What is a US Dollar and Where Does it Come From?

The Federal government of the United States is a currency-issuing government. This means that whenever it spends, it simply credits an account with its IOU, which is a number with a fancy “$” symbol. To type a number does not require one to have numbers on hand prior to typing it, nor does one require a supply of “$” symbols prior in order to prefix the number with it. You cannot run out of numbers or “$” symbols. Numbers and the “$” symbol exist only in your imagination until you actually type them or write them down – then they become real. But in the context of currency, when the federal government types a number with a “$” symbol in an account somewhere, it becomes a real US Dollar. So, since the federal government always conjures US Dollars out of thin air when it spends, it has absolutely no supply of US Dollars on hand prior to enable that spending.

However, because the US government never has any US Dollars, that does not imply brokenness, bankruptcy nor the need to tax and borrow to get a hold of some US Dollars to spend. What it means is that the US government is the only “factory” in the United States that produces US Dollars and so, it does not need any US Dollars on hand before it can spend them. In other words, it doesn’t need US Dollars to manufacture US Dollars.

The US Dollar is just a number:

1

The number “1” is not a dollar until we do this:

$1

Now, the number “1” is a US Dollar. Obviously, I can type $1 and so can you, but neither of us can then spend what we typed. We do not have access to the banking system enabling our typed $1 to become spendable currency. If we did manage to gain access and type “$1” we’d both be spending a long time in a federal prison. Only the US government has this access and when the US government enters a bank account and types the number $1, it becomes an actual US Dollar. It needs no supply of numbers on hand prior to typing, therefore it never has US Dollars on hand at any point in time. It is the issuer.

So, to understand this concept from the government’s point of view, simply open up a word processor and start typing US Dollars; as many as you want and how large you want:

$1
$10
$1,223,875

Ask yourself – “Did I need to have any US Dollars on hand before I could type these US Dollars in the word processor?” No. Neither does the US government when it types numbers in bank accounts. This is how all federal spending works. Taxation is just the reverse and doesn’t result in a “savings” for the federal government.

Let’s type the following number on our computer:

$1,223,875

Now, let’s hit backspace and delete it entirely. What do you see on your computer screen? Nothing. Just empty space. That is federal taxation. $1,223,875 is now gone forever. Want it back? Then you have to retype it:

$1,223,875

There. You have it back again. But your ability to retype it at will had nothing to do with first deleting it or first having it on hand. You can type it endlessly if you want:

$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875
$1,223,875

The same applies to the US government, but because it is the currency-issuing authority and has total access to the banking system, when it does the typing and deleting, US Dollars appear and disappear.

$100 after a tax of $25 becomes $75. The federal government enters a bank account and replaces the number $100 with the number $75, because 100 – 25 = 75. So what happened to the $25, you ask? What happens to the number 25 when you subtract 25 from 100 on a calculator? Rather than theorizing where the particles that made up the number 25 on the calculator screen go, it would be easier to say, “oblivion” and that’s where the $25 went – to oblivion. The federal government deleted $25. The US government cannot save in its own US Dollars. It can save some other nation’s currency, like British Pounds, but this is because the US government cannot issue British Pounds. If it wants to have some British Pounds, it must FIRST obtain them, then it can save them. It has no need to save in its own currency, because it has an infinite capacity to issue US Dollars.

The important thing to understand is that whatever the federal government deficit spends, that exact amount will end up in the non-government sector (You, me, Walmart and foreign entities). So, the question is never “How many US Dollars does the US government have?” – the question is always, “How many US Dollars has the US government manufactured and then left in the hands of private entities in the US and abroad to use?” And the answer to that question is $19 trillion and rising.

Hint: $19 trillion is also the total of the US national debt.