Is American Money considered a form of Fiat money, and if not, what is backing our federal reserve notes?
Having a heated debate with my parents over this. I do believe that American money is only money because the government says it is, but she believes that theres enough gold held up in Fort Knox to back it all. Someone please help us out with this debate, and any hard evidence would be greatly appreciated
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In short, you are correct.
There is nowhere near enough gold in the entire world, that has ever been mined, to back every US dollar, let alone all the other currencies, unless old was priced at an inordinate price per Tr.ounce. In excess of $50, 000 per Tr. Oz would be about right, making the gold required for non-bullion purposes to expensive.
The anglofareast website below has articles on this, and the Millenium Money video is on there to watch.
Put simply, the US government started removing the Gold Standard in 1913 (The Federal Reserve Act of 1913 started this), though there had been several cycles of currency since America was founded, as ther has een throughout history elsewhere.
The Gold Standard was totally abolished in the US (Ie: gold wasde-monetised) by Nixon in 1971, for the reasons previously suggested and also because of the failure of the London Gold Pool in the previous few years..
Hope this helps. Check out the resources: they are easy to dowload or play on screen.
EDIT: You asked what backs the USD: the answer is around 1.2% of each dollar is backed by actual national wealth, and the rest is trust. It is a similar situation for most currencies.
The US went off the gold standard and eliminated the ability for various governments to redeem dollars for gold at the Fed window in 1971. This decision was forced upon Nixon due to the massive increases in the numbers of dollars in circulation from LBJ’s Great Society. LBJ revved up the printing presses to cover the costs, and as those dollars found their way overseas, the run on the dollar threatened to deplete the last of the Ft Knox gold.
If all the dollars in circulation were convertible to gold now, the price of gold would have to be $38,000 - 40,000 per ounce!
The US dollar — and all currencies of every country in the world — are fiat currencies. Only the Swiss franc has some amount of backing in gold, but you still have to buy physical gold in the markets, not at a set rate from the government.