Loss of backing can account for loss of value, but as you said, if paper dollars are in fact being destroyed at a faster rate than assets are lost, then the dollar should be rising, not falling. Since nobody has done significant empirical work to determine how many dollars have been destroyed, that’s just an open question. (Memo to Graduate students seeking a dissertation topic: If actual data could be found on the Fed’s retirements of paper dollars, which serial numbers were retired, etc., you might be able to get an estimate of how many paper dollars really exist.)

Anyway, suppose the dollar is significantly overbacked. If the Fed’s assets are sufficient to maintain convertibility at 1 oz./$, there is nothing to stop the Fed from maintaining convertibility at .5oz./$. (The fed would be stealing, but that’s for another thread.) Of course the Fed does not maintain physical convertibility, but it does maintain financial convertibility, and if it is, for some reason, maintaining financial convertibility at a lower rate than its assets could support, that could explain how we could have inflation despite the dollar being overbacked.

True, but you haven’t seen my personal debt ratio.

Now you’re saying that the loss and destruction of notes has resulted in a vastly overbacked dollar. Do you really think note loss by the public overcompensates for the effects in the paragraph above?

You want a Gold Standard ?, you want honest money? Forget about it !.

“I am not at all confident that the US will remain solvent enough to honour the payouts on all of its bonds, at least not in gold-redeemable dollars. The ensuing collapse in the value of US bonds would certainly blow a hole in the Fed’s assets.”

There are some separate issues here. One is whether the Fed can buy back all the dollars it has issued, and the other is whether the Treasury can repay all the bonds it has issued. I don’t think there’s any doubt that the Fed’s assets (worth about $900B) are sufficient to buy back the roughly $800B of dollars that it has issued, especially when you consider that a large portion of those dollars have been lost or destroyed.
The other issue–whether the Treasury can repay its bonds, is anyone’s guess. But last I checked, the Federal Government’s debt, relative to its income, was lower than mine. But certainly, if the Treasury did default on its bonds, and those bonds lost value, then the dollars issued by the Fed would have less backing, and would fall in value.
The private banks are yet another issue, but as before, if a private bank loses assets, then the checking account dollars issued by that bank would lose value.

This is all explained in my website about the real bills doctrine, which you’ll find by clicking on my name below.

Your rough estimate of how much money might have been lost each year does not take into account either the growth in population since 1913 or the inflation since then (losing $20 in 1913 is more like losing $200 today).

Such quibbles aside, I am not at all confident that the US will remain solvent enough to honour the payouts on all of its bonds, at least not in gold-redeemable dollars. The ensuing collapse in the value of US bonds would certainly blow a hole in the Fed’s assets.

The private banks are in an equally precarious position. Ultimately the loans which they extend are backed by the security which they accept as collateral. If the gold-value of that collateral plummets, and depositors take fright and seek to convert their deposits to gold, then the Fed is in a pickle. It either washes its hands of the bank, and allows the bank-run to continue until the bank closes its doors, or it lends the bank enough money to meet all its demands, in which case it further weakens its own balance-sheet.

At the very least, banks would have to impose far more stringent requirements for loans. The gold-value of an asset like a house can fall far more than its dollar-value, as we have seen recently.

Yes, I’m referring to the proposed new “gold window” provided by the “Conversion Agency” discussed in the article.

I am in favor of a gold standard but I have some doubts about the solvency of the existing banking system if it is adopted.

There isn’t a gold window at banks anymore. When Nixon took the US off the gold standard in 1973 (?) the gov quit redeeming dollars for gold or silver. The only place you can exchange paper dollars for gold is at the local coin shop and those guys will happily exchange gold for paper at the current market price plus a small commission fee. The fed will exchange paper for paper, such as dollars for US gov bonds.

The problem of 100% reserves is with what are called “demand” deposits, where the money must be available “on demand”.

There is nothing that says I cannot make a deposit that I know will not be available to me until maturity after a specific date. The bank then loans out that money at interest and, I assume, pays me a lower interest so that they make a profit.

The bank becomes literally a “middle man”, bringing investors and borrowers together.

If the average person loses $20/year to house fires, accidental throwing in the trash, etc., then after 100 years, that person would have lost $2000. Assuming the fed has been printing dollars since 1913, that’s close to the amount missing. Anyway, it’s clear that the fed has more than enough assets to buy back all the paper dollars that still exist.

Those M1 dollars aren’t relevant to this particular issue, since the checking account dollars issued by a private bank are the liability of that private bank–not the Fed. The only kind of dollars the Fed would ever buy back are the ones the Fed issued–i.e., paper dollars and Federal Funds.

If 2% of the paper money in circulation is held in American wallets, I can easily believe that at least 75% is held in shops, ATMs, banks, safety-deposit boxes, private safes, and – yes – stashed away overseas.

And that is only the currency-ingredient of M1. What about the rest of M1, and at least some of M2? If people start turning up at the gold window with their cheque-books, or with borrowed money, or if they choose to hoard gold rather than retire debt, then a bank-run becomes even more plausible.

There is a lot of currency overseas, too. Then there are the billions that Korea and Iran counterfeit each year.

”
I am curious just what is the value of the assets held by the Fed to back the currency that it has issued, in terms of both gold and non-gold assets. Also, what is the total face value in dollars of all US banknotes in existence? And just what intrinsic value does that assign to each dollar-note, in terms of its asset-backing, based on today’s gold-price?”

The fed’s balance sheet:

http://www.federalreserve.gov/releases/h41/Current/

shows that the fed holds bonds worth $728 billion plus gold worth $11 billion (officially valued at $42/oz, so it’s more like $200 billion), as backing for $813 billion in paper dollars. Note that $813 billion, spread over a population of 300 million, works out to $2700 per person, while surveys show the average American carries about $50 in paper dollars. Unless you want to claim that the missing $2650 is held by foreigners and drug dealers, the best explanation of the missing money is that it has been lost in house fires, landfills, etc. This would imply that the dollar is vastly over-backed. One way to find out how many paper dollars actually exist would be to find the Fed’s records, if any, of which dollar bills (by serial number) have been retired. If you find a serial number that was issued 50 years ago, and it hasn’t been retired, you’re pretty safe in thinking that is has been lost.

I’m kinda stumped on that one. They could have investers I guess…but idk if that would work well.

Don’t worry about what people think of you. Your comments/questions generated some interesting discussion. I’ve found that some people are more patient with newcomers than others; i.e. Fundamentalist, who IMHO would make an excellent teacher.