What is backing U.S. Currency?

[Theorist]

A lot of people say the gold in Fort Knox, but I'm pretty sure that's not right. My professor said the U.S. simply says how much their money is worth, and pretty much people have to respect that. He said it works, because the U.S. remains credible, so they don't just say it's worth a ton. But then couldn't the U.S. just change its mind and say "yeah we decided not to have debt anymore" and then what would happen. Cause I'm wondering what's gonna happen if countries really try to call for their debt the U.S. owes them, and the U.S. just says no?

I guess I don't really understand ownership, cause to me you never own something, you just get it for as long as you can prevent others from taking it away. But, if someone could explain it, that'd be cool

[Moco Loco]

I have similar concerns myself with the true "value" of American money, even just within the country. Admittedly, I don't understand much more for sure than this, so nice thread

[Niri Te]

Originally Posted by Theorist

to me you never own something, you just get it for as long as you can prevent others from taking it away. But, if someone could explain it, that'd be cool

No one needs to explain ANYTHING about ownership to you ma tsmuk, you have it down PERFECTLY.
Niri Te

[Aaron]

These days (since the mid 1900's), the US dollar is basically worth what the market decides it's worth. There is no "gold standard" anymore. The US has gold reserves, but they fall far short of equaling the effective value of all the US dollars in circulation.

Basically, the fact that people accept that a dollar is worth a dollar is the reason it's worth a dollar. Fortunately, because there are huge numbers of people who accept that, the value of a dollar isn't completely out of control, despite that no single entity really controls it.

[Sempu]

Egads no, the US left the gold standard in 1971. The amount of dollar currency outstanding is many times (many, many) what could possibly be stored in Fort Knox. (There is some debate as to how much or how little might actually be there.)

The Federal Reserve prints new money whenever it feels like it, which is pretty often these days. It ain't backed by anything. If you think that is wrong, you're not alone. Ron Paul for one agrees.

There's a cute animation somewhere on YouTube explaining fractional reserve banking (no, really). Warning: the more you find out the more it will p**s you off. It's like the bumper sticker: "If you're not outraged you're not paying attention."

[Cyvaris]

Hot air is what's backing it, hot air and lies. That's close to what it boils down to....actually it would be interesting to see people start rejecting the "worthless dollar."

[Theorist]

See, I've been thinking, worst case scenario, the U.S. has economic collapse and nobody accepts the U.S. dollar or trades with them cause they're bankrupt, and well, I don't think it'd be pretty. I'm imagining that if the U.S. did collapse, and people stopped trading with them, well the U.S. would still get its oil and needs. See, if there comes a point where the need for oil/other materials becomes more important than the U.S. maintaining its credibility, "it's gonna turn into a **** fight."

[EywaBlessMe]

The dollar is backed by the full faith and credit of the American government, which is the most stable, and one of the longest existing governments around.
The robust economy of American keeps the dollar a churning currency of great value.
Also, this world reserve fiat is the currency of petroleum, the resource of the world, not the troubled euro, nor the unfloating yuan, so if you want to buy millions of gallons of petroleum, you first have to buy millions of dollars.

[Clarke]

Originally Posted by EywaBlessMe

The dollar is backed by the full faith and credit of the American government, which is the most stable, and one of the longest existing governments around.

According to the ratings agencies, Britain is more stable. Yes, I am also surprised by this idea.

(And, of course, the UK and various European governments are responsible for founding the US, so age shouldn't really be a factor.)

[Sempu]

Some countries (e.g. China) are now paying for their oil in other currencies. The reserve currency status of the US dollar is being undermined rapidly. Not surprising considering how rapidly inflation is eroding it.

I heard a rumor that the real reason that the US invaded Iraq was that Hussein was planning on accepting other currencies. I don't know if I buy that. We'll never know.

[EywaBlessMe]

The reason for the inflation is the game the US government has been playing. It's called "Re-election".
Follow me here.
Everything is about bribery, but not the crass exchange of money for favors. No, it's far more subtle and pervasive.
To run for election in America take a lot of cash. seven figures for congress, eight for the senate, and nine for president. $100,000,000 This tends to turn all candidates into gladhanders, spending half the time stumping for funds.
Of course, no one donates five or ten thousand without the expectation for return-on-investment. So what you buy is access to the persons ear. Tell him about an upcoming vote. He knows what side his bread is buttered on.
But, of course, 1000 votes from big money donors, doesn't win you an election, so our government then gives us big social programs that, while expensive, make life better, and can be used to sway voters to re-elect. Or, they bring big jobs to the district, in the form of expensive defense projects, or works like bridges, that voters can see.
So, not only are our politicians being bribed, so are the voters.
But all of this money must come from somewhere.
However, instead of workable budgets, or worse, making tough and unpopular but necessary steps to solvency, our politicians punt, and keep their cushy jobs.
Thus, we borrow trillions from the world, leveraging the future to party now.
Happy??

[Sempu]

You said it. Any other country that printed as much money as the US would be bankrupted into the stone age by now. It's only the global reserve currency status of the USD that's stopped that until now. But it can't go on much longer.