I am a newbie and wanted to ask a quick question regarding statements that economists make, that is:

  1. "A currency is a promise to pay"

  2. "US will not be able to pay it's debt"

So that I can understand their point-of-view in full: My understanding is that prior to fiat currency (1971), the promise to pay on the currency was the equivalent in gold (in proportion to the value of the currency). However, the changeover to fiat currency since 1971, meant that the new fiat currency no longer has any physical commodity attached to it. As there is no physical commodity, and it's the currency itself, then one would think the US government's 'promise to pay' on fiat currency no longer applies, because there is no physical commodity to pay anymore and the bearer already has the dollar currency:

So, my question is in 2 parts as they are linked:

  1. How does the US government materialise the 'promise to pay' to the bearer of the fiat currency?

  2. What debt is there to pay, when the bearer already has the dollar?

Many thanks in advanced.

closed as off-topic by Dheer, Pete B., Nathan L, Chris W. Rea, JoeTaxpayer Mar 13 '18 at 19:33

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "Questions on economics are off-topic unless they relate directly to personal finance." – Dheer, Pete B., Nathan L, Chris W. Rea, JoeTaxpayer
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  • This is better suited to economics.se. Please check the help center for a list of appropriate topics for this site. – user4556274 Mar 13 '18 at 13:32
  • 1. Why do you think the US has the biggest military in the world? 2. Ones dollar is the other ones debt... – Daniel Mar 13 '18 at 13:58
  • @Daniel Even though my question was meant in another light, your answer has enlightened me even more on this subject. – Cem R. Mar 13 '18 at 17:16
  1. If you ask the Federal Reserve to honour the promise to pay on a dollar bill, they will give you a different dollar bill.

  2. The US debt that economists worry about is not the amount of paper currency in circulation, but US Treasury bonds. Of course the US could pay them off by printing money, but to do so would devalue the dollar, cause high inflation, and make people reluctant to lend the US government money in future and so increase the interest rate they would have to pay.

  • I would add to your second point that the debt service cost on UST bonds is really what matters. The nominal amount of debt is circulated ad nauseam because it makes for a good headline, but at the end of the day it is the interest cost that the government actually pays. – HK47 Mar 13 '18 at 14:30
  • @Mike Scott - So would you agree that the words "promise to pay" on the dollar bill is misleading? And if so, why do economists, like Mitch Feierstein, make a deal out of it (emphasising that currency is a promise to pay? Please see Keiser Report: Bitcoin Battle (E1197) on youtube (fast forward to position 13.20 and hear what he has to say to have a feel for what I am trying to express in my question. [link] (youtube.com/watch?v=ZyC4nQvdgIw) – Cem R. Mar 13 '18 at 16:16
  • @CemR. No, it’s not misleading, it’s just pointless. A paper dollar is already a dollar, so a promise to pay a dollar for it is redundant. – Mike Scott Mar 13 '18 at 17:06
  • @CemR. There are exceptions to this, of course. Scottish bank notes guarantee you payment of Bank of England bank notes, and Scottish banks issuing their own notes are therefore required to hold reserves with the Bank of England equal to all of their notes in circulation. The promise on those notes is more meaningful. That’s because they’re issued by private banks, and not on behalf of any government. – Mike Scott Mar 13 '18 at 17:14
  • @MikeScott - Hmm. That's very interesting. So, in your opinion, was Mitch (in the video link I sent earlier) talking nonsense when he was trying to run down the dollar by emphasising that the currency (US dollar) is a "promise to pay" and it has a total of over "$250 trillion dollar debt" and the debt keeps rising and rising. Thus, US will not be able to pay the debts and that as a result, the dollar will collapse? What's your opinion? – Cem R. Mar 13 '18 at 17:27

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