Fiat is a promise
Most of us can not hold a 15 minute conversation with a 6 year old about money. Because the 6 year old has good questions. And we have no answers.
How does money work, mommy?
Well, the correct answer is:
I have not a freaking clue, kid! I think it’s something to do with the allocation of special drawing rights through the International Monetary Fund and World Bank in a free floating system of market exchange currencies that compete through trade balances accross an international spectrum of inflation adjusted exchange rates that then can be used to create local debt that is issued by the treasury in return for currency that is printed by the central bank, distributed to the banks that leverage it through a system of partial reserve leverage of approximately 10 to 1 and distribute it into the economy creating either inflationary or deflationary effects allowing us all to experience the velocity of trade through the exchange of an abstract token that represents the promise of future value depreciated by the rate of inflation and adjusted for the return on investment.
So why can’t we have more of it, mommy? Why can’t we just give everybody more of it?
That conversation doesn’t go that way, it usually goes:
Eat your breakfast, go to bed. Clean your room. One day you’ll understand.
And that is the first lie. Because you still don’t understand.
You ask the average person on the street what gives value to money. Why does money have value. They have no idea. They have a theory. They have a fairy tale. They have a story. […] But it says right there on the piece of paper. It says: By the full faith and credit of the Royal Bank of India. […] Hey! This is what gives it value! A promise. But most people have no idea how that works. I guarantee you that if you ask the average person on the street they will tell you that the reason the money has value is because somewhere there is a cave, a vault, a box, where the government keeps gold in direct proportion to the money that circulates. Which has not been true since the 1930s.