As I have discussed previously; in order for currencies to be sound and functioning, there must be a profit-motive in owning them. In our particular age of irredeemable fiat currencies, this gives rise to a strangely significant bond market.

 

The profit-motive involved with fiat currencies:

 

It is my contention that market prices will tend to imply that the entire stock of central banking liabilities (central bank notes & reserve balances) will only purchase a proportion of that central bank’s assets. This can been understood readily by a simple example: Suppose there existed a fiat currency consisting of ‘greshams-law notes’. Say, the entire stock of 100 notes was backed by 100 ounces of gold. Each note is some kind of claim on a proportion of the central bank’s assets (1 ounce of gold); so can we imagine that – in the market – people would trade more than one once of gold for 1 greshams-law note? I contend not. Rather, I say that market prices will reflect the fact that ‘greshams-law notes’ are ‘good for’ – at most – 1 ounce of gold.

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An update of the daily treasury statement charts:

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