"Redeeming Lawful Money"

[fortinbras]

The "redeemed for lawful money" phrase is from the 1913 Federal Reserve Act, in that era Federal Reserve Notes, Silver Certificates, and Gold Certificates were not legal tender, altho by most standards they were lawful money. Evidently the Treasury Dept itself was a bit vague on the subject because its legal office churned out a letter for a Congressional committee that lawful money was synonymous with legal tender -- which is certainly not the way most economists, bankers, and businessmen would think of it.

Anyway, if FRNs were a lesser form of currency in 1913, or not, it didn't matter by 1934 when an Act of Congress expressly declared that any govt-issued currency, such as FRNs (mentioned by name) or Silver Certificates, were now legal tender, meaning (among other things) that a vendor could not refuse payment in FRNs and instead insist on payment in Silver Certificates (Gold Certificates being withdrawn by that time).

The more recent law amends the conflicting terms in the older law, so if FRNs were something less than legal tender or lawful money in 1913 (and I am not conceding they were), after the 1934 law that was changed and FRNs were legally the equal of any other form of US currency.

[grixit]

less than the money they got from the foot traffic that came to see it and stayed around to lose money at the tables.

The basic business model of Las Vegas casinos. I once had to travel to Las Vegas on business (I had a case in the U.S. District Court for the District of Nevada), and was amazed to find that hotel rooms downtown near the courthouse were so cheap. When the cab dropped me off at the hotel, I went looking for the check-in desk, and found that I had to walk through five or six large halls of slot machines and gaming tables to find it.

I remember back in the 80s someone found a humungous gold nugget. The Golden Nugget Casino paid way more than its value just so they could exhibit it in their lobby.

[Gregg]

If you pay with a debt instrument, you add to the national debt

I won't address the rest of your wrong statements, they've been covered. But that one, well, you're a little confused. If you CREATE a debt instrument, your add to the national debt. If you pay for something with one that already exists, there is no new debt and thus, none created.

This is important when you get into the minutia of the Federal Reserve and the Open Market Committee. When the Federal Reserve seeks to increase the money supply, they buy US Government debt instruments on the secondary market. They are by law prohibited from buying government paper from the Treasury (which would be directly increasing the Treasury's debts) and they must buy these debts from people who already hold them, and thus The Federal Reserve never increases the debts of the United States, which is something only Congress can delegate to the Treasury to do.

Now stay with me. So called ''fiat'' currency, Federal Reserve Notes, are backed by these government bonds, which are in turn backed by the full faith and credit (and more importantly the taxing power) of the US Government. Far from being 'backed by nothing but air' every single dollar of the Federal Reserve System is in fact backed up by a government bond.

When the Fed, through the Open Market Committee decides to decrease the money supply, they sell US government bonds and other debt instruments and they retire the Federal Reserve notes used to buy them. They sold the backing, and they retired the money that was backed. See, its not all that complicated. (well, the devil is in the details and as a matter of fact, its extremely complicated, but the basics should be easy to grasp)

So ends today money lesson.

[notorial dissent]

FWOOSH

[fortinbras]

I am grateful to Gregg for a clear explanation of the Federal Reserve process.

[noblepa]

I am grateful to Gregg for a clear explanation of the Federal Reserve process.

Of course, he is preaching to the choir here. The "FRN's are not real money" crowd won't understand, or, if they do, they will dismiss his explanation.

Of course, the fact that Gregg has, what, a couple of advanced degrees in Economics and these guys can't balance a checkbook, proves that Gregg is wrong.

[notorial dissent]

I am grateful to Gregg for a clear explanation of the Federal Reserve process.

Of course, he is preaching to the choir here. The "FRN's are not real money" crowd won't understand, or, if they do, they will dismiss his explanation.

Of course, the fact that Gregg has, what, a couple of advanced degrees in Economics and these guys can't balance a checkbook, proves that Gregg is wrong.

The "FRN's are not real money crowd" don't want to hear anything that contradicts or doesn't support their fantasy. So even the best and clearest explanation wouldn't suffice or satisfy them. THEY DON'T WANT TO HEAR IT.

[NYGman]

Not sure if this works for all, but when ever I see this thread, it reminds me of this. And if the link doesn't work, go and google: first citywide bank advert

[davids]

I am grateful to Gregg for his contributions on this subject too. And he has a nice car and a cute doggo.

[khmacdowell]

I'm assuming it's permissible to post this in this thread, apologies if not, and I refer you to my settler and my agent...

I've looked through some of this thread, searched the topic, and watched plenty of sovcit U educational videos - is there literally anything to the conspiracies/scams involving the Fed and the gold standard than "money used to be backed by gold, now it's not, it's actually worthless?" Which is to say, anything more than literally an elementary school philosophical epiphany? This one in particular is so absurd because

(1) Gold has inherent value. It's a good conductor and it's unreactive. But it didn't at the time in human history when it became a standard coinage metal. It was used for coins only for the unreactive part, which is simply analogous to the property of paper money and current coins to be very durable.

(2) The gold standard either puts the money supply at the mercy of the gold supply, or else the value of money is changed by fiat over time with respect to how much gold it buys, in which case it's just fiat currency, but worse, because the value of gold doesn't change in such predictable ways, so gold backed currency is either (i) deflationary, or (ii) a holocaust upon the economy whenever it is devalued legislatively or through regulation, or when more gold is discovered, because the value of a physical asset and of paper money almost always used to buy other things are artificially tied.

(3) Even more convincing than (2) but related to it, you can still buy gold with money, it's just that the market decides how much instead of the government, barring the Fed's statutory obligation to pursue low and constant inflation. Literally leaving the gold standard stopped the government from deciding how much a thing should cost, which is so preposterously more in the vein of sovcit ideology than the reverse.

(4) Most of all, if the lack of a physical asset to guarantee the value of money isn't enough, at least for the U.S.A., all leeway to devalue the dollar has been essentially totally removed. The existence of the Eurodollar as an international reserve currency, and the leverage it gives the U.S.A., ensures that the dollar will never ever be devalued to the point that the U.S.A. loses significant purchasing power, which, ironically, means the U.S.A. is compelled to be a net importer. I say ironically because people also seem to be of the opinion that the dollar should be stronger and we should export more, which is literally impossible, all else equal.

So in short: gold was never different than fiat currency in the first place, it was just fiat currency that was practical, and the gold standard actually vastly increased government control over money, and the dollar will, under the current system, never be appreciably devalued.

I know everyone here knows this but

Do they literally (or their viewers/customers/victims really) stop at "not backed by anything" and start shouting and stop renewing their license plates? Its value is backed by more than the U.S. government now. Its value is backed by the entire world lmao.

[Pottapaug1938]

kh's #2 above is exactly what happened when the US tried to maintain the gold standard at the beginning of the Great Depression -- and thus made the GD much worse, and longer lasting, than it might have been.

[notorial dissent]

If you can spend it, buy things, or do things with it WHAT. DIFFERENCE. DOES. IT. MAKE?

[AnOwlCalledSage]

If you can spend it, buy things, or do things with it WHAT. DIFFERENCE. DOES. IT. MAKE?

You've never tried using Scottish money in England have you?

[khmacdowell]

kh's #2 above is exactly what happened when the US tried to maintain the gold standard at the beginning of the Great Depression -- and thus made the GD much worse, and longer lasting, than it might have been.

I should've mentioned in the comment, because it truly illustrates the problem in the most emphatic possible way:

If you're really rich, and the government increases the money supply while backing money with gold, meaning the real value of the dollar is now lower, you can immediately trade all of your gold for cash, go everywhere in town, buy everything before prices increase (because the change in gold equivalence is instant, but sellers cannot update all of their prices immediately), wait a week, sell all your brand new merchandise at the new, higher retail price, and then trade the cash for more gold than you started with. You can reliably commit arbitrage with a single currency.

This is "possible" with fiat currency, just without the conversion to gold steps, meaning the entire enterprise is rendered pointless. You spend all your money while prices are low, sell when their high, and end up with more money that's worth less, leaving your real value the same. The fact that you can instantly trade gold for larger amounts of cash and exploit sticky prices means any and all efforts by the government to stimulate the economy with monetary policy will create a ripple effect as large as rich people want to make it.

While the success of the scheme depends on the extent of stickiness, which is related to the rate of information diffusion and the rate of old Aloysius Wharfenthurmple's indentured orphans' price labeling, and the government may adopt policies of forestalling redemption of banknotes immediately after a change in the money supply, the point is it is a straightfoward theoretical problem with no theoretically robust solution. I'm sure there are early Postbellum fetishists who could tell me why it's just the natural order of things to peg currency to precious metals, but I have always argued the natural order need not be an economy where the best investment is perpetual motion machines.

[AndyK]

I have no desire to derail this thread from an interesting discussion of sovereigns, fmotls, tax evaders, and the like, but I think it would be worthwhile to give some background on "Redeeming Lawful Money" for those who weren't around at its inception.

So, once upon a time, there was a man named David Merrill Van Pelt. At some point in his life, David seems to have suffered some form of mental illness which drastically changed him.

He, first, dropped the Van Pelt family name, insisting that he was no longer that person. He also began insisting that he did not have a social security number. He hooked up with the Montana Freemen until they were broken up.

He next began issuing bogus checks drawn against his birthright fund in the Treasury. After these failed, he took on a new direction.

He discovered a part of the US Code which referenced 'lawful money' and decided that Federal Reserve Notes were not lawful. Taking that a few steps farther down the rabbit hole, he determined that made a massive impact on the taxability of income. Thus, he prepared a rubber stamp: "Redeemed for lawful money 12 USC 411'

When stamped on a FRN, this moved the money into some sort of an untaxable never-never land.

There is much more to the story of David Merrill, but little relevant to the topic at hand.

I now return you to your regularly scheduled program.

[notorial dissent]

If you can spend it, buy things, or do things with it WHAT. DIFFERENCE. DOES. IT. MAKE?

You've never tried using Scottish money in England have you?

Pleases note the pertinent word in the above quote. Otherwise I think they call it monopoly money.

In the real world of the 21st C the term "lawful money" has no real legal significance or point. Once upon a time long long ago in the heady days of the early 20th C there were two type of money/currency, "lawful money" that was stipulated by statute as legal tender, which surprise surprise is why it was called, wait for it, "lawful money", and other currency that was still pretty much legal tender as far as most people were concerned just without the statutory imprimatur. For those who care about inane trivia that was Treasure Notes as opposed to Federal Reserve Notes. Under a specific statute you could exchange FRN's for TN's. That statute became obsolete when the law was changed in the 30's making FRN's legal tender.

[khmacdowell]

If you can spend it, buy things, or do things with it WHAT. DIFFERENCE. DOES. IT. MAKE?

You've never tried using Scottish money in England have you?

[...]
In the real world of the 21st C the term "lawful money" has no real legal significance or point. [...]

Which makes it prime sovcit giblets. Superficially nuanced or misleading (or really, capable of being misread) minutiae which are either clearly insignificant in light of the rest of the law, or actually have an unambiguous meaning that comports directly with the reality of the law despite the jargon, are required to cast any of the level 9 spells.

Funnier yet is the fact that word strings whose meanings are obvious, like "well-regulated" and "shall not be infringed," are the subject of continuous legitimate debate.

In middle school sovcits thought they solved the codex when their friend took the bait when asked "losersayswhat?" They then spent the rest of the quarter repeating at every opportunity "Jacob is a loser. Guess what. Hey. Hey Jacob is a loser. He said it himself, he can't argue. Ask him. Hey. Hey Jacob. Remember when you said you were a loser? HAHAH! Don't deny it! You cant deny it!"

[notorial dissent]

Especially valuable to sovcits/idjits who don't have clue one as to what the majik wurdz really mean or meant at one time.

[wserra]

I'm sure that it will shock no one here to learn that David has cured COVID-19, just as he did SARS.

It's not just anyone who can create a series of posts that reads like a combination of Onion article and exhibits in a competency hearing.

[notorial dissent]

I would have thought his majik sonic buzzing machine from several years ago would have been up to the task, so no real surprise.