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I grow very tired of the hair on fire statements, not based on fact, that say we are devaluing our currency by 'printing' money.  The endless rending of garments that certain groups (you know who you are) have gone through would stock a clothing store a 1,000 times over.  

Our ability to issue currency into the economy is not backed or limited by gold, bank reserves, bank deposits, debt, how many taxes we collect or GOP whining.  In fact, it's not even limited by Congress.  Our currency is not a commodity.  It is however, an accounting tool to measure the store of value we owe each other based on an agreement between two or more parties.

If I agree to work for you, you will tell me how many dollars you will pay me for my labor.  It is my labor that is the value, and the dollar is used to mark how many hours of labor I worked and it's worth in the market place.  I am then given a piece of paper (or more realistically, numbers stored in a computer at a bank of my choosing) to measure the labor I have given to my employer.  I will then take these dollars out into the market place and exchange my stored value of labor to someone else for a product I need or want to buy.  My labor is the commodity, the dollar is only the vehicle for exchanging my labor, it has no value in and of itself.  

What exactly does this mean?

I could go deeply into the history of money and how we came to believe it needed to be a commodity first, before we could call it money, but suffice it to say, our U.S. dollars are no longer a commodity.  This has been true since 1971.


In a fiat currency system, the currency has legitimacy because of legislative fiat: the government tells us that’s the currency and then legislates it as such. The currency has no intrinsic value
What does give us the incentive to use dollars?

Taxes drive money

One of the most important powers claimed by sovereign government is the authority to levy and collect taxes (and other payments made to government including fees and fines). Tax obligations are levied in the national money of account—dollars in the US, Canada, and Australia, Yen in Japan, Yuan in China, and Pesos in Mexico. Further, the sovereign government also determines what can be delivered to satisfy the tax obligation. In all modern nations, it is the government’s own currency that is accepted in payment of taxes.
What IS devaluing our currency is this; our constant refusal to recognize that we no longer operate under the gold standard, that our dollar bills are a fiat currency, and the U.S. Government is the Monopoly issuer.  We cannot ever be broke because we can't run out of dollars.  

Every time John Boehner cries on the house floor that we are broke, he devalues our currency.  Every time the Tea Party idiots threaten to not raise the 'debt' ceiling, they are devaluing our currency. What they are basically doing is telling the world that we will renege on our promise to pay for the agreements we have already made.  The really sad part is, that we decry the GOP as the stupid party, but we have bought right into their talking points hook line and sinker.  It's plain pathetic.

So just how much money can the Fed print before we get into trouble?

Free Lunch?

Our real opportunities for economic progress are grounded in our ability to apply work, cooperative activity and creative ingenuity to the real resources we already possess.  By the enterprising application of our industry and intelligence, we transform the things we have into different and better things, and exchange our work and the products of our work among ourselves to make our lives better. Our real limits, then, are the constraints imposed by our inherently finite nature:  we only have so many resources; we can only work so hard; our cognitive capacities are only so great; we only live so long, etc.
To answer that question more succinctly, our current spending limit could be measured this way;

Estimated $2.2 Trillion in infrastructure upgrades
$1.2 Trillion in Student Loans
23 Million unemployed
40,000 factories idled since 2000
Climate Change
Underfunded schools
Failing electrical grid
50 million without affordable health care
1 in 4 kids living in poverty

I could go on...

So instead of buying into the false meme that we have too much debt, and that we are broke, lets recognize what our real limits are and then get to work.

Originally posted to whoknu on Fri Feb 01, 2013 at 07:22 PM PST.

Also republished by Money and Public Purpose.

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Comment Preferences

  •  Yes, I know all about fractional reserve banking, (32+ / 0-)

    and no, it does not change the basic facts.  We have a fiat currency and it is only limited by our inability to understand what that means.

    Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

    by whoknu on Fri Feb 01, 2013 at 07:01:36 PM PST

  •  We're not in normal circumstances (8+ / 0-)

    In normal circumstances, issuing money faster than labor and goods can keep up just causes inflation, sometimes even to the point of destroying the whole economy.

    Right now we have idle capacity and are in the economic equivalent of hypovolemic shock: what should be circulating is sitting around and organs are getting starved. Blood transfusions are in order.

  •  My reply (11+ / 0-)

    to a misguided soul on another comments board who had to resort to name calling when I tried to explain the concept of monetary policy:

    "If you want to have an intelligent conversation and possibly learn something new, it is best to refrain from insults. (I will ignore yours for the moment).

    I must first ask you, what exactly is backing our money at the moment? That's right, the full faith and credit of the US government. Remember, for better or worse we have been off the gold standard since 1971, and ever since then have been operating with a fiat currency.

    A basic truth emanating from this fact is this:

    For the economy to grow the money supply must also expand.

    The corollary of this is, if the money supply shrinks then the economy will also shrink.

    Therefore, if we shrink the money supply by reducing the debt/deficit (whether by increasing taxes or cutting spending doesn't matter as either will do the trick) the economy will shrink.

    Simple and not too hard to understand, or so it would seem.

    But if you don't believe this simple truth then go ahead and reduce federal spending and see what happens.

    By the way, enjoy your upcoming/renewed recession..."

    BTW a good web site to learn more about monetary sovereignty can be found at

    "Educating a criminal that his crimes hurt his victims, is unlikely to prevent future crimes." Robert Malcolm Mitchell

    by Gary the Gun Nut on Fri Feb 01, 2013 at 07:45:04 PM PST

  •  My take has been that the people devaluing... (7+ / 0-)

    ...our currency by such comments and actions, want us back on the gold standard, to hobble the government.

    Float like a manhole cover, sting like a sash weight! Clean Coal Is A Clinker!

    by JeffW on Fri Feb 01, 2013 at 08:17:12 PM PST

  •  Great post! (8+ / 0-)

    whoknu! It's very nicely done!

  •  There's a few gold bugs around DKos ..... (5+ / 0-)
    Recommended by:
    Roger Fox, whoknu, psyched, Sue B, hnichols

    They might not agree with this diary....

    I do though.

    Obama 2012

    by jiffypop on Fri Feb 01, 2013 at 08:31:35 PM PST

  •  Right the fuck on (6+ / 0-)

    List at the end is so good to hear someone else write down.

    This not one of those piss poor whining oh shiney thing diaries, a quarter of a solution for a whole problem, or I really dont even understand half the problem but I have an opinion anyway. This diary cuts right to the chase and


    This diary is the model that 85% of the so called policy dairies want to be... but FAIL, even front pagers and old time big names here at DK.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Feb 01, 2013 at 08:37:07 PM PST

  •  Nicely succinct and clear, but a question. (4+ / 0-)
    Recommended by:
    whoknu, dorkenergy, Odysseus, hnichols

    I keep reading in contemporary blogs that Nixon took us off the gold standard in 1971, but my reading about the Depression (e.g., Kennedy's "Freedom from Fear") suggests that FDR did that in '33 or '34 and I've never heard that we went back on it after that.  I'm obviously missing something here.  Could you kindly tell me what?

    •  I am not an expert (8+ / 0-)

      but this seems like a decent link

      Roosevelt nationalized gold.  

      In 1933, with the cooperation of the U.S. Congress, Roosevelt made it illegal for Americans to possess gold coins or bullion. He then took away the right of Americans to be able to exchange paper money for gold. Finally, he confiscated all the privately held gold in the country by forcing people to trade it to the government for paper money at the rate of $20.67/ounce.

      Within a year, the U.S. government owned most of the gold in the country. Then, on January 31, 1934, Roosevelt used the authority given to him by Congress to unilaterally raise the price of gold to $35/ounce. Overnight, an ounce of gold that used to be worth $20.67 was now worth $35. Making this price change allowed Roosevelt to pull a fast one, a monetary scheme that, even by today's standards, was totally awesome. Here is how it worked.

      In 1933, the government was able to print $20.67 in paper money for each ounce of gold that it held. In 1934, the same ounce of gold could be used to support $35 in paper money, a difference of $14.33. In this way, the value of the gold held by the government increased by about $3 billion, which meant that Roosevelt was able to create $3 billion in brand new money out of nothing. He could then use the $3 billion to help fund his new programs. In doing so, Roosevelt put a huge amount of new money into circulation, which helped the economy to recover.

      He goes on to say that this devalued the currency relative to gold.  I would guess this is where the idea got started that our government devalues money whenever it prints more.  It is just another hangover that just isn't the case since we are no longer on the gold standard.  

      So basically, he made it so that you couldn't exchange dollars for gold anymore within the National economy, but the currency was still 'backed' by gold, since it was all in the government's vaults.  Nixon just ripped off the fig leaf in 1971.

      Loyalty to petrified opinion never yet broke a chain or freed a human soul in this world--and never will. Mark Twain

      by whoknu on Fri Feb 01, 2013 at 10:57:52 PM PST

      [ Parent ]

      •  Nixon said he did it to prevent international (5+ / 0-)
        Recommended by:
        Odysseus, katiec, hnichols, whoknu, side pocket

        speculators messing with our currency. I don't think he imagined that Wall Street speculators would do just that.

        I happen to think that taking gold out of the system as a base of currency ultimately had the effect of forcing both the Soviety Union and South Africa to join the community of nations in regards to human rights because they could no longer count on their store of gold in the ground to finance their purchases on the world stage. Their political organization had to become credible, especially after the people in the U.S. started to call for boycotts of their economies.

        Nixon said (private communication) that it had not occurred to him. I don't doubt it. Who could expect it?  Besides, Republicans are wedded to the fiction that Ronald did it.

        The demise of the Soviety Union really brought hope to the segregationists. If the USSR could be dissolved, why not the USA?  Union is a dirty word to separatists and isolationists. Isolates want to remake the world in their own image. They're lonesome and they want everyone else to be lonesome, too. 51% of the adult US population is now single. You'd think that would make the isolationists happy. But, obsessives are never content.

        We organize governments to deliver services and prevent abuse.

        by hannah on Sat Feb 02, 2013 at 02:37:32 AM PST

        [ Parent ]

    •  Also see (1+ / 0-)
      Recommended by:

      United We Understand — e MMT unum

      by dorkenergy on Sat Feb 02, 2013 at 09:23:16 AM PST

      [ Parent ]

  •  There is that problem that some people don't (4+ / 0-)
    Recommended by:
    hnichols, katiec, whoknu, chmood

    understand how money works. But then, there are people who don't understand how a car works and they still drive. That is, it is possible to use something without knowing how it functions. It is alos possible to abuse anything--to, in this case, accumulate and hoard money, instead of passing it around. On the other hand, accumulation and hoarding are instinctive behaviors which, especially in humans, can become obsessive. That, I think, it what has happened. Some of the people who come in contact with or are attracted to dealing with money turn into obsessive hoarders.
    Now, when material substances are hoarded (books, cans, car parts, stamps, etc.), either there's a limit to the substances, or the hoarders runs out of space to keep the stash without someone else calling a halt. Neither of those conditions pertain to money. It can now be produced in unlimited quantity and it takes up almost no room (electronic blips in a computer). Money hoarders have discovered nirvana, except for the fact that their obsession is socially disruptive and it is in the nature of obsessions never to be satisfied. Some outside force has to call a halt and that, I think, is why we need taxes on money accumulators (or "savers"), not to punish them, but to keep the money moving.

    Warren Mosler, the propagandist for Modern Money, used to talk about "leakage." It took a while for me to figure out he was referring to the dollars that are lost to the exchange of real goods and services be being extracted and hoarded for other purposes (being transformed into options and CDOs and other "vehicles" and hedge funds). The problem with the leakage designation is that it refers to something that just happens to a fluid substance and leaves out the source of the function. Who is causing the regular withdrawal of currency from the current of the real economy and using it (or not using it) for other purposes? Accumulation for gilt by association is a purpose. The money hoarder accumulates dollars in accounts because the number alone make him feel powerful (for a minute or two).

    "I am important because I have lots of money in a bank account" is a kind of gilt by association -- i.e. not very different from "I live in the same building as Donald Trump" or, on a more modest scale, "the President sent me a christmas card to show his appreciation for my support." Being gilded by association is not necessarily bad. It's just that, like everything else, it can be taken too far.

    We organize governments to deliver services and prevent abuse.

    by hannah on Sat Feb 02, 2013 at 02:16:31 AM PST

  •  Somebody's wrong on the internet, I'm afraid. (1+ / 0-)
    Recommended by:

    Denial is a drug.

    by Pluto on Sat Feb 02, 2013 at 02:27:42 AM PST

  •  In answer to your question: (4+ / 0-)

    Never, so long as we refuse to control the banks.  Inflation of any degree represents a loss to bankers, while deflation is actually profitable.  Furthermore bankers established their positions at the dawn of the modern world by lending governments claims on their stocks of gold.  That is the fundamental source of their wealth.  When the people finally, fully, actually realize that those claims are no longer necessary, that bankers lend a government ABSOLUTELY NOTHING that the government can't and doesn't create for itself, then the monopoly stranglehold of banks over international finance will be broken.  Naturally they support massive and frequent misinformation campaigns to assure that the marks don't catch on.

  •  The quote from the last link in the dairy needs to (1+ / 0-)
    Recommended by:

    be seen by everyone in America.  People have to understand that economics is not about money, but about real creation of goods and services.  Until this happens, the voters will never be able to make informed choices about the economic views of candidates, and candidates will never consider the real problems of our economy.

    Money is a tool, not the end result.

    I am not sure about MMT, but at least it tries to consider the real problems of our economy.

    "The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." Bertrand Russell

    by Thutmose V on Sat Feb 02, 2013 at 11:17:48 AM PST

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