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June 27, 2011 / 74

Fiat Money

Some time ago I promised to define fiat money. Lazy person that I am, I cannot bring myself to try to improve on work that is accurate – so I just linked it below.

http://www.rapidtrends.com/what-does-fiat-money-mean/

However – a couple of points…

1. The writer fails to clearly define fiduciary money – which, unlike fiat money, is money backed by a commodity or other tangible having real-world value regardless of economic or political conditions. Corn is a commodity. If there is a depression, it can be eaten. A house is a tangible that has value since you can live in it, or trade the right to temporarily reside in it to others in exchange for commodities (rent it out). But the writer DOES do a good job of describing the main weakness/problem with fiduciary money.

2. The writer believes that buying gold or silver is the solution to the “currency” problem – which is to say that you can “store your wealth” in gold or silver or other precious metal. Of course since the web site is a metals trading site, this is an expected position. 😉 I strongly disagree.

I believe that the solution is to store your wealth in assets that provide current income. Buy a farm – and grow and sell food. No matter what the money is doing, no matter what the value of gold or silver is doing, folks gotta eat and they will trade whatever is of value at the time for food. Buy the means to make and sell liquor. There’s always a market (legal or illegal) for the stuff. Invest in knowledge. I’m not talking about generally useless knowledge, but knowledge that is of real value to most people. HOW to raise and slaughter cows and pigs, HOW to plan and install a potable water system, Etc…

And you should also plan to DIVERSIFY what you invest in. Don’t bet it all on a single horse lest YOUR horse break a leg while still in the starting gate.

As I said before – if you want to invest, all you have to do is look at Maslow’s Hierarchy of Needs and invest in the stuff that people can’t live without! Fiat money is NOT such an investment. 401K’s and “retirement funds” are investments in fiat money.

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