LetsFlyThe whole reason the Federal Reserve exists in the first place is because the U.S. economy already failed once because everyone decided to print their own currency (those same people, if they had access to the internet back then, would have been the people who today produce BitCoin/DogeCoin/CumCoin/etc. algorithms.)
When President Abraham Lincoln assumed office he understood the importance of money for the war effort. With this in mind Lincoln appointed Salmon P. Chase as Secretary of the Treasury. As Secretary, Chase alone was authorized to act on all matters pertaining to the country’s finances. Chase, like almost everyone at the time, underestimated the duration and cost of the war.[2] Within a few months it was clear that the costs of the war would run far beyond the government's limited income from tariffs and excises.
The Lincoln Administration sought loans from major banks, mostly in New York City. These banks quickly ran out of money to lend and, in turn, went to European banks for more. The European banks demanded very high interest rates of 24 to 36 percent. Lincoln refused to borrow on such terms and called for other solutions.[3]
The amount of Demand Notes issued was far insufficient to meet the war expenses of the government, but even so was not supportable.
The solution came from Colonel "Dick" Taylor, an Illinois businessman serving as a volunteer officer. Taylor met with Lincoln in January 1862, and suggested issuing unbacked paper money. Taylor said "Just get Congress to pass a bill authorizing the printing of full legal tender treasury notes... and pay your soldiers with them and go ahead and win your war with them also. If you make them full legal tender... they will have the full sanction of the government and be just as good as any money; as Congress is given the express right by the Constitution."[3]
Issuing unbacked paper money was not an idea Lincoln really liked, but soon there was mounting pressure in Congress to do something. The government could either print its own money or go into deep perpetual debt to foreign creditors. So the President was quick to endorse Taylor's proposal.[4] On February 25, 1862, Congress passed the first Legal Tender Act, which authorized the issuance of $150 million in United States Notes.[5]
The Notes were printed with green ink, but on only one side. Despite this difference, they were called "greenbacks" by the public, being considered equivalent to the Demand Notes already known as such. These Note were issued by the United States to pay for labor and goods.[3][6]
As the government issued hundreds of millions in greenbacks, the value of the greenback against gold declined. But though the decline was substantial, it was nothing like the collapse of the Continental dollar.
In 1862, the greenback declined against gold until by December gold was at a 29% premium. By spring of 1863 the greenback declined further, to 152 against 100 dollars in gold. However, after the Union victory at Gettysburg the geenback recovered to 131 dollars to 100 in gold. In 1864 it declined again as Grant was making little progress against Lee who held strong in Richmond throughout most of the war. The Greenback's low point came in July of that year: 258 greenbacks equal to 100 gold. When the war ended in April 1865 the greenback made another remarkable recovery to 150.[7]
Government-backed fiat currency can't work unless you tax the fuck out of everyone, which in turn will devalue your currency, creating a negative loop.
Government issues backed-currency/not-back-by-gold -> Money enters circulation and people lose faith in government -> Money is devalued -> More currency must be issued to increase cash flow and artificially lower the price of currency closer to that of gold standard -> Money loses value and people lose more faith -> Money is devalued -> More currency must be issued to increase cash flow and artificially lower the price of currency closer to that of gold standard -> etc.
Now the question you should be asking yourself is, what does faith have anything to do with strength of the dollar? Everything. Employers pay employees based on 2 things: minimum wage laws + what they believe the employee is worth. If this amount stays at X value for long enough, X becomes the standard. Once X becomes the standard, any factors which impact federal treasury directly impact your salary and this X standard, causing the value to go up or down (usually it stays static or decreases by .000003% over time.)
I'm always amazed some people think they could come up with better long-term solutions than economists.
There's only one "Good" economic system and that's a Barter System. But that's not realistic unless you're interested in giving me your daughter's virginity for 5 goats and 2 turnips.
)
