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A case for investing in physical silver bullion - WRITTEN FOR STUBBORN OLD PEOPLE WITH MONEY
User ID: 826017
02/22/2010 10:58 PM
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Silver is money. A true representation of wealth. It has been known as money for 5000 years. It is recognized the world over as a storage of wealth. It is convertible to any currency. It can be traded for goods and services. In the old west the word “silver” may remind you of the currency used in the days of cowboys and Indians in the old frontier. The original US Dollar was fully redeemable in gold and silver, you could go to any bank and cash in a one dollar silver certificate for one ounce of silver. Today if you take a dollar to a bank and ask for silver they will laugh at you. The finite supply of the metal kept the government in check and forced them into responsible spending as the supply limitations imposed some restrictions in the expansion of the money supply. Consumers enjoyed consistent prices for goods and services for decades throughout the 19th century.
In 1913, with the creation of the privately owned, Federal Reserve Bank, Congress handed over the Constitutional power of money creation to oversees bankers. Since then, consumer prices have steadily been rising and American savings accounts have slowly been robbed through hidden tax of inflation. The US Dollar has lost approximately 97% of its purchasing power. In 1971, the Richard Nixon Administration officially took away the backing of the US Dollar, the World’s Reserve Currency from the silver standard, dollars were no longer redeemable to silver coins. The world accepted this transition since the USA was the leading and most respectable industrial and financial superpower. The US Dollar became “fiat currency”: backed only by the full faith of the US Government, nothing real or tangible. Leaving the silver standard had ill effects on rate of inflation—salaries raced to catch-up to the prices of consumer goods. History has shown us once a currency is removed from the backing of a precious metal, the fiat experiments last no longer than 40-years before the currency collapses or goes into hyperinflation. The US Dollar experiment is approaching its 40th year anniversary in 2011. The day of reckoning is approaching before the currency goes the way of the Roman empire, the German Mark (after World War I), the Argentinian Dollar and the Zimbabwe Dollar, as it gets inflated into oblivion.
Guaranteeing Currency Crisis
In 2007 as sub-prime mortgage failures led to the 2008 credit crisis. The US government financially support corporation on the verge of collapse that became infamously known as companies “too big to fail” such as AIG, General Motors, Citibank, and Bank of America to name a few. The fascist bailout era began and the free market capitalism officially died. The US Government claimed by bailing out these companies and creating trillions of dollars out of thin air to prop up these zombie companies, and not let them collapse, unemployment would escalate to 8%. The government got it wrong. Even with the overseas Federal Reserve bank doubling the money supply through give credit to banks, provide economic stimulus, Cash for Clunkers-type programs, and bailout programs bullied through Congress against the wishes of the American people; unemployment soared passed 10%. 2008 demonstrated the effects of the programs and this newly created “false prosperity”: stock market indices had record-breaking increases without corporations showing comparable increases in earnings. 2010 is showing more of the same with the creation of Cash for Appliances program to stimulate the retail market, increasing bank failures, increasing trade imbalances, increasing national debt to GDP imbalances, increasing unemployment; the continued negatives sign in the economy will lead to continued bailouts and stimulus programs further diluting the purchasing power of the currency.
In 2010, the unfunded future liabilities of Social Security and Medicare combine total a staggering $67 trillion, that’s $67,000,000,000,000. In February 2010, Congress and the Obama Administration quietly raised the National Debt ceiling to $14.3 Trillion Dollars and made it officially mathematically impossible to repay the National Debt as the interest payments alone are costing American taxpayers billions of dollars per month. The only way to relieve this debt crisis is to hyperinflate the currency, which in turn will create a inflation crisis that will wipe out American’s savings and debts. Nobody talks about these facts on television. They are afraid they will create a panic, a run away from the dollar.
Not only has the US Dollar been threatened, in 2008 the financial collapse of Lehman Brothers collapsed the currency of Iceland by 50 percent. In 2009 into 2010 Sovereign Debt panics have been adversely effecting the stability of European counties including Ireland, Greece, Spain, Portugal and Italy to name a few. They will most likely seek bailouts from the European Union.
What can we do to protect your wealth from a currency that has declining purchasing power
Since the 1970s, when inflation started to run out of control there was a distrust of the currency and investors began to hedge against it by purchasing silver and gold which inversely tracks the purchasing power performance of the US Dollar. Silver and gold are tangible investments that all investors should hold and store in their possession in a time of global currency crises, like today. In 2009, countries such as Russia, Iran and France have called for the dethroning of the US Dollar as the world’s reserve currency. Countries are looking towards other currencies including gold for international sales of oil, settlements and the trade of other commodities. Iran and other OPEC countries have announced that it will no longer accept the US Dollar for oil sale. In 2009, The Reserve Bank of India made the single largest purchase of gold from the International Monetary Fund, 200 tons of gold for $6.7 billion to diversify away from fiat currencies. Countries like China, Japan, Russian, and Saudi Arabia who have formally been strong purchasers of US Debt have been diversifying away from US Government Bonds in 2008 and 2009. These shifts threaten holders of US Dollars, US Government Bonds and US Dollar denominated assets like stocks, mutual funds and 401k’s.
Silver is an investment in the information age and in emerging markets
If you woke up one morning and all of the gold in the world was gone, life would go on. If you woke up and all of the silver was gone, your life would drastically change. Silver is more than just money and an inflation hedge, it is a vital industrial commodity used by just about everyone, everyday. Silver is the best electrical and thermal conductor and is essential in electronics in automobiles, cellular phones, computers and batteries, the list goes on. These devices of the industrial age and Internet Age require a small amount of this metal to function. Gold, Palladium, and Platinum can also function in these devices but is far too expensive and delicate in some applications. New and growing technologies such as solar power require tons of silver to produce gigawatts of power. The People Republic of China is encouraging its one billion citizens to purchase silver bullion for investment purposes. The communist country has a growing middle-class that are demanding a Western lifestyle: automobiles, cell phones and computers. That is a representation of just one of the many growing Eastern countries. These are extremely bullish trends for investing in silver bullion. Is there enough to go around and for how long?
Supply and demand, manipulated
The metals are in finite supply and require time and labor to extract from the ground and convert into quantifiable representations of wealth: American Silver Eagles, Canadian Silver Maple Leafs and private mint silver bars to name a few. In 2009, the US mint sold double the amount of 1 ounce American Silver Eagles compared to 2008. In 2010, the US Mint is struggling to keep up with production—more Silver Eagles were sold in January 2010 than in all of 1996. In 1996 the average cost of the Silver Eagle was $6, in 2010 the average price has been $19 including premiums, demonstrating that despite the drastic price difference, investors are flocking towards investment in metal.
Geologists say that silver may be only of the first elements to go “extinct” with the metal consumption outweighing the mining production at a rate of 10 to 1. Despite the record selling of Silver Eagles and scarcity of silver in mining production the price of silver has decreased from a high of $19 to a low of $14 in early 2010. This is due to manipulation of the market by the banking system through the paper market schemes and unethical trickery. JP Morgan and Chase bank own 40% of the total shorts in the paper silver market which is knocking the price down and creating supply and demand irregularities. The banks are naked shorting the price of silver while investors of the physical metal are purchasing the silver metal at record rates. This can only result in a massive correction down the road as the finite supply of silver dwindle to unnaturally low prices and inventories go to zero.
What your stock broker may think
If you notify your broker that you would like to diversify your assets into silver and gold. They may recommend transferring equity stock into other paper “precious metals” funds such as GLD, SLV, or other Exchange Traded Funds (ETFs) that track the price of silver and gold. These funds are not a sound way for investing in silver and gold as many of these funds are unaudited and have not proven to investors to actually hold the metals that they say they hold when investors buy the stock. Mining stocks are another choice that is considered a “risky-speculation”. Some may be profitable but many go bankrupt when the mine becomes exhausted. Beware of stock brokers that want to keep you fully invested in the “paper game” of stocks securing their share their fees at your expense.
Only buy Physical Silver that you can hold in your possession
In the era of government bailouts, stimulus packages, extended unemployment benefits, global currency crises, sovereign debt crises, and false prosperity with potential consequences that nobody wants to talk about. Stock markets will increase with government stimulus but it is unfounded prosperity and these false stock prices will certainly correct to their true prices. Investors should recognize the security of silver and gold. These assets are not subject to “Enron-style bookkeeping” or “manipulated earnings reports”. Silver and gold is not sovereign to any one nation. Silver and gold will outlast and has outlasted every fiat currency that has failed in history. Silver and gold will never go bankrupt. Silver and gold is like purchasing and insurance policy on paper currencies backed by nothing. Silver and gold is a true safe-haven asset that every investor own. Many financial advisors suggest holding at least 15% of a portfolio in precious metals.
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02/22/2010 11:39 PM
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