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<p>[QUOTE=&quot;GeorgeM, post: 1250012, member: 28550&quot;]While fiat currency can cause inflation, non-fiat currency does not automatically solve it either. Inflation occurs whenever demand exceeds supply over an extended period. Just look at Spain&#039;s experience from 1500-1700 (when gold and silver flowed into the country from the New World, but very little growth occurred in the local economy). </p><p><br /></p><p>If you want to tame inflation, the trick is to grow the economy at a faster rate than the money supply grows. It goes back to the whole gold-lenders model of how money can be created from thin air. </p><p><br /></p><p>Let&#039;s say you have a bank vault with 100 oz of gold in it. You can lend out that gold for 5% interest, and a year later, you&#039;ll have 105 oz of gold. One of your neighbors asks if they can store their 100 oz of gold in your vault, and you say sure, but it will cost them 1 oz of gold per year and they have to give you 12 months warning before withdrawing it. So, in year two, you start out with 106 oz of your own gold and 99 oz of your neighbors gold. You lend it all out again at 5% interest, and at the end of the year, you have 116 oz of your own gold and 99 oz of your neighbors gold. 15 oz of gold just &#039;appeared&#039; out of thin air. </p><p><br /></p><p>This is a pretty simple micro-model of how investment banking works. But, when you have a currency involved (fiat or otherwise), then the issuing authority has to produce new currency in enough quantity to meet demand. </p><p><br /></p><p>Investing money in productive enterprises creates value. If the money supply didn&#039;t grow, then whenever an economy did more production than consumption, we&#039;d see deflation (and vice versa). </p><p><br /></p><p>To get back to the original question - I expect to see silver test the $5 price point again in my lifetime. I believe that we are in the midst of a bubble, and that the lack of profitable alternatives is part of why precious metal prices have skyrocketed so high. If stocks start offering believable 10% dividends (or if CDs start offering 5% interest rates) then I think there will be a flood of money going from metals back into other investments.[/QUOTE]</p><p><br /></p>

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