This is part 5 in “The Dangers of:” the series. In this piece we dive into the most dangerous and most common form of currency.
Fiat Money is a type of currency that is not backed by a commodity like silver or gold, as opposed to hard money which uses currency that is backed by a commodity. Most developed countries are using a fiat currency and have been for a few decades. The Euro, The Pound, The Canadian Dollar, The Chinese Yen and The US Dollar are all examples of fiat currency.
Before the United States implemented a fiat currency, in 1933, we were using the gold standard. What this means is that all US money was backed by gold. For every dollar there was $1 worth of gold to back it up. In 1933 the US was in the heat of the great depression when the progressive, big brother, socialist-lite President Franklin D. Roosevelt was elected to office. His policies during the Great Depression not only extended the Great Depression by 7 years, they ruined the economic future of the United States indefinitely.
FDR was a student of the Keynesian Economic Theory (which I will do a piece on later.) At a very high level, Keynesian Economics is a theory about the effects of total spending on inflation and output which believes that big government spending and low taxes will lead to high economic growth and will minimize any possible recessions.
Because being on the gold standard limits the amount of money you can print to the amount of gold there is to back money, FDR knew he had to get off the gold standard so he could implement his big spending socialistic government programs. On June 5th 1933 the United States went off the gold standard. This allowed for him to implement his Keynesian ideas and blow up the national debt.
Since going off the gold standard the federal government has been on an 87 year spending spree and hasn’t looked back. In 1932, the year before we came off the gold standard, the US was in $19 million of debt. In the first 5 years of being off the gold standard the US debt almost doubled. Since 1933 the US has added 131x more to the national debt than in the first 157 years of our country.
While FDR implemented a bevy of unconstitutional programs and regulations, his most devastating act as president was taking us off of the gold standard. This has given complete and total monetary control to the government and has lead us to inevitable doom.
The US is heading down the same road that Greece was in the early 2010’s and some experts think we are going to get to a point where we default on our debt in the next 10 years.
Switching to fiat money has given the government the idea that they can just turn on the printing press and print more money to get their way out of any situation. Because the dollar is not associated with a commodity, it’s value is based on the creditworthiness of the issuing country and the amount of currency in circulation. The more debt that a country is in and the more money they just print out the less value that it has.
The Great Depression was destructive for the American people who lived through it but was arguably even more cataclysmic for the economic future of the United States of America.