Increasing numbers of financial market observers seem worried that that the world economic system seems just about ready to fall flat on its face and that it will probably take its system of paper fiat currency right along with it.

According to such individuals, no amount of stimulus packages funded by printing paper money can help keep afloat what is basically just a proverbial house of cards. Neither can such paper money continue to inspire the consumer's formerly rather naïve confidence.

Hard Assets Increasingly Preferred Over Paper Money

Such observers tend to take the position that the people of the world are gradually realizing that their very small number of would-be financial governors have few if any hard assets to back up their paper money with.

As a result, a growing trend has evolved that encourages people to convert their essentially worthless paper currency into gold and other real stores of wealth. Interestingly, an increasing number of people do seem to be convinced by the possibility of a general economic failure and the resulting worthlessness of paper currency and so they have been steadily accumulating hard assets.

The idea behind this flight to hard assets is that such investment should act as an emergency back up plan to help them and their families weather the pending fallout from the coming economic holocaust they foresee.

Furthermore, as many countries are phasing out their stimulus programs, their economies are beginning to falter further because the temporary funding fix will most likely ultimately prove to have been insufficient. This can be attributed to the fact that much of the economic development in the world's major economies has been funded on credit. .

Fiat Currencies Progressively Fail to Inspire Faith

Another potential culprit of the world economic mess has to do with the almost universal adoption of a fiat money system in the modern era. The term "fiat currency" refers to money that is declared as legal tender by a country's government.

This term usually implies that the fiat currency is backed by nothing but the faith invested in the government or central bank that issues the money. In addition, its value is generally not fixed in terms of an objective standard - like the price of gold, for example.

Inflationary Risks Presented by Paper Currency

Individuals seem to be gradually waking up to the fact that if paper money keeps getting printed faster than it gets destroyed, then inflation will eventually get out of hand.

The result of this inflationary spike may well eventually result in the fiat currency becoming worth little more than the paper it is printed on once public faith in its issuer fails.

A period of dramatic hyperinflation was seen in Germany from 1919 to 1923 after the end of World War I in late 1918. This serves as just one of the many historical examples of such a situation actually having occurred in the past in which inflation spiraled out of a government's ability to control it.

Perhaps one of the most devastating ravages of hyperinflation is that it virtually eliminates the value of private savings. In addition, hyperinflation tends to result in:

• Extreme consumption and real asset hoarding

• A country's monetary base moving abroad

• Dramatically diminished investment interest.

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