still don't think dollar is the appropriate term. Currency sure.

I am all for propagation of information so no worries about public reply. I'd rather be wrong and get the right info out there through discussion than be right in a vacuum =)

 

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You are completely correct about coinage being gold and silver and not having to worry about the other party making good on promises. Paper currency, however, started in every civilization as a debt. Think about it, what does paper currency stand for? It is an IOU stating that if presented to the issuer they will pay you in "lawful money". Look up the very first US issued currency and see it was small value bonds. This worked so well the US then issued regular currency that did not pay interest, people accepted it because nominally they were promised gold or silver coins in exchange if they traded them in. Later they broke their promise to redeem in gold or silver, but by then people were used to using currency.

Bottom line what is a FRN? I mean, ignore the fact others treat it as money. Legally, what is it? It is a claim on the assets of the Federal Reserve, with as much rights to those assets, (fractionally), as all other debt holders. That is the underlying "asset" the FRN entails. A US note or treasury has as its "asset" a right to the assets of the US. If General Electric issued currency, their notes would be claims on their assets, identical to all other lenders to GE.

Point being sir all currency in the world is a debt instrument that simply does not pay interest. Why would one debt instrument, a FRN, be called a "dollar", but not other ones? Answer is they are all US dollars, its just some US dollars are FRN, but most are not.

I hope that is clearer. Its a very common misconception.

Chris

 

I am curious to know what tangible assets the Federal Reserve has backing the U.S. dollar.

General Electric has tangible assets as does any business. The Federal Reserve?

 

The Federal Reserve makes hundreds of billions a year through interest income. If it were a private business it would probably be the most valuable business on earth. However, a lot of this income comes from the fact they can issue FRN's which act as interest free loans. This money they then lend out and earn interest income. The main "asset" of the Federal Reserve is the right to issue this paper money. So in a sense you are right Rush, if they took away this right the most valuable asset of the Fed would be gone.

 

This does make sense from the standpoint of different nations have their own dollar, but in the USA the dollar is the FRN (plus whatever digital dollars). If both FRNs and T-notes are called US Dollars, yet are different things it would just be too confusing for people.

 

From what I understand, the Federal Reserve is privately owned and if it's assets are the ability to profit off the backs off the citizens then it has no tangible assets. I always thought a Federal Reserve Note was backed by the assets of the U.S. government but it appears I was wrong and the two are in no way related.
I just have a hard time understanding why U.S citizens would allow this group of private individuals to profit off the their backs.
I now understand why nothing is done about the debt when those in charge of fixing the debt actually profit from debt. A common man would conclude that debt is good for the Federal Reserve in the same way debt is good for my credit card company. I did read once that John F Kennedy wanted to bring an end to the Federal Reserve but didn't suceed.

 

Well except for a small return on assets allowed, and paying for its expenses, all other profit from the Fed legally has to be turned over to the US government. This is how this profit is returned to taxpayers sir. I really do not know if the Fed is the best way to do it, and don't really have an opinion on whether to keep the Fed or not, I simply was explaining how the things work.

The major danger is the current crop of politicians is mortgaging this remittance by making the Fed buy bad debts. This is hidden from most taxpayers, and will impune the money coming from the Fed for years to come. I think this action is a travesty. The Fed payment to the Federal government is a major source of income for all of us, and letting politicians "mortgage" this money for political expediancy I think is simply wrong regardless of what side of the aisle, (or both) are doing it.

Chris

Btw yes the Fed technically may be private, but legally owes the US almost all of its profit. I would characterize it more properly as a GSE, (government sponsored entity).

 

Its assets are other nations' gold, but that doesn't back the USD no. Money only goes so far before it's useless. For sake of profit, what difference does 10 trillion make from 5 trillion? The point is not for them to profit, but for the people who are required to use the system to do the opposite of profit. Gold and silver are the ticket to freedom.

 

The gold which the Federal Reserve holds for other nations is not listed on its balance sheet as an asset. The gold that it does list on its balance sheet are gold certificates backed by the physical gold held by the US Treasury, presumably, in Ft. Knox.

 

Federal Reserve Notes are not "interest free loans" and the holder of this note can't make any claims against any institution, including the Federal Reserve. At best, a $ can only be redeemed for another $. This destroys the concept that you put forth that a FRN is equivalent to a loan. It isn't.

 

Most US Citizens, I would say in the 90%+ range, have no ideas about the Federal Reserve and why it's there. (though they are beginning to learn) There is a huge amount of obfuscation constantly produced about it. The US National Debt isn't being dealt with by politicians simply because it would require them to either ask the people & corporations to make sacrifices either through higher taxes or loss of government payments/enforcement. It's easier to keep kicking the can down the road and the invention of the Federal Reserve allows them to do it. All the money being created isn't on the US Treasury's books and hence, Constitution requirements are avoided.

 

You make two mistakes here. First and most important. The FRN is not a claim on the assets of the Federal Reserve. Let me repeat that. If you hold a FRN you do not have any claims against anything. The FRN is only backed by faith. If you try to turn it in for something, you will only be handed another FRN. The Federal Reserve has hundreds of billions in assets. Those assets consist of gold certificates, obligations from foreign central banks, and US Securities. A holder of a FRN has no legal claim on these assets. Hence it is not a loan.

Second mistake you made is a logical fallacy argument. That is because you have concluded the FRN = a debt, and that a US Security = a debt, then FRN = US Security. This of course is an incorrect conclusion because you haven't first established a definition for debt and it ignores other defining characteristics of each. For example, a FRN is legal tender, a Treasury Security is not. I can take a FRN and pay my state taxes. I can't use a Treasury bond to do this.

Therefore, your contention that Treasury Securities = $s is simply incorrect. They are not dollars, they are promissory notes.

Furthermore, You seem to miss completely the fact that when a security is sold, the Federal Reserve then produces the equivalent number of FRNs and deposits them into the USA's account. At this point the debt can be used by the USA to pay bills. Government employees, military contractors, SS beneficiaries, etc. are not paid with Treasury notes, they are paid in Federal Reserve Dollars. Hence all of the dollars in circulation are Federal Reserve Dollars. There is nothing else now.

 

My comments about you are relevant. Everybody here is worse off for having read your posts. And the coin issue is also relevant. You claimed there was no other dollar except the FRN. You have been proved wrong. There are, in fact, many forms of USD including Treasuries, as my posts and others have proved to any thinking person. The rest are on their own.

 

Talk is cheap. I've posted the defense of what I've said above and you can only respond with insults such as this. Your opinion of me is irrelevant.

Here is some advice. If you are worse off due to reading what I've posted, then use the forum function to put me on ignore. You will never have to read another of my posts. It can't be simpler than that. If you don't, and continue with this nonsense, then you have only proved that talk is indeed cheap.

 

Which form of USD is the one being measured by the US dollar basket? Not trying to be difficult with this concept, but I can't wrap my head around two different things both being the US dollar. They are both debt that ultimately ends up on the tax payer's shoulders, but I've read most if not all the posts here and when I try to conceive how a UST can be a USD it makes my head spin. When I look up the definition of 'dollar' it has 2 criteria: currency and 100 units. What then is a cent in Treasury terms? It doesn't seem to fit, but I don't think that undermines the functionality of a Treasury behaving in a similar role as the dollar. It's just that for the sake of clarity things need to be labelled unambiguously. I mean you call rain rain, and snow snow, but they're both water. You can't accurately measure snowfall if you count drinking water as part of the equation.

 

For every US Treasury sold, the Federal Reserve prints an equivalent number of FRN $ (USD) and deposits it into the Treasury's account so the debt can actually be spent. The reverse is not true. FRN $ (USD) are produced without any USA debt behind it at all. Fractional Reserve Banking is just one example.

The two are not equivalent at all. The issuance of Treasury debt by selling securities results in and equivalent amount of Federal Reserve Dollars being added to the system.

 

The concept is difficult because the old definition of a dollar as .77344 troy ounces of silver no longer applies, and FRNs are no longer redeemable for anything. The word "dollar" has become something of an abstraction. FRNs are US dollars, coins are US dollars, and Treasuries are US dollars. People and institutions can hold their dollars in whatever form fits their needs, but they are all dollars that are convertible into each other. The problem here is that some posters don't understand that the words currency and dollar are not the same thing. FRNs are dollars that are obligations of the Fed. Treasuries and coins are obligations of the US Treasury. But all of them are dollars.

 

This is a common error that is popular among various internet authors with little economic training. When the US Treasury sells securities, they go through a group of dealers authorized to purchase securities directly from the US Treasury. The Fed has the option to sell or buy Treasury securities, but it is an error to state that for every Treasury sold, the Fed prints FRNs.

 

What does the purchaser (dealer) use to purchase the bond or bill with?

 

When I open my bank statements every month - I see that I have a lot more dollars than I have FRNs. I keep most of my dollars in the bank while I keep most of my FRNs in my wallet. The Millitary does not pay in FRNs they pay in dollars. If I were to ever receive a tax refund the US Gov't will pay me in dollars but I will not receive the payment in FRNs.. As it is now at the end of the year I pay my taxes in dollars but do not use FRNs to do it. All FRNs are dollars but all dollars are not FRNs.