GOLD & SILVER - The New Currencies

By Dr. Jeffrey Lewis
In the currency game, only one player has dominated throughout the course of history: precious metals. Over time, fiat currencies lose their worth, as governments inflate the paper through printing and confidence is lost with each recession.

This phenomenon was proven in the United States with the Continental currency, which was rapidly inflated to pay for the revolutionary war. Thereafter, the inflated Continental dollar was replaced with hard metals, which retained and actually grew in value from 1774 to the creation of the Federal Reserve Bank in 1913.

Since the Fed
 After the creation of the Federal Reserve, the US dollar began is descent. Inflation to pay for the American involvement in wars, particularly World War II, the Korean War, Vietnam, the Persian Gulf, and now the War on Terror, has crippled the US dollar. Since 1913, the year the Federal Reserve was created, the US dollar has lost 96% of its value. Savings became all but impossible, as the practice of putting money aside led to a loss of spending power for US dollar holders.

Countries Laying the Groundwork
Distrust in fiat currencies is growing at an alarming rate. Gold prices have struck the same price they were in the 1980s as inflation in the United States reached record highs. China and India have made huge purchases of gold.

Investors and currency holders have begun to demand tangible value for their pieces of paper. However, the amount of gold and silver around the world is well outpaced by the amount of paper currency in existence. In order to reach equilibrium, gold and silver prices will need to skyrocket, and savers will require that their paper is backed with bullion, regardless of how miniscule the amount may be.

One common complaint with a metals standard is that there isn't enough gold or silver to back all of the currency. This is easily debunked by the fact that the importance of a metals backed currency isn't the amount of metal each dollar, pound, euro, or yuan is representing, but rather that a metals standard requires that currency issuance remain flat until more gold or silver are obtained.

This restricts central banks and world governments from creating hidden inflation. Either the issuer must obtain greater stocks or metals or devalue the currency in plain sight by resetting the value of the currency to a new weight of metals.

Gold and Silver as Currency
Gold and silver have been the dominant currency throughout human history. With the expansion of gold and silver stocks expanding at roughly the same rate as the global population, metals remain one of the best ways to ensure a stable currency value.

Today's investors have an excellent advantage, having already bought in at prices that will seem tiny when gold and silver are again adopted as currency. History is ripe with examples of gold and silver's ability to track the changes in currency values, and there is little doubt that the future will be any different. 

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