Now that I have your attention (the “for dummies” phrase seems to be very successful for selling books), I am going to use the simplest example that I can think of to make this point.
Supposing someone asks you, or you ask yourself, how much do I have in the stock market? If you own 1,000 shares (just to use a round number) of various stocks, that’s about the only thing you can say for sure about what you “have” in the stock market. But supposing your questioner is more persistent, and wants to know how much money you have. The logical thing to do would be to look up the stock prices of each company, multiply each price by the number of stocks you own in that company, and then total it up. That is called marking your portfolio to market.
If the average price were $10, you would say, I have $10,000 in the stock market. If you are a small investor, and the stock market is not very volatile, you could probably sell your 1,000 shares right at the moment and realize your $10,000 (minus stock trading fees and taxes).
Now, suppose the extreme case where everybody decided to sell all their shares at the same time, and the only person willing to buy them would only pay $0.01 per share. You’d be lucky to clear anywhere near $10.00.
Where did the other $9,990.00 go? You can’t even say that it went up in smoke, because there is not even the slightest physical trace of that money. So did that money ever really exist?
As you try to tell me that the FED cannot create money out of nothing whenever it decides to, compare that to what mark-to-market did. Mark-to-market is only a concept. It is not even an actual thing with any physical embodiment. No building, no people, and no equipment make up something called mark-to-market. You might say it’s all in our minds. Now you understand what money is worth and how it is valued.
Oh, and what is that $10,000 you could have realized? If you go to the store, you might be able to buy 10,000 candy bars. Or if inflation is running rampant, maybe you can’t. So the people who rail against fractional reserve banking because it let’s banks “create money”, so what else is new? Why don’t you outlaw mark-to-market from creating any money? Can you put mark-to-market in jail if it won’t comply?