Gold and silver are the only currencies not created and controlled by governments. All of today’s other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are ‘fiat’ currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws). Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. All of today’s fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971). The rate of creation of fiat currency accelerated markedly in 1995, leading to today’s worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon. Today’s fiat currencies are unfair. For example, because the US issues the world’s reserve currency, the rest of the world sends the US real goods and services and just receives bits of paper or electronic bookkeeping entries in return—many ships travel to the US full of goods, but return half empty. Is it a coincidence that the United States is the world’s richest country and can afford the world’s biggest military forces? Is that fair or right?
Newly created money buys things at the price levels that exist when the money is created and spent. But that extra money raises the general price level, so the currency saved by others loses value—things are more expensive when they later go and spend their money. So fiat currencies favor borrowing at the expense of saving. It is no coincidence that every sector of western societies is at record debt levels as of early 2004. How fair or wise is a system that favors debt over saving?
The finance industry and governments have promoted fiat currencies at the expense of gold in the public’s mind for decades. From here, the investing public’s attitude to gold can only become more positive.