Since time immemorial society has recognized the convenience and necessity of currency, without it most trade and economic activity would cease to exist. Currency in ancient times has been enumerated in a medium of recognized value such as gold; silver, bronze and copper just to name a few, where the value itself is intrinsic to the currency. Later countries began to use paper usually backed by gold or silver, as a more convenient medium for currency.

In very recent times however most countries have followed the lead of the United States and stopped backing their currency with assets and the term “fiat currency” from the Latin “let it be done” is born.

FIAT CURRENCY

The result has been countries spending beyond their means and printing currency, which is essentially paper or electronic blips backed by nothing more then the “faith and credit” of the issuing country. This floods the market with more currency thereby devaluating the money supply already on the market. Interest rates are used by the issuing central banks to take some of that currency back off the market, in a sort of revolving shell game. For example, for every dollar you borrow you pay back $1.10 thereby removing from the market currency, and requiring them to print more. This creates a cycle of inflation and ultimate currency crash.

The current political reality across the world is that countries from the United States to the European Union are printing far more than they can take back in interest rates, flooding the market with more and more paper which represent the wealth of the nations. Now the house of cards is beginning to show signs of stress and actually beginning to crumble in nations such as Greece, Spain and even France has seen riots in the streets over austerity measures in an effort to reign in its spending.