[Jason_b]

It sounds like you are expecting a massive debt collapse. Since debt is monetized, it is used as money. Bad debts means expected income and therefore money, disappears. As debt disappears, material things become more valuable because they now will contain the perceived value that the debt once did but does no more. It could be said that monetized debt really monetizes the expectation of future income---which when that expectation is lost because the other party is insolvent, the money itself disappears with the possibility that the creditor will be repaid.


You said gold is no longer money. It is simply a commodity. For most people that may be true. But US gold coin is indeed legal tender in this country even with its silly face values. The Canadian Maple Leaf is legal tender in Canada and the Krugerrand is legal tender in South Africa. It is possible that very few people buy things with it in very specialized exchanges. But it has never ceased to be money.

You're statement "There was a well known, legally binding exchange rate between dollars and gold." reminds me of what used to be on old money. "This note is payable on demand to bearer, Twenty Dollars in Gold Coin." Never were ounces mentioned. There was really no exchange rate. The paper dollar note went from being a warehouse receipt, to being just debt-free paper money in the case of the united states notes in the '60s under JFK, to being unsecured debt instruments bearing interest, after LBJ.

You said, "The dollar is now backed by the same thing that backs gold: the willingness of society to accept it as payment." Willingness has nothing to do with it. Over thousands of years, cultures with markets have chosen gold as the preferred medium of exchange to take the market beyond barter---to money. The dollar is actually backed by aversion to having one's property confiscated for non-payment of property taxes. If we didn't hustle to get dollars, the government would come by and say pay the taxes or forfeit the house. That backs our money. The founders codified in the Constitution that we always use gold as money and not debts, not paper money, because they wanted contracts not to be paid of in depreciated paper, for that destroyed property rights.

Need to go. Will check back later to find out how wrong everyone thinks I am.

[sourcery]

It sounds like you are expecting a massive debt collapse. Since debt is monetized, it is used as money. Bad debts means expected income and therefore money, disappears.

Fractional reserve banking is a two-edged sword. When debts are liquidated, it works to deflate the money supply. This can happen faster than the central bank can ever hope to counteract by means of monetary expansion. That's how the Great Depression happened.

You're statement "There was a well known, legally binding exchange rate between dollars and gold." reminds me of what used to be on old money. "This note is payable on demand to bearer, Twenty Dollars in Gold Coin." Never were ounces mentioned. There was really no exchange rate. The paper dollar note went from being a warehouse receipt, to being just debt-free paper money in the case of the united states notes in the '60s under JFK, to being unsecured debt instruments bearing interest, after LBJ.

Any commodity, service or product can serve as a medium of exchange. In prisons, it is not uncommon to see cigarettes used as "money." But that does not justify the statement that cigarettes are "money" in any general context, only in very special contexts. The same is true of gold. It is not legal tender. One cannot pay one's taxes, debts or adverse judgements by delivering their weight in gold, computed from the spot price. Gold has ceased to be money in the same sense that cigarettes are not money: there may be specialized cases where it is used as a medium of exchange, but it is better understood as barter than as a monetary transaction.

The definition of the USD used to be a specific weight of gold. In effect, the USD was a unit of mass, just like the troy ounce. The reciprocal of the USD as a specific measure of mass used to be the dollar price of a specific amount of gold, legally defined in grains. In other words, the price of gold used to be the reciprocal of the weight of gold legally defined as one dollar's worth of gold.

You said, "The dollar is now backed by the same thing that backs gold: the willingness of society to accept it as payment." Willingness has nothing to do with it.

Willingness has everything to do with it. Anything which no one will accept as payment for anything, regardless of amount, has no value in society. Period. This point is not arguable.

The fact that all debts (especially including taxes) must be paid in USD certainly has a significant impact on the willingness (or even eagerness) of society to accept payment in USD. However, it would still be quite possible for society to prefer to set prices in gold, and to prefer payment in gold. Such a situation would naturally occur if the dollar price of gold began a steady, significant and secular increase--and if transaction mechanisms were developed making payment in gold as easy as payment in dollars (e.g,, gold-denominated checking accounts, credit accounts and electronic payment systems.) The rising price of gold in terms of USD would guarantee the ability to convert one's gold (held on accout at a bank) into USD whenever needed (such as when one's property tax were due.)