I Didn’t Expect This

     The nation is agog over the rocketing price of silver. Despite my interest in the money metals and my frequent advice to my Gentle Readers to put some of their savings into gold and silver, I must admit that the recent sharp increases trouble me. I’m caught between possible explanations.

     Silver was the money metal of the United States for the nation’s first century. It satisfies the chief requirements of a money:

• It’s durable;
• It’s easily recognized;
• It’s divisible without loss;
• It possesses intrinsic value.

     So possessing a store of silver, in a time of inflation, is a good thing. Should the current inflationary practices of the federal government “run wild,” as happened in Weimar Germany and contemporary Zimbabwe, silver will be negotiable. Indeed, given current valuations, silver is a more practical store of value than gold.

     But let’s look at that phrase current valuations a bit more closely. There’s no central authority decreeing “This shall be the dollar price of an ounce of silver.” What Kitco and other sources tell us about the price of silver – or anything else, really – is the price paid for it at the most recent trades. How much silver was purchased at that price? That’s not reported. Are there still buyers offering that many dollars for an ounce of silver? That too can be hard to discern.

     It’s the same with stocks, in case you were wondering.

     The question uppermost in my mind, and probably in many others, is whether silver’s explosive price increase is telling us about something that’s coming, or about something that’s already happened.

     It’s possible that up to now, the dollar price of silver has been well below its “real” exchange value. After all, recent Administrations have created a lot of new currency and credit to support their spending, while the dollar price of silver stayed relatively stable. So silver’s price could be “catching up” to that spell of high inflation.

     The alternative is that those driving silver’s price are aware that something on the horizon would greatly depress the dollar’s purchasing power. Perhaps it’s fear of the U.S. purchase of Greenland. Or it could be that the Administration is pondering the repudiation of the national debt. The dollar would be badly shaken by either of those events, and they’re not the only possibilities.

     I intend to investigate “institutional” purchases. If the large creditors and debtors in our economy are buying silver, we must infer that their analysts see either an opportunity or a looming fiscal disaster. The former is for currency speculators alone, and therefore not for us small fry. The latter would justify a “flight to safety” of the sort that silver represents.

     But let’s imagine that the dollar price of silver is being set by the purchases not of institutions but of individual Americans. That would tell quite a different story, one summarized by economist Gary North and quoted in Robert Ringer’s How You Can Find Happiness During the Collapse of Western Civilization:

     When a majority of depositors become convinced that a majority of depositors have become convinced that a majority of depositors are going to try to get their money out simultaneously, a majority of depositors start trying to get their money out simultaneously.

     “Getting your money out” really means doing whatever you can to preserve your purchasing power. If the dollar is losing purchasing power as we watch, then the sensible thing to do is to “get out of dollars:” to extract whatever purchasing power your dollar-denominated assets still possess and put it into a more stable store of value. In short, it would signal that ordinary Americans have lost confidence in the dollar and have started “a run on the bank.”

     I’ll be looking further into this. Stay tuned.