Bonds are currency.
I don’t even know what you are trying to argue.
Fiat Currency BY DEFINITION is not backed by anything. That’s the whole point of it.
The most recent auction of U.S. 10-year Treasury bonds took place on January 7, 2025. The yield for this auction was 4.680%.
If you bought $100 of that on Jan 7, and you hold it, that means
- on June 7 & you will $2.38 and
- on Jan 7 2026 you will $102.38
Right on that date all you hold the bond. All you hold is an IOU.
Agreed so far?
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It is not an IOU in international markets, nor is it an IOU in interbank markets. It’s currency in those. In your example if you hold it you will receive a coupon payment of $4.68.
That $4.68 will be spent into existence.
It is nonetheless an IOU. More specifically it is an interest-bearing IOU.
- Where do tobacco certicates come from?
People give one hogshead of tobacco to the central bank. The bank sequesters the tobacco and issues a brand new certificate of tobacco ownership.
- Where do gold certificates come from?
People give one ounce of gold to the central bank. The bank sequesters the gold and issues a brand new certificate of gold ownership.
- Where do our current dollars come from?
People give —> (X) ← to the central bank.The bank sequesters → (X) ← and issues a brand new certificate of —> (X ← ownership.
What is “X” in the above?
(You know the answer.)
.
.
.
Let’s try it another way
The info at the Fred site is a few months behind, but nonetheless accurate. It tells us that on November 7 the Fed expanded the money supply by issuing $49.3b brand new dollars.
What did the Fed get in exchange for those dollars?
-
They did not just sprinkle those dollars across ghettos and trailer parks. (Help the poor.)
-
They did not secretly pack those dollars in brown paper bags and give them to rich bankers. (Hep the rich)
-
The Fed got ‘X’ in exchange for those dollars and then promptly sequestered ‘X.’ What is ‘X’?
The Fed did not get “something” in exchange. The Treasury spent that money into existence. The Federal Reserve response to that action is to perform an open market operation, exchanging market currency/ US dollars for international / interbank currency US treasuries) - a very minor liquidity swap. Nothing is “sequestered”
That second part is a simple accounting artifact.
To say it another way, the Fed doesn’t “buy” and “sell” treasuries. The Fed participates in liquidity swaps which can also be understood as currency exchanges.
Wrong answer (and I suspect you know that).
What happened in Q3 2024?
(sorry this chart only “goes to” quarterly I wanted the monthly but it’s not available.)
■■■ is going on here? The simple answer is, a fiat currency - like our dollars - is NOT BACKED BY ANYTHING.
Plain and simple, full stop.
Why are you trying to convince us otherwise?
“It’s really sad.”
“What a shame.”
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Because in reality it is backed by something.
It is backed by IOUs.
Being backed by IOUs may or may not be as good as being backed by gold or tobacco, but it is not “backed by nothing,”
That is a metaphor. That is rhetoric.
That is no more accurate than when some environmentalist says “the oil companies are destroying the tundra” and three days later we check and the tundra is still there.
You and I may have different opinions on
- “why is it backed by IOUs”
- "is being backed by IOUs a good thing or a bad thing?’
but “It is backed by nothing” is not an opinion. It is a falsehood.
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My answer was not wrong. It’s literally the operational workings of money creation in the United States. I’m not obfuscating, I’m describing the how the donuts get made.
You can not back an IOU with an IOU repayable in the form of the first IOU. That’s not how any of this works, and no one would accept it if it did.
Let’s try this: Why do you think that the lowest-interest debt issue on the planet is a short-term US Treasury? Why are people willing, at times, to literally accept a negative interest rate one US debt? Your answer to that is what our currency is “backed” by.
If someone were to invest 10k into something treasury related, what would you recommend for a 15 year term?
I’m sorry but what was it you lefties were yammering about that Trump got nothing with his tariffs?
Mexico Deploys First of 10,000 National Guardsmen to US Border After Trump’s Tariff Threats
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My only recommendation: don’t ask 7426k😀.
There’s a reason every asset I own is an index fund.
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On Nov 7 2024
the Treasury printed up (electronically) and the Fed distributed $49.3b newly-minted dollars.
Did the Fed
a.) Just give them away and get nothing in return?
-or-
b.) Give them away in exchange for some -->thing<-- which it then sequestered (just like central authorites used to do with gold and tobacco)?
If “b,” what was the -->thing<-- ?
(HINT: it was not gold and it was not tobacco. It rhymes with “ponds.”)
Dollars are not secured by bonds. Dollars are not scored by anything. They are a fiat currency.
Why are you arguing this?
Definition of tobacco-backed currency:
→ Central bank or authority issues new currency only in exchange for tobbaco.
→ Subject only to standard restrictions of time, place, intermediary etc. it will redeem currency-for-tobacco, or tobacco-for-currency on demand.
Definition of gold-backed currency:
→ Central bank or authority issues new currency only in exchange for gold.
→ Subject only to standard restrictions of time, place, intermediary etc. it will redeem currency-for-gold, or gold-for-currency on demand.
Definition of IOU-backed (bond-backed) currency:
→ Central bank or authority issues new currency only in exchange for IOUs (bonds.)
→ Subject only to standard restrictions of time, place, intermediary etc. it will redeem currency-for-IOUs , or IOUs-for-currency on demand.
How does our current system work if not like the IOU-backed sysem I have described?
Here is a summary of the asset side of the Fed balance sheet as of Jan 2025. (I have also included one from Dec 2007 just for reference.)
Notice that the Fed does not hold any tobacco, nor any signifcant amount of gold.
In the old days, the central banks would have held tobacco or gold,
–>in exchange for which they issued pieces of paper.
Today, central banks hold bonds,
→ in exchange for which they issue pieces of paper.
2025 Data
2007 Data
https://www.federalreserve.gov/boarddocs/rptcongress/annual07/sec6/c3.htm
you are missing one point. What is a bond? It is a representation of the good faith and credit of the US. It is a promise. And the FED does hold those promises in exchange for cash. That is how money is created, the government gives the FED its promise in the form of bonds, and the FED releases cash into the system. In essence, you are both right. Cash (or the printing of it) is secured by bonds, bonds are secured by faith (nothing).
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The irony is that I have had to make these statements (argument) before and usually I make when arguing against ultra-conservative gold-bugs.
Usually it is the Austrians etc. who shriek “Our money is backed by nothing. We have a fiat system!” and I have to calm them down and explain the truth. It is ironic that two libs are now making the same argument.
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