Jason Moran
Friday, August 08, 2008
  Silver Spoons
"[Silver] was politically demonetized beginning in 1873 and ending in the late 1930s when Roosevelt's silver manipulations forced China off the silver standard. Removing all that monetary demand for silver naturally made it lose value against gold, and rising industrial demand could not yet soak up the excess supply."

It makes you wonder whether the United States is as rich as it is because it went off of both the gold and silver standard. Maybe the fact that America started living off of credit and fiat money (money that the government mandates is legal tender but really has no actual value) gave it the leverage to spring ahead of everybody else. However, we all know that fiat money can have the bottom fall out from under it (see the Japanese Yen in 1989 - it is still recovering. I wonder if it was smart in the short run (of 100 years or so) but dumb in the long run. Sure I can buy expensive houses, cars, jewelry, and great stuff on credit - but that doesn't mean I can afford that debt and continue living that far above my means in the long run.

Historically gold was more expensive than silver because there was 8 to 12 times as much silver as gold. I don't know if anybody has been paying attention, but we've already mined 95% of the worlds surface silver. Nowadays there is 7 times as much gold as silver! Also, silver has a rising demand every year because it has an ever increasing industrial use. In other words we have used 90% of the worlds surface silver in the past 100 years and we are using more every year, yet it still doesn't cost very much.

The government wanted us off actual bullion (silver, gold, etc) as currency so it forced us to use worthless paper money instead. It's an "agreement" that the government has forced upon us. When we run out of money, the government simply prints more. I feel like we've been living in a land of make believe our whole lives and somebody is just going to stop playing the game sometime soon. We're living in the money Matrix and I've just figured out the facade that has been in place this whole time. There is no dollar.

Is it possible that the dollar (well, all of the world's fiat money) could collapse? I mean, do you understand that at a point in time the paper money we had were representations of actual bullion (silver or gold) that was held in a safe repository somewhere (like a bank)? Paper money exactly represented trading gold/silver for other goods or services. Now it is simply paper money that represents...uh...well, the government tells us it has legal value. Dimes and quarters used to have 90% silver in them and were roughly equal in value to the precious metals inside. In 1965 they changed half dollars from 90% to 40% silver and most other coins were filled with worthless metals. Let's just say that coins prior to 1965 are worth a bit more than face value.

Anyway, I haven't plunged into this yet, but I plan on grabbing up all kinds of silver and perhaps gold since it never really loses value. It fluctuates in the market, but over time it is more dependable and stable than almost any other commodity. In the long run your pile of silver and gold can be traded for more and more of the increasingly worthless money we use to buy things with.

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Comments:
Jason says: "The government wanted us off actual bullion (silver, gold, etc) as currency so it forced us to use worthless paper money instead."


Why? Why did the government want us off the hard currency and onto a fiat currency?

Why did medieval kings want their serfs on a fiat currency? What do I mean? Did medieval kings print pretty, colorful paper and say, "Thou shalt take this as payment, and like it!"

No, but they inadvertently created a fiat currency when they debased their hard currency due to their own greed. Take a fictional Roman leader, we'll call him Maximus Greede. Emperor Maximus realized that if he took the gold and silver they were bartering with as money, and started stamping it into coins in Empire mints, he could instantly create a little portion of value. It took him 99 units of gold to create a coin that was worth maybe 100 units of gold... because people trusted it. It was certified pure, and of a known weight.

Living up to his namesake, Maximus Greede later realized, "Hey, I'm making a little money on each coin that I mint. What if I cut a square hole in the center of the coin? People already trust my coins as being worth 100 units of gold... so I'll make the hole, and now I only need 95 units of gold to make a 100 gold unit coin. Score!"

But wait! It didn't stop there. Emperor Greede figured out that he could put a little copper inside the gold coin, and it now only cost 40 units of gold to make a 100 unit of gold coin. Holy crap! Maximus is all set to get mucho rich, real fast. To protect his 'investment', Maximus issues a legal decree, and even prints on the minted coins that these coins are 'Legal Tender' and MUST be accepted by the merchants as payment for goods and services.

Before you know it, the economy goes on as it always did, but Mr. Maximus is sitting on oodles of gold... maybe even swimming in it a la Scrooge McDuck, while the rest of his Roman people, who used to possess small quantities of gold... possess even SMALLER quantities of gold. They're living on a fiat currency.

Every fiat currency in the history of the world has collapsed. When will ours? We have only been off of the Gold and Silver standards collectively since 1965... or 43 years. Depending on your belief about when civilization began... we've been off the gold and silver standard for roughly 0.48% of human history.

If you liked this story about Maximus Greede, join us next week as we look into the concept of Gresham's Law.
 
Thank you for including Gresham's law, Dave. I think it is an important concept to understand but I could not figure out where to place in in my article.
 
By the way, your plan to purchase silver and gold should commence today. You can buy at $15.40/ounce whereas I bought at $16.36 yesterday.

I still think it's an incredible value. In fact, I think even more so now. When prices drop in a stock/commodity, you don't just buy more because it's cheaper. You buy more because you think it's a good value.

If this downward trend continues (as silver tracks gold, which is experiencing profit-taking and de-hedging against inflation and oil), I may seek out a local dealer and try to buy some more. I bought mine online, and that came with Priority Mail fees, Shipping and Handling, and a Certified Check fee, not to mention the premium that the dealer makes (rightfully so, because they carry risk as well) on the transaction.
 
a comment from Bode on jason-moran.com's wall:

The Texas Bode 8/8/2008

So, tell me why exactly gold/silver are these special commodities, but paper is not. Yes, supply and demand dictates that less supply with equal demand should increase the price...and we can always control the supply of paper but the supply of gold/silver will always be dimininishing. However, in a world where the "flat" money has its bottom drop out...I don't think you'll find many takers for that pirate chest full of gold dubloons that you saved up. You'll still just have a pirates chest full of fancy coins. If you really believe that paper money is going to fall apart in our lifetimes, what you should be doing is building a house off-grid (self-supplied electricity, sewage and water) so that you don't need to care about a collapsing economy. oh, and you should be spending like absolute crazy...because noone is going to care if you declare bankruptcy if 50% of the people are too as the economy collapses.
 
"A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army...We must not let our rulers load us with perpetual debt."


Thomas Jefferson


"Central banks were supposedly the guardians of money. Yet, they have created the biggest liquidity bubble in history."


The Economist



And to think, my wife is a third generation banker...



I'm not sure that our fiat currency will crumble in my lifetime, but it most likely will within the next five generations or so.



And, just in case Bode has any pirate tendencies, I'm sure he can find solace in many world countries. Take India for example. India understands that gold has intrinsic value. Indians, generally, also have a principle that says that one generation saves wealth, the next generation builds wealth, the third generation eats/spends the wealth, and the fourth generation starves.


Americans don't understand this principle. At least not until authors Stanley and Danko "discovered" this very premise in America and wrote about it in The Millionaire Next Door. Parents whose adult kids are on financial life support are robbing their kids of the ability and desire to amass wealth.


Back to special commodities. All commodities are special. They are the backbone on which the world's financial systems were built (layered). The most important commodities to world citizens are air and water, however, there is currently no scarcity of either.

Some would argue the next world war will be fought over fresh water. And guess who's sitting on over 20% of the world's supply? That's right, Jason Moran.

You think Cleveland looks like a war zone? You ain't seen nothin' yet.
 
From the US Federal Reserve website, itself:

"Who owns the Federal Reserve?

The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."


Why does the Federal Reserve have to be an independent entity? I also understand the public purposes... but private aspects?? What might be hinted at with this legalese?


"As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms."


So, "The Fed" answers to no-one, and its influence and control spans the terms of multiple presidential and congressional terms? Is Congress merely a puppet of Feddy Mac?


"The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year."


Wow, so financial institutions can buy shares of stock in the Federal Reserve Regional Banks, which make up the Fed itself.


Keep in mind... I'm reading this all from the Fed Reserve site itself. I'm not reading from some Illuminati/FreeMason conspiracy theorist site.
 
Again, from the site:

"Commercial banks that are members of the Federal Reserve System hold stock in the Reserve Bank in their region, but they do not exercise control over the Reserve Bank or the Federal Reserve System. Holding stock in a regional Reserve Bank does not carry with it the kind of control and financial interest that holding publicly traded stock affords, and the stock may not be sold or traded. Member banks do, however, receive a fixed 6 percent dividend annually on their stock and elect six of the nine members of the Reserve Bank's board of directors."


So, the Fed gets most of its money from check clearing fees and whatnot from banks across the country, then returns a 6% dividend to shareholders, who exert no authority over the Fed.


What I'm seeing is, "let's establish a federal system that feeds us, the powers that be, a perpetual income stream."
 
Does anyone know who the G30 are? Or Geoffrey Bell?


Does anyone wonder how one individual can start a symposium of the greatest 30 financial minds and base them in Washington, D.C., then turn around and be the financial adviser for the Bank of Venezuela? It's a little bit like the League of Extraordinary Gentlemen, don't you think?


You all DO know a little bit about Venezuela, right? It's not just some nice little country that Senior Omar Vizquel hails from. Or maybe he does heil... Maybe he heils Supreme Dictator Hugo Chavez.
 
Dave gets pretty intense sometimes..
 
That's why I'm releasing a new series of Dave action figures.
 
A wonderful article on how the US Government overstepped the law and stole gold from all of it's citizens:
http://mises.org/story/3056#
 
I only have this to add to your discussion:

Egyptian kings were often burried with minute amounts of silver dust. As you may well realize, this seems senseless with all the gold all ofer their tombs. However, the fact is that in Egypt silver, not gold, was in short supply.

Thus, we need only consider supply and demand. If all goes to pot, as Bode said, there is absolutely no value in shiny metal. Why? Because you were not the only financial expert to buy it. Instead, you have an overly abundant supply that loses value without demand.

In short, Bode's theory is most correct.
 
Certainly, if all goes to pot, to the utmost extreme, Gold and Silver would appear to be less valuable than say, wheat (something you can eat) and oil (something you can boil... er, burn). Heat, shelter, and food will be most important.

But if all goes to crap, and all I can grow is wheat... how do I get milk? Or eggs?

I suppose you could say I might barter with my neighbors. But bartering has its own problems. I must locate and identify someone who has what I need, and needs what I has. There are inefficiencies in this kind of trade.

So, most likely, we'll look for a system of currency. Something to which all other commodities can be easily converted (using a 'price'). In this way, if my neighbor wants my wheat, but can provide me no eggs, she pays me in gold, which I take to someone who has eggs, and offer them a measured amount for the eggs.

Why, then, is gold our currency in this contrived scenario? It's scarce. It's versatile (malleable, conducts electricity). It's a noble metal (it does not oxidize or otherwise deteriorate). It requires no maintenance. For these and possibly other reasons, mankind has always held gold and other precious metals in high esteem.

Gold was quite obviously an object of value to mankind as far back as the people of Aaron and Moses, and even the people before them.


If commodities trading is the fundamental core of human existence, then a currency is the fundamental core and enabler of a market-driven efficient economy.
 
I'd have to agree with Dave here. I wasn't quite imagining end of the world disasters - obviously simple survival wins out there and the best currency is probably a large gun.

Short of worldwide catastrophe certain things will still hold inherit value. I guarantee you there are very few people that have horded enough gold/silver to shift the supply-demand curve very far.

Let's imagine economic collapse only (no wars or people dying outside of a few bad robberies and starvation). Person A with items of value is better off that Person B with money in a bank account (because said money is devalued so terribly that it cannot buy things of value).
 
Okay, I bought some silver today (10 1oz coins, a 5oz bar, $10 FV of 90% coins, and a little 1oz bar just because). That dang shipping and handling sucks.
 
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