Scott Stradley wrote:  
>The history of fiat  money shows that central bank liabilities are backed   
>by a primary asset: government securities.  
  
The usual explanation for the default-free nature of government bonds is   
that the government can always print the money needed to pay them   
off.  Now, we are told that these same bonds back up that very paper paper   
money.  The circle is a very tight one.  
  
  
Scott Stradley wrote:  
>We all know all too well that central banks can greatly damage fiat money   
>by engaging the central bank in an inflationary dance where the latter   
>creates liabilities to purchase its assets and the former creates   
>liabilities to get cash to pursue political agendas.  
  
Yes, indeed we do.  But the damage is done by the high level of government   
spending relative to real resources, abetted by sufficient currency to keep   
the transactions system from locking up.  How these are recorded in the   
Fed's and the governments books doesn't affect the real mechanisms.  
  
Kevin Hoover