I do not know the details of Iceland’s or Zimbabwe’s governmental organizations, their financial programs or their individual problems. Do you? My limited understanding is that Iceland ran short of money and Zimbabwe does not have a stable government.

There literally is no limit to the amount of U.S. currency that can be created, but there undoubtedly is a limit to what can be created safely. I suggest we safely could increase gross federal debt 1,400% in the next 30 years. Where did I get that number? See: http://rodgermmitchell.wordpress.com/2009/09/09/46/

The value of a money is based on the supply and the demand for that money. The demand is based on risk and reward. Risk is inflation. The reward for owning money is interest, which can be quantified. I agree that the *reason* (not the reward) for owning money is you can pay your taxes with it, and buy things with it, but there is a difference between reason and reward.

Explained differently, the U.S. dollar always has been used to pay U.S. taxes and to trade for everything in the world. That was true fifty years ago and it was true last year and will be true next year. Nothing has changed. So what changes the value of the dollar, if not that it can pay for things? Three factors: supply, risk and reward, or more specifically, inflation risk and interest reward.

If supply goes up, then to prevent inflation, either risk (actually *perceived* risk) must go down or reward must go up. That is why the Fed raises interest rates when it sees inflation. It increases the reward for owning the U.S. dollar.

I’m sorry you found the description confusing. That often happens with new ideas. People have difficulty letting go of their old ideas, and that idea clash can be “discombobulating.” Perhaps the following piece will clarify things: go to http://www.moslereconomics.com/ and click the “7 Deadly Innocent Frauds” box on the left side of the page. It was written by my friend Warren Mosler, a prominent economist, who currently plans to run for President.

Rodger Malcolm Mitchell

yes, I, surely, understand the, current, creation mechanism of our ‘Paperback’..

that said, you, seemingly, conflate two different schemas..in rough sketch, our current one, that utilizes a Private Bank, the FedRes, to lend us our currency, at interest, and a, now, theoretical one, that puts currency issuance in the hands of the USTreas–no FedRes needed..

but, as a commentor on that thread asked:~ “What of Zimbabwe?, of Iceland?”
with the implicit, “Do you believe there to be ‘no limit’ on currency creation? no matter the Economy undertaking the feat?”

above, @09:22 you seem to rely on the FedRes to ‘ensure demand’, not only does that, again, seemingly, obviate your ‘thought-piece’, but, also, how did that–raising i-rates, work out for the FedRes’ CB brethren in the, above, named, countries?

I think you are missing the, proper, vector of currency demand: Trade–and the Demand, by others, for it to transact trade–rather than, merely, i-rates, builds Economies..

I hope the above is clear, I found your essay, rather, discombulating..

The dollar is a commodity, bought and sold every day. As with all commodities, its value is determined by supply and demand. We control the supply and we control the demand (via interest rates). A “weak” (misleading term) dollar currently is preferred by the government, because it stimulates exports.

The danger of a “weak” dollar is inflation. When inflation rears its ugly head, the Fed will “strengthen” the dollar by increasing demand, i.e by raising interest rates.

You may disagree with the policy, but don’t be fooled into thinking the “weakness” of the dollar simply is happening to us. It is an intentional part of the government’s economic policy. To strengthen their economies, other governments have “weakened” their currencies by simply devaluing them. For example, Britain has devalued the pound on several occasions, most recently I believe in 1967. Mexico did it in 1994.

Because you are concerned about the federal debt, and enjoy reading, you should read the short article at: http://rodgermmitchell.wordpress.com/2009/10/17/the-problem-with-debt-hawks-economics-chicken-littles/

It describes how the federal government could stop borrowing tomorrow. Briefly, the government borrows by creating T-securities out of thin air, then selling them. It just as easily and safely could create dollars out of thin air, and skip the borrowing step.

But read the article. You’ll find it interesting and informative.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

I thought the take-away was, readily, obvious is the URL – excerpted exchange_rate.htm

past that, the Whole Page is delineating the decline in the value of the ‘Dollar’, v. foreign currencies, as caused by ” today’s reality > > being the largest debtor nation on earth… with a long-term erosion in international buying power. ”

to say nothing of the Title of the Page: “Grandfather Foreign Exchange Report–EROSION OF INTERNATIONAL ECONOMIC POWER”

It’s clear to anyone that has completed the foundational steps of http://www.rif.org , no?

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com

actually, RMM, before you claim ‘simple arithmetic’, you may care to see all factors..
http://mwhodges.home.att.net/exchange_rate.htm as another Individual has done, so kindly, for you..

“no personal cost”, that’s a live one~

RMM: That’s true, Mr. Wolf. So would you prefer that they not try to recover or that they scrape up poor lending risks, as they did in the past?

Mr. Wolf: So there’s nothing else to do with the money other than hoard it . . .”

RMM: It is financially impossible to hoard money. You can save money, but you can’t hoard it. The money has to go somewhere, either to loans or to investments. Money never stands still.

Mr. Wolf: ” . . . buy safe Treasuries . . .”

RMM: Yes, buying safe investments is a bad idea. We much prefer that our banks buy risky investments.

Mr. Wolf “. . . and pay huge bonuses.”

RMM: And what becomes of those “huge” bonuses, (which by the way, are minuscule in the grand scheme of things)? They either are spent or invested. If they are spent, they stimulate the economy. If they are invested, they go to investments, which also stimulate the economy.

Mr. Wolf “It’s annoying to watch banks that would have collapsed a year ago now minting money at taxpayer expense.”

RMM: Oh, we certainly don’t want our banks to be profitable. And then, there’s the old “taxpayer expense” myth. You’re a taxpayer, Mr. Wolf. Considering that your taxes have not risen, how much has the stimulus cost you, personally? Nothing? Well, considering that tax rates are lower today than in 1985, how much did the “huge” Reagan deficits cost you personally? Still nothing? Well, considering that tax rates are much lower than in 1945, how much did the WWII deficits cost you, personally? Again, nothing? Perhaps there is a lesson here: So long as the government runs deficits and doesn’t raise tax rates, the taxpayer never pays for deficits. That’s arithmetic, Mr. Wolf.

Mr. Wolf: “But that’s the way monetary stimulus always works.”

RMM: Actually, the way the monetary stimulus always works to stimulate the economy, which is exactly what it is doing. What would your plan have been?

Rodger Malcolm Mitchell
http://rodgermmitchell.wordpress.com