What Really Backs the U.S. Dollar?

By: Doug Eberhardt

Since 1971, U.S. citizens have been able to utilize Federal Reserve Notes as the only form of money that for the first time had no currency with any gold or silver backing.

This is where you get the saying that U.S. dollars are backed by the “full faith and credit” of the U.S. Government. In other words, Nixon implied; take our paper dollars or don’t.

The U.S. at this time was a world super power having been victorious in WWII and there really wasn’t much anyone could do about the decision by the U.S. government to abandon metal backing.

What Does a Dollar or Federal Reserve Note Represent?

What does a dollar or Federal Reserve note represent now that gold and silver no longer back any of the currency printed in the U.S.?

A dollar bill used to say “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank.” Look at a dollar bill today. It simply says; “This note is legal tender for all debts, public and private.” In other words, you can’t redeem it for “lawful money.”

Guess what folks? A dollar bill is not lawful money, but rather “legal tender.”

From the Treasury;

“Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. Redeemable notes into gold ended in 1933 and silver in 1968. The notes have no value for themselves, but for what they will buy. In another sense, because they are legal tender, Federal Reserve notes are “backed” by all the goods and services in the economy.”

What the government, via the Treasury and the Federal Reserve, really did in 1971 was coerce you to accept something (Federal Reserve notes) that used to be redeemable for gold and/or silver but now aren’t redeemable at all.

But let’s play along with their definitions and see if “all the goods and services in the economy” really back the dollar?

What the Treasury would have you believe is that GDP backs the dollar. GDP is defined as “The monetary value of all finished goods and services within a country’s borders in a specific time period It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.”

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What Really Backs the U.S. Dollar?