Tuesday, August 9, 2011

Fiat Currency

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...

  1. Commodity Money:  Where the "thing" that is money has an intrinsic value equal to its value as money, like beads, livestock or silver bars.
  2. 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).
  3. 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.


  1. I got some extra fiat money in recently and I probably should have purchased a bag of silver quarters. I made some large payments on some debt and purchased some beans, bandaids and a bipod for a rifle.
    I have some cash left and maybe I will get some quarters.
    I hear silver may go up in price again becouse auto manufactures will replace platinum with silver in catylic converters on new cars in 2012.
    That means two things.
    1. Price of silver will again increase becouse of industrial use.
    2. Every petty thief and meth addicted junkie with a hacksaw will be cutting and stealing expensive catylic converters on new cars.

  2. math mistake... 30 times face value i.e.
    30 x 0.25 (quarter) = $7.50

    30 x 4300.00 = $129,000

    for multiplier multiply Spot price of silver x 715
    and get value of $1000 face value "bag" of silver. Divide that number by 1000 to get multiplier. Best regards, Bob K

  3. Bob-
    How right you are! Thank you for the corrections. I do have the multiplier, but obviously hit the wrong key. Thanks again.

  4. I am a big fan of gold and silver and especially junk silver. But be aware that the price of gold and silver will rise much higher and drop much lower then other items that track the economy. This is known as it's "beta" (a measure of it's volatility). What this means in practical terms is if you aren't careful you could get stuck holding $10,000 in gold that is suddenly worth $1000. This has happened before and will happen again. Will it happen tomorrow or next year? I doubt it but when it does happen the drop in value will be faster then the rise in value. Many people who have invested heavily in precious metals have had to hold onto them for 20 years or more just to get their money back. Remember that gold is not really worth $1780 an ounce (the latest spot price). It is worth what someone will pay for it and not a penny more. If the worst happens what will you do with your gold coin? Will someone give you 20 lbs of wheat for your coin? You can buy 20 lbs of wheat for under $10 today but someday may be worth more then an ounce of gold. So I like PMs and have a little I don't want to put all my money into PMs ESPECIALLY after this huge runup.

  5. Excellent article. I was able to convince my husband a year ago to purchase both junk silver and some silver ounces. The ounces were scored so that they could be broken into 1/4 ounces. At the time I noted what 1/4 ounce ($3.75 at the time) would buy - one gallon of milk, a bit over a gallon of gas, 3 loaves of bread, etc. That conversion value has been holding true so far.

    I prefer silver to gold due to silver being more fungible (Returnable or negotiable in kind or by substitution). For example, if you needed to buy that sack of rice and all you had was a gold ounce, it would be difficult to exchange.

    Over the last year, we've also turned fiat money into food & garden beds. I insisted our mortgage rate be a fixed rate. We had a few thousand in credit card debt due to a sudden cross country move. I moved that to a fixed rate loan and it's almost paid off now.

  6. My parents saved silver coins in jars and I still have them. And I'll be holding onto them. It'll be interesting to see what happens here in the near future. It's going to be a bumpy ride!

  7. A long time ago (2001?), I had bought some Silver Eagles at 6.99/oz, including the premium and mark-up! I was 15 at the time, didn't know better, and sold them to pay off some debt. Last year (May 2010) I was able to throw some savings toward a tenth bag of pre-64 dimes, at 18.50/oz, again including dealer mark-up. SurvivalBlog's flash traffic over the weekend gave me a good heads-up. In the last 3 months I've put almost the entirety of my income into pre-64 silver.

    Soldiers are especially challenged when it comes to prepping, particularly when deployed. I'm not in a good position to purchase firearms or lay away food stuffs, unfortunately, but I can keep the purchasing value of the fruit of my honest labor from melting totally away by "freezing" it in silver. One day, cold hard cash will again be king. I've always wanted to buy some decent land outright with cash to avoid the mortage burden. I guess I may be plunking down bags of silver instead of a cashier's check on such a day. Make hay while the sun shines folks!

    Hold the line in the Redoubt. Some of us are pre-occupied but will vote with our feet at the first available opportunity!

  8. I'm sorta dumb, but isn't the value of all this gold and silver determined at it's redemption in cash? That's what I have a problem with, I guess. I would only want to redeem it at it's highest value point. The value would be in cash. The cash with which I would redeem it is rapidly being devalued and would likely be continuing to devalue even after I redeemed my gold. I would essentially be exchanging it for useless paper. To me that seems like sort of a losing proposition, in relative value. It will certainly not be a way to make money. It will require impeccable timing to determine when to cash out and then one would be holding a rapidly devaluing asset - the cash by which the precious metal is valued. It may be a good way to shelter some cash, but probably better to purchase useful tangibles.

  9. Listen to the Survival Expert, JW,Rawles, at www.Survivalblog.com and heed his so relevant, repetitive message for 5 years and counting, and honest, FREE advice!
    He recommends that you Use your excess paper money to procure all your required provisions asap. Consumer Prices are increasing daily on consumables, combined with the devaluation of the US buck, it is wise to use that cash to get your tangibles in order and purchased now!
    He also recommends strongly, that you DO NOT buy Silver until you have ALL your primary needs met first for Food, Water, Medical, Optical equipment, Dental, Pharmaceuticals, and Medical supplies and Personal Protection to last for several months, or as much as you can purchase now.

    I must comment here, that Capt. Rawles, unlike many of the other "self proclaimed" survival experts, has given his advice to those that seek it for FREE! He charges you absolutely nothing for his services he provides on his blog.
    This has been his operating practice, to give 'til it hurts to those who seek to help themselves, since the very inception of the blog.
    There is Free access to all his investment information, found in his 'Archives Section' on the site. Please use the search feature and you will find all the tenets on buying silver to be used as a survival medium of exchange, and also vast information on obtaining silver for investments. You will also find out how to price your silver to use it equitably in making an exchange for purchases when paper is worth Naught, Zero, Nada.
    Having physical silver, rather than paper, is much more than just FACE value. It's a tradable metal element that has intrinsic value whether it's market value is up or down. Read up and you will understand when to buy on dips in market pricing and when to TRADE that gold for silver. He also makes a very good case for the purchase of nickels.
    Yes, nickels. Check it out, and show him thanks for the value you learn from his site by
    recommending others to also read it.


  10. Precious metals will be useful for paying your taxes post collapse (taxes won't go away even then). Wouldn't want to lose your land/house because you were only holding worthless paper dollars.

  11. I have two rules for me. 1: Diversify and 2: never invest more than I can afford to loose one half of in any one thing. As much as I hate fiat, I still keep some in the BOB.



  12. George Soros is hell-bent to devalue the US Dollar. That is enough reason for me to invest in something besides dollars. I cannot afford gold, and silver is being hindered by increasing margin requirements, so I seek refuge in tools. I buy all the USA-made tools I can find at yard sales. They will be good as gold in another couple of years.

    NoCal Gal

  13. Dont forget your nickels! Rawles has posted on this at Survival blog.

  14. Our family is in total agreement with you and I wanted to see if you have had the opportunity to read a great book on this issue. It isn't very big, but very informative regarding honest money, God's currency and how far off track our monetary system has become. The title of the book is Fool's Gold: How the Traditions of Men Have Replaced God's Honest Money. Here is a link to it: http://www.amazon.com/Fools-Gold-Traditions-Replaced-Honest/dp/0557004535/ref=sr_1_3?ie=UTF8&qid=1345388205&sr=8-3&keywords=doug+tjaden

    I just found your blog this morning through your washer post on Pinterest and have been delighted to take some time before our church meeting to be inspired and fired back up for why we do what we do. Thank you!