reply to post by gandalph
What a deluded failure at simplification.
Our monetary supply and measures of GDP are practically parallel. Inflation is the relationship of the two. Inflation is currently openly set by the
Federal Reserve at a ~2 to 3% annual rate, though that's been the average rate since it's inception, which has left us with a 2000% depreciation of
the dollar over the last century and will lead to yet the same over the next 100 years.
Money is not backed
by GDP, though the Feds outlook on the control it exerts over inflation is certainly taking GDP into account. Even
if it were directly based on a certain measurement of GDP, to imply that it would be no different to backing the dollar with precious metal is a
ludicrous claim indeed. GDP is not anywhere near a steady value, especially in comparison to a precious metal supply.
Our fiat money is backed by debt, to parrot the obvious, In other terms, you could say it is backed by demand of assets(not to be confused with the
simple market value of said asset), and the value of those assets fresh off the production line. Hence, I get a loan for a car, based on it's
immediate retail price that the dealer has agreed to accept, which is rarely identical to the standard market value, but let's say that is in this
case. The money created for the loan is equal to the market value, but the asset value of the loan entered into the financial system's books is based
on the future income(presently my debt) equal to the price of the original asset plus interest.
At that point, the money created is not only backed by the market value of the car, but also includes the interest I agreed to pay based on my
immediate demand of the car.
I suppose it would be a miniscule bit more accurate to say the value of our fiat money, at least in the way it is currently created, is approximate to
GDP + Interest. Even in that light, our money supply would theoretically be growing at a higher rate than GDP, which would all the same leave constant
inflation, but it's still a flawed simplification.
In the long run, the Fed has hijacked the scales of supply and demand, taking major advantage of the demand side of the scale, keeping it constantly
tipped ever so slightly in their favor. Mind you, the Treasury doesn't see a penny until the Fed has taken their "cost of operation" out of the
profit pot, which is just another reason why I personally believe the Fed should be at least audited by the government (if they won't disband the
system) for financial efficiency of their operation, to ensure the Treasury is receiving maximum benefit from this scam of a system. If they're
going to continue to require my
money being taken in such a fashion (on top of taxes) for government benefit, at least ensure they're actually
getting the most of it.