E Fiat Money, Helicopter Drops, Zuckerberg And The Big Myth

How do we weigh the debate about money, whether it is fiat or something else? This question has been at the forefront of economic debate since President Richard M Nixon took US currency off of the gold standard. After this discussion of fiat money we can see at the end of the article how this applies to helicopter money in US history as well as a real comprehensive HM for America.

Helicopter money has big advantages over universal basic income which is being pushed by Silicon Valley leaders and Mark Zuckerberg. More on that later. But back to fiat currency concepts.

It is true that US currency cannot be redeemed for gold and many say that qualifies it for the label of "fiat currency".  It is not convertible. But is it backed or secured? At least some of the currency is secured. Federal Reserve notes are secured by assets, Treasury bonds are the asset of choice as well as other bonds, like Ginnie Mae and Fannie Mae. These GSE bonds are used as collateral for Fed money. The Fed is very clear about this arrangement: 

The Congress has specified that Federal Reserve Banks must hold collateral equal in value to the Federal Reserve notes that the Federal Reserve Bank puts in to circulation. This collateral is chiefly held in the form of U.S. Treasury, federal agency, and government-sponsored enterprise securities.

Fed money generally includes cash, checking accounts, and easy to access money. But there is a different kind of money. That money is called broad money. It is created by banks when they make loans. People say over and over that this is fiat money. They say this is money created from nothing with no value and with no responsibility.

 

Courtesy: National Numismatic CollectionNational Museum of American History

But most loans, and large loans, are secured by collateral of the borrower. Mortgages are secured by the house. Really big loans are secured by a different kind of collateral, a derivative. Investopedia says a derivative is an asset in that it is derived from underlying assets:

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Disclaimer: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. The ...

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