- May 19, 2005
- 4,122
- 640
hate being laughed at i feel like the whole corporate finance class thinks im crazy.
Why are they laughing at you?
two things happened and everyone around me was like what is this kid smoking?
professor: why cant the us government ever default?
me: two reasons, we have bases all over the world and because we are the world reserve currency
professor: no, because we have the printing presses
everyone: laughs
im like......... yea we do but its not technically "our printing press" the federal reserve isnt even a part of the american govt.
then i ask her this question
me: is the dollar debt? because on top of every dollar bill we have says "federal reserve note" making money=debt. so how are we using debt to buy debt (t-bills and bonds) and get repaid in debt?
professor: the dollar is an asset
me: but the original definition of a dollar was a unit of weight measured in gold or silver
professor: we got off the gold standard in 1971 so essentially every dollar is a dollar, its still an asset because thats our unit of exchange to purchase more goods.
me: how is it not debt now? when the government prints it?
professor corrects me: the central bank prints the money and it becomes an asset.
me: yea but its conjured out of nothing and it becomes debt. thats how a dollar comes into existence.
girl in the back: a dollar is an asset
professor: its a debt to the central bank, but its an asset to everyone else. "ITS ONLY BECAUSE OF DOUBLE ENTRY ACCOUNTING"
i was mind blown by that and just kept my mouth shut.