Fiat money is money that has value only because of government regulation or law. The term derives from the Latin fiat, meaning "let it be done", as such money is established by government decree.
As we watch the next great depression unfold before our eyes, Sir Knight and I have been researching ways of turning our fiat currency into something a little more tangible. Along with investing in commodities (food, medical supplies, weapons, ammunition and other tangibles) we thought it would be wise to invest in another form of hard currency.
When Sir Knight approached me about the idea of purchasing junk silver (pre '64 US coins with a silver content of 90%) with our savings (fiat currency) the first thing I said was "what the heck is fiat currency?". I have heard the term for years, but I really didn't have any idea what it meant. Sir Knight explained that fiat currency was currency that was not backed up by tangibles but only by a governments promise that it was worth something. Fascinated, I decided to do a little more digging and this is what I found:
There are three types of currency...
- Commodity Money: Where the "thing" that is money has an intrinsic value equal to its value as money, like beads, livestock or silver bars.
- Representative Money: Has no intrinsic value but which can be redeemed against something that does, like a piece of paper which can be exchanged for a fixed amount of gold (the US had this system when the dollar was backed by the gold in Fort Knox).
- Fiat Money: Has no intrinsic value and cannot be redeemed against anything else. Unlike the first two types of money, there is no natural limit to the quantity of "fiat" money, which can be created.
The Magic of Money by Vincent Scheurer
Before this country was settled, the Native American population used "commodity money" for their transactions. It was simple, straightforward and worked. The natural progression in economics required an easier form of currency, thus "representative money" was introduced. Rather than trading a pig, a team of horses and a cord of wood for a tract of land people used notes that were guaranteed (meaning they could be redeemed) by a tangible such as gold. As governments grew and tangibles dwindled, fiat currency became the norm.
Realizing that fiat currency is dependent on the credibility of the government by which it is issued, it has become alarmingly clear that the deck of cards that we call our economy will soon collapse. Burdened with this knowledge, Sir Knight and I have decided that we need to transfer our wealth (I use the term wealth in the broadest of senses!) from fiat currency to a currency with intrinsic value. We have chosen to exchange our paper money for junk silver.
Believe it or not, exchanging our increasingly useless dollars for silver coins makes for a heart stopping experience. Sir Knight recently exchanged $280 dollars for a mere $9.25 (face value) of pre '64 coins! Talk about pause for thought! Walking into a store with a wad full of cash and walking out with a few coins almost makes you sick to your stomach - even more when you realize that one silver 25 cent piece is worth $7.50 in paper money! Just think about it - if you had $4,300 (face value coins) in 1964 those coins would be worth over $129,000 dollars today! Really! And that is not numismatic value - that is face value!
We are in the throws of the biggest financial collapse of our generation - maybe many generations. In order to protect our families, we must start accumulating tangibles versus greenbacks. Although silver and gold are a logical choice, garden seeds, food, fuel, lead and brass, or any other USEFUL item will guard your family from almost certain economic peril.
Gone are the blissful days of ignorance. Be sure to educate yourself. Survivalblog's Economics and Investing is a great place to start along with numerous other sites on the web. Now is the time to convert your wealth, whatever it may be, from increasingly useless currency to items with intrinsic value. We need to be good stewards of whatever we have been entrusted with.