Quote from: evoorhees on July 05, 2011, 02:52:36 PM

Okay I'm confused. I understand the US Federal Government is mired is massive debt. I understand how this translates into future taxes to be paid by the populace. I understand the Fed creates money out of thin air.

But how is the USD "based on debt." I don't get that... I don't even know what that means?

The USD isn't "based on" anything. It's just a fiat currency, created at whim and a certain amount each year. Someone please educate me

its not entirely based on debt, but the great majority of it is.

think of the Feds balance sheet which theoretically is guaranteed by the American people. the right side, liabilities, is simple; composed of all FRN's (USD's) to the tune of 3 trillion. BTW, it used to be 800 billion in 2007. the left side, assets, USED to consist entirely of gold when we were on a full gold std. hence every USD was backed by a hard asset, not debt.

when the Fed was created, both sides of the balance sheet started expanding enormously in USD terms. the right side in FRN's, and the left side from the issuance of US TREASURIES (debt). thus we began the unpegging to gold and replaced it with debt guaranteed by the American people. you could think of the ratio of UST's to gold as the leverage ratio.

of course this has now gotten out of hand with the debt (UST's) vastly exceeding the gold portion on the asset side. we can't practically pay this back and hence the enslavement of the US taxpayer.