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What backs the money supply in the US?

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Travis Sayles Bey
Answered 2020-01-25 22:05:29

The U.S. dollar is backed by debt.

Every dollar in our bank accounts is the result of an open loan. When a bank creates a loan, they simply use borrower’s account as a liability, and hold borrower’s promissory note on their asset side. This creates the Fiat currency that we utilize to pay for more liabilities. The dollar amount is used up as the debt gets paid down.

"Money" is also created when the central bank buys these debt instruments from the private sector. This is paid for by marking up the reserve account of the commercial bank through which the transaction occurred and more "money" has been created.

Banks need to be repaid in order to extinguish their liabilities while the Federal Reserve, does not. Federal Reserve Notes are liabilities created by deficit spending, they can only be extinguished via a federal budget surplus. So the Fed can create nearly limitless liabilities (they sell bonds) in order to fund government spending, with the only real limitation being the economy’s ability to meet the increased demand.

The U.S. dollar used to be backed by gold, which is lawful money according to Article 1 Sec 10 of the U.S. Constitution. All fiat currency eventually returns to it's original value 0. Robert Kiyosaki stated in an interview the the real money is in precious metals, land and artwork. How much money do we really have? Everyone is walking around in debt!

If you really want to build wealth, you must have assts. I personally prefer precious metals.

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