History of the Collapse of Fiat Paper Currencies

The United States has placed itself into a position where the national debt is, once again, hitting its cap. Combine this with the Federal Reserve's recent actions, such as refusing to raise interest rates, printing more currency, and monetizing the national debt, it seems the US government is creating a high-risk environment with the US dollar. The US dollar is a fiat currency, along with just about every other currency in the world. A fiat currency is a currency which is not backed by anything, which means that the value is only in the minds of those who use it. This means that the US dollar, along with many other currencies, are intrinsically worthless, and often face the risk of being manipulated by governments and agencies such as the US Federal Reserve. Many fiat currencies in history have faced manipulation from their government and other agencies to attempt to stimulate the economy or stop economic problems such as unemployment. This has proved to have a very disastrous effect and has caused hyper inflation of that currency, creating greater economic problems than the issues they were working to prevent.

Among the currencies that have shown serious problems, some of the more famous cases are: The currency of the German Weimar Republic in 1923, three currencies in Argentina, and more recently, the currency of Zimbabwe. All of these historical events have very similar occurrences where a fiat currency was manipulated with the intention to improve the economy and or the lives of the people in the country.

In the '20s, the Weimar Republic was facing reparations for World War I based on the Treaty of Versailles. The economic situation in what is now Germany started to become dire because of their debts caused by the war. They simply could not afford it. Trying to find a way out of this situation, the government began to print more money without having additional goods to back the rise in printing. This created an alarming rate of inflation, ultimately creating the situation which many have heard about where people would take a wheelbarrow of currency to buy a loaf of bread.

Argentina faced a similar scenario with their currency. Unlike the Weimar Republic, Argentina's currency faced steady inflation over the course of nearly twenty years. The cause of Argentinia's hyper inflation was in part the refusal to place their trade and other deficits onto their national debt. Instead of borrowing money to make the difference, they printed the money. By 1983, Argentina had to reform their currency, and in 1985 they had to reform it once again, only for yet another currency reform in 1991. The new currency in 1991 was then backed by US dollars, which finally rendered Argentina's currency more stable.

In Zimbabwe hyper inflation recently caused one of the few cases of an entire abandonment of the local currency. This was among the most severe cases of hyper inflation in recorded history, where prices doubled in only 24 hours time. The cause of the hyper inflation in Zimbabwe was a large increase of cash that was not backed by additional resources.

The problem in Zimbabwe began in the year 2000 where the government forced the white farm owners, who made up 1% of the population but owned 70% of the land, to give up their farms in order to distribute the land to the blacks in the country. This destroyed much of the land that was used for agricultural purposes, which reduced the agricultural industry by a great amount. Sanctions were placed on Zimbabwe by Western nations for violating human rights by forcing the farmers off of their land, which made it difficult to import food to make up for the shortfall. The shortfall lead to an increase in the price of food, which placed a lot of strain on the Zimbabwean people. In response to the rise in food prices, the government began to print money in an attempt to offset the rise. This triggered an additional rise in food prices because more money was placed into the economy in attempt to pay for a scarce resource, which then caused a cycle of money printing and rising in prices - also known as hyper inflation. By 2009, a banknote was introduced which became a symbol of the hyper inflation in Zimbabwe, a 100 trillion dollar bill was printed for circulation.

While the United States is unlikely to have problems because of taking land away from one group of people to give to another, there is a risk that the government, given its history of spending, will spend more in an attempt to help people cope with the rising prices like Zimbabwe did. The method of calculating the CPI (Consumer Price Index) which is used to determine the rates of inflation, has changed over the years. Based on the standards used in the 1980's, the United States inflation rate is currently 10%, much different than the current rates that the Federal Reserve uses which is stating only a 2% inflation. While the entire rate is only 10%, there are some things that are rising at faster paces that Americans cannot avoid paying for, such as food and energy. The price of oil has pressed gas prices higher, and the price is predicted to get worse.

Precious metals often follow the rates of inflation. While on the gold standard, people could exchange their money for gold to secure their assets despite the inflation. The exception of this rule, of course, was during the Great Depression, but not because there was not inflation. On April 6, 1933, President Franklin D. Roosevelt banned the right to own gold. The reasoning behind this was the Federal Reserve was nearly running out of gold due to runs on the banks that were caused by the beginning of the Great Depression. The US government forced people to sell the gold they owned and the law provided for a fine of $10,000 plus jail terms to those who did not comply. Although this ban ended, it is still a huge symbol of the Federal government overstepping its bounds by refusing the private ownership of a commodity. This only ended with the end of the gold standard in 1971 and Gerald Ford legalizing private ownership of gold several years after.

This ban on private ownership of gold during the Great Depression is an attack on individual liberty and the right of the people to prepare themselves for the worst of situations. Unfortunately, many of the laws that enable the government to ban the ownership of any asset during any emergency are still on the books. Meaning, the government can seize any asset being used for investment or any other reason in economic downturn, war, or natural disaster. Many see this as a risk they are not willing to take and are taking steps in attempt to secure their future regardless of what happens. Precious metals such as gold and junk silver coins are popular investments or emergency currency. This is just in case that the US dollar, like other past fiat currencies, ends up in the hyper inflation trap due to the reckless government spending and the reckless printing of dollars that are already backed by nothing. In the forty years that gold has been legalized once again for private ownership, the price has increased by nearly one hundred times. This goes to show the amount of damage that the administrations of the prior forty years have done to the economy and provides a great reason why people should invest in precious metals like junk silver coins and silver bullion as opposed to holding onto a fiat currency like the US dollar or even the Euro.

Junk silver is an alternative to gold, but is still a solid investment for somebody trying to create a hedge against inflation or security in case the dollar collapses entirely. Junk silver are coins which are valued based on their intrinsic metal values rather than any numismatic value. Junk silver is perfect for those who wish to invest in small amounts of silver. The price of silver in the past year has doubled in response to the uncertainty of the stability of fiat currency in both the Euro zone and the United States.

Overall, the United States and the Euro zone are both making the same mistakes that have caused massive economic problems that resulted in hyper inflation in other countries. Spending money that isn't there, along with printing massive amounts of currency, even when the intentions are good, is a root cause of hyper inflation. Recently, the S&P rated the United States to a negative rating, underscoring the seriousness of the financial situation. With food and gas prices rising throughout the world, investing in junk silver will provide a safety net if the worst case scenario were to happen - such as the United States and Europe going into a second recession while governments continue to manipulate their currencies through stimuli and bailouts in an attempt to correct or prevent it from reoccurring.