A fiat currency means it is backed by nothing. In 1971, president Nixon took the US Dollar off the gold standard. This meant that the dollar was now backed by nothing and its value was determined based on its strength against the other world currencies.
This is not the first time it has happened throughout history. The following are just a few examples:
In A.D. 218, the Romans took silver away from the Denari as backing for its currency. Its value soon went to zero and they saw hyperinflation.
In France in 1715, King Louis XV took gold and silver away as backing, and the country soon experienced hyperinflation and it turned the country into ruins.
In Germany in 1922, the government turned on the printing presses in a similar fashion to what is being seen today in our country. They experienced a horrific hyperinflation where people were burning their money in order to stay warm. This chaos opened the door to a radical new form of leadership; Adolf Hitler.
All throughout history countries have taken their currencies off the gold/silver standard knowing that "this time it will be different." Do you know how many times a fiat currency has survived throughout history? Zero. Never. Its value has always gone to zero.
Of course, this could never happen in the United States, right? It has already happened twice.
Our first paper money was the Colonial back in 1690. As all the colonies started to print their currencies with no commodities to back it, the colonials value went to zero.
The next chance came during the revolutionary war when the country issued continentals to pay for the war. Does that sound familiar? Its value went to zero, and America went back to a gold standard until 1971.
I believe it is important to study the past in order to help understand the future. We are currently on the path toward hyperinflation. Based on the actions our leaders are pursuing, our currency is heading toward a value of zero.
That is such a radical thought people easily dismiss it as nonsense. But why? What economic reason does printing trillions of dollars in America not ultimately devalue the currency? Why is it different this time? Just because we don't want it to be?
Think about it this way; If the value of the currency strenghtens and you are in debt, you have to work harder to pay off that debt. (The debt becomes more valuable) If the value of the currency weakens, it is easier to pay off that debt with dollars that are worth less.
Right now we owe the rest of the world about $8 Trillion. It is in the government's best interest to devalue that debt, as long as it is a slow decline and not a rush to the exits. At the same time, however, it brutally punishes people on fixed incomes that are saving dollars for retirement. They feel themselves getting poorer, but they cannot understand why.
Here's another interesting question: Why did the government recently raise the FDIC insured limit to $250,000 from $100,000?
The reason is because they did not have the ability to cover the $100,000. If you can understand that, you can understand what is happening in the world right now.