Fed cash injection

It comes from the FRB buying Treasuries in the open market. Likewise, when the FRB wants to reduce the money supply, it sells Treasuries in the open market.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

Money doesn't have to be backed up by a hard asset. Money works because we all agree that it has a particular value, and because it is in limited supply. In fact, in the US, there is a law that says that money has to be accepted as legal tender. The system works because we all use money to get paid for our labor and to buy the stuff we need. As long as money is hard to counterfeit, it will keep its value.

Money also behaves according to the rules of supply and demand. If the feds dump in a few billion dollars, that is such a small amount compared to the vast total of all dollars out there that it doesn't impact the supply in a material way. But if the government starts the printing presses in high gear, and dumps

-john-

The *real* reason it all actually works is that Uncle Sam requires that we pay taxes in FRN's (Federal Reserve Notes that we all know as the "dollar").

As far as you and me? We're free to accept whatever payment we agree to (including dollars if we so choose) in any private transaction we want. I'll trade you a dozen chickens for that there pig. Would you trade me an ounce of silver for that 5th of vodka?

We could, theoretically, do AOK with privately issued currencies. The "Liberty Dollar" folks seemed to be making some progress toward that end before they were recently shut down by Uncle Sam.

Sure, it's convenient that we're all on a "dollar" exchange, but it ain't necessary.

It *is* necessary to pay the IRS in dollars, and I'm pretty sure that's the reason why we all use 'em, whether we know it or not.