There was a time when paper currency was backed by gold or silver. Coins were made of silver and gold because the metals had intrinsic value above and beyond mere coinage.
As populations grew, gold and silver could not be mined fast enough in quantities large enough to supply the world's needs. All countries adopted paper money to represent a cache of metal stored within the country.
Eventually countries went off gold standard because limiting printed money to the amount of gold and silver in storage caused a shortage of currency. In order to maintain a balance in the economy we all went on an imaginary ride where whatever amount of money we printed, that was the value of the treasury. This is known as 'the full faith and credit of the United States'.
To facilitate bookkeeping and keep currency flowing the Federal Reserve Bank was created (by the bankers). When more currency is needed the normal process is that the Treasury prints Bonds known as T-Bills, backed by nothing. They then sell the T-Bills to the Federal Reserve who prints Dollars, backed by nothing, to buy them. The Fed is currently printing $85B a month, backed by nothing, and putting it all in circulation via Large Banks (who own the Fed) at less than 1% interest paid to the Treasury. Every time the Fed hints at backing off on the purchases, artificially propping up the economy, the stock market dips and the Fed relents.
The Large Banks promise to pay the Fed for the Dollars and the Fed promises to pay the Treasury for the Bonds, and all of this is backed by nothing. The current amount of T-Bills outstanding is the same as the National Debt, currently over $17T.
So now the Large Banks lend out the Dollars to you and me plus interest. They only need to hold 10% of the Dollars in their vault (vault dollars) to cover losses from bad loans. (the Fed is currently trying to up that percentage to prevent inflation) So that means for every $100 in vault dollars they can lend $1,000. Isn't that swell? If they charge 10% interest per borrower they will collect 100% interest per Dollar loaned.
The question in your mind should be, how long can this house of cards support itself? If you look at the current conditions in Europe you will find the answer. You may also ask yourself why the government (Treasury) had to bail out the Large Banks when the Large Banks and the Fed are the same people?
If you augment your holdings with gold or silver you will have a hedge against inflation. It is a fact and that has been the way it is done for very many years. Gold has value while paper has none.
During inflation there are too many dollars circulating (is $17 Trillion too many?) and so they all lose value. As dollars lose value gold and silver gains value because it has uses other than to just light your fireplace. The value of gold and silver in the country during gross inflation will rise to equal the amount of outstanding debt.
Currently the value of all gold ever mined is $8.2 Trillion, so, it will at least double in a crisis today. http://en.wikipedia.org/wiki/Gold_reserve
As of recently we have a movement to accept gold and silver as legal tender in this country. So far 2 states, Utah and Arizona, have depositories set up and 13 other states have it in their legislature. It just makes sense that if the Federal Government manages to default the states would rather not go down with the ship.
In Utah and Arizona you deposit your gold and silver and you are issued a card by the state that can be used for purchases anywhere. As the value of gold and silver rises and falls so does your deposit's value.