Message:

<p>[QUOTE=&quot;Numbers, post: 1208493, member: 11668&quot;]But the total amount of FRNs in existence is <a href="http://www.federalreserve.gov/paymentsystems/files/coin_currcircvalue.txt" target="_blank" class="externalLink ProxyLink" data-proxy-href="http://www.federalreserve.gov/paymentsystems/files/coin_currcircvalue.txt" rel="nofollow">a bit under $1T</a>.&nbsp; So the vast majority of that $14T GDP, and that $20T floating around offshore, must consist of some form of dollars other than FRNs.</p><p><br /></p><p>You&#039;re confusing &quot;currency&quot; in its abstract sense (the U.S. dollar) with &quot;currency&quot; in the sense of physical money (the FRN).&nbsp; These days, all *paper* U.S. dollars are FRNs; but most U.S. dollars aren&#039;t paper.&nbsp; A fairly small fraction of U.S. dollars exist as coins (which, by the way, *are* still obligations of the Treasury, not the Federal Reserve).&nbsp; And as you mentioned above, some $14T worth of U.S. dollars exist in the form of Treasury debt--Treasury bonds, bills, and notes, which of course are also direct obligations of the Treasury, not the Federal Reserve.</p><p><br /></p><p>But another large source of U.S. dollars is lending by private banks.&nbsp; As others have mentioned in this thread, whenever a bank loans out money deposited by its customers (fractional reserve banking), it&#039;s increasing the total number of dollars in existence.&nbsp; In the olden days, those privately-created dollars were backed solely by the private bank that originated the loan.&nbsp; Nowadays, what with FDIC guarantees and such, most (though not all) such dollars do end up being backed by the Treasury in a roundabout way--but again, it&#039;s the Treasury that&#039;s on the hook for FDIC bailouts, not the Fed.&nbsp; If for some reason there were a large number of failures of FDIC-insured banks, the Treasury (not the Fed) would be obligated to take on additional debt in order to repay the depositors.</p><p><br /></p><p>So let&#039;s review: Paper currency, which only comes in the form of FRNs, is backed by the Fed.&nbsp; Coins are backed by the Treasury.&nbsp; Government bonds are backed by the Treasury.&nbsp; Dollars created through fractional reserve banking are primarily backed by private banks, though many of them are also guaranteed by the Treasury.&nbsp; Overall, the great majority of U.S. dollars--all except those ~$1T that exist as physical paper FRNs--have come into existence entirely independent of the Federal Reserve.[/QUOTE]</p><p><br /></p>

Your name or email address:

Do you already have an account?

• No, create an account now.
• Yes, my password is:
• Forgot your password?

Stay logged in