The United States is the most productive country in the world. When you hold that role, your national currency gets is value from the productivity of the country. It does not need to be backed up by Gold or Silver. That precious metal thing is way out of date. Way back when money was backed by gold, we had a constant stream of recessions/depressions whenever gold fell in value. It was almost guaranteed, and it caused no end of problems.
It is insane to invite recessions and depressions just because you want to tie the currency to a precious metal. Besides, there was not enough gold in the world to back the Dollar alone, must less any other currency. The logical conclusion was to not tie it to a commodity that fluctuated in value but to let the currency find value based upon the total productivity of the country.
Consider that if the value of the Dollar goes down, American products would be less expensive in the world market. Logically people would buy more American products. This would be great for America and would eventually leave us with full employment as Americans worked to provide the manufactured items the world desired.
Of course, the other countries of the world would not want the Dollar to go down in value, because they want to boost their sales and keep most of their people working. For this reason China keep their currency the Yuan at artificially low values. Some estimate that they are fifteen to twenty percent low. Since they are officially a state controlled economy run my Communists they can do whatever they please. We can not stop them.
Now, what would happen if all the manufacturing nations of the world tried to lower their currencies in value to help keep their hungry citizens employed, while forcing Americans out of work?
Well, that is exactly what is happening. All but one of the other manufacturing countries' currencies around the world continually go down in value opposite the Dollar. For a great many years now, the Dollar and the Yen (Japan) have been the only two currencies that consistently go up in value. Some may argue that the Euro is going up, and it will, but the actual reality is that the Euro is a hodgepodge of former currencies all combined into one. I am convinced that the Euro is a mongrel bastard that will not survive because of too many cultural differences. You can not blend the laid back southern European lifestyle with the hard work Germanic mentality of the north and have peace and tranquility in Europe. In the coming years, after France proves itself to be more southern European than northern culturally, only Germany will keep the Union alive by funding the south and when Germany eventually gives up, the Euro will finally die a well justified death. The Mark, once restored, will compete with the Dollar. The Yen will eventually start going down in value. That will happen when Japan loses the manufacturing edge in competition in Asia. That is years away, though.
I have never studied economics and do not have the patience to read all of their theories, since the major schools of economics can not all be right when they contradict each other. Therefore,I have formulated my own school of Economics that is based solely upon observation. Since I am not all observing, it is not a complicated brand of economics. I call it Neubarthian Economics.
If you see something happen, and it happens with consistency, then it is a certain bet to be real. I can tell people that as long as we maintain a strong manufacturing capability, the Dollar will not be allowed to fall because the other countries of the world will not let it. It would hurt the other countries of the world. Besides, we need a balance of trade deficit to be able to put American Dollars in foreign banks. That way we get the whole world in the business of buying American (something - anything, like stocks, building, farms, homes, bonds, American planes, American farm equipment.....) It is good to get American Dollars overseas into foreign hands, because then the foreigners have a financial reason to want to see things go well in America. At the very least,they want the Dollars that they hold to go up in value, like the Dollar always does.
For some reason when I explain this to people, they do not understand and think it is bad for other countries to hold American Dollars. Their logic escapes me, since what they say is not logical. Since we are the major producing (Manufactured Products, Natural Resources, Agriculture, Intellectual Innovation, ...) country in the world, we have the right to do that, and none of them can stop us.
When I run across people like that I have observed that they panic at the news that a country like China owns almost a trillion Dollars of American bonds and or notes (Both the state and citizens/businesses). It does not bother me, because I see the American Government Bonds as a form of Foreign Aid. For years, countries and their national banks have gone bankrupt because they invested their earned money in weak foreign or weak business bonds. That is stupid when you consider that they can get guaranteed interest on American Bonds, AND they can see the bonds actually go up in value since the Dollar always goes up against other currencies. In a way, we have become the Gold that banks need as security. To hell with the metal, it is too heavy to lug around anyway. In some Latin American countries I have read that the people prefer to buy using American Dollar bill notes because their own currency constantly goes down in value. Hey, whatever works.
Consider the reality. The dollar is the major currency used for transactions because it keeps going UP in value as I have pointed out to everybody (Professors and Economists, too) whenever I get the chance. Not one has ever been able to fully understand the implications of that reality.
When foreign countries (and their wealthy people and their banks) have dollars, they invest it in America by buying into our industries on the world bourses and buying into our land and farms. The United States is owned by the world and we the American people and our resources are what the world recognizes as the New Gold. OUR COUNTRY IS THE MONEY! WE ARE THE MONEY!
Our productivity is the backing for our money, and having other countries hold the American Dollar actually adds to its security and value. Darn, that is a good deal. I'd bet you that Mexico would love to have that arrangement for their Peso.
People need to wake up and smell the roses instead of spouting economic theory from the two major schools of economics, just accept what you can see with your own two eyes.
I first started postulated my OBSERVED REALITY starting when I was in high school way back in 1963. To date, people still need to learn. Why they believe Keynes or the Austrians or anybody else, I do not understand. Why believe faulty theory when reality clearly shows how WRONG the other theories are.
The theories that explain how other currencies work in the market place are usually near to being correct. The thing that everybody needs to understand is that the Dollar is NOT like any other currency. As I keep on saying, OBSERVE THE REALITY! MY small school of Economics is based upon one thing and that is observed reality.
Consider our national debt! It is really were a problem, which I doubt, because we keep on carrying it forward and forward and forward while we issue new bonds to cover it when the old bonds reach maturity. We are not making any effort to pay it off. Quite frankly we have no need to. We could carry twice our present debt load, remembering that it is foreign aid. In actuality we never have to pay it back if we do not want to. We can just carry it forward for ever. Since we have been doing it for over half a century, why stop now?
If we really wanted to tighten things up, we could always ask the Non Profit Federal Reserve to buy all bonds and notes outstanding. Since the Fed is non profit they have to turn in any profit they make to the US Treasury every fiscal year. If they held all of our bonds and notes, all of our interest payments would be made to the Fed, and in turn would be deposited in the U S Treasury. Let's see, out of the U S Treasury to the Fed and back to the U S Treasury, Hey! That is no interest! In actuality, we pay their expenses to maintain all of those impressive bank buildings around the country that are not actual banks and then the rest goes to the Treasury, but the difference is not that great when you consider all of the Trillions of Debt.
OK, so now the question is, how soon do you have to repay a debt when you do not have to pay any interest on it? The answer, of course, is never! If so, why not just have the Fed erase all of our debt? After all, they are non profit.