Thread by @krugermacro

1/ The US Dollar may not be redeemable in gold, but the US Dollar is backed by various assets, including gold, as required by law. (see federalreserve.gov/faqs/currency_…) #economics

2/ The answer to this poll was "the US Dollar is backed by Assets". Only 6% got it right (that is 87 out of 1443 people). And many for the wrong reasons (yes, guns are assets, yet not the assets backing the US Dollar).

https://twitter.com/Crypto_Macro/status/1020484548881199104

3/ Second best answer would have been "Debt", or "Debt securities", which were not an alternative. Every debt deed is a liability for someone and an asset for someone else.

4/ To be clear, "backed by" means COLLATERAL (collateralized by, to be precise). The US Dollar is collateralized by various financial assets. Some may choose to disagree with the definition of "backed by.

5/ Next time anyone says "the US dollar is backed by nothing!", show them this chart. Those assets back the US Dollar.

6/ This chart expands the picture, further illustrating the Fed's balance sheet.

7/ This Investopedia entry on the topic is surprisingly good. investopedia.com/articles/econo…

8/ Now addressing some of the responses. The US Dollar is Legal tender for all debts. That's what it is, not what it's backed by. See this link: law.cornell.edu/uscode/text/31….

9/ "backed by the full faith and credit of the US Government" is often used in reference to the US Dollar. It's a borrowed phrase. Won't find it in legal documents. It's applicable to most of the assets backing the US dollar (treasuries, agency MBS, etc). investopedia.com/terms/f/full-f…

10/ One may have qualms against US government securities as in "it is backed by nothing" or only "it is backed by the full faith and credit of the US Government". Fact is US government debt securities are one of the most liquid and widely accepted assets in the world.

11/ Congress has specified that Federal Reserve Banks must hold collateral ... but it is not Congress itself that backs the US dollar, but the collateral.

12/ Exports, taxes, GDP ... all help towards the US Government's ability to repay its debt obligations, and thus make the collateral backing the US dollar more valuable ... but are not the collateral backing the US dollar.

https://twitter.com/yungNleveraged/status/1020634798040154113

13/ Missiles, weapons, the military, etc ... all are arguably valuable to shore up the power of the USA, and therefore the ability of the US government to repay its debt obligations ... but are not the collateral behind the US dollar.

https://twitter.com/M_J_Po/status/1020545047920619521

14/ TLDR the US dollar is backed by assets. This is required by law, as mandated by congress. Most of these assets are US government debt securities (public debt) or agency mortgage backed securities (private debt),
which are "backed by the full faith and credit of the US Govt".

15/ "backed by assets" =/ "fully backed by assets".

The Fed (or Federal Reserve Banks, to be precise) holds collateral for all currency and reserves i.e. monetary base, not so for the monetary supply. To cover this need to get into fractional reserve banking & money creation.

16/ Will cover Fed mechanics, monetary supply, money creation, and fractional reserve banking later on.