Great discussion thread.
Dave, you said:
So, if base money is not borrowed into existence, what do we call it when the Fed prints currency and lists it as a liability on their balance sheet to offset the assets they have? Is it just a 1:1 transformation?
I wonder what assets were on the Fed balance sheet on Day One (before the POMO started)? Shareholder's capital? And I guess Paid-in Capital is not redeemable, so it's not really a debt…
(I edited my post after a bit more study)
Cheers!
dlumb77-
When the Fed buys something, it is from someone who has an account at the Fed.
To buy something, they simply make a (digital) deposit into the member's account, and then they take delivery of whatever it is they bought. (Nice work, if you can get it)
So on the balance sheet (seen here: http://www.federalreserve.gov/releases/h41/Current/h41.pdf) assets increase (by the value of the thing they bought), and so do liabilities - the reserve account of the seller.
Currency is bought by member banks, from the Fed. The member's account is debited, and the Fed ships a pallet of cash to the member bank. http://www.newyorkfed.org/aboutthefed/fedpoint/fed01.html
"Base Money" consists of all the member bank balances, plus all the cash in circulation. Note that all balances in excess of that member's reserve requirements are able to be spent by member banks on anything they want. Two timeseries apply: RESBALNS, RESBALREQ.
Note also, that if all the bank credit in the system were to vanish, the member (reserve) balances at the Fed would still exist, and could still be used to buy anything - such as FRNs, for instance.
While the vast majority of currency and base money is currently "backed by" debt (i.e. to balance out the liabilities of the base money deposits, the Fed owns assets consisting of bonds of various kinds in equal amount), the Fed also owns gold certificates - on the balance sheet at $42/oz. Valued at around $11 billion, they are worth at today's prices maybe $300 billion. So that is $300 billion in gold vs maybe $4 trillion in debt. Currency is about $1.2 trillion, reserve balances $2.5 trillion, on a total balance sheet of $4.48 trillion.
So - long winded answer to your question:
So, if base money is not borrowed into existence, what do we call it when the Fed prints currency and lists it as a liability on their balance sheet to offset the assets they have? Is it just a 1:1 transformation?Yes its 1:1. They are increasing a member's reserve balance (i.e. their Fed bank account) in exchange for a debt asset. And it doesn't just have to be a debt asset. It could theoretically be gold too. Maybe even a bunch of long COMEX gold contracts! :-)
I wonder what assets were on the Fed balance sheet on Day One (before the POMO started)? Shareholder's capital? And I guess Paid-in Capital is not redeemable, so it's not really a debt..The Fed does have paid in capital, about $28 billion. It also has those gold certificates, allegedly worth $11 billion (on the balance sheet) but actually worth north of $300 billion. It also has buildings too - about $2 billion.
But - before? How long before? Here's a fun document: https://fraser.stlouisfed.org/docs/releases/h41/h41_19160101.pdf
This is the H41 (Fed balance sheet) dating back to 1916. This was clearly typed out - on a typewriter - with corrections written in by hand. Some places you can even see white-out.
You can see what the Fed had on its balance sheet back then: it was mostly, gold. My guess: member banks deposited their gold with the Fed, and got a deposit credited to their account at the Fed - base money - which they could use as reserves for loans they would later make, and/or to buy FRNs from the Fed.
Looks like Fed was a central clearinghouse and depository for member bank gold. Way back when.
Assets:
It's a great question, aggrived. Where will the energy and resources to expand population and GDP growth in the US and UK come from?
Here's an interesting thought experiment: If Russia decided to keep their energy and resources for themselves and their future generations. What would the US response be ? Bear in mind a $610 billion military yearly budget (2013 figure) for the US alone.
Now look at the turmoil in the Middle East and Ukraine and ask what Nation is driving all those conflicts forward and why. Also ask why US won't allow Iran to have nuclear weapons but other countries like Pakistan with few energy resources can.
Obviously there are formidable difficulties/risks like China and nuclear weapons to contend with.
ps Next on my reading list is "the race for what's left" by Michael Klare
In this discussion the Multi-dimensional aspects of the economy are discussed. Reducing the entire economy to one dimension, money, leads to a gross over simplification.
http://fromalpha2omega.podomatic.com/entry/2015-03-25T06_53_16-07_00
Dave,
Your last comments put the ribbon on the package for me. That H41 (Feb Balance Sheet) statement from 1916 shows where it all started: The banks deposited lots of gold at the Fed, the Fed credited the bank's accounts and printed currency. The currency went off into circulation. In more recent times, the Fed prints currency (or credits bank's accounts) in exchange for things like T-Bills, MBS (or anything at all). It's just a 1 for 1 exchange house.
So, now all the other pieces make sense: Money moves around the economy as a reflection of economic activity. Velocity is the amount of movement as a ratio to the Money stock. GDP is the nominal sum total (in dollars) of that movement. Money that is saved (hoarded) does not circulate to lubricate economic activity. (This is the stagnation you refer to). When a loan is created, the newly loaned money mixes with Base money and "looks" the same in the system.
To the topic of interest payable on loans, this is simply siphoned from existing money flows. Interest paid on loans may either recycle into the economy (as Bank's operating expenses: staff, etc) or be hoarded by banks. Paying back the principle of a loan extinguishes the debt, but Base money still exists even without debt outstanding.
So, if the only condition required to create a new loan is to prove that the loan can be serviced ("I have a job and can pay interest"), then the maximum size of debt that can be created could be calculated by knowing 2 things: The percentage of flow that can be appropriated for debt service ("How much interest can I afford each month") and the interest rate. As interest rates drop, more debt can be serviced and therefore the maximum possible amount of debt can increase. Also, as more and/or bigger flows occur (More economic activity - GDP increases), there is more flow that can be appropriated for debt service.
Good. So now we've worked out the difference between stocks and flows. So, why do debt-based money systems always go exponential, as Chris describes:
Is it because in every society some people start to save (hoard) and this reduces the money supply (M0)? Then, government is forced to produce more Base Money to keep the economy lubricated. Then more of this gets hoarded. And so on. We go into an escalating spiral as those who have and can attract money ("the wealthy") increasingly hoard the new Base Money that is produced?
Yeah, I can see how that's going to result in severe social/economic stratification and the destruction of value of the currency if ever the hoarding reverses.
So the exponential problem is not because the money is interest-based! It happens because the money can be infinitely created (by fiat) as a reaction to hoarding.
BTW, something different would happen in a non-fiat system (like gold): the money would get hoarded and there would be no money available for everyone else.
Wow!
dlumb77-
Yes. You have it now. You see the same thing I do. I too really enjoyed seeing that Fed statement from 1916. That's why this place is great. People ask questions, and I think, "hmm, how DID it all start?", and we get to see some really old piece of history - an original source document, no less - and things all start to make sense. Reading the Fed balance sheet from 1916 was pretty easy - especially compared to the mess we have today.
So to your question - why do these systems go exponential? Here is my theory - actually, its Steve Keen's theory:
The more loans there are outstanding, the more money the bankers make. Bank upper management have stock and/or options, and are rewarded on quarterly performance. All the incentives are in place to maximize current performance - which means, the folks given the magic power to create money are directly incentivized to maximize the amount of money created. Foxes, hen-houses, etc.
Each boom, bankers are straining at the leash to loan as much money as possible. Each bust, the Fed is begged to drop rates to bring the boom back. As a result, the bust doesn't last long enough for bad credit to be written off and/or defaulted upon in any real size. CHS calls this "the ratchet effect" - each new boom begins from an overall higher level of indebtedness. This process ends up being effectively exponential over a multi-decade timeframe.
As I think about it, it is likely that the Bretton Woods/gold standard was a limiting factor on the Fed's ability/willingness to drop rates and open the money-creation floodgates. If they were too easy and too much money was created, then gold left the country. Once that limiting factor was gone, the slope in the money growth rate went substantially higher.
And about saving/hoarding/stagnation:
I think the saving/hoarding/stagnation issues occur during times of trouble - not so much during times of plenty. Once a bust happens, money velocity plummets, since people start saving, repaying debts, cutting spending, and they also stop borrowing. As a result of the velocity drop, debts become a whole lot harder to service. On top of that, you start having money destruction, since debts are paid down, and people start defaulting. That's a double-whammy - less quantity, and less velocity.
If you add government austerity as the cherry on top, why you reduce velocity even further. Governments act as a velocity increaser - they snatch taxes from people's savings, and then spend that money directly into the economy. Less government spending (at a time when velocity is low) just exacerbates the problem. Greece is our poster child for this effect.
So, reduced government spending, increased hoarding by people and companies, reduced quantity via defaults and loan pay-downs, and you have a situation that spirals down into a very unhappy place. Low velocity + lower quantity = a really bad environment to pay down debt.
The whole paradox of thrift never really made any sense to me, but now I get it. If increased thrift happens during a time of high unemployment, reduced government spending, widespread defaults, and loan paydowns, money velocity will slow to a crawl. Only very well qualified borrowers will survive such a period.
If you add to that bank failures and depositor losses, then money flees from deposits into currency which goes right under the mattress. Velocity just stops.
And when velocity stops, all debts become unserviceable, regardless of how much money quantity there is in the system. Unless you happen to have enough money under the mattress to cover your payments.
I would not mind the .gov spending the money wisely, but that is not in their interests. They spend it on balloons, tinsel, lies and war in order to get re-elected. Bring back real democracy where the councils are selected by random ballot.
Just like jury duty. There should be a law that says that it is your duty to lead if your number comes up. This would lead to a fair cross-section of the demographic.
All laws would be passed in a referendum. (Think internet)
Hi Chris,
I have been following Steve Keen and of course your work for quite some time and am delighted you chose to have him on the program.
Based on Davefairtex's and your discussion, are you saying that Steve Keen is right about his argument that debt based money does not require exponential growth, so long as the dubious (in your estimation) assumption that stocks and flows are perfect is in place?
If so could you clarify the following:
First, let's just assume that stocks and flows are not perfect, like in the real world. In such cases, the lender gets wiped out for the amount of their asset (loan). Is the need to replace this money in the system where your argument for the need for a replacement mechanism (to infinity or currency collapse) comes from? Are you saying that if this portion of Keen's argument were neutralized for you, that you would then accept that debt based money does not require exponential growth?
That's where my question ends. The following are just observations:
Even if you were right that this money "had" to be replaced (which I do not believe is correct), replacing it would just bring us back to the level we were at before the loan was defaulted upon, so what you are really arguing, I have to assume, is that flows must not only be perfect, they must continually increase. If so, this does not really square with your being OK with Keen's argument in all respects except for the immaculate flow question.
In any case, I don't even agree that Steve Keen's model requires stocks and flows to be perfect, or "immaculate" as you prefer to put it. When loans are defaulted upon, the asset (loan) gets destroyed, yes? This was bank-credit, not Fed-level money, as Davefairtex defined above. If so, then nothing really happened. Money got destroyed, but the loans that the money was servicing also got destroyed, so the net of it is that the system lost a burden that was not sustainable given the existing money flows, and both the burden and the money servicing it got zilched. From that point of view, it is incredibly healthy to destroy loans. It's kind of like clearing cholesterol from an otherwise healthy circulatory system.
Sure, banks may go bust, as many did in 2008, but the money supply is not required to keep growing. Yes, politically the Fed, Treasury and politicians chose to bail out some banks and injected a ton of liquidity into the system, but all of that was a political choice, not a system requirement, in my estimation.
Had they not done all this, more banks would have undoubtedly gone under, probably a lot of people would have been hurt, but the system would live on. Only loans that were provided for a sound underlying reason that had an underlying repayment mechanism possibility (i.e., sound loans) would be paid back - everything else would go bust.
Keen's model seems to work to me - immaculate flows are not necessary - they can be full of warts.
edited to correct hopefully all typos
Both in the podcast and in the comments. These sorts of rich conversations are why I'm here. Thanks to Chris, Dave, Dlumb77, Jim, and everyone else on this thread.
dlumb77-
I've been thinking more about your observation that commodity money might well have a harder time getting out of a condition of stagnation. What happens if all the gold/gold-money ends up in one wealthy industrialist's hands? Arguably, the problem is worse than with a fiat currency. Government can always print a fiat currency to kick-start things, but with commodity money, you're just stuck.
In other words, I agree with you. Its something to think about. Perhaps something like that happened during that long depression in late 19th century. "You shall not crucify mankind on a cross of gold." Yellow brick road and all that. I should study more about that period so I can speak from a place of knowledge, however.
Not saying one is intrinsically better than another - just, its important to understand the boundary conditions/upsides & downsides of each type of money.
An interesting discussion, thanks. 
What about parallell money systems: fiat dollars circulating along with gold/silver money. Gold and silver provide the foundation/anchor, and the fiat currency can be fiddled with when necessary. This seems to be exactly what Hugo Salinas Price was saying. It seems you end up with the best of both worlds and a helpful synergy between the two (or more) systems. Let the people decide: all kinds of money/currency are allowed and would have to compete in the market place.
This is great thread. We learn so much in this virtual community.
Yes, this stagnation angle is particulary interesting. I think it gives a clue as to why money systems go exponential.
The Yellow brick road thing was all about a lack of money to grease the economy, because the rich hoarded all the gold and silver (which were the money of the time. See: Bimetallism - Wikipedia)
Wizard of Oz was published in 1900. The Fed was created a short time later (1913). If you consider the experiences of that time, you can almost sympathize(!) with the support for fiat money . Fiat money was probably considered a desirable advance in monetary sophistication, to avoid the problem of running out of money due to hoarding, as was experienced in the late 19th century. How our opinions have changed!
So, what's the solution now that we know that hoarding is the shortcoming of both fiat and commodity money? In addition to the Jubilee (Steve Keen's proposal), there is also the idea of a money system with a "time-decay" component. In other words, the money steadily decays in value - forcing you to use it, rather than hoard it. Wealth would be stored (preserved) in actual real things, not currency. A good example is the Worgl experiment: Currency Solutions for a Wiser World » The Wörgl Experiment: Austria (1932-1933) – lietaer.com
On a final note, If you haven't seen them, Paul Grignon's work "Money as Debt" (there are 3 videos, each a refinement of the last) is an excellent summary of the problem. Animated and very-consumable.
Cheers!
Prof. Victoria Chick is willing to go one step deeper than Keen did in this interview and tell us what is going on;
Starting a little after the 15:00 mark;
"... it's in the banker's interest not to let you know what they are doing (Jim H note: she means creating money out of thin air) because you really wouldn't like it. They have too much power. And others, including academic economists, might not like the power of bankers to be recognized either, they know that if they expose the bankers, they will be in deep trouble, and their funding will be cut, and all kinds of terrible things will happen to them, so they go along with it. You've all seen, "Inside Job", I take it? It's kind of an, "Inside job" problem."
dlumb77-
The "Money as Debt" videos are excellent, except for the flaw about interest not being created and thus generating all of our problems with debt-based money. That led me astray for a time. Now we know that's a red herring, which is bad because it sent us looking for problems in the wrong area.
But as an explanation for how banking works, the videos are awesome.
Wizard of Oz was published in 1900. The Fed was created a short time later (1913). If you consider the experiences of that time, you can almost sympathize(!) with the support for fiat money . Fiat money was probably considered a desirable advance in monetary sophistication, to avoid the problem of running out of money due to hoarding, as was experienced in the late 19th century. How our opinions have changed!We didn't drop off the gold standard until the 70s, and we had gold money through 1933, so in that sense, the arrival of the Fed didn't herald fiat money's arrival. Bank credit existed for a very long time prior to the Fed. All the Fed did (in its initial construction) was to be the asset buyer of last resort in a crisis. If your bank got in trouble, the Fed would buy your debt assets at a discount ("the discount window") giving your bank new base money to hand to customers in exchange for the assets - all in order to deal with bank runs. All I'll say is, "things have sure morphed from that initial charter."
I think having either commodity money or pure fiat money by themselves is probably bad. I think a hybrid system would be best. That is, retaining our existing fiat money system but returning to strong regulation - relationship banking, strong loan guidelines, removing the gambling from the system via Glass Stegall, and limiting position sizes in the futures markets. At the same time, we should add in a feature that provided for regulated, audited and allocated gold savings accounts with a tax-free transfer option.
The legal ability to have tax-free gold savings accounts would operate as a check/insurance policy against the tendency of fiat to go nuts every so often.
And as you say the whole hoarding phenomenon is really interesting - and is a problem regardless of the money system. Local money with a time-decay attached was a great solution to the hoarding issue. Allowing localities the freedom to innovate seems like a good idea. Giving people the ability to pay local taxes using local money provides the value anchor. Such systems would seem to open the door to fraud (i.e. issuing a lot more local currency than would be backed), so transparency would seem to be important. I'd say allow such things, but provide a light regulatory framework to head off fraud issues (i.e. require quarterly auditing requirements). Perhaps some US cities might benefit - where labor is plentiful/unemployment is high and the city has lots of things that need doing.
Should national money optionally have a time decay attached to it? If money goes all-digital, that would seem to be an easy thing to implement. I think that would be bad, actually. I feel that time-decay money should always be voluntary. It should be a tax-free transfer option to buy and sell true store-of-value items using the time-decay money. Otherwise, time-decay money would probably turn into a mechanism for monetary repression. I can just imagine our current central planners ratcheting the USD time decay up to "5% loss every month" if we don't spend fast enough to suit them. The words "doesn't seem right" fail to convey the depths of my dissatisfaction with that possibility.
The time-decay money was only a good solution because it was paired with national money, and people had the choice of using either one. Without the choice, it can turn into repression way too easily.
Turk has broken a story about a possible Greek bail-in to happen over the Easter Weekend or soon thereafter. See interview http://kingworldnews.com/james-turk-4-4-15/.
Just another domino to potentially fall…and a reminder to those of us who understand the inevitability of collapse that we can't become complacent.
-I look forward to hearing what James Turk has to say. And "amen" re not becoming complacent. It is easy to have happen when we inhabit multiple realities/worldviews.
Murray Rothbard has a well thought out essay on money being 100% gold in a free market–that is not controlled by the government. He even lays out a route to get there. The government's role would be to enforce the protection of private property–a role that many would agree it fudges on or in many cases has abandoned. http://mises.org/library/case-100-percent-gold-dollar-0 It's a long read, but also covers the history of how the government wedged its way into the money business. I'm just sorry Murray isn't around for Chris to interview.
I read the article, thanks for the reference.
While the author takes a (justified) victory lap over the fact that gold rose rather than fell vs the dollar after gold was allowed to freely trade, something he doesn't explain is why gold didn't jump a whole lot higher.
In other words, if the free market was setting price back in the early to mid 1970s , why didn't gold jump to the level of (close to) 100% backing for the M1 levels at that time?
In fact, it took a spate of very serious inflation to push gold to - at its peak in 1980 - 45% of M1, after which it dropped back down to perhaps 8% of M1 by the year 2000.
Before we decide we want to return to a 100% gold-backed money system, we might want to understand better why it is that sometimes, the market wants 45% gold backing of M1, and other times the market only wants a 7% gold backing of M1.
The conclusion I draw from market behavior is, the market doesn't demand a 100% backing of gold - unless and until money creation gets totally out of hand. What's more, during good times, the market could care less about gold almost entirely.
And so if we are "market guys" - if we have that libertarian streak that says "central planning is not a good direction to go in" - why are we proposing to force a mandated 100% gold peg down the throat of the market that clearly cares a great deal sometimes, and could care less at other times?
Here's a chart: note this just uses M1, which is basically demand (checking) deposits & currency only.
That's a big range. If we were to peg the currency 1:1 for gold, do we really understand what effect that would have on our economy? If we live in a cyclical economy which needs to expand and contract, what effect would it have to peg our money supply (which really should be able to expand and contract, according to the cycles) to a largely non-varying supply of a commodity?
And, why must we pick the number 100%? Might another number serve just as well? Again - what's the goal? Are we focused on restricting currency expansion? Or do we simply want to assure that the buck is a good store of value - which means the goal is to provide a stable value vs some benchmark.
Lastly - and perhaps more importantly - the market already tells us that our currency appears to be backed by something right this minute, or else it would be valueless today.
Martin Armstrong espouses a "confidence theory" of money. He argues (persuasively, at least to me) that its not quantity of money supply that drives price, but rather the overall confidence in the currency.
What does "confidence" mean?
In the post bretton-woods era, we find through experience that a nation's money is in fact backed at least in part by the productivity of that nation's people, and also with "the stuff you can buy with that money." People look at the nation's money, and say, "how much local real estate could I get" or "how many shares of AAPL could I buy" or "how many acres of farmland would I get", or "how many Iphones" for a given price. Likewise, "how much would it cost me to build a factory there, and could I make money by doing so?" In a real sense, a nation's money is backed by the entire net worth of that nation itself, its business environment, its adherence to the rule of law, corruption, how nice a place to live it is, etc - modified by some assessment of the rate of new money being created/dilution, as well as the rate of return you can get from paper assets denominated in that currency.
If the country is creating "new value" (whatever that means) faster than the money supply is expanding, then the currency will appreciate - modified to some degree by the interest rate differential - regardless of what M1 is doing.
We've done a 50 year experiment. During this time, our debts have gone crazy, but we have learned one thing: gold is not necessary to provide value to a currency. A currency is backed by what you can buy with it. That sounds circular, but its not. Foreigners discover the price for us - they look at what they can get with a dollar and say, "I can trade $2,000,000 for a home in Marin - wow, that's great value, I'll do it." Companies in Japan who are looking to build factories, tourists who come to visit, investors who want houses, you name it - every day, foreigners provide this assessment.
Quantity of money rises and falls (and mostly rises), but it is only dimly correlated with the movement of the currency itself.
Again, what's the objective for backing the currency with gold? Might gold simply be used as an escape hatch/store of value (the "Free Gold" concept) vs providing a national peg? That's my current thought anyway.
We definitely need to do something to fix the exponential debt growth problem. Disallowing the Fed from short-circuiting the post-bubble deflation seems like one possible answer, as is strict regulation on lending (Armstrong calls that a "return to relationship banking") to prevent the ponzi from forming in the first place. Glass Stegall, many small banks, no more bank-hedge-funds, and so on will help a great deal.
Those are my thoughts anyway after reading that article. If we understand clearly what we're trying to fix, we can better assess if a given fix will get us where we want to go - as well as what side-effects the fix will end up having.
Dave,
I’m basically done with the currency issue because the questions you ask are the same questions that I have. Nixon floated the dollar against gold during the Vietnam war so that dollars would become direct symbols for units of buying power, not stand-ins for gold, which in fact was just a stand-in for buying power. Therefore dollars were allowed to be worth what the market decided. Gold/commodity backed currency will act as a brake on money creation, but there are times when moral reasons dictate that brake be lifted (as you stated, there are times when people don’t care if the currency is backed) I’m not making a judgment as to whether the Vietnam war was morally valid, but there will be those times.
You wrote: A currency is backed by what you can buy with it. That sounds circular, but its not.It is circular but that’s okay. The foundation of money is trust/confidence. That trust is built into the emotional value of the collective. That emotional perception is built into the fairness of the system, i.e. social mobility and wealth distribution. What determines the value of the dollar or any other currency is how the prospects for the future of that country are viewed. That collective sentiment is what determines what one country’s circular argument worth is in comparison to the circular argument worth of another country. It is a proxy for the way a nation’s prospects are collectively viewed by the market. So as bad as the U.S. looks to some inside this country, it looks a lot better to those outside our borders, which is why the dollar has soared recently. Commodities/gold can play a role in this confidence since it can act as a barometer.
Is fiat money backed by nothing or is it backed by everything? Even this is a tricky, or inadequate, question. If it’s backed by everything/the markets, then “growth” is the cure-all to an expanding money supply. But, what we are seeing now is papering-over to give the appearance of growth. Hitting real limits in conjunction with this papering-over is merely concentrating/siphoning wealth…at least that’s how I see it.
It seems pointless to discuss backed or fiat currency without discussing the fairness of that system, i.e. how wealth distribution and social mobility will be effected. All these factors depend on each other and establish the trust necessary for the currency. There have been times in history where, respectively, gold-backed and/or fiat currency have had the appearance of being fair at times and unfair other times. There are pros and cons to both…control over a sovereign’s monetary policy being a big pro for fiat. I know Chris points out that there hasn’t been a time in history where fiat currency ended well, but I would also ask if gold-backed currency was so great, why did it ever transform to something else? Both require the trust of the people, and although people don’t always understand all the issues surrounding a currency, they do have a pretty good sense as to whether a system is treating them fairly.
The other part I’ve left out is energy. Have we all looked at gold and silver mines? How much energy/machinery/land/resources is used to mine this stuff? If we go back to a gold-backed currency, think of how much more energy would be expended in trying to dig up more of it. How much mining would be enough? Would we apply a limit to that?
The problem, to me, lies squarely with human beings and our belief structures, and in particular, our belief in human potential. We don’t want to put a limit on our own potential, and therefore, discussions on applying limits to anything break down. For example, population control seems like a no-brainer, but it's also a non-starter.
The hopeful thing I see is that local communities are making difficult decisions in regard to energy, conservation, environment, resilience, debt, etc., so solutions are already underway coming from the bottom-up. How fast in relation to the top-down destructive forces is the question that remains. As we factor real limits (bottom-up) into our notion of human potential (top-down) hopefully a happy medium will be struck in a currency with real limits.
Dave, you said:
'Lastly - and perhaps more importantly - the market already tells us that our currency appears to be backed by something right this minute, or else it would be valueless today.'
Here's a thought on that subject. Not original to me though.
Since gold, the oil trade has backed the dollar. It has been amazing at how persistent the USA has been at knocking the snot out of anybody that tried to set up a competing exchange for trading oil. Until recently that is. Now the BRICS group has banded together to try and get their ball rolling. So, I think it is interesting that as the oil demand has dropped, more 'unbacked' dollars keep getting pushed into the market to keep it afloat. It is a confidence game, especially when the confidence is in the strength of commerce on a diminishing commodity.