About 90 years ago, the U.S. Federal Reserve was created. And not so many years ago, the idea of officially backing paper money by gold bullion reserves sitting in central banks was abolished.

So today, we have a central bank, the Federal Reserve, that can literally create money out of thin air when it wants to. Have you ever wondered how the Fed creates money? It simply prints it. No hard work, nothing mined out of the ground, not the hard work of miners, just a few printing presses.

I've seen some financial reports that claim the U.S. dollar has lost about 90% of its purchasing power since the Federal Reserve was created almost a century ago. The economic "old timers" will often ask the question: Is paper money really worth anything anymore?

Where am I going with all this?

In the very, very long term, history has demonstrated that all paper currencies eventually end up worthless. Will that happen to the American dollar? Probably not in our lifetime, but eventually I believe it will.

I've written about this many times, but I just want to place it in perspective for my readers at this particular point in time.

The tech bubble in the stock market blew up very early in 2000. Since then, the NASDAQ and the Dow Jones Industrial Average (five years later) have failed to surpass their previous index highs. Remember, stocks are a leading indicator.

The debt of the United States federal government, the debt of all state governments, and the debt of American consumers are at an all-time high.

And accommodative interest rates, despite having fallen to a 46- year low, have not been enough to spur the economy. Labor is simply cheaper abroad, providing American consumers with a greater appetite for imports, which has caused problems for American manufacturers.

In the wake of all these negative economic factors, gold bullion prices are now at a 16-year high. Considering the poor economic points I discussed above, I really believe the smart money has been moving into gold bullion and gold shares, and that's why the metal is really shining these days. If you haven't looked at diversifying your paper investments with some exposure to gold, you may want to seriously consider doing so at this juncture in our economic history.