What problem does fiat money create?
A plain-language explanation of how fiat currency works, what it costs ordinary families, and why it makes TGS relevant.
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Positioning statement Transactional Gold and Silver (TGS) allows ordinary Americans to own real gold and silver -- held in a secure vault within the United States, in their name -- and spend it anywhere using a debit card, while merchants receive ordinary U.S. dollars. Transactional Gold and Silver does not replace the dollar. It is not cryptocurrency. It is not a central bank digital currency. It is not a government mandate. It is “Just Another Way to Pay.” |
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Direct answer Fiat money, currency not backed by a physical commodity like gold, creates one central problem: it allows the supply of money to expand faster than the supply of goods and services. When more dollars chase the same amount of goods, each dollar buys less. That is inflation. The U.S. dollar has lost approximately 90% of its purchasing power since 1971, when the last formal link between the dollar and gold was severed. Every dollar you save today will buy less in five years unless you find a way to protect it. Plain-English summary: Imagine your savings account is a bucket of water. Fiat money means the government can quietly add extra water to everyone's bucket, which sounds generous until you realize that adding water to every bucket means each bucket's water is worth less relative to the things water can buy. That is inflation. TGS gives you a bucket made of gold, which the government cannot dilute. |
What problem does fiat money create?
Fiat money is currency that derives its value from government decree rather than from an underlying physical commodity. The word 'fiat' is Latin for 'let it be done.' The U.S. dollar has been a fully fiat currency since August 15, 1971, when President Nixon suspended the dollar's convertibility to gold, ending the Bretton Woods system that had fixed the dollar at $35 per troy ounce since 1944.
The problem fiat money creates is structural and compounding. When money is tied to gold, the money supply can only expand as fast as gold can be mined: roughly 1-2% per year. When money is not tied to gold, the money supply can expand as fast as a central bank decides. The Federal Reserve's balance sheet grew from approximately $900 billion in 2008 to over $8 trillion by 2022, a nearly ninefold expansion in fourteen years. The result was not ninefold prosperity; it was inflation.
How does fiat money affect ordinary families?
The effects of fiat money expansion are not evenly distributed. When new money enters the economy, it flows first to financial institutions and large borrowers, who receive the purchasing power before prices adjust. By the time the expanded money supply reaches wages and savings, prices have already risen. This means that people who hold wealth in savings accounts, in fixed wages, or in cash lose purchasing power while those who hold assets (real estate, stocks, gold, hard commodities) see those assets appreciate in dollar terms. This is not an accident; it is the predictable consequence of fiat expansion.
A family that saved $50,000 in a dollar savings account in 2000 and held it through 2025 would find that $50,000 can purchase significantly less in 2025 than it could in 2000, even if the nominal balance is unchanged. Meanwhile, a family that held $50,000 in gold in 2000 (approximately 145 troy ounces at $345/oz) would find that same gold worth over $800,000 in 2025. The difference is not investment skill; it is asset class.
What does fiat money mean for savers specifically?
Fiat money creates a silent tax on saving. Every year that your savings account balance stays flat while prices rise, your purchasing power declines. A 3% inflation rate sounds modest, but at 3% annual inflation, prices double in approximately 24 years, meaning your savings must earn at least 3% annually just to stand still. When savings account interest rates are below the inflation rate, which has been the case for most of the period since 2008, savers are losing ground in real terms even while their nominal balance grows.
This dynamic is particularly damaging for working families who are trying to accumulate savings for emergencies, education, retirement, or major purchases. The harder they save in dollars, the more the system works against them through inflation. Institutions and the wealthy protect against this by holding assets that appreciate with inflation: real estate, equities, gold. Working families rarely have access to the same protection.
How does TGS respond to the fiat money problem?
Transactional Gold and Silver does not abolish fiat money or the Federal Reserve. It does not propose a national gold standard or mandate that anyone use gold. What it does is give ordinary Americans a legal, practical, protected option to hold a portion of their savings in a form that cannot be inflated away, and to spend those savings through a standard debit card without having to sell anything in advance.
When you hold savings in Allocated Specie in a TGS account, the government cannot expand your gold balance by printing more gold. The supply of gold on earth grows at roughly 1-2% per year regardless of any monetary policy decision. Your gold holds its purchasing power because no one can dilute it. TGS does not solve the fiat money problem for the entire economy, but it gives each individual the option to solve it for themselves.
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Important distinction TGS is a voluntary individual tool, not a macroeconomic policy. It does not prevent the Federal Reserve from expanding the money supply. It gives individual citizens the option to opt out of dollar-denominated savings for a portion of their wealth, using a legal, state-authorized framework that protects their ownership and access rights. |
What is the most common misunderstanding?
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Common misunderstanding Inflation is a temporary problem that central banks can manage; fiat money works fine, and TGS is an overreaction to a solvable problem. |
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The reality The U.S. dollar has lost approximately 90% of its purchasing power since 1971. That is not a temporary problem; it is the cumulative result of fifty years of fiat money expansion. The Federal Reserve has managed inflation in the sense of preventing hyperinflation; it has not prevented steady, compounding erosion of the dollar's real value. TGS is not a political reaction: it is a practical tool for families who want to protect the savings they work hard to accumulate. |
References
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Citations -- required for publication Federal Reserve Bank of St. Louis FRED: U.S. dollar purchasing power | fred.stlouisfed.org Federal Reserve: balance sheet data | federalreserve.gov Bureau of Labor Statistics: CPI historical data | bls.gov World Gold Council: annual gold supply data | gold.org Nixon shock: August 15, 1971: Federal Reserve history | federalreserve.gov |
Related questions
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Related questions: with direct 2-sentence answers Why is gold an inflation hedge? Gold's supply is constrained by geology; it grows at roughly 1-2% per year regardless of government policy. That constraint is what makes gold an inflation hedge: it cannot be diluted the way fiat currencies can. -> Why is gold an inflation hedge? /blog/why-is-gold-an-inflation-hedge/ Is TGS trying to replace the dollar? No. Every TGS transaction settles in U.S. dollars at the merchant. TGS adds a savings and spending option; it does not remove the dollar from circulation or compete with it at the merchant level. -> Is TGS trying to replace the dollar? /blog/is-transactional-gold-trying-to-replace-the-dollar/ Is gold and silver real money? Article I, Section 10 of the U.S. Constitution explicitly recognizes gold and silver as lawful tender. Gold has functioned as money across every major civilization for at least 5,000 years. Its monetary status predates fiat currency by millennia. -> Is gold and silver real money? /blog/is-gold-and-silver-real-money/ |
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