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'Junk' Silver's Role in a CrisisRick Ackerman
The fruits of yesterday's regular Q&A session should keep paid subscribers busy for a while, since 12 of the 18 queries that I fielded contain actionable advice. There are specific buy-side recommendations for silver, gold, Swiss franc, Sirius Satellite Radio, Whole Foods, InPhonic, Yamana Gold and Citigroup, so make some hay. Meanwhile, here's an interesting note that I received from Erik DeJong concerning our favorite topic, deflation. He writes as follows: "In your arguments for the deflation doctrine, you haven't yet quoted the scriptures that prove that deflation is even possible in a purely (post-1971) fiat environment. All the deflation scenarios appear to be based upon economic depressions that unfolded whilst still in an era of gold and silver backed-paper money. Has there ever been depressionary style deflation (i.e. the BIG deflation) in a pure fiat economy? Beads for Barter? "You once wrote that 'gold would no longer be a useful hedge against the destruction of paper assets, since by then they would have reached the point of worthlessness.' This doesn't make sense, but then I am merely a working class man. If paper assets are worthless, then what do we use for exchange? Seashells? Beads? Or the really cool, virtually indestructible shiny stuff that has been money since God sent Adam packing out of Eden?
"Since when did gold become only a hedge against the destruction of paper assets? Gold is not only a hedge, it is money. Paper assets are either backed by gold, or not backed by gold, but either way it is the gold that retains the purchasing power, not the paper. Granted, paper has had its day, though it took a massive construct to foist it upon the sheeple -- a "Matrix" that would make Agent Smith proud. Call the movie The Federal Reserve System for short [Even Peter Jackson would struggle to make a boffo hit out of that title. RA] "You also said this: 'Nor would gold function in barter for oil or other goods, since that would effectively price goods beyond the reach of consumers.' Duh! "Duh, I think that's what silver is for - smaller purchases, that whole 1:16 ratio deal, etc.. And, electronic exchanges and secure vaults make it easy to transfer amounts of either without having to move the physical. And, there's always the ability to print gold and silver certificates (whoops, here we go again, Uncle Alan!). "Gold and silver will pay off big for us PM bugs until sometime after the hyperinflationary Armageddon sets it. We'll party over our newfound wealth (of course relatively speaking, since gas will be $5,000 a gallon) until the powers that be announce their plans for the new international currency. They'll get religion, and in solemn tones explain how this currency must be global and must be backed by gold and silver so that the terrible effects of fiat paper will never again wrack the globe. Of course, all the gold and silver that the banksters haven't already acquired through the dishoarding of central bank reserves will be pried from the PM bugs by check (drawn on these new globodollars) or by gunpoint. "A pyrrhic victory, but still a victory! Now to just figure out how to defeat those metal detector hover drones. "Thanks for your daily postings" No 'Textbook Deflation' My response: And thank you, Erik, for weighing in on a subject of crucial importance to many of my readers. As you are evidently aware, deflation has never occurred in a financial environment characterized by fiat money, so the textbooks can tell us nothing about what lies ahead. I have written extensively on this, and although it's not possible to say with any certainty what will occur, my hunch is that dollar will continue to circulate - unless there is a hyperinflation. Meanwhile, the fact that we characterize the dollar as "strong" right now is a bit of a misnomer, since it is strong only in relation to other currencies that are terminally weak. The dollar remains the speculative currency-of-choice because the supply of dollars for such purposes is theoretically unlimited. Not exactly the basis for a solid currency. Concerning the usefulness of silver in a currency system in which metal backing has been restored, I agree with you that having a couple bags of junk silver around could prove to be a lifesaver. Many years ago, I bought a few bags myself near the top - that was before I learned about hidden-pivot price targets -- and wound up reselling them to the dealer for less than a third of what I'd paid for them. It left me somewhat skittish about repeating the mistake, but I've come around in the last few years, especially after buying so many Tooth Fairy silver dollars for my kids. Rick Ackerman *** You can subscribe
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