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I just thought you should know; lunch really can be free

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Rodger Malcolm Mitchell
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I just thought you should know. Lunch really can be free.

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The U. S is Monetarily Sovereign, and in fact, always has been. This means the U.S. government, including all federal agencies, never can unintentionally run short of dollars.

"In the beginning," there was no dollar. Think of the U.S. government as the God of the dollar. The government originally produced from thin air, the laws that, in turn, created the very first dollar. Like God, the government continues to produce the laws that create dollars from thin air.

Because the dollar is the result of laws, and the U.S. government has 100% control over those laws, the federal government cannot unintentionally run short of dollars. Even if all federal taxes fell to $0, the government would not run short of dollars.

That is why, in a narrow sense, the U.S government always has been Monetarily Sovereign. But during the past 200+ years of our life, the government has arbitrarily passed laws that temporarily limited its functional sovereignty over the dollar.

Functional Monetary Sovereignty is not an absolute; it is a comparative. A country can function as more or less sovereign.

The most notorious of such limiting laws tied the dollar to gold and silver. During the gold and silver periods, functionally the U.S. was not as Monetarily Sovereign as it is today, though being God of the dollar, it always retained the right to make itself more or less functionally sovereign over the dollar.

On August 15, 1971, the government (President Nixon), arbitrarily decided to eliminate the last vestiges of laws tying the dollar to gold, and since that day, the U.S. has been far more functionally sovereign over the dollar.

Yet, some restrictive laws remain, particularly the debt limit and certain borrowing and accounting laws, which reduce functional sovereignty. Still, the U.S. government, being the God of the dollar, can do anything it wishes with the dollar, merely by changing its own laws.

Compare this with the euro nations. Greece is not Monetarily Sovereign. It is not sovereign over the euro. It did not create the euro and cannot pass laws changing the euro. Greece is monetarily non-sovereign, because it has no sovereign currency. Greece is not God of its currency.

Similarly, Illinois, Boston, Microsoft, banks, you and I are not Monetarily Sovereign. None of us has a sovereign currency. Though we have been given the right to create and destroy dollars (by borrowing and lending), we do so at the mercy of the federal government, which arbitrarily can change the laws any time it chooses. We are not Gods of the dollar.

Visualize the game of Monopoly in which I am both a player and the rules maker. I would be the God of the Monopoly dollar.

To pay for a Monopoly property, I arbitrarily might decide to take scraps of paper and write on them $1 or $10 or whatever I choose, and give these scraps to the property owner. I can do anything. I am Monetary Sovereign over the Monopoly dollar.

For any reasons I choose, I might decide to create a rule limiting myself to creating no more than $10 on any turn. I'm still Monetarily Sovereign, but functionally less so.

However, if I find myself running short of Monopoly dollars, I could simply change my own rules, and give myself the right to create more dollars. I can do anything. I am Monetarily Sovereign. I am the God of the Monopoly dollar.

Had the U.S. government decided not to create dollar bills, but decreed dollars would be represented by turnips, today we all would use turnips. The government would remain Monetarily Sovereign -- the God of the dollar -- but dollar creation would be limited by the turnip supply.

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Economist since 1995. Wrote the book, FREE MONEY. Economics blog is at http://www.rodgermmitchell.wordpress.com. Also maintain a site at www.rodgermitchell.com

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