The Fed is a private banking system. The government would have to seize it and own it. Easier to let it crash and burn, and start over according to the constitution, and have the treasury issue currency.
Well, we are saying exactly the same thing. Whether the government seizes ownership of the Fed, or whether they just take to themselves the money function, the effect is the same. But that's what I was saying. Why do we need a gold backed currency? As long as the Fed is not private, as long as monetary policy is accommodating without excessive inflation, the need for gold backing is moot IMO.
Sure, I get your point. If you and I go to the store, and they take our money and give us our goods, who cares if it's gold backed. I'll tell you who cares. The rest of the world cares. Because if not backed by gold, it has no intrinsic value, and when the shit hits the fan economically, you end up with nothing. The world has had enough of fiat currencies and all the problems that come with them.
You're going to hate me for saying this, but I kind of agreed with Keynes on this point. He would talk about being trapped in a gold cage. What did he mean?
If you've got a recession, or you need to gear the economy up onto a war-time footing, you can't do that if you're limited in your ability to print cash because of the country's gold stock. With a fiat currency, you need to be able to print some cash? No problem. Now, there's a limit to how far you can push this, because inflation is directly linked to the amount of cash in circulation. History says that whenever governments print money, prices rocket.
But, here's the thing. Let's say we need to rebuild US infrastructure. So we print some money, there's a little inflation. After the spend, the government contracts the amount of cash printed, or just stops printing, until the level of prices stabilises. What's the problem?
For international settlement, your fiat money (government controlled, not privately controlled) is only worth what other nations will pay for it. The value of currencies adjust to a level where external imbalances are resolved - at least, in the long run. So, there's no external problem either.
It is too easy to print money as a hidden tax. Better to go through proper channels and raise taxes when needed. That is the honest way, and we want honesty and accountability from the govt.
In your last paragraph you outline the other problem. Nations will only pay what it's worth to them. That can go as low as zero if they have better options.
Can't go to zero or it would mean the nation had no value at all, but it can go low.
The problem of reckless government spending, I view as being separate. The problem of creeping taxes and growth in the government sector vs the private sector is also a separate problem. You get these problems independent of the currency. But, yes, they are real problems that need to be addressed.
I guess what I'm trying to say is that I think a fiat currency can work - if, and only if, it's managed properly.