The majority of people think the paper notes they carry around with them is Money, but it is not. It is, in fact, Fiat Currency (Currency declared to be legal by any government). So what do we know about the Currency in our pockets?
- It’s portable
- We are familiar with it as a medium of exchange for which we trade our time
- It is a unit of account
- It is fair to say it is quite long lasting
- It’s divisible and fungible (i.e. the pound in my pocket is worth the same as the pound in your pocket) but it has no real intrinsic value.
The problem with Fiat Currencies is that governments can continually print endless amounts of ‘money out of thin air’ which devalues the Currency. The result of this is monetary inflation. This devaluation transfers wealth out of your pocket and bank account back to the government and banking system. The US dollar for example has lost just over 96% of its value since 1913 due to currency printing by the Federal Reserve (The Federal Reserve is a private corporation and not part of the US government). Your purchasing power is being ever diminished. Any Currency that is not backed by gold or silver will eventually go back to zero. Historically fiat Currencies have a 100% failure record!
So if your only store of wealth is paper Currency it’s value is constantly being eroded - just consider the price of petrol per litre 5 years ago and what it is now! Gold however is a great store of wealth. A 1 troy ounce Gold coin 2,000 years ago would have bought a wealthy Roman a quality toga and a pair of sandals. At todays price (21st Jan. 1015) the same coin worth about £854 would buy a business man a good suit and pair of shoes! A remarkable store of value don't you think, the same certainly cannot be said of paper currency as mentioned earlier the US dollar has lost 96% of its value in the last 100 years.
Gold and Silver are real money and being ever rare metals have real value unlike Fiat currencies. So what is it that makes them the best form of money? Well for their size and weight they store a lot of value. They are durable and a great unit of account as one ounce of gold has the same value no matter what country you’re in. It’s also quite amazing when you think the gold and silver that ancient civilisations used millenia ago is still with us today.
Precious metals are limited in quantity, that’s why they maintain their purchasing power. They cannot be counterfeited by governments or printed into oblivion like fiat Currencies. Over the last 5,000 years gold and silver have seen many fiat currencies come and go.
Right now the Central Banks are playing a dangerous game, and it wouldn’t come as a surprise this year if some big names go to the wall. Our current banking system (walking but dead) will at some point up end. Don’t forget wealth is never destroyed it is merely transferred. That’s to say on the flip side of every crisis there is an opportunity and you can be a part of it. So if you want to preserve your wealth, it might be prudent to start transferring some paper currency into silver and/or gold coins/bars. They are a great hedge in times of turmoil. World governments cannot continually expand currencies with deficit spending and bailouts it’s just not sustainable long term, at least I don’t think it is!
If this has been of any interest or help please share. As always your comments are most welcome!