Why should we treat the action of the government differently from the same actions of citizens? Wouldn't it be wrong for a government to murder people with no provocation? Wouldn't it be wrong for a government to kidnap people and hold them captive in a secret location? Why then is it fine for the government to debase the currency, and therefore destroy the value of any accounts held in that currency?
This is the current global strategy to the debt crisis: inflate it away. If we (we being the government and central banks as a colluding entity) inflate the dollar 100:1, then the "toxic" debts are only 1% as bad as they were before. And we get to keep the houses we evicted everyone from, and sell it back for the new, inflated valuation.
Why then is it fine for the government to debase the currency, and therefore destroy the value of any accounts held in that currency?
The value of the currency depends on what I can exchange it for. If the US dollar's value relative to the things I buy and sell remains relatively stable over the next few years, and if my risk of losing my job remains low so that I can feel confident in my ability to keep earning those dollars, then as far as I'm concerned, the Fed is doing its job.
If the US dollar's value relative to gold goes down, I couldn't care less. I can't eat gold.
I'm not trying to defend the current setup of the Federal Reserve as it stands... I think there is a lot of room to make it more transparent and to erect barriers such that Goldman executives (or any other bank) can't make a career of moving back and forth between the company, the Federal Reserve, and the White House.
As you put it, the government has the ability to debase a currency (I'm not arguing it's fine to do so, but I agree that it has the ability). Would you prefer to give this ability to private entities (corporations and individuals) as well? That is what commodity-based money gives you. Whoever produces or purchases that commodity has an effect on the money supply.
As an alternative way to think about it, would you want a money supply based on oil? It is also non-renewable, malleable (yay liquids), portable, and hard to counterfeit. How about money based on copper?
I'm sure the folks in the middle east and Chile (respectively) would love to be able to affect our money supply. Also, the cost of driving a car or building a house would go up needlessly, just like the cost of gold for electronics and medical uses is needlessly high because of gold's status as a speculative commodity.
So yeah, if there was a way to have a perfect money supply not subject to manipulation, I'd be all for it... but a commodity-backed system is just as bad (or worse) than a fiat one.
"That is what commodity-based money gives you. Whoever produces or purchases that commodity has an effect on the money supply."
But in that sense, nothing has changed for fiat currency. Fiat currencies are still produced and purchased just like commodities, with the exception that governments can produce all they want to get a leg up on that game. That's what they use monetary inflation for, to cheat at currency trading and bonds games.
My point is that nobody should be "in charge" of a currency. Currencies came about through consensus in the market, not through government mandate. Nobody has the right to be the final arbiter of all "dollars" any more than anyone has the right to be the final arbiter of "time" (the only truly important resource) or "air and water" (the first truly vital resources). Monopolies are not good, especially monopolies that come about through force, which is as governments are. In a society that is claims to be free and equitable, having a super-citizen government is not equitable.
A single, mandated currency is a borderline oppressive idea. There are laws against "undermining the ubiquity and stability of the dollar". They're used against people who want to mint their own coins of their own design and use them in transactions with people willing to accept them. If people want to use something other than dollars for transactions, then more power to them. Hell, publicly traded corporations already do it, often using their own stock holdings as a medium of trade for merger deals and such. When you look at the plethora of trading (I mean this in the generic sense, not the Wall Street sense) options available to anyone with enough wealth, I think it starts to become clear that financial and monetary laws and regulations are really only meant for the working classes.
There is no reason it's illegal to make and circulate your own currency... my town even has it's own local currency.
To quote the section to which I think you are referring (Section 31 U.S.C. 5103):
"United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."
Also Article 1, Section 8 of the Constitution:
"The Congress shall have Power...To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures"
Notice it doesn't say exclusive right.
The 'legal currency' just means that if you sell/loan someone something, and they offer to pay/repay in dollars, you either accept them or give up your claim to that debt. Also, the government will only accept dollars for taxes/fees. So you could legally refuse dollars if you wanted to, but if you did so, the other person could just say "I tried to pay but he wouldn't let me" and walk away. But if the other person wants to pay you in some other way... with Blah Bucks... and you accept them, nothing illegal happened. It would just be considered bartering.
I'm not sure I'd want a currency backed by my local bank. At least I know the US government and by extension the Federal Reserve can't go bankrupt, rendering my money worthless (although it's true they could hyperinflate, by choice). Imagine all the people that would have had Bear Stearns dollars and what a catastrophe that would have been.
This is the current global strategy to the debt crisis: inflate it away. If we (we being the government and central banks as a colluding entity) inflate the dollar 100:1, then the "toxic" debts are only 1% as bad as they were before. And we get to keep the houses we evicted everyone from, and sell it back for the new, inflated valuation.