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Will day to day economic transactions in America in the years ahead continue pretty much as they have for the last century or so, or will they change? In other words, what will ground-level finances look like in five or ten years—or possibly three or five years? To answer that question, at least to the extent that I’m able (I’m not a professional economist), I reviewed my own experience, and studied up a bit on history. The answer I came up with isn’t outlandish or apocalyptic, but it’s still not a pretty picture.

First, a bit about me: I’m in my early 50s, a retired military guy, a Christian in chronic need of forgiveness for my sins, living in a semi-rural area in the Midwest. I’ve been married for 27 years, and we have a 25-year-old disabled son whose care will be our responsibility for as long as we’re physically able to meet it.

As to the issue of TEOTWAWKI, I’m quasi-apocalyptarian (to coin a term) at best. I don’t think we’ll revert to the Dark Ages, but I do think we’re headed to roughly a world that my mother, who was born in 1925, would recognize from her childhood. I also think it’ll be a bumpy ride down, not a smooth one. My favorite commentator on this prospect is John Michael Greer at The Archdruid Report, who is often of two minds on the subject, or so it seems to me. (So am I.)

I should probably add that my wife, who’s an intelligent and reasonable person, thinks I’m a nut on the issue of TEOTWAWKI. She thinks our immediate future is going to be pretty placid, just like our immediate past. I hope and pray she’s right. But her view does nothing to change my responsibilities to my family.

Anyway, here goes:

What is Money?

Modern governments and citizens tend to view money differently. To governments, money is just a medium of exchange for commercial transactions. To citizens, money is both this and a reliable store of value. (This generalization has many exceptions, but is accurate enough to be useful as an analytical tool.)

In America, from about 1800 to 1913, the dollar served both these purposes well. Keeping a sack of dollars in your mattress created some risk of loss through theft, fire or other disaster, but was otherwise both rational and prudent. Paper dollars were redeemable for dollars made of gold or silver, and inflation during this period was virtually zero.

Starting in 1913, however, with the creation of the Federal Reserve Bank, things changed. Since then, dollars have met the government’s definition of money (a medium of exchange), but have met only half of citizens’ definition, in that dollars have not been a reliable store of value.

The dollar has lost 95 percent of its purchasing value since 1913, according to the St Louis Federal Reserve Bank. (Ironic source, huh?). Citizens haven’t been able to redeem paper dollars for gold since 1933, or for silver since 1964. And keeping sacks of dollars in your mattress has been a recipe for slow ruin.

Interestingly, though, the Fed has managed this erosion of purchasing power cleverly and gradually. With effective annual inflation typically between 2 and 3 percent, the dollar’s decline has escaped the notice of the vast majority of Americans—or, perhaps more accurately, this decline has not prompted widespread alarm or panic.

Also interestingly, most of the rest of the world has been just as complacent as we Americans have been. Throughout the globe, and particularly in the developing world, the dollar has become the basis of the underground economy, so much so that over half of the roughly 800 billion actual paper dollars estimated to be extant in the world are outside our borders. Is it possible that this phenomenon provides a clue as to our likely future?

Bad Money

It is well known, and often repeated among preppers, that every previous fiat currency in the history of the world has failed. While true, I don’t know that this observation is particularly illuminating or helpful in our day to day lives. What really matters is the pace of this failure, and the extent to which the failure is recognized by the citizenry. Moreover, that second factor (recognition by citizens of ongoing failure) has a strong effect on the first (pace of failure).

I’ve concluded that the pace of failure of a fiat currency is primarily a function of the prudence of the issuing government. The more imprudent the government, the faster the failure will proceed. “Imprudence” in this context refers to fiscal policy and tax policy. Specifically, any government that spends a lot of money it doesn’t have, or taxes its citizens at confiscatory rates, or both, absent some temporary crisis situation, is imprudent. Sound like any government you know?

But how do citizens recognize this imprudence? It’s tougher than it sounds—how does a fish know that it’s in water? I don’t know exactly what prompts people to conclude that their government is imprudent, and its currency at risk. But I think I do know what these citizens do once they reach that conclusion: they start using an alternative currency for some or most of their daily transactions.

This phenomenon is ubiquitous overseas. In many of the foreign lands I lived in or passed through while on active duty in the 1980s and 1990s, most of the foreign nationals I encountered were fully immersed in a dual-currency world. It was so much a part of their lives that they never gave it a second thought. They had one pocket full of whatever paper their own governments printed up as money, and one pocket full of dollars. And, given the choice, most wanted to conduct as many transactions as possible in dollars, not the other stuff.

Economists will tell you that a sizable so-called “underground” economy in a nation, whether in the local currency or an alternative, is primarily evidence of tax rates that are too high. Thus citizens seek to avoid that taxation by conducting their transactions “out of sight” of government. Current estimates of the American underground economy vary widely, but the mean seems to be about 20 percent of official GDP. In the United Sates, so far at least, our underground economy has used dollars, just like the above-ground operation. But I think that’s about to change.

Good Money

So, here’s my prediction: in the next five to ten years, and possibly sooner, we’ll see both here and worldwide a substantial and growing abandonment of fiat currencies for everyday transactions. Citizens will choose instead to use historically reliable stores of value: silver and gold. Since most routine transactions are relatively small, I think silver will be the preferred medium.

(I also think there’s a very good possibility that private ownership of gold money in America will be outlawed, just as it was during the Great Depression of the 1930s. Anyone who thinks that our government won’t do again what it’s done before is dreaming. But the world’s supply of silver is vastly bigger than that of gold, so the sheer logistics of confiscation make it substantially less likely.)

If I’m right, we’ll first see rising silver prices, and increasing investor preference for delivery of physical silver. Actually, based on some of the articles linked on this site in the recent past, we’re already seeing both. But to my mind, the real proof will be the first time that a plumber or electrician or other tradesman tells me “I’ll do the job for a hundred bucks—or a couple of silver American Eagles.” It hasn’t happened to me yet, but I bet it won’t be long.

So, do I have the courage of my convictions? Like most people, my answer is “Sort of.” We’ve bought some one-ounce silver bullion coins, both American and Canadian, but not as much as I’d like. There’s that little matter, mentioned earlier, of a certain someone who thinks that I’m a nut.