A lot of people don’t realize how much our money system has declined and how fragile it is. Basically it is just built on confidence or the greater fool theory. People take our money as payment assuming that someone else (a greater fool?) will take the money from them as payment. As long as there are no problems, the system continues to work.

The constitution gives the government the right to coin money but does not say that the government has the right to print money. To be fair, it doesn’t expressly forbid it either. Now though, we have the Federal Reserve, which is not a part of the government, printing and creating money.

Though we have had paper money around for a long time, over a hundred years ago, much of the money used were coins. Coins were around for a lot longer than paper money. I have some gold $10 and $20 coins from the late 1800’s.

They will probably buy as much or more today than they would back then. If we still used gold and silver as money, we wouldn’t see much or any inflation.Inflation is really money going down in value, not things costing more.

In 1933, FDR outlawed gold and made it so the Federal Government had all of the gold. This way, they could manipulate the price of gold and make our money worth less. However, a dollar was still worth a dollars’ worth of gold. It was like having a piece of paper good for a pound of coffee.

In 1971, Nixon took us off of the gold standard altogether. Now you had a piece of paper good for a dollar’s worth of nothing. Kind of like having your certificate for a pound of coffee good for just a pound of who knows what.

This did trigger a lack of confidence in the dollar that got so bad in 1978, that the US government issued bonds in Swiss Francs. Eventually interest rates rose to 18% to restore faith in the dollar.

Now, our money isn’t even based on worthless paper. There are actually very few paper dollars in existence. Most of our money is based on debt. For example, if a bank has $100,000 in assets, they can loan a million dollars out. So they just created $900,000 out of thin air with debt. The loan is the asset they hold to secure the $900,000.

An example of our debt based economy might go like this. A farmer borrows money for equipment, ground and seed to plant a crop. When he harvests it, a trucker borrows money to buy a truck to take the crop to a processing plant. The plant owner borrows money to build the plant and process the crop.

Finally, the consumer uses a credit card to buy the end product. Most of our society is run by debt very similar to this. The problem occurs when a few people can’t pay their debts. Then those they were supposed to pay, can’t pay their debts and so on. It can create a domino effect that collapse the whole system.

This collapse can happen very rapidly. The first you may know of it is that your cards don’t work or the bank is closed when it is not supposed to be. No matter how much money you have in the bank, it won’t do you any good.