Understanding your money and the value of a dollar... All of the currency in the United States and most of the rest of the world is backed by the 'good will' of the country which prints the currency. There is no intrinsic value to the dollar, other than the governments promise that it has some value. Most people these days never even think about this fact, as nearly all of us have lived under this system all of their lives. Let's take a historical look at this kind of thinking and see how people in the past would have faired under such a system:      --If the empire of Alexander the Great had printed paper money backed by the empire, what would it be worth today?      --If the Roman empire had backed their currency by the full faith and promise of the empire, what would it be worth today?      --If the great Byzantine empire, lasting almost a thousand years had paper money backed by the state, what would it be worth today?      --The mighty Ottoman empire that conquered much of Europe -- had they printed paper money, what would it be worth today? We could list many more examples of powerful and long lived governments in the past that no longer exist. However, the point is clear -- for in all of the examples above, their surviving currency still has value today, even though the countries and empires no longer exist! Why does it still have value? Because all of their currency was issued in silver and gold. We're quite sure that, just like today, the citizens of these great empires thought that they would go on forever. The difference between then and now is that when the modern empires fail -- the people will be left holding nothing of value! The one thing history always teaches is that it repeats itself and immortality is a delusion. When did the system change? The Federal Reserve system was created in 1913. This was the beginning of the end of US currency being backed by gold. Instead of having to back, by gold, every paper dollar issued  -- the new system allowed a board of publicly unelected directors to create currency at will. What was the result of this new system? Since there was now no limit as to how much money could be created, government was free to spend as much as they wished! Money could be printed, taxes raised and the economy influenced. Most importantly, the population could be controlled. Are the people spending too much? Then tighten the money supply, reduce credit and cut back on peoples choices. Is the economy slow and people saving more than we think they should? No problem. Print lots of money, give the banks lots of money in the form of credit to pass on to the people in the form of loans and make it easy to spend. The end result is never-ending cycles of ups and downs in the economy, all the while dwindling everyone's net purchasing power, reducing people's income and increasing their debt. What's a dollar worth? There are several ways of determining what a dollar is worth today, in relation to some point in the past. The most conservative way to do this is based on the Consumer Price Index. So, let's take a nice, crisp, $20 Federal Reserve Note ($20 bill) from 1914 and compare it to a shiny, new, $20 gold piece from 1914. In today's money, that $20 Federal Reserve Note - backed by the US government - is worth $0.05 (5 cents!). This is a comparison of what $20.00 could buy in 1914 versus today. The $20 gold piece, however, is hovering at around $900.00! Even if you assume the unlikely possibility that you took that $20.00 bill in 1914 and put it in the bank until today. At a interest rate of 4%, which is quite generous over this long a period, you would have $682.00. Thanks to monetary policies of the last 90+ years resulting in cycles of boom and bust, the average person can't even keep up with inflation. Every year that goes by your income diminishes as you make marginally more money. You will hear the political spin doctors tell you that inflation is only 1 or 2 percent and all is well. What they don't tell you is that this number excludes energy and food costs. Well if we didn't have to drive, eat or ship anything by motor vehicle that would be great news. Unfortunately for the masses we do have eat, drive and get our supplies shipped to us by motor vehicle. Do you ever wonder how in the early part of the 20th century people could buy homes, cars and live in luxury with only one income per family and today, with both husbands and wives working, many people can't break even? In 1914 a loaf of bread cost 5 cents. In today's dollars that's about $1.05. However, today it costs approximately $3 for an equivalent product. What can you do? Putting your money in the bank is a losing proposition. The value of the dollar falls faster than the rate of interest you are getting from the bank. Many people suggest buying stocks as a long term investment option. However the stock market is directly influenced by the monetary policies of the Federal Reserve. They control the money and the interest rates. Therefore, they control the stock market. Since we have seen that federal monetary policy over the last century has resulted in lower net income and purchasing power -- what does that say about the stock market? It is true that if you put your money in the stock market and left it there for 50 years that your average return would be much better than any bank and greater than inflation. However, the fallacy of this is that nobody can put all of their money in the market for 50 years because, as inflation and currency devaluation eats away at purchasing power, people have even less to invest tin the first place! Therefore the "put your money in the market long term" theory has little benefit to the person living paycheck to paycheck. Solution? Many people suggest buying gold as a hedge against inflation. This is certainly a viable option, if you can afford to buy gold. Owning gold is also a protection against unforeseen disasters that could render paper currency, bank accounts and stocks, worthless. Putting away whatever you can in gold makes good business sense. However, any hope of reversing this downward spiral depends on the people and their power to influence elections and pick leaders who are not going to play the global fiat money game. Talk to your friends and neighbors, know who you are voting for, voice your opinion to elected officials and news opinion columns. Nothing will change unless people stand up for a real change of direction. If nobody stands up history will eventually handle the problem -- much to our detriment.