There is some $300 billion in hard US currency estimated to be in circulation. The amount of deposits in banks (known as the “M2” value) is somehwere around $4 trillion. Currency accounts for a fraction of a percent of money transactions by value.
I don’t think there were runs on banks in Japan, though I could be wrong about that. In any case, I think Darleth was limiting his response to the US.
Indeed it is.
True. Irrelevant, but true. I hope friedo helped you understand what I was saying more explicitly.
There are plenty of places worse off economically than Japan. Why not mention one of them?
And since when were we discussing a non-American economy?
Where’s my coat? I’m cold.
:dubious:
True. Irrelevant, but true.
GorillaMan, you need to read Cecil’s column on the subject, which says “Coins and paper currency are economic petty cash.”
Not a lot of debt. The current national debt runs in excess of $7,000,000,000,000 (that’s trillion with a t). The national gold reserve (and let’s throw in the silver reserve as well) has a market value of less than $100,000,000,000 (that’s billion with a b). Even if you got Bill Gates to buy all the bullion at market prices (in the real world selling this much gold and silver would crash prices) you’d only get rid of less than 2% of the national debt.
We as in the government? As in the government decides that this year would be a good one to put $100,000,000,000 (from Nemo’s post) into Vanguard’s S&P fund? Then, when that tanks (due to business cycles, screwing the P/E ratios and smart money getting out, etc.), take that money out and immediately buy gold? I don’t think the market is that liquid.
If you are implying that the government should invest in the stock market, do you honestly think that this would run more smoothly than your typical government program?
Also, how does this create money? If I have X invested in gold or X invested in stocks, the money supply is the same, no?
ftg: I hate to hijack threads but could you elaborate or provide cites on China’s projected economic slide? I am highly interested.
The total amount of “money”, or “dollars” existing doesn’t only include the bills and coins. It includes also (and mostly) all the deposits in banks denominated in dollars, for instance. The bills and coins are only a small part of this total, what is necessary for payments actually made in cash between individuals, or for transfers between banks or between countries. Most payments are only transfers from a bank account to another (when you write a check or use your credit card, for instance).
So, yes, the coins and bills are representations of value. But so is the amount deposited on your account. These are also dollars, though they exist only as datas in banks computers and ledgers. When you pay with dollar bills, rather than with poultry, the seller act on his faith that these bills will be accepted as a valid representation of a relatively stable value by everybody else. When he accept a payment with a check, he also accepts this on his faith that figures written on bank ledgers will be accepted by everybody as a representation of value too. There’s no difference.
But what if what you want to buy is actually dollars (For instance to stabilize the exchange rate of the dollar because it’s collapsing)? You can’t buy dollars with dollars. So, you need exchange reserves either in gold or in foreign currencies.
IMHO the value of the dollar derives in part from the fact that citizens are obligated to pay taxes to the government in the form of dollars, thus providing a demand base for the currency.
If this was the case, the government would be essentially issuing `tax scrip’ that’s only good for paying taxes, as opposed to being good for buying a latte down at Starbuck’s and a Penthouse at the 7/11.
Essentially, that theory doesn’t really account for the widespread acceptance of US dollars in the private sector here and abroad.
The two tax rebellions early in our nation’s history (Shays’ Rebellion and the Whiskey Rebellion) were both precipitated by cash-strapped farmers protesting the necessity of paying the federal government in hard money, as opposed to a more inflationary currency. Debtors like inflation because the decreasing value of money reduces their ultimate debt load over time. But at no time did we come close to having a currency that was only good in payment of taxes.
Thank you all for your contributions. This one in particular seems like pretty good logic to me.
All this talk about gold and fort knox has inspired me to start this thread:
http://boards.straightdope.com/sdmb/showthread.php?p=5232750#post5232750
about Goldfinger and his plans to irradiate fort knox. Stop on by and have a chat!