Investopedia gives a concise meaning of Fiat money as follows:
Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves.
Historically, most currencies were based on physical commodities such as gold or silver, but fiat money is based solely on faith.If we had kept to the gold standard our standard of living wouldn't have risen quite so dramatically since the thirties as it has.
That was the upside which resulted in our going along the "fiat money" route, with successive governments printing money "willy-nilly" without having to "promise the bearer".
The downside is just about to hit us, and to hit us hard.
If you read my last blog you will already know how desperate Americans are becoming with so many out of work, and some electing to rob a bank - one man gave a threatening note to a teller asking for $1, then sat down to wait for the police to come.
Then, of course, there is the EU. with Ireland, Greece and Portugal in serious trouble, and now Italy whose debt will tower above those of the other three combined. And I am not even going to mention Spain.
So what is going to happen? The American Government and the EU are going to print more money.
"What does that do for me?" I hear you ask.
To coin a recent meercat advert: "Simples".
Let me put it in simple terms.
An island has ten people living on it and between them, they have £1,000. But the elder of the island decides to print another thousand pounds and now the total money on the island is £2,000.
But, and here's the rub, because the value of the wealth of the currency is the same, £1 before the reprinting will now only buy half of what it could have bought previous to the new printing.So the more money the governments print, the less buying power your money has.
Answers com had the following question asked: "What would 1 million dollars in 1930 be worth today?"