Backed By Nothing

When people hear that modern money is backed by nothing, they sometimes shrug. It still works, they say. You can still buy things with it.

That’s true. But it misses the point.

Being backed by nothing doesn’t mean money stops functioning tomorrow. It means something subtler and more permanent: there is no limit on how much of it can be created.

When money was tied to gold, creating new money required finding new gold. That was hard. Expensive. Slow. The supply of money was loosely tied to something real.

Once that link was broken, the only thing limiting money creation was political will. Governments could spend more than they collected in taxes — simply by creating the difference. Central banks could stimulate economies by expanding the money supply. Banks could multiply deposits into loans almost without ceiling.

And they did. Since 1971, the US money supply has grown from roughly $600 billion to over $20 trillion.

Think about what that means for anyone holding savings in dollars. Every new dollar created dilutes the value of every existing dollar — like adding water to a glass of juice. The juice doesn’t disappear. It just becomes weaker.

Your salary might go up over time. But if the money supply grows faster than your salary, you’re falling behind even while moving forward. That’s not bad luck. That’s the math of an unbacked currency.

You can’t fix a problem you haven’t named. Now you’ve named it.

Tomorrow: the mechanics of how banks actually create money — and why most people find it genuinely shocking.

— The Daily Bit