"Full Faith & Credit" when the inmates take over the asylum

[Gumby]

Does the government printing money, or minting a trillion dollar coin or whatever to legally permit it to spend without taxing or borrowing increase the money supply? Yes or no there is no maybe here. You can't control the other factors, this is the only variable in question.

Yes, it increases the base money supply. But, it is no more inflationary than spending via Treasury issuance — since both increases the aggregate money supply (i.e. broad liquidity) by the same amount.

In other words, when the government spends via Treasury issuance, the private sector has just as much purchasing power as it would if the money were spent from a pure fiat government with no bond issuance.

We don't lose purchasing power when we purchase Treasury bonds.

[moda0306]

Kshartle,

It would expand the money supply, but in no fundamentally different a way than if they'd issued some t-bills to spend, because T-bills, for the purposes of our banking system, are essentially money.  They're part of broad liquidity, similar to treasury money market funds and CD's, as Gumby has pointed out on several occasions, and the market views them as uber safe, uber liquid assets.

So if the treasury spends a trillion by printing a coin and then spending, you have more cash in the economy but the same amount of T-bills.  If they borrow, you have the same amount of cash but more t-bills.  Since they are viewed as all-but interchangable, you really have no meaningful driver of inflation, as the market expects the treasury to spend and tax the way congress mandates, not limited by a debt-ceiling holdup.  So to simply spend what the market thought you were going to spend anyway, but in a way that leaves you with more reserves but fewer t-bills in the economy, you're really not triggering anything.

Is my point being made clearly, here? 

If the market DID take the debt ceiling seriously and we had current inflation numbers, maybe there would be some inflation, but no more or less than if the ceiling was simply raised.

Why?  Again, because T-bills and cash are viewed as interchangeable, or nearly enough so.

[Kshartle]

Yes, it increases the base money supply. But, it is no more inflationary than spending via Treasury issuance — since both increases the aggregate money supply (i.e. broad liquidity) by the same amount.

We don't lose purchasing power when we purchase Treasury bonds.

Isn't treasury issuance offset by the goverment receiving dollars in exchange for the treasuries? I guess I don't understand. I thought they spent dollars not treasuries. They issue treasuries, get dollars, deposit in the treasury and spend. The result though is no new dollars right?

Anyway it's fine. You answered my question. The government making a trillion dollars coin, depositing at the treasury and writing checks against it is inflationary.

[Gumby]

Isn't treasury issuance offset by the goverment receiving dollars in exchange for the treasuries?

Uh no. If that were so, then all government deficit-spending would not be inflationary. I think we can all agree that's not true.

I guess I don't understand. I thought they spent dollars not treasuries. They issue treasuries, get dollars, deposit in the treasury and spend. The result though is no new dollars right?

Again, if that were true, then government deficit-spending would never be inflationary.

Anyway it's fine. You answered my question. The government making a trillion dollars coin, depositing at the treasury and writing checks against it is inflationary.

Right. No more inflationary than deficit-spending. They are no different in terms of inflation since the private sector gains the same level of purchasing power either way.

[Kshartle]

I guess I don't understand. I thought they spent dollars not treasuries. They issue treasuries, get dollars, deposit in the treasury and spend. The result though is no new dollars right?

Again, if that were true, then government spending would never be inflationary.

The answer does not depend on whether or not government spending is inflationary. The answer should stand on it's own.

The government spends dollars. They get dollars by borrowing or taxing. They seem to be under the impression that they must borrow to continue spending at this point. That would imply that currently they can only spend what the treasury has deposited in it from taxes or loans to the government (treasury purchases). This is why the trillion dollar coin has been proposed to permit additional spending.

Are you saying they don't recieve dollars for treasuries, deposit them and write checks/spend against them?

If in fact they do recieve dollars for the treasuries, were new dollars created for them or did they already exist? If banks had to create them, and retain their current level of capitalization, don't they have to refrain from some other lending that would create new dollars?

[moda0306]

It's important to define "inflationary."

I tend to compare it to what the market expects, because market expectations of inflation next week drive inflation today. 

So if the markets expect the US to repeal SS and Medicare, but it doesn't, there would be a relatively inflationary reaction (relatively, not overtly inflationary necessarily).  However, if the market expects the government to borrow and spend $X Trillion, and it mints and spends $X Trillion (because of the debt ceiling hold up), there will be little/no effect because T-bills on our balance sheets give us no real diminished purchasin power than cash.

I think this is part of the big problem with us talking past each other.  The market, for the most part, understands the circle jerk, and holds/prices assets accordingly.  When people un-familiar with the financial system see the circle-jerk, they get confused a bit by it and judge each additional jerk (ok sorry for this visualization but we've already started with the analogy) as a continuing screwing of the market.  However, most of the market has already adjusted to its expectation of future circle-jerking, so the jerking is a non-event.  They knew it was going to happen. They know the fed, member banks, and treasury have all rigged the system a certain way, and the fed will keep rates where it wants to balance price stability with full employment, and keep the banking system running in a stable manner.  We know there are few things more destabilizing to the banking system, given its jerking behavior, than taking treasuries into "default-risk" town.  It totally breaks the balance that they all desire (and to be honest, that most savers desire, as most unsophisticated investors would be in quite a pickle if we couldn't even rely on treasuries and the banking system).

So once we understand the system, we have to realize that most banks understand the sytem, and have "redefined" in their mind what the nature of different assets are, and priced them as such as far as 30-years into the future (or at least they hold them at the price set by the fed).  So if the banking system and interested investors price long-term assets according to a certain expectation of jerking, replacing T-bills with reserves, which looks crazy to the unfamiliar observer, fits right in with what the market expects the fed to do when the private sector is in the position it is now, and that it will reverse this once unemployment and inflation fall back into balance, which they are far from now.

We even have an example of this circle-jerk marathon in Japan. 

[Gumby]

The government spends dollars.

True.

They get dollars by borrowing or taxing.

Yes. It technically is recorded that way, but in reality a fiat government never really has or doesn't have dollars. The government can literally create dollars at will if it wanted to. It does this every time it issues a Quarter.

They seem to be under the impression that they must borrow to continue spending at this point.

Yes.

That would imply that currently they can only spend what the treasury has deposited in it from taxes or loans to the government (treasury purchases).

Yes, but I disagree with the implication. Congress doesn't sit around wringing its hands wondering where it's going to get the money when they need to build an aircraft carrier. There is no red phone to China asking permission to spend the money. There is no phone call to the IRS telling them to get ready for the bill. They just write the spending bill and spend the money — the Treasury takes care of the rest so long as the self-imposed debt ceiling doesn't get in the way.

This is why the trillion dollar coin has been proposed to permit additional spending.

False. Other than the self-imposed debt ceiling and inflation. Congress is never constrained in terms of spending. N-E-V-E-R.

Are you saying they don't recieve dollars for treasuries, deposit them and write checks/spend against them?

They do. But, I'm saying that it's a rigged system designed to make it work and appear that way.

If in fact they do recieve dollars for the treasuries, were new dollars created for them or did they already exist?

The dollars already existed from either previous government spending or private credit that just gets redistributed within Fed reserve accounts as the government spends.

If banks had to create them, and retain their current level of capitalization, don't they have to refrain from some other lending that would create new dollars?

No. A) Banks are never reserve constrained (the reserve requirement is literally ZERO right now). And B) The banks get Treasuries in return for their lost dollars, so their balance sheet stays the same.

[Pointedstick]

If banks had to create them, and retain their current level of capitalization, don't they have to refrain from some other lending that would create new dollars?

The mind-blowing thing is that the government already created the dollars that the banks use to finance future deficit spending with prior deficit spending. The cart is put before the horse.

The government borrows dollars from entities (banks) that are the ultimate recipient of all dollars in the economy that aren't held as cash or coins. There's never a shortage of dollars that the banks can use to buy Treasury debt because the banks collectively have basically all the dollars in the entire economy on their books.

[Kshartle]

This is why the trillion dollar coin has been proposed to permit additional spending.

False. Other than the self-imposed debt ceiling and inflation. Congress is never constrained in terms of spending. N-E-V-E-R.

It's imposed by law, even if they wrote it. If they can ignore their own law then why do they need to come on an agreement to raise the debt limit or cut spending? You're saying they don't need to borrow, tax, or make the coin if they ignore the law. I think everyone understands that.

I'm just saying if they go that route or the coin route it will expand the money supply. You've said it's no more expansive than borrowing and only if they increase spending. Ok. Then why don't they do it do you think? Why is it not even seriously discussed in your opinion? What is the downside they perceive that apparently does not exist?

[moda0306]

I guess I don't understand. I thought they spent dollars not treasuries. They issue treasuries, get dollars, deposit in the treasury and spend. The result though is no new dollars right?

Again, if that were true, then government spending would never be inflationary.

The answer does not depend on whether or not government spending is inflationary. The answer should stand on it's own.

The government spends dollars. They get dollars by borrowing or taxing. They seem to be under the impression that they must borrow to continue spending at this point. That would imply that currently they can only spend what the treasury has deposited in it from taxes or loans to the government (treasury purchases). This is why the trillion dollar coin has been proposed to permit additional spending.

Are you saying they don't recieve dollars for treasuries, deposit them and write checks/spend against them?

If in fact they do recieve dollars for the treasuries, were new dollars created for them or did they already exist? If banks had to create them, and retain their current level of capitalization, don't they have to refrain from some other lending that would create new dollars?

Banks are not constrained with lending right now.  They have plenty of reserve-ratio left to go.  Even if they didn't, they'd be able to get it from the fed as long as credit-worthy borrowers were present.  But even if the loanable funds model still held up, there is super low demand for loanable funds right now.  The only thing that will increase that demand considerably is to use our productive capacity enough more to where businesses want to expand.  This takes a thing called more demand.

The raising of the debt ceiling is assumed by the market.  This means that doing so is priced into the market already, and shouldn't affect things much at all.

Dude, I know you don't agree with MR, but I think you may have only been exposed to (or are being most affected by) the parts you don't like.  There is a lot of stuff on how this circle-jerk works, and when you combine that knowledge with the fact that the money markets and bond markets operate with a certain set of assumptions on how the fed/treasury/banks will behave in the future, that it fundamentally changes the nature of treasury debt to being more like interest-bearing cash, not "the government borrowing my money from me in an arms-length transaction." 

When you look at what MR is actually suggesting is the case, it's pretty damn soberly descriptive.  I think it's too easy to focus on some of the deductive conclusions of MR and dislike those conclusions instead of actually reading the tough stuff that is boring and operational and is NOT fun to try to read and digest.  I really recommend reading the primer, and not just focusing on certain conclusions they come to that don't feel right, but seek to truly understand the nature of the rigged system, because it simply ain't what it seems, and the way things, and why we can have low rates and low inflation, low investment and low demand, in spite of all the "horrible" things going on, start to make a TON of sense.

[Kshartle]

There's never a shortage of dollars that the banks can use to buy Treasury debt because the banks collectively have basically all the dollars in the entire economy on their books.

The banks aren't required to understand the concept.

Does the government borrowing and spending in the form of selling a bond, depositing dollars then spending them expand the money supply?

Can the government legally spend when the treasury is bare?

If it can then why do they need to raise the debt limit tonight?

If they do create new money rather than issue debt does this increase the money supply?

The point is what is the difference to the money supply if they just conjure up money vs. borrowing to spend or taxing to spend? Please don't say they don't need to do either of those to spend. They point is they do legally to offset the spending under current law (I believe).

[Kshartle]

Banks are not constrained with lending right now.  They have plenty of reserve-ratio left to go. 

And yet they choose not to lend. There is a reason. There is a reason they are maintaing a higher than legally required amount of reserves. To the extent they loan to the government they must offset by being tighter elsewhere in order to maintain their desired reserve ratio.

Does that make sense?

My point is the banks loaning the government money and the government spending it is not expansive of the money supply in and of itself whereas the government simply printing or making a coin or whatever is expansive. There is a difference in the money supply between the two actions if you don't change other variables to offset effects.

You have to keep other variables constant to observe the differences between two options.

Did I make an error in my logic above?

[Pointedstick]

Did I make an error in my logic above?

Your error is in assuming that every dollar that the banks buy debt with reduces their ability or willingness to lend to non-government entities. The reason for this is because banks practice fractional reserve banking and lend to private individuals primarily based on their own desires, not the amount of capital they have available (i.e. they are not reserve-constrained). When they want to make a loan, they just credit the account of the person wanting the loan, or credit the account of the person who's going to receive the money; that money didn't actually exist prior to the loan. Where did the banks get that money from? They didn't. They just poofed it into existence. Poof!

[Kshartle]

Did I make an error in my logic above?

Your error is in assuming that every dollar that the banks buy debt with reduces their ability or willingness to lend to non-government entities. The reason for this is because banks practice fractional reserve banking and lend to private individuals primarily based on their own desires, not the amount of capital they have available (i.e. they are not reserve-constrained). When they want to make a loan, they just credit the account of the person wanting the loan, or credit the account of the person who's going to receive the money; that money didn't actually exist prior to the loan. Where did the banks get that money from? They didn't. They just poofed it into existence. Poof!

So when a bank has certain reserve ratio my error is in assuming that's the ratio they desire at the moment and loaning the government money doesn't move them away from thier desired ratio at all? If it does in fact move them away they they have to be tighter elswhere by the same amount correct?

It's easier to understand if they were maxed out on lending. they couldnt' lend to the government unless they called in other loans.

Well.....the point is they self impose their own reserve requirement. The loan they give to the government for it's spending is funds unavailble to the private sector.

[Pointedstick]

So when a bank has certain reserve ratio my error is in assuming that's the ratio they desire at the moment and loaning the government money doesn't move them away from thier desired ratio at all? If it does in fact move them away they they have to be tighter elswhere by the same amount correct?

It's easier to understand if they were maxed out on lending. they couldnt' lend to the government unless they called in other loans.

Well.....the point is they self impose their own reserve requirement. The loan they give to the government for it's spending is funds unavailble to the private sector.

Perhaps your error is assuming that the ratio is the most important thing the bank cares about. Banks are profit-making entities. They care about making money for their shareholders far more than they care about defining and then matching a certain reserve ratio. The Fed defines a ratio they can't fall below, but beyond that, banks want to make money far more than they want to hold a certain amount of money in reserve.

So the real question is why they're not loaning to the private sector as much as they might otherwise. One reason is that they are forced by law to buy treasury bonds when a bond auction comes up. That's the stick. But there's a carrot too: if they can get 3.5% on a nominally risk-free treasury bond, but only 4.5% on a very risky home mortgage because most borrowers aren't very creditworthy or aren't interested in loans, I think that's a pretty good reason. Doubly so if the Fed keeps swapping their existing bonds for cash due to QE. That's annoying. So they'll want to rebuild their assortment of interest-bearing treasury bonds, which after all are far better then the paltry 0.25% interest on reserves that the Fed pays them.

You might say: "geez, this is a total distortion of the banking system!"  I'd say: Duh!

[moda0306]

There's never a shortage of dollars that the banks can use to buy Treasury debt because the banks collectively have basically all the dollars in the entire economy on their books.

The banks aren't required to understand the concept.

Does the government borrowing and spending in the form of selling a bond, depositing dollars then spending them expand the money supply?

Can the government legally spend when the treasury is bare?

If it can then why do they need to raise the debt limit tonight?

If they do create new money rather than issue debt does this increase the money supply?

The point is what is the difference to the money supply if they just conjure up money vs. borrowing to spend or taxing to spend? Please don't say they don't need to do either of those to spend. They point is they do legally to offset the spending under current law (I believe).

The government borrowing and spending increases the money supply, using one common definition of money supply, which includes t-bills in money supply.


If the treasury is bare, the government has two options:

1) Enter a rigged lending market to "borrow money" to itself.

or (if it's being limited by a debt ceiling)

2) Print a coin to put its own cash in the bank.


They need to raise the debt limit because the trillion dollar coin looks really goofy, but it's only as goofy as the debt-ceiling is.


There is no increase in the broad money supply with the coin idea vs issuing treasury securities to "get the money."  There is an increase in the "base money supply."


The underlying fact is here that the market expects spending and taxation to continue as approved by congress... whether that's "funded" by treasury debt issuance or "printed" by coin issuance is mostly irrelevant.

[Pointedstick]

They need to raise the debt limit because the trillion dollar coin looks really goofy, but it's only as goofy as the debt-ceiling is.

That's the real reason IMHO. The entire system relies on people trusting it and not really understanding how it actually works. The platinum coin option reveals how stupid our monetary system really is and exposes some of its stupider workings. That can only reduce confidence in the system, which is rather contrary to what the government wants. Of course that means that Congress is probably more likely to do it, not less.

[moda0306]

The reserve ratio is a bit of a myth.  There is no hard ratio. If an individual bank hits its limit, it will either borrow reserves from other banks or from the fed.  If the entire banking system has hit its limit, if the fed doesn't change the ratio, it will let banks borrow from the fed, but all this dpends on there being credit-worthy borrowers and not too much overheating in the economy.

If incomes are high, assets are valuable, and inflation is low, more and more borrowing is feeding more and more real productivity, and the fed doesn't care if economic growth is fast if it's robust and it will meet the economy's need with more reserves (or a better reserve ratio).

MR goes into tons of detail on this.  This is a huge piece of the "rigged game" that we need to understand if we want to make educated macro-investing decisions, because more importantly than where the base money supply is today, is what environment the fed will try to create for lending in the future.  If we just focus on the former, we're going to be lost.  Reserves are NOT like a quantity of mined gold inside a banking system.  They're maleable... they can go up or down, and the fed and banks will usually push them up or down based on indicators that are very useful to understand.

[moda0306]

They need to raise the debt limit because the trillion dollar coin looks really goofy, but it's only as goofy as the debt-ceiling is.

That's the real reason IMHO. The entire system relies on people trusting it and not really understanding how it actually works. The platinum coin option reveals how stupid our monetary system really is and exposes some of its stupider workings. That can only reduce confidence in the system, which is rather contrary to what the government wants. Of course that means that Congress is probably more likely to do it, not less.

I half agree.  It really is quite silly, but while I don't know the "macro-effect" of everyone understanding the system, I know that 1) I'm damn glad I think I understand it (mostly), and 2) I'm actually quite a bit less nervous of the system "breaking" from the standard reasons we're told it will from the usual suspects (debt crisis, hypernflation, etc).  I also know that I willingly use banks to hold enough of my money to operate day-to-day, and choose to otherwise stay away.

If people knew how vital treasuries being free of default risk was to our banking system, they'd probably still dislike the system, but would maybe pause before they invest like inflationists in the face of it continuing to work or call for use of a "burn it all down" mechanism like calling into question the nominal creditworthiness of treasuries.

I tend to think that whether you're an Austrian or a bleeding-heart socialist, we don't want our hatred for the banking sytem and will for reform to result in our Grandma's bank accounts freezing up.  Even if we think we're headed for doomsday for people saving in a bank account... bringing it on early on-purpose because we think it might be worse some day in the future is a bit of an excessive approach.

So if the main lack of confidence in our monetary system right now is that we think that 1) interest rates are grossly manipulated downward from what would otherwise be the case, 2) high inflation is imminent due to "printing money," and 3) interest rates are going way up because of a debt crisis (and the aforementioned inflation).

Once you understand the "silliness" of the system, you realize that none of these things is necessarily all that likely.

Now we have to wonder more about cronyism, or that the banking system is accurately measuring risk when given access to all those reserves, but I still think a deeper understanding of the monetary system lends MORE faith in it from the standpoint of the risks we're all told to worry about, but aren't really problems.

But maybe that's where two believers in MR can differ... we both agree on the nature of the system's mechanics, but just disagree on whether that gives us a more robust system or a more fragile system.

[Libertarian666]

They need to raise the debt limit because the trillion dollar coin looks really goofy, but it's only as goofy as the debt-ceiling is.

That's the real reason IMHO. The entire system relies on people trusting it and not really understanding how it actually works. The platinum coin option reveals how stupid our monetary system really is and exposes some of its stupider workings. That can only reduce confidence in the system, which is rather contrary to what the government wants. Of course that means that Congress is probably more likely to do it, not less.

I half agree.  It really is quite silly, but while I don't know the "macro-effect" of everyone understanding the system, I know that 1) I'm damn glad I think I understand it (mostly), and 2) I'm actually quite a bit less nervous of the system "breaking" from the standard reasons we're told it will from the usual suspects (debt crisis, hypernflation, etc).  I also know that I willingly use banks to hold enough of my money to operate day-to-day, and choose to otherwise stay away.

If people knew how vital treasuries being free of default risk was to our banking system, they'd probably still dislike the system, but would maybe pause before they invest like inflationists in the face of it continuing to work or call for use of a "burn it all down" mechanism like calling into question the nominal creditworthiness of treasuries.

I tend to think that whether you're an Austrian or a bleeding-heart socialist, we don't want our hatred for the banking sytem and will for reform to result in our Grandma's bank accounts freezing up.  Even if we think we're headed for doomsday for people saving in a bank account... bringing it on early on-purpose because we think it might be worse some day in the future is a bit of an excessive approach.

So if the main lack of confidence in our monetary system right now is that we think that 1) interest rates are grossly manipulated downward from what would otherwise be the case, 2) high inflation is imminent due to "printing money," and 3) interest rates are going way up because of a debt crisis (and the aforementioned inflation).

Once you understand the "silliness" of the system, you realize that none of these things is necessarily all that likely.

Now we have to wonder more about cronyism, or that the banking system is accurately measuring risk when given access to all those reserves, but I still think a deeper understanding of the monetary system lends MORE faith in it from the standpoint of the risks we're all told to worry about, but aren't really problems.

But maybe that's where two believers in MR can differ... we both agree on the nature of the system's mechanics, but just disagree on whether that gives us a more robust system or a more fragile system.

Not me. The sooner the better as far as I'm concerned. I'd rather the crash occurs while there is still some real capital in the world, rather than having it all consumed in a blaze of government spending.

[moda0306]

Tech,

You might want to tell that to the savers you claim that the fed is punishing by "monetizing the debt."  They really won't like a banking collapse.

[Pointedstick]

But maybe that's where two believers in MR can differ... we both agree on the nature of the system's mechanics, but just disagree on whether that gives us a more robust system or a more fragile system.

I don't really take a position on its fragility or robustness. Every system is fragile in the face of certain stimuli, and robust in the face of others, and ours is no different. The engineer in me just thinks the indirection and obfuscation and "rigged circle jerk" aspects are unnecessary and stupid. It's one of the big reasons why I'm positive about private currencies: I'm pretty sure the private sector could design a superior system that doesn't have something as stupid as showdowns over debt ceilings and trillion-dollar platinum coins.

The reason why I think wider understanding would reduce confidence is because it's been my experience that most people have a pretty good amount of faith in government competence, whether that's from positive personal experiences, patriotism, idealism, youthful naiveté, or something else. Learning how jerry-rigged the system is doesn't seem like it would strengthen that confidence.

[Libertarian666]

Tech,

You might want to tell that to the savers you claim that the fed is punishing by "monetizing the debt."  They really won't like a banking collapse.

There is no painless way out of this. And those savers would be even more unhappy with a worthless currency and all private capital consumed to feed the raging government monster.

Do you know what it was like in Weimar Germany? Is that really what you want?

[Gumby]

It's imposed by law, even if they wrote it. If they can ignore their own law then why do they need to come on an agreement to raise the debt limit or cut spending? ... Then why don't they do it do you think? Why is it not even seriously discussed in your opinion? What is the downside they perceive that apparently does not exist?

These laws exist because they used to have a purpose, way back when. Remember, the laws were written when our government was reserve constrained and had convertibility. Neither are true anymore, and they never changed the laws. And most people continued to go to work in Congress and never gave it any thought. You would think when the government went fiat that the Fed and Treasury would sit down and say... "Ok everybody, we don't need these silly bond auctions anymore so let's tell Congress that we don't need to do this anymore and they can change the laws!" But, that's not what happened, is it?

Instead, the Fed and the Treasury understood that they still had these legacy laws that had to be followed very carefully. The Fed and Treasury also understood that the banks wanted Treasuries to drain their excess reserves. Remember excess reserves does a bank no good because they can't earn much interest (beyond IOR or FFR). So, the Fed and the banks understood that Treasury auctions acted as a reserve drain. They could keep their balance sheets intact and earn interest on those excess reserves by converting them into Treasury bonds. (Some MMTers have recommended that the government stop issuing Long Term Treasuries and replace them with government savings accounts that pay interest with debt-free printed fiat money. It wouldn't be much different.)

And the Congress didn't want to change the laws because the debt-ceiling gave them oversight on spending. Remember, at any given time, the majority party Congress wants to spend and the minority wants to be very stingy to that majority. Keeping the debt-ceiling and these obsolete legacy laws gives politicians a way to stop the majority political party from overspending at any given time.

In truth, I doubt there's any one person in the government who realizes all this — it's basically a club of moronic politicians that promote bread and circuses. But, my point is that these are legacy laws that worked pretty well when we had convertibility to gold, and nobody saw a reason to change these laws despite the fact that the government no longer needs to be "funded" with shiny rocks.

[Pointedstick]

…Which is a fancy way of saying that the system we have today is very stupid.

Relatedly: http://globalpublicsquare.blogs.cnn.com ... overnment/