Short Memories and Silver Shortages

It's now one year after the 50th anniversary of the official beginning of the great silver shortage. For the outside world, it may very well be the least known.

For the precious metals trading community, it is one of the most ridiculed or outright denied fundamentals of silver.

President Johnson’s speech can be found in full here:

http://www.presidency.ucsb.edu/ws/?pid=27108

I have included a few illuminations from that speech as follows:

“When I have signed this bill before me, we will have made the first fundamental change in our coinage in 173 years. The Coinage Act of 1965 supersedes the act of 1792. And that act had the title: An Act Establishing a Mint and Regulating the Coinage of the United States.

Now, all of you know these changes are necessary for a very simple reason-silver is a scarce material.

Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.

If we had not done so, we would have risked chronic coin shortages in the very near future.

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.

The new coins are not going to have a scarcity value either. The mint is geared to get into production quickly and to do it on a massive scale. We expect to produce not less than 3 1/2 billions of the new coins in the next year, and, if necessary, twice that amount in the following 12 months.

So, we have come here this morning to this, the first house of the land and this beautiful Rose Garden, to congratulate all of those men and women that make up our fine Congress, who made this legislation possible–the committees of both Houses, the leadership in both Houses, both parties, and Secretary Fowler and all of his associates in the Treasury.”

In a nut shell, silver uses were putting pressure on the underlying currency back in the mid 1960’s, before the array of electronic devices, and myriad of other uses we have now. This was before the suppression of prices had relegated most primary miners to the scrap heap.

Gresham’s law was already working its way into the system. Fifty years ago, bad money was chasing out the good.

A promise was made – and a clear warning: We will fight you if you choose to invest in silver. We will use our stockpile to suppress the price.

A few years later, Nixon shut the international gold window. All that was left of the old Bretton Woods standard ended in yet another default.

Many trillions and more defaults later, not much has changed.

Silver was the lynch pin, gold is “legally” suppressed by the Exchange Stabilization Fund – the real plunge protection team.

As silver and it’s paper derivatives go, so goes the entire facade.

The Thin Ice

Beyond decades, the silver price has been managed; as it is today.

Intent and motivation has changed only slightly with the times and the financial industry was a fraction of what it is today.

The manipulation that occurs today is celebrated by the profit motive; the un-utterable intention to keep prices low is in full force.

More obscure, consider the true potential value of silver in fiat terms.

The inflation adjusted value when using real inflation numbers – not the academically altered madness served up by the U.S. Bureau of Labor and Statistics.

Jeff Clark recently reported (using John Williams’ ShadowStats numbers for CPI-U):

“The $48 peak in April 2011 was less than half the inflation-adjusted price of January 1980, based on the current CPI-U calculation. If we use the 1980 formula to measure inflation, silver would need to top $470 to beat that peak.

A quick visit to coinflation.com shows that a 1932-1964 Washington would value at $85 with a silver price of $470/troy ounce.

Silver is just playing the same role it has played for the millennia.

The financial markets are goosed beyond reality, giving rise to an “untouchable” trading culture and mentality.

General market fundamentals are a farce. The Greenspan-Bernanke-Yellen “put” reinforces the mantra “don’t fight the Fed”.

Every system predicated on fractional reserve lending will achieve exponential growth.

Debts eventually and always grow increasingly faster than the currency available to pay it.

Raise interest rates or shrink the money supply and you freeze the ability to pay outstanding debt. This leads to collapse and liquidation.

Entropy and waste are built into the system and, like a giant star; massive concentrations of capital warp the normal rules.

And we all become slaves to the private banks which have taken the issuing power from The People – to whom it properly belongs.

A commodity-less currency gives rise to finance unhinged. Once the growth of finance captures the imagination of government and bureaucracy, it is a very slippery slope toward outright crime and fraud.

Current silver prices, like most other commodities and asset classes, are an artificial phenomenon – only more so.

Ignored, ridiculed, and scarcely held, silver is the penultimate value investment.

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