–Monetary Sovereignty for Young People, Part 2. What is a dollar?

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

The biggest problem in economics may be that “everyone knows” and at the same time, very few people know. For instance: Almost everyone knows what a dollar is. Yet, almost no one knows what a dollar is.

Isn’t that strange?

Imagine that you have a safe deposit box, a checking account and a savings account, all at your local bank. You go to the bank and you say, “I want to see my safe deposit box and everything in it.”

So they take you to the vault room and show you your box. You can see your box, reach out and touch your box, and you can open your box to see the papers and valuables you keep in it. Your box is a physical reality.

Then you say, “I want to see my checking account and everything in it.” The bank teller might print a piece of paper with your name at the top, and your account number and a number showing how much money you have in your account.

But it’s just a piece of paper, not your checking account. You tear up the paper. Have you torn up your checking account? Of course not.

You say, “No, I don’t want to see a piece of paper; I want to see my actual checking account.” But no matter how hard you insist, the bank will not be able to show you anything more than evidence you have an account. The bank will not be able to show you your checking account because your account does not exist in the physical world. It is just numbers.

Then you say, “At least show me my dollars in my account,” and again the bank teller will print out a piece of paper.

You say, “No, I don’t want to see numbers. I want to see my actual dollars that you have stored in my account.” If you want to make a withdrawal, the bank can give you a check or dollar bills, but checks and dollar bills are not dollars. They merely are evidence that you have a claim on dollars.

Like your checking account, dollars do not exist in the physical world. They are just numbers.

Now this may shock you, because nearly everyone believes a dollar bill is a dollar. But it isn’t. It’s just evidence you own a dollar. A dollar bill is a title to a dollar.

If you own a house, the evidence you own it is a paper called a “title.” But, the paper is not the house. A dollar bill is not a dollar; it is just worth a dollar.

Every day, the US Government Printing Office takes thousands of blank sheets of paper and prints them into sheets and sheets of dollar bills. Are they dollars? No, they are just worthless paper, like the paper your bank gave you.

The printing office sends these worthless dollar bills to banks, to give to people as evidence these people own dollars. But let’s say, on the way to a bank, the truck carrying the dollar bills crashes, and 10 million dollar bills burn up. Has the government lost 10 million dollars? No, because dollar bills are not dollars.

This is important because people often talk about the federal government “printing” money. But though the government prints dollar bills, it cannot print money. No one can print something that does not physically exist.

And this is important, because it helps you see that dollars are nothing more than accounting balances. Dollars can’t be seen, touched, smelled or tasted. They can’t be stored or shipped.

And all this is important, because it shows why the federal government has the unlimited ability to create dollars and never, never, ever can run short of dollars, if it doesn’t wish to. To create dollars, all the government does is mark up numbers in checking accounts.

And it’s really, really important, because it shows why Social Security and Medicare never can run out of dollars, no matter what benefits they pay and what taxes they collect.

I’ll tell you more about that, soon.

Meanwhile, think about this. The United States government is Monetarily Sovereign. “Monetarily” means related to money. And “Sovereign” means having supreme power. The U.S. government has supreme power over its dollars. It can create or destroy its sovereign dollars, whenever it wants, as much as it wants, whenever it wants. The U.S. government never needs to ask anyone for dollars.

Try to visualize what having that power means.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports


25 thoughts on “–Monetary Sovereignty for Young People, Part 2. What is a dollar?

  1. This is interesting and a way I never have looked at dollars. I do understand that a dollar has value because people accept it as value but what happens when no one wants a dollar bill and even thought you have a number in your checking account that represents your money, people don’t want to accept a transfer regardless of how many zeros the number has?
    Doesn’t the Fed creating more monetary entries cause the public to become poorer because people work for a paycheck and the number on this paycheck doesn’t keep up with the growth of money being created.


  2. If Geithner doesn’t know how high the debt will go, then what is the limit of debt. What happens if Congress does not raise the debt limit. Then what?


    1. Growing fiat currency supply is not a “debt” or “deficit” in any real term. No more than using more numerals in succeeding math classes constitutes Numeral Debt. Calling it fiat debt is poor & sloppy semantics.

      Telling kids not to worry about fiat debt or deficits is like telling a religious zealot that there is no God, no devil, and that they’re not going to either heaven or hell.
      No matter how much you talk, you’re only cementing their failed concepts by using their jargon and semantics.

      Instead, call it increasing currency supply? Private savings? Call it what you will, but please quit calling it debt & deficit. That’s pure sophism, which never helps, & in fact guarantees campaign failure.


    2. If Congress refuses to raise the debt limit:
      1. The U.S. will default on current obligations
      2. The U.S. will not be able to run deficits.

      In both cases, we and the whole world will have one heck of a massive depression.

      Or, Congress can change the law requiring the issuance of T-securities in an amount equal to deficits, in which case it wouldn’t matter what the debt limit was.


      1. All money is debt. That is what gives money its value. The issuer owes the holder full faith and credit. The broadest money measure is: “Debt Outstanding Domestic Nonfinancial Sectors”

        But you are correct that the word “debt” misleads the public.


  3. Does the government have any way to destroy money aside from taxes and sketchy confiscation methods like hacking into the FIrst National Bank? I know that it can adjust interest rates, but I’m wondering just how that works. It seems like it’d be no faster than Congress passing a new tax bill, but apparently it’s way faster.


    1. Any time dollars are sent to the U.S. government, they are destroyed.

      Taxes, of course, destroy dollars. But there are other methods. Example: The auto companies were saved by loans from the government. Those loans increased the money supply.

      Now, the government (wrongly) is being paid back. Those payments to the government destroy dollars and are anti-stimulus.

      Adjusting interest rates does not destroy dollars, but raising rates does make dollars more valuable (anti-inflation), by increasing demand. Actually, inflation is not quite so simple as that, and I intend to write a post for young people on inflation.


  4. All money is debt. That is what gives money its value. The issuer owes the holder full faith and credit.

    Rodger, you wrote this is a response to Mark…may I ask you what the surety is, or what is the backing of the full faith and credit of the issuer is? What is the asset backing it? When the dollar was backed by Gold, Gold was it’s backing, this is what you could exchange your debt for if the debtor had no dollars to pay his debts…

    Now that there is no Gold backing the dollars, what is backing it? What can an international banker demand of the government if the government chose not to pay it’s debts?

    In contract law, if there is no valuable consideration, a contract is illegal…the only way to form an agreement which involves money that is not backed by something of value, is by trusts or what are called ‘executory contracts’ (which are two opposing trusts on the same subject matter)

    Which means, that any contract the govt forms must involve valuable consideration (which it is not), or be part of a trust, in which case, an obligation is due somewhere, for you can not transfer a title (a dollar) without attaching a corresponding duty to it (unless it is a gift to the transferee)…

    So while the government may be creating money by the stroke of a pen, some obligation must be created at the same time…where is this obligation..who is it attached to?

    I agree with everything you are saying, but this is a question I have not found an answer to…what is the asset that backs a monetarily sovereign nation so that that nation can deal with other nations in normal day to day contracts/dealings that does not violate UCC contract laws?


    1. Dingo,

      Money is not debt. It is more like equity. You will come to this conclusion if you think about why the world economies functioned just fine even before private bank debt money was used in wide circulation. Think of the days when most people used gold, silver or just paper money in lieu of gold or silver.

      What gives money its value is performing businesses who produce goods and services and trust the currency as managed by the issuing authority (in our case the United States Government).




  5. Dingo,

    Many debts are not backed by a physical asset. For instance, every time you use your credit card, you create a debt to your credit card company, backed only by your own full faith and credit.

    When you buy a new car on credit, the instant you take possession of that car, it is worth less than what you owe. So what backs the rest of the debt? Your full faith and credit.

    When you hold a dollar, the federal government owes you full faith and credit, which may not sound like much, but actually is powerful. It means:

    – The government will accept U.S. currency in payment of taxes
    – It will pay it’s debts (T-bills et al) and all its bills with U.S. currency
    – It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
    – It will not require domestic creditors to accept any other money
    – It will maintain a market for U.S. currency
    – It will continue to use U.S. currency and will not change to another currency.
    – All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

    Rodger Malcolm Mitchell


  6. Thanks Rodger and Mansoor,
    I understand what you are saying but I am not sure my question is resolved…even if I obtain a credit card on faith alone, if I default, they will come after my assets for conversion to repay the debt..(and if I have no assets, then I have to declare bankruptcy which creates a lien on anything I produce of value until the debt is paid)

    If the US Govt defaults on it’s debts to say other countries or outside investors, what assets will they come after?


    1. Dingo,

      Humanity has been taught that an individual’s excess production today can somehow be “saved”. This confusion is the source of the imbalance and source of runaway greed.

      All anyone gets in return for exchanging one excess production (savings) is a claim (an equity claim or a debt claim). Understood this way money becomes a “social relationship”.

      A good thing about an equity claim is that it is self-adjusting. One loaf of bread invested may return zero or many loaves of bread in the future depending how the “social relationship” constructed by the claim pans out.

      A debt claim (like bonds, treasurys, fiat currency) is not self-adjusting. That is why debt based currency is a disaster. In a debt based system there is an expectation that one loaf of bread saved should return one loaf of bread in the future. This is the lie of modern banking. This lie is what gets us into trouble.


      mansoor h. khan


    2. In a fiat currency system, the currency is “backed” only by public initiative. The lien or collateral is formally entered as a lien on future taxes, which is a tautology, but the best formal accounting we have for future public initiative, innovation & return-on-coordination.

      Can the public ever run out of initiative? No. So it can’t go bankrupt.

      The assets all creditors, including all succeeding generations, stand in line for, are the emerging returns-on-coordination.

      It’s been 3.5 billion years on planet earth, and those returns haven’t run out yet. They’re seemingly infinite.


      1. Roger, you said, “In a fiat currency system, the currency is “backed” only by public initiative.”

        I have no idea what “public initiative” means, and I doubt anyone but you does, either. I’m surprised to see you use such a vague term, since it was you who complained about sloppy semantics.

        Every form of money is a debt, collateraized (backed) by the full faith and credit of the issuer.

        You also said, “The lien or collateral is formally entered as a lien on future taxes, . . .”

        Oh really? For a Monetarily Sovereign government, there is no need for “future taxes.” In fact, tax collections have zero relationship to the federal government’s ability to pay its bills.

        If all taxes feel to $0, this would have no effect on the federal government’s ability to spend. That is a fundamental truth of Monetary Sovereignty.


    1. Well I’m not sure I agree…Greece did not pay it’s debts but it did not come without a price…are not the people of Greece paying with a reduction in rights/privileges etc? Are not rights and privileges assets, and as such can be alienated if the owner so consents to?


  7. Mr. Kahn,

    I see a great deal of confusion about “debt.”

    1. Every form of money that exists or ever has existed, is a form of debt. The state owes the holder of sovereign currency full faith and credit. This debt is what gives money its money-value. When even gold is used as money, its money value is different from its commodity value, and its money value is based on the debt of full faith and credit.

    Thus, it is impossible to have “debt-free” money.

    2. Having said that, U.S. government “borrowing” is totally unnecessary. There, in fact, is no functional connection between federal deficit spending and federal “borrowing” (though there is a legal connection).

    Federal “borrowing” creates federal debt. Federal debt is the total of outstanding T-securities. The federal government can deficit spend without issuing T-securities. Therefore, there can be federal deficits without federal debt and there can be debt without deficits.

    This means, that contrary to popular wisdom, federal debt does not need to be the total of federal deficits, but for obsolete laws mandating this relationship.

    Rodger Malcolm Mitchell


    1. Rodger,

      Thank you for your reply. However, I remain unconvinced.

      Is Money Debt or Equity?

      I propose to you that it is more like equity when considering that the claim on real goods and services represented by money must be adjudicated by the state (the currency issuer).

      When inflation ensues the federal government in the United States should respond in some way to reign in inflation. There are at least three ways of doing this:

      1. The government can influence the interest rates via the FED open market operations and try to induce savers (money holders) to forgo current consumption for a higher return on savings.

      2. The government can reduce government spending thus decreasing the amount of economic resources it uses and thus frees economic capacity for other spending (investment spending or consumer spending).

      3. The government can tax more and take away purchase power from earners via income tax and even just spenders (savers) via some kind of a consumption tax.

      Therefore individuals may be taxed in this adjudication process (control of inflation) which would reduce their total purchasing power by government taxation in order to maintain social stability which high inflation threatens.

      This means that even after tax saved money may be subject additional taxation. So even if a government is good at maintaining the real purchasing power of the unit of currency (dollar in our case) it may have to “take” some of your dollars from you to do it.

      This is exactly how equity behaves. A debt claim means I loan ten loaves of bread and I get back ten loaves of bread in same quantity and quality.
      Return on equity claim is variable depending on how the “social arrangement” works out.

      Any kind of currency management implies “adjudication” and a possible reduction in the total number of loaves of bread I get back when redeeming my total “debt currency” claim even though each individual unit returns the same amount of loaf of bread.


      Mansoor H. Khan


  8. Mansoor,

    Your points 1,2 and 3 essentially are correct, as they apply to the value of debt, but we now have arrived at sophistry.

    In accounting, for every debit there is a credit, each the other side of the same coin.

    You may spend endless hours trying to rationalize why money is not debt, but equity, yet the fact remains that an otherwise worthless piece of paper known as a dollar “bill,” which is a federal reserve “note” (with both “bill” and “note” being words that signify debt), has value only because the federal government owes the holder collateral. That collateral is full faith and credit.

    Without that collateral from the government that dollar bill would have no value, just as any other debt without collateral has no value.

    Remember that the next time you use your credit card. The debt you owe the credit card company is collaterilzed by your full faith and credit.

    The search for debt-free money is a fools errand.

    Rodger Malcolm Mitchell


  9. Rodger, I agree with everything you are saying on this blog…but what I think you are missing is something of fundamental importance it can not go unnoticed…I will demonstrate this with legal definitions taken out of Black Law dictionary 8th edition:

    credit,n.1. Belief; trust .2. One’s ability to borrow money; the faith in one’s ability to pay debts .3. The time that a seller gives the buyer to make the payment that is due .4. The availability of funds either from a financial institution or under a letter of credit .

    So, your definition of Credit Rodger is spot on, but let’s not forget this part; 2…one’s ability to pay debts…so let’s look at debt…

    debt. 1. Liability on a claim; a specific sum of money due by agreement or otherwise .2. The aggregate of all existing claims against a person, entity, or state .3. A nonmonetary thing that one person owes another, such as goods or services .4. A common-law writ by which a court adjudicates claims involving fixed sums of money .

    Would you agree a debt is a claim? It says so right here… so let’s look at claim

    claim,n.1. The aggregate of operative facts giving rise to a right enforceable by a court . — Also termed claim for relief. 2. The assertion of an existing right; any right to payment or to an equitable remedy, even if contingent or provisional .3. A demand for money, property, or a legal remedy to which one asserts a right; esp., the part of a complaint in a civil action specifying what relief the plaintiff asks for. [Cases: Federal Civil Procedure 680; Pleading 72. C.J.S. Pleading §§ 110–115.]

    The assertion of an existing right; any right to payment or to an equitable remedy
    A demand for money, property, or a legal remedy to which one asserts a right

    Now let’s look at Equitable remedy..and Right

    equitable remedy.A remedy, usu. a nonmonetary one such as an injunction or specific performance, obtained when available legal remedies, usu. monetary damages, cannot adequately redress the injury.

    right,n.1. That which is proper under law, morality, or ethics .2. Something that is due to a person by just claim, legal guarantee, or moral principle .3. A power, privilege, or immunity secured to a person by law .4. A legally enforceable claim that another will do or will not do a given act; a recognized and protected interest the violation of which is a wrong .5. (often pl.) The interest, claim, or ownership that one has in tangible or intangible property .6. The privilege of corporate shareholders to purchase newly issued securities in amounts proportionate to their holdings. 7. The negotiable certificate granting such a privilege to a corporate shareholder. “Right is a correlative to duty; where there is no duty there can be no right. But the converse is not necessarily true. There may be duties without rights. In order for a duty to create a right, it must be a duty to act or forbear. Thus, among those duties which have rights corresponding to them do not come the duties, if such there be, which call for an inward state of mind, as
    distinguished from external acts or forbearances. It is only to acts and forbearances that others have a right. It may be our duty to love our neighbor, but he has no right to our love.”

    My point here is that although being monetary sovereign may seem like a wonderful position to be in it still has a massive cost that you are not seeing……the only way a ‘debt currency’ can exist is if the debt is claimable on by way of either legal or equitable remedy…a legal remedy is pointless…why would anyone want to have a debt paid back by more debt, so the only available remedy is equitable and the equity courts do not recognize money, they recognize duties, specific performance of contracts, specific performance of trust duties, the equity courts act on personum..

    So…the only way anyone could use the debt based currency of any country, whether it is monetary sovereign or not, is if they have an equitable duty attached to it…and therein lies the asset I speak of…our rights and duties to those who issue the currency! So the real question is, who is really issuing the currency in debt form and why?

    I don’t know about you guys, but I have a lot less rights today than I did 15 years ago, and why? Because the govt has given me more privileges???? Privileges that are on ‘their’ terms?


    1. We now have reached 100% sophistry, with no hope of resolution. You have “less rights.” Please list all the rights you have lost in the past 15 years, and please, no philosophic BS.

      Here is what the U.S. owes you:

      Full faith and credit:
      – The government will accept U.S. currency in payment of taxes
      – It will pay it’s debts (T-bills et al) and its bills with U.S. currency
      – It will force all your domestic creditors to accept U.S. currency, if you offer it, to satisfy your debt.
      – It will not require domestic creditors to accept any other money
      – It will maintain a market for U.S. currency
      – It will continue to use U.S. currency and will not change to another currency.
      – All forms of U.S. currency will be reciprocal, that is five $1 bills always will equal one $5 bill and vice versa.

      That is the collateral for the debt.


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