“I can’t decipher what you mean by that.”
I mean the real “currency” now is not the dollar, to wit paper presidential portrait, it is the credit card. The idea of “plastic money”, indulging an instant loan for a trivial amount, is quite new. (Not to be confused with classic loans, for which one would apply and put up collateral for. I remember the advent of the Visa as some kind of breakthrough, and the shock of paying for fries at McDonalds with one. It’s new.) I mean the paper hard-currency dollar _is_ the backing for our new plastic/virtual currency, and there are a limited quantity of real dollars backing it.
The 2008 financial crisis, for which some very high powered bank executives were basically told “come here, shut up, and do what you’re told” resulting in $1-2T in instant loans (under Bush to boot), staved off a run on real currency which would have hit a financial stalemate and caused financial meltdown once all the M1 money was exhausted - which it would have within days.
Point? The dollar is, in fact, the backing standard value-holder for a new currency - and that arrangement very nearly collapsed this country. Putting the dollar itself on a gold standard (which, BTW, I advocate save only for not seeing where we’ll get enough of the stuff) will face the same problems.
“The amount of gold backing the American dollar in 1970 when Bretton Woods was still in effect was half of one percent.”
Yup. Our current insanity of plastic/virtual debt-based money has the same problem - and darned near had a catastrophic Chernobyl-level meltdown just 2.5 years ago. An argument may be made that Nixon pulling us off the gold standard was done for the same reason as the trillion-plus-dollar “bailout”: there just wasn’t enough in that equation to balance things, so when it went out of whack something had to give.
“The Fed adjusts the level of the monetary base by buying and selling Treasuries but that doesn’t make the currency we use “debt”.”
Baloney. The Fed takes a $0 balance sheet, and pulls a stunt modeled after particle physics: $0 = $1T cash + -$1T debt, issues $1T in bonds for which $1T is borrowed, voila the feds have another trillion to spend. After a time, the two are put back together, and the money & debt vanish. Meanwhile, the Mint pounds out a paltry fraction of that (which is still an impressive amount) in raw fiat money to facilitate the transfers of that debt currency.
I realize there will be an imbalance between the backing value and the certificates representing it (though there shouldn’t be). I also realize that we’ve layered a new currency upon the “dollar” as backing. I also realize that unless these are fair 1:1 ratios, or near enough as to make no practical difference, we risk a “run” on the backing value, which is why we had the ‘08 national financial crisis, and why Nixon took us off the gold standard.
Enough of us (say, around 150,000) know this problem well enough that to return to a gold standard would compel us to exchange a moderate amount (say, averaging $10,000 each) of our existing dollars for the new exchangeable gold - pulling what is now $1,500,000,000 of shiny yellow stuff out of Fort Knox, leaving none left. Well, assuming there is any there (ya know, wouldn’t be surprised if exactly that “run on gold” happened just before, when was it, 1973? someone knew what was about to happen, and you think they didn’t compel a very large withdraw?).
“I mean the paper hard-currency dollar _is_ the backing for our new plastic/virtual currency, and there are a limited quantity of real dollars backing it.”
Paper money by definition isn’t hard currency. We had hard currency when silver and/or gold were part of the monetary system. That hasn’t been the case since Johnson demonetized silver and Nixon abrogated the last of Bretton Woods.
Credit card “money” is a loan made to you by the bank issuing your credit card. There is money backing your credit card transaction, it is the bank’s dollar reserves.
“resulting in $1-2T in instant loans (under Bush to boot), staved off a run on real currency which would have hit a financial stalemate and caused financial meltdown once all the M1 money was exhausted - which it would have within days.”
This had nothing to do with M1 money. It did concern M2 money in the form of money market mutual funds. The Bush “instant loans” were made to backstop the money market mutual funds. These are used by thousands of businesses to park their money in lieu of checking or savings accounts and they are expected to carry no risk. Some funds held high rated paper that blew up with the first break of the housing bubble. If the money markets froze, which was a real possibility, businesses would have been unable to access their money to meet payrolls and pay their bills. This would have been devastating to the real economy.
“Baloney. The Fed takes a $0 balance sheet, and pulls a stunt modeled after particle physics: $0 = $1T cash + -$1T debt, issues $1T in bonds for which $1T is borrowed, voila the feds have another trillion to spend”
That’s a nice story but it bears no relation to the real world. For one thing the Fed issues no bonds at all, it buys and sells Treasury paper.
If the Fed wants to inject money into the banking system it purchases Treasuries from a bank and credits that bank with a cash balance. That’s how the Fed “prints money”. If the Fed wants to drain cash from the banking system it sells Treasury bonds from its own holdings, and this serves to soak up money that banks could otherwise use for loans.
“An argument may be made that Nixon pulling us off the gold standard was done for the same reason as the trillion-plus-dollar “bailout”: there just wasn’t enough in that equation to balance things, so when it went out of whack something had to give.”
Nixon, like Johnson and Kennedy before him, wasn’t willing to put the American economy into recession to deal with the dollar problem, a problem known as the Triffin Dilemma. Breaking the last link to gold was the easy way out for Nixon but it lit the inflation of the 70s and may be at the root of the sequential bubbles that we have been experiencing ever since.