how does a market determine the value of my cash?
how does the ‘market’ (I’m not even sure what that is) end up determining the value of my cash? Sorry, by I have civil war era economics by mental default!
Easiest I can explain it without getting to complicated, is governments borrow money selling Treasury securities. They are like promissory notes. http://www.publicdebt.treas.gov/
There is no collateral and borrowers buy them based on faith and trust. The faith and trust is the government will limit it’s ability to simply print more money to pay it’s debts and interest. The government can collect enough taxes to cover interest and pay debts. And the government will not be overthrown or taken over militarily.
So then, the value of any currency, including the U.S. Dollar, is based on how much debt investors (including other governments) are willing to hold in the governments Treasury securities. That is why when commodities (oil, gold etc) rise, the value of the Dollar falls, as investors sell securities and buy commodities.
