FOFOA On Gold's "Focal Point", Or Is Silver Money Too?

Tyler Durden's picture

All those who believe there is sentiment of complacency within the precious metals camp may be forgiven. After all if one likes gold, one should like silver, and/or vice versa. Today FOFOA presents a counterargument. "I don't write about silver very much. Just like I don't write about copper or pork bellies. But, in fact, I have addressed many of the standard arguments for silver over gold in various comments on this blog and others. I'm sure someone will dig them out again and post links as people pose these arguments once again in the comments. But here's a new one. One of the argument for silver that we hear often is that it is "the poor man's gold." So I guess gold is "the rich man's gold." Well, what is the main difference between rich men and poor men? Is it that the rich have an excess of wealth beyond their daily expenses? In fact, the really rich have "inter-generational wealth," that is, wealth that lies very still through generations. The poor do not have this. So what do you think is going to come of all that "poor man's gold" that the silverbugs have hoarded up? Is it going to lie very still for generations? Or will it circulate, to meet daily needs? Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value. Lying still for generations = very slow circulation." Thus, today's question - is silver money too?

Via FOFOA

Focal Point: Gold

In game theory, a focal point (also called Schelling point) is a
solution that people will tend to use in the absence of communication,
because it seems natural, special or relevant to them. The concept was
introduced by the Nobel Prize winning American economist Thomas
Schelling in his book The Strategy of Conflict (1960). In this book (at
p. 57), Schelling describes "focal point[s] for each person’s
expectation of what the other expects him to expect to be expected to
do." This type of focal point later was named after Schelling.

Consider
a simple example: two people unable to communicate with each other are
each shown a panel of four squares and asked to select one; if and only
if they both select the same one, they will each receive a prize. Three
of the squares are blue and one is red. Assuming they each know nothing
about the other player, but that they each do want to win the prize,
then they will, reasonably, both choose the red square. Of course, the
red square is not in a sense a better square; they could win by both
choosing any square. And it is the "right" square to select only if a
player can be sure that the other player has selected it; but by
hypothesis neither can. It is the most salient, the most notable square,
though, and lacking any other one most people will choose it, and this
will in fact (often) work.

Schelling himself illustrated this
concept with the following problem: Tomorrow you have to meet a stranger
in NYC. Where and when do you meet them? This is a Coordination game,
where any place in time in the city could be an equilibrium solution.
Schelling asked a group of students this question, and found the most
common answer was "noon at (the information booth at) Grand Central
Station." There is nothing that makes "Grand Central Station" a location
with a higher payoff (you could just as easily meet someone at a bar,
or the public library reading room), but its tradition as a meeting
place raises its salience, and therefore makes it a natural "focal
point." [1]

Salience: the state or quality of an item that stands out relative to neighboring items.

There are two simple, but seemingly, apparently impossible-to-comprehend concepts. The first concept is why money not only can
be split into separate units for separate roles, one as the store of
value and the other to be used as a medium of exchange and unit of
account, but why it absolutely must and WILL split at this point
in the long evolution of the money concept. This means no fixed gold
standard, or any system that attempts to combine these units/roles into
one, making easy money "less easy" and hard money "less hard." And by
"must" I do not mean that we must do this, I mean that it is happening
today whether we recognize it or not.

And the second concept,
once the first is understood, is how and why gold and only gold will
fill the monetary store of value role. Not gold and silver. Not precious
metals. Just gold. People often ask why I don't mention silver. They
assume that when I say gold I really must mean gold and silver, or
precious metals. So let me be clear. When I say gold, I mean gold and
only gold.

Money's most vital function in our modern world is
lubricating commerce, or more specifically, keeping the essential supply
lines flowing – supply lines that bring goods and services to where
they are needed. Without it we would be reduced to a barter economy,
eternally facing the intractable "double coincidence of wants." This is
the problem whereby you must coincidentally find someone that not only
wants what you have to trade, but also, coincidentally, has what you
want in return. And in the modern world of near-infinite division of
labor, this would be a disaster. [2]

So we need money, and lots
of it. In fact, we need money in unrestricted amounts! (I'll bet you are
surprised to see me write this!) Yes, I said it, we need unrestricted
money in order to fulfill this most vital function in our modern society
– lubrication! But here's the catch: we need the right money in order to perform this seemingly impossible task. Let me try to explain.

Money
is debt, by its very nature, whether it is gold, paper, sea shells,
tally sticks or lines drawn in the sand. (Another shocking statement?)
Yes, even gold used as money represents debt. More on this in a moment.

For
this reason, the money used as a store of value must be something
completely separate and different from the medium of exchange. It must
be so, so that the store of value unit can expand in value while
the medium of exchange unit expands in quantity and/or velocity. You may
be starting to encounter my thrust. Expand… and expand. Unrestricted by
artificial constraints.

Compare this concept to a gold standard
in which you fix the value of gold to the dollar at, say, $5,000 per
ounce. The assumption is that this is where the price of gold will stay
for a long time, if you manage the system properly. So what is the
result? You artificially constrain the expansion of the medium of
exchange fiat currency while also restricting the value expansion of the
store of value. You are locking the two together. Do you think this
works and makes sense?

I said we need unrestricted money in order
to ensure the lubrication of the vital supply lines in our modern
world. This is it. This is what really matters. If we have a major
monetary and financial breakdown, what do you think will be the worst
consequence? Do you grow all of your own food? Do you make – or know
someone who does – all of your own stuff? How long could you survive
without any stores? Do you trust your government to be sufficiently
prepared to take care of you with no supply lines flowing?

Have
you ever stretched a rubber band until it breaks? You can feel the
resistance grow gradually and observe the smooth thinning of the band
until finally it loses its continuity and the two parts snap back
stinging your fingers. A tiny observer of this exercise, perhaps a flea
resting on your thumb (or an economist), one who doesn't really
understand rubber bands, might swear that it could be stretched forever.
The smooth change in the stretching rubber gives little warning of the
abrupt (sometimes painful) deformation that is coming.

This is
where we are today. The dollar standard is like a stretched rubber band.
It has been stretched and stretched, but it cannot provide the
unrestricted money that we need today. They think it can. And that's why
they are spewing it out in quantitative easy money boatloads. But it's
not the right money. As I said above, we need the right money in order to perform this seemingly impossible task.

That
resistance you feel is the artificial restraint built into the dollar
system. It appears to be infinitely expandable, but it is not. It is
just like the rubber band. Oh sure, you can print all the dollars you
can imagine, to infinity and beyond! But it won't work. It won't do the
most vital job, beyond a certain point. And yes, we are beyond that
point.

I want you to imagine a tiny micro economy. Just two guys
stranded on a tiny island. Let's call the guys Ben and Chen. They have
divided the island in half and each owns his half. They each have a tree
which bears fruit and three tools for fishing, a spear, a net and a
fishing pole. For a while they both fished often. Fish were the main
trade item between Ben and Chen. Sometimes Ben would take a vacation
from fishing and Chen would provide him with fish to eat. Other times
Chen would take a break.

But after a while Ben got lazy, and Chen
got tired of giving Ben free fish to eat. At first they used sea shells
as money to keep track of how many fish Ben owed Chen. Then they
switched to leaves from the tree. Finally they just broke a stick off
the tree and drew little lines in the sand. If Chen gave Ben a fish, Ben
drew (issued) a line in the sand on Chen's side of the island. There
were only two of them, so it was easy to avoid cheating.

These
lines sort of became Chen's bank account. Each one represented the debt
of one fish that Ben owed to Chen. But after a while they started adding
up, and Chen worried that he would never get that many fish back from
Lazy Ben. So Chen cut a deal with Ben. Chen said he would keep accepting
lines drawn in the sand for fish, but he wanted to be able to use them
to purchase some of Ben's other stuff (since Ben didn't like to fish).

At
first he used them to purchase fruit from Ben's tree. But after a while
the pile of fruit just rotted on Chen's beach. Next he started
purchasing Ben's tools. First the spear, then the net and lastly the
fishing pole. But at this point Chen realized that Ben would NEVER be
able to repay those fish without his fishing tools. So Chen rented them
back to Lazy Ben.

Of course Ben was still lazy, and now he owed
rent on top of the fish he already owed. The lines in the sand grew even
more rapidly as lines were added to pay for rent even when Chen hadn't
given Ben a fish. Then Ben had a great idea. Why even go through the
charade of selling the fishing pole and then renting it? Ben could just
sell Chen some "special lines" which had a "yield." For ten one-fish
lines, Chen could buy a special "bond" that would mature into 11 lines
in a year's time. They tried this for a while, but all that happened
were more lines in the sand. So many lines! Nowhere to walk. Chen's
"bank account" was taking up all of his real estate!

Finally Chen
had had enough. He called Ben over and said, "Okay, since you refuse to
fish for yourself, let alone to pay me back, I want to use these lines
to buy some of your gold coins." Oh, did I mention that Ben had a
treasure chest of gold coins that had washed ashore? Of course these
gold coins were the last thing that Chen wanted, because what good are
gold coins on a tiny island with only two inhabitants?

But
actually, they turned out to be an excellent record of the debt Lazy Ben
owed to Chen the fisherman. You see, at first, Chen bought half of
Ben's gold with the lines he had already accumulated, transferring his
"bank account" over to Ben's side of the island and consolidating his
"wealth" into gold. It worked out to 100 lines for one gold coin, or 100
fish per ounce.

But after a while, Ben realized that he was
running out of gold. He knew it would only be a short matter of time
until he ran out, so he closed the gold window. And once again, Chen
started accumulating lines and special yielding "bond" lines. Finally,
they agreed that the value of the gold coins had to be raised higher
than 100 fish per ounce. Ben suggested 500/oz., but Chen saw the
short-sighted flaw in his thinking. So Chen said that the value of
ounces should float against the number of lines issued by Ben. This way,
Ben would never run out of gold, and his lines would always and forever
be exchangeable for gold coins. Finally, a sustainable accounting
system!

Now I do realize the glaring flaws in this analogy I
cobbled together. So spare me the critique. It is far, FAR from perfect.
But it does help with a few good observations.

First, the lines
in the sand and the gold coins are both money on this island. One is the
medium of exchange/unit of account and the other is the store of value.
The store of value is quoted at any given time in units of lines, but
its value floats, it is not fixed, so it never runs out. This
method of accounting forces Lazy Ben to part with something more
substantial than simply issuing more lines via line-yielding "special
bond lines."

In this case it was the accounting of transactions
between a consumer and a producer. But it works just as well between any
two actors with unequal levels of production and consumption. Some
people just produce more while others can't stop consuming. I'm sure you
know a few of each type.

Also, notice that gold coins and lines
in the sand both represent the debt owed from Ben to Chen. And with
gold, Chen can wait forever to be paid back (which, on this island, is
quite likely). The gold doesn't spoil, and Chen's possession of it
doesn't interfere with Ben's ability to fish or eat fruit. But notice
also that the more lines in the sand that Ben issues, the more the value
of the gold (representing a debt of fish) rises. So the longer Ben runs
his trade deficit, the more debt he owes for each ounce of gold that
Chen holds.

This is not so dissimilar to the special bond lines,
with a few notable differences. The bond values are not only quoted in
lines, they are also denominated in lines. So the principle amount paid
for the bonds drops in value as more lines are issued to lubricate the
vital trade. To counteract this "inflation," interest is paid by drawing
more lines without the reciprocal delivery of fresh fish. But these
additional "free" lines also dilute the value of lines, which leads
ultimately to infinity (or zero value) in a loop that feeds back on
itself.

The more fish Chen supplies to Ben, the more lines he
receives, the more bonds he buys, and the more lines he receives in
service to interest. Eventually Chen will be receiving two lines for
each fish, one for the fish and one for the interest. And then three,
and then four. And so on. Wouldn't you rather just have one gold coin
that floats in value? I know Chen would.

Another observation is
that the medium of exchange on our island devolved into the most
insignificant and easy to produce item. A simple notation in Chen's
"account." Is that so different from what we have today? And Ben could
issue them with ease as long as Chen let him. Once Chen had so many
lines, he wasn't about to just abandon the system, was he? Wipe the
(beach) slate clean? No, Chen wanted to get something for his lines.
Something compact that didn't interfere with Ben's ability to work off
his debt should he ever decide to do so. Something durable. Something
physical from Ben's side of the island. Something… anything other than those damn-stupid lines!

I
hope that this little analogy helps you visualize the separation of
monetary roles, because those talking about a new gold standard are not
talking about this. I understand that sometimes you have to speak in
terms familiar to your audience in order to not be tuned out, but I also
hope that my readers come to understand how and why a new gold standard
with a fixed price of gold, no matter how high, will simply not work
anymore.

The full explanation of why it will not work is quite
involved, and I'm not going to do it here. But the short answer is that
the very act of defending a fixed price of gold in your currency ensures
the failure of your currency. And it won't take 30 or 40 years this
time. It'll happen fast. It wouldn't matter if Ben decided to defend a
price of $5,000 per ounce, $50,000 per ounce or $5 million per ounce. It
is the act of defending your currency against gold that kills your currency.

You can defend your currency against other currencies… using
gold! Yes! This is the very essence of Freegold. But you cannot defend
it against gold. You will fail. Your currency will fail. Slowly in the
past, quickly today. If you set the price too high you will first
hyperinflate your currency buying gold, but you won't get much real gold
in exchange for collapsing the global confidence in your currency, and
then you will have to empty your gold vaults selling gold (to defend
your price) as your currency heads to zero. And do you think the world
trusts the US to ever empty its vaults? Nope. Fool me once…

If
you set the price too low, like, say, $5,000/ounce, you will first
expose your own currency folly with such an act and have little
opportunity to buy any of the real stuff as the world quickly
understands what has gone wrong and empties your gold vaults with all
those easy dollars floating around. You will sell, sell, sell trying to
defend your price, but in the end, the price will be higher and you'll
be out of gold. Either that, or you'll close the gold window (once
again), sigh, and finally admit that Freegold it is.

Yes, the
gold price must… WILL go much higher. The world needs MONEY! And by
that, I mean recapitalization. Unfortunately the dollar is not the right
money. And printing boatloads of it will no longer recapitalize
anything. Today we are getting a negative real return on every dollar
printed. That means, the more you print, the more you DEcapitalize the
very system you are trying to save. Less printing, decapitalized. More
printing, decapitalized. Freegold… RECAPITALIZED. Yes, it's a Catch-22,
until you understand Freegold.

There Can Only Be One

A
"focal point" is the obvious, salient champion. But for many reasons,
some things are not as obvious as we would think they should be. Mish
ended his recent post, Still More Hype Regarding Silver; Just the Math Maam, with the following disclosure:

As a deflationist who believes Gold is Money (see Misconceptions about Gold for a discussion), I am long both silver and gold and have been for years.

Now is it just me, or did he say that because gold is money, he is long both silver and gold?

Here's another one from a recent article on Zero Hedge:

Part 3. People lie…..

“…I want to make it equally clear that this nation will maintain the dollar as good as gold, freely interchangeable with gold at $35 an ounce, the foundation-stone of the free world’s trade and payments system.”
-John F. Kennedy, July 18, 1963

“That we stand ready to use our gold to meet our international obligations–down to the last bar of gold, if that be necessary–should be crystal clear to all.”
-William McChesney Martin, Jr. (Federal Reserve Chairman) December 9, 1963

Lesson: When someone says you can exchange paper for precious metals – make the swap before they change the rules.

Whoa.
Wait. Did he just take two quotes about monetary gold and extend the
lesson to all precious metals? Is this right? Should we all be assuming
that "gold" always means "precious metals?"

According to Wikipedia:

A
precious metal is a rare, naturally occurring metallic chemical element
of high economic value, which is not radioactive… Historically,
precious metals were important as currency, but are now regarded mainly
as investment and industrial commodities…

The best-known precious
metals are the coinage metals gold and silver. While both have
industrial uses, they are better known for their uses in art, jewellery
and coinage. Other precious metals include the platinum group metals:
ruthenium, rhodium, palladium, osmium, iridium, and platinum, of which
platinum is the most widely traded.

The demand for precious
metals is driven not only by their practical use, but also by their role
as investments and a store of value. Historically, precious metals have
commanded much higher prices than common industrial metals.

Here's how I read the above description. Precious metals have a high economic
value. But because of investment demand, they also tend to have a price
higher than it would be on its industrial merits alone. Gold and silver
carry some additional sentimentality for their past coinage. In other
words, precious metals are industrial commodities with an elevated price
due to levitation from investment demand. Fair enough?

Now to
understand Freegold, I think there are two issues that need to be
addressed. The first is the difference between money, or a monetary
store of value, and an industrial commodity levitated by investment
demand. And the second, once the first is understood, is whether silver
belongs in category with gold as money, or with platinum as an elevated
commodity. You see, the very key to understanding Freegold may actually
lie in understanding the difference between gold and silver with regard
to their commodity versus monetary wealth reserve functions.

So
from here, I will explore the valuation fundamentals of money versus
levitated commodities. And then I will explore the history of silver as
money and ask the question: Is silver money today?

First, money.
Money is always an overvalued something. Usually a commodity of some
sort. But it can be as simple as an overvalued line in the sand, or a
digital entry in a computer database. But the key is, it is always
overvalued relative to its industrial uses! That's what makes it money!
If it was undervalued as money, it would go into hiding, just like
Gresham's law says, be melted down, and sold for whatever use valued it
higher than its monetary use.

It is fair to also say that
commodities levitated by investment demand are overvalued in a similar
way. But there are a couple of important differences. First is that all
of our experience with commodity markets during currency turmoil
happened while the two naturally-divergent monetary functions (the spur
and the brake) were rolled into one unit, namely the dollar. This left
only the commodity markets as an escape. Second is that monetary
overvaluation usually has official support while commodity overvaluation
often has government disdain.

There is this idea out there that
if you have a paper investment market for a commodity that is larger
than the physical units backing it (fractionally reserved, so to speak),
that the commodity's price must automatically be suppressed by the
market. This is simply not true unless we are talking about money
masquerading as a commodity.

A paper market brings in investment
demand and leverage (borrowed money), two levitating factors that would
simply not be present if the paper market disappeared. And these two
factors, "the speculators," can take a commodity's price well into
overvalued territory. Just look at oil for an example. Even the sellers
of the physical stuff say they prefer a lower price than right now, not
to mention during the all-time high in 2008.

You'd think the
sellers of a physical commodity would love a higher price driven by
speculators. But they don't, because it is only a real price if all the
investment participants have a real use for, and ability to take
possession of, your physical commodity. Otherwise it's just a casino.

Back to the Zero Hedge piece:

At
today’s prices, a million dollars in gold weighs less than fifty
pounds, but a million dollars in silver weighs more than 2,300 pounds!
So ask yourself, how many rich people are storing their own silver? How
many hedge funds hold physical silver in their own storage facility?

Cool!
So a million in gold only weighs 50 lbs.? Sounds like low storage fees
and easy delivery! 2,300 lbs. for silver? Wow, that sucks. How many rich
people are taking possession of their silver? Not many, I'd guess.

To
be honest, I really don't know if silver is overvalued or undervalued
today at $30/ounce. But if you are counting on the industrial
fundamentals of silver for your moonshot like the Zero Hedge article is,
or on a busted paper market like the "vigilantes," you may be in for an
unpleasant surprise. The same fundamental arguments that are used today
were also used back in 1982. [3] In gold, at least, we know that
jewelry demand rises and falls opposite the price of gold. [4] But then
again, gold is money, right? So, is silver still money?

Easy Money

Silver
was certainly used as money in the past. So why not again today? Maybe
the people will rise up and demand silver money! Maybe China, or
somebody else, will remonetize silver and start a new silver standard,
right? After all, China was the last to use a silver standard.

I
don't mean to pick a fight with silver. In fact, I write this post with
a heavy heart. But there is so much silver hype right now that I feel I
owe it to my readers to at least try to spell out Another perspective.
And China is certainly on the minds of the silverbugs these days. How
often have we heard about China encouraging its citizens to buy gold and
silver lately? (There's that "gold and silver" again.)

But did
you know that China was practically dumping its silver a decade ago? And
to this day it is still a large exporter of silver. Not gold. Just
silver. In 2009 China exported 3,500 tonnes of silver. That amount will
probably be cut in half for 2010. The drop is due to increases in both
industrial and investor demand, but also due to China's recent move to
stem the shipment of all natural resources leaving its shores.

I'm
sure many of you know that China was the last country on Earth to end
its silver standard back in 1935, in the middle of the Great Depression.
But do you know why? And would China ever want to start a new
silver standard? Does it make any sense now that they've sold most of
their silver? And what has changed since 1935 that would make them want
to go back?

Something very interesting happened after Jan. 30,
1934 when Roosevelt devalued the dollar against gold. The price of gold
went up 70%. What do you think happened to silver? Did it go up more
than gold? Did it shoot the moon? Was it leveraged to gold? No, it
dropped like an unwanted rock.

In response to the falling price
of silver, on June 19, 1934 (four and a half months later) the U.S.
Congress approved the Silver Purchase Act of 1934 which authorized
President Roosevelt to nationalize silver holdings (to buy silver). This
decision resulted in an increase in the world price of silver, which
forced China to abandon the silver standard in November 1935.

The
US Silver Purchase Act created an intolerable demand on China's silver
coins, and so in the end the silver standard was officially abandoned in
1935 in favor of the four Chinese national banks "legal note" issues.

Remember what Mundell wrote (See Mundell in The Value of Gold).
The use of a commodity as money is the overvaluing of that commodity
for profit by the monetary authority. When the US started buying
commodity silver on the open market (to prop up the price artificially)
the Chinese people found it was better to sell their silver coins for
melt value than to use them in commerce for face value (which was lower
than melt).

This effect to China's base money (silver) in 1934
was similar to what the US felt in 1933 and 1971 with gold. The main
difference being that the demand for silver in 1934 was artificial (from
one single entity, the US govt.) while the demand for gold has always
been real, global and market-driven. This price supporting move (not
unlike the Agriculture Adjustment Act and other destructive price
control measures) by the US caused the "Shanghai Financial Crisis" which
lasted from June 1934 until November 1935, finally ending in Currency
Reform on Nov. 4, 1935.

So, in 1934, the US govt. wanted to
devalue (set the price of) the dollar against gold and silver. In order
to do so, it had to influence the market of each. For gold, it had to
inflict capital controls internally and sell gold externally at the new
higher price. For silver, it had to BUY silver at the new higher price.
Sell gold, buy silver. The same exact thing that happened 45 years
earlier with the Sherman Silver Purchase act of 1890.

Pushed by
the Silverites, the Sherman Silver Purchase act of 1890 increased the
amount of silver the government was required to purchase every month. It
was passed in response to the growing complaints of farmers and mining
interests. Farmers had immense debts that could not be paid off due to
deflation caused by overproduction, and they urged the government to
pass the Sherman Silver Purchase Act in order to boost the economy and
cause inflation, allowing them to pay their debts with cheaper dollars.
Mining companies, meanwhile, had extracted vast quantities of silver
from western mines; the resulting oversupply drove down the price of
their product, often to below the point where it was profitable to mine
it. They hoped to enlist the government to artificially increase demand
for, and thus the price of, silver.

Under the Act, the federal
government purchased millions of ounces of silver, with issues of paper
currency; it became the second-largest buyer in the world. In addition
to the $2 million to $4 million that had been required by the
Bland-Allison Act of 1878, the U.S. government was now required to
purchase an additional 4.5 million ounces of silver bullion every month.
The law required the Treasury to buy the silver with a special issue of
Treasury Notes that could be redeemed for either silver or gold.

That
plan backfired, as people turned in the new coin notes for gold
dollars, thus depleting the government's gold reserves. After the Panic
of 1893 broke, President Grover Cleveland repealed the Act in 1893 to
prevent the depletion of the country's gold reserves. [5]

To "set
the price" of anything, you must either buy or sell that thing.
Governments cannot just "set" prices. Whenever they try, the items just
disappear or go into hiding. If the price you set is lower than the
value, then you will have to sell. If the price is too high, you will
have to buy. More from Mundell:

"[In the 1870s] France
pondered the idea of returning to a bimetallic monetary standard, but
with American production of silver going up and Germany dumping silver
as the new German Empire shifted to gold, France realized it would have
to buy up all the excess silver in the world on its own."

So...
if your standard is going to overvalue something, you must buy it. If
you undervalue something, you must sell it. And what was the US doing
with gold throughout the entire Bretton Woods system? That's right, it
was SELLING gold through the gold window. So it wasn't the gold that the
US monetary authority was overvaluing for profit. It was the
cotton-pulp paper in the FRNs! Cotton pulp! That's the overvalued
commodity today!

Remember what Another wrote? "Any
nation/state can put its economy/currency on a gold standard. They only
have two requirements. Own a stockpile of gold and raise the price very
high!"

Why do you think you need a stockpile of gold to
start a gold standard? In the case of France in 1870 above, they
realized they would have to buy all the excess silver in the
world to keep a silver monetary standard. You don't need a stockpile to
do that! Yet you don't need to worry about buying all the gold to have a
gold standard. You need to be prepared to SELL! That's why you need a
stockpile. So what's the difference?

Could it be that silver is
only a commodity today (and for the last 150 years at least) and because
of this, any monetary use is not backed by the free market? Any silver
standard is an unnatural levitation requiring BUYING of silver by the
monetary authority. While a gold standard gives the free market what it
really wants, gold, requiring SELLING of gold by the monetary authority.

Can
you find an example where the opposite occurred? Can you show me where a
government ever had to buy gold and sell silver (at whatever price or
ratio) in order to maintain its system?

The US quit bimetallism
during the Civil War, prior to the Silverite movement. [6] This ended
the government's "overvaluing" of all silver for use in money. After the
Civil War, there was a difference between commodity silver (what the
miners dug up) and monetary silver (overvalued silver in US coins)
because in order for the US to sustain bimetallism (or a silver
standard) it would have had to value (buy) ALL the excess silver in the
world at the overvalued price of the coins.

This meant it would
have to BUY any and all commodity silver that was offered for sale (to
prop up the price). You see, silver needs its price propped up (huh?
why?) while gold appears to need its price suppressed (see: The London
Gold Pool). So rather than actually "valuing" silver, the government
compromised with the Silverites and agreed to buy a specified quota of
commodity silver. At least it did until it ran out of gold in 1893.
Something must have been wrong with that 16:1 ratio in the 1800s, huh?

70 years later, when the price of commodity silver finally
overran the value of the coins in 1964, it was because of cotton-pulp
printing (inflation) only, not global monetary demand! This is exactly
how commodities act. They respond directly to monetary inflation until
the commodity value overruns the face value.

So it seems that the
free market wants to exchange its "money" for gold. But "the people"
(at least in the late 1800s) wanted silver to be money. They wanted to
SELL their silver to the government while the government SOLD its gold
to the market. This is a one-way flow that tends to end in a vault full
of silver with no gold. So why did the US Government intervene in the
silver market and support this folly?

The government caved
primarily because of politics (pressure from the Silverites – the
farmers and miners out west), and tradition secondarily (past use of
silver as money, the US Constitution, etc.). Politically, "the people"
will always want easy money. And silver was their easy money of the day.

Price
deflation in the late 1800s was hurting the farmers. The farmer
business cycle is seasonal. Borrow money for equipment and seeds to
plant in the spring. Then grow your product. Then harvest and sell in
the fall and pay off your debt with the proceeds.

The effect of
causing an inflationary environment through "easy money" means that it
is A) easier to pay off your debt in the fall than it was in the spring
(or the year before), and B) you get more money for your crop than you
did last year. The effect of a deflationary environment is the opposite.
Your debt gets harder to pay and you get less money for your crop. It's
the same for all businesses actually. But farmers were a big political
group in the 1800s that were all roughly on the same business cycle.

This
bears repeating: "The people" wanted silver back then (late 1800s)
because it was the "easy money" of the time. "The people" NEVER
want harder money. Today silver would be harder money, so it will never
have the support of "the people" (other than the silverbugs). 16:1 was
quite obviously an artificial monetary ratio, because whenever
they maintained it, there was a run on the gold. The market wanted to
push the ratio much wider, and the government, in service to "the
people," fought that market force.

Today silver would be "harder" money than cotton-pulp. This is why there will NEVER be a big enough political movement of the people that will bring back a silver standard. We have now discovered easier money than silver!!!

If
you want harder money, it's gold. If you want easier money, it's
cotton-pulp. So where does silver fit in? Well, it's just another
industrial commodity with a lingering sentimental mystique as the old
"easy money."

And where does gold fit in? Freegold of course! The monetary wealth reserve as demonstrated by the Central Banks of the world!

So
what if gold really is the wealth reserve of choice for the giants that
A/FOA said it was? That means silver is nothing but an industrial
commodity today, being somewhat levitated by the lingering hype. What if
silver is just a commodity, like copper or oil?

Monetary value is a self-supporting, self-sustaining levitation. Money is the bubble that doesn't pop. The price of money is arbitrary. Not so with commodities.

So... is silver really money today? I know gold is. Here's the evidence:

Does anyone have any evidence that silver is still money today?

Yes,
I am aware that the stock of silver is disappearing into our landfills.
These "properties" of silver have been with the metal since the early
80s, through decades of single-digit prices. [3] So, is jacking the raw
materials from industry and holding them hostage for ransom at a higher
price the real play today? (Hint: this tactic often ends badly for the
speculator.) Or is the real play front running the new global monetary
wealth reserve during a transition in our international monetary system?

Here's
one silverbug who is starting to put two and two together! I think he
might also be reading FOFOA. ;) (Hi Joe. I think you are confusing me
with FOA in your video. But that's okay, it's a wonderful compliment to
me! Tip to others: If you mention me in a video include a link in the
description and I might just find your video.)

Did you hear him at 6:35? "Only one metal in the world that fits the
bill for money, and that's gold!" That's right Joe! Good job from the
"Silverfuturist". There can be only one! Did you see my subheading? And
please read the description of a "Focal Point" again. It's the first
thing in this post. Can you put two and two together like Joe?

I
don't write about silver very much. Just like I don't write about copper
or pork bellies. But, in fact, I have addressed many of the standard
arguments for silver over gold in various comments on this blog and
others. I'm sure someone will dig them out again and post links as
people pose these arguments once again in the comments. But here's a new
one.

One of the argument for silver that we hear often is that
it is "the poor man's gold." So I guess gold is "the rich man's gold."
Well, what is the main difference between rich men and poor men? Is it
that the rich have an excess of wealth beyond their daily expenses? In
fact, the really rich have "inter-generational wealth," that is, wealth
that lies very still through generations. The poor do not have this.

So
what do you think is going to come of all that "poor man's gold" that
the silverbugs have hoarded up? Is it going to lie very still for
generations? Or will it circulate, to meet daily needs? Note that
circulation velocity is the market's way of controlling the value of any
currency. Faster circulation = lower value. Lying still for generations
= very slow circulation.

So as you contemplate which commodity
will be the monetary focal point of the future, I'll leave you, as I
often do, with a little music.

Sincerely,
FOFOA

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
eaglefalcon's picture

silver= strategic metal

 

 

Suppose I were the government, I could declare that your house is at a "strategic" location, that your gold and silver are strategic materials, and that you possess some strategic knowledge vital to national interest.  Therefore, i can take your house through eminent domain, confiscate your metal by an executive order, and lock you up as a "material witness".  Any life could be ruined by this single word

socalbeach's picture

So what do you think is going to come of all that "poor man's gold" that the silverbugs have hoarded up? Is it going to lie very still for generations? Or will it circulate, to meet daily needs? Note that circulation velocity is the market's way of controlling the value of any currency. Faster circulation = lower value. Lying still for generations = very slow circulation.

This article is complete rubbish as is the quote above.  He's no doubt using the equation M*V = P*Y or M*V = P*T in the above excerpt.  For constant money supply (M), increase monetary velocity (V) and the price level (P) will increase, provided the number of transactions (T) stays constant or decreases. 

But if you replace M in dollars with M in ounces of silver, obviously T (# of transactions in silver) will increase also, so you can't conclude P will increase or the monetary unit's value will decrease.  If anything silver's value would increase as people would stockpile it for daily needs.

fiftybagger's picture

Guys, bottom line, they are on the ropes.  Look at their desperation:

 

1.  Keiser announces crash JPM campaign

2.  JPM grabs 80% of LBMA copper

3.  JPM signals that it is "reducing" its silver short

4.  CFTC mysteriously suspends its position limit hearing

5.  FOFOA posts his nonsense on zerohedge

6.  Geniuses of ZH shred his arguments like so much dog meat

 

silver and gold going to one to one parity, mark my words...

http://www.youtube.com/user/BrotherJohnF

blindman's picture

i think it comes down to people and their desire and

need to have control of something important in their lives.

this is the attraction and the driver for markets.  ideas.

it could be anything that is agreed upon.  shells.  silver.

gold or housing or fiat currency.  but there needs to be a narrative,

people need to accept it,  it needs to be available or within reach,

it needs to be affordable.  so the focal point cannot be something

beyond reach, like a carrot on a stick to a jackass.  the focal point

cannot be something some few others have access to but not the

majority.  imo.

silver is a physical asset that common people can control, or influence,  can corner

the market and then influence collectively the pricing. "rules" of transaction,

self respecting, could be followed to maintain - influence pricing and "value". 

the idea is only considered because the currency is being abused/threatened. 

 

greenbear's picture

Wow.  This is such a pile of CRAP it boggles the mind.  

"gold and only gold will fill the monetary store of value role. Not gold and silver. Not precious metals. Just gold."

Sorry bud, human history up to our present time shows that you are DEAD WRONG.  Silver AND gold ARE money and have ALWAYS BEEN money.  It is true that silver has been used up and today is rarer than gold (above ground) but one should not assume that this means it is no longer money.  Silver is simply rarer than gold so it will be valued more highly than gold when the shackles of manipulation are loosed, to the chagrin of the Masters Of The Universe who for more than a century have hatched their schemes to use up and demonitize the common man's gold.  

"Money is debt, by its very nature, whether it is gold, paper, sea shells, tally sticks or lines drawn in the sand."

Gold is not debt.  The balance on my credit card which I used to buy gold is debt not the gold I purchased with it.

Regarding your analogy of the two guys on an island: Chen would simply cut Ben off since he is non-productive and good for nothing.  Just as America will be cut loose by China.  

I stopped reading your article at this point.  

 

As the desperation of The Masters Of The Universe increases, another name comes to my mind: Failure Of Failure Of All {Failures}.

greenbear's picture

So, although TPTB have ultimately succeeded in destroying silver's function as the money of the common man, it is not destroyed to date.  Non-elites can still buy silver at outrageously suppressed prices and hopefully those who are wise will do so and put their fortunes to good use.  Unfortunately, human nature being what it is most will simply become like those who oppress them now.

KickIce's picture

But what happens if a country can control agriculture prices, and it will only accept silver in exchange for goods?

 

deagle44's picture

Gold is money and nothing else.

delacroix's picture

why didn't judas get gold? if the bible is steeped in symbolism, and mentions gold many times? silver best reflective element, silver best thermal conductor, silver best electrical conductor. silver best spiritual energy conductor? I'm going to have to meditate on this, although, since I've been carrying a 1 oz coin in my pocket lately, I've been feeling pretty good,considering the fact, that the whole economy is collapsing.

eaglefalcon's picture

why didn't judas get gold? 

Judas betrayed Jesus for 30 pieces (shekels, 1 shekel = 0.35 oz) of silver (instead of 2 pieces of gold) because the Old Testament prophesied so.  And it had to happen that way so that the prophecy could be accurately fulfilled.

Why did the Old Testament prophesy that the Messiah would be betrayed for 30 shekels of silver instead of 2 shekels of gold?

Because in Jewish tradition and culture, daily financial transaction are conducted with silver, and in Jewish courts of law, all debts, compensations and penalties were paid in silver.  They practically had a silver standard.

Gold was mentioned 336 times in the Old Testament.  It was used for 1) storage of wealth 2) Jewelry 3) Ornament , decoration and religious worship.  However, one can't find a single incidence in the Old Testament in which gold was used as money in a financial transaction.

Silver was mentioned 264 times in the Old Testament.  It was used for 1) storage of wealth 2) Jewelry 3) Ornament , decoration and religious worship 4) money

Let's analyse the some random financial and legal transactions mentioned in the Old Testament:

1) Gen 23:15.  Abraham bought a graveyard from Ephron.  with what?  400 shekels of silver

2) Gen 37:28.  Judah and his brothers sold Joseph into slavery.  for what?  20 pieces of silver

3) Gen 45:22.  Brothers went to Egypt to buy grains.  with what?  Sacks of silver

4) Exo 21:32.  Damage paid in a court of law for injury caused by an ox.  30 shekels of silver

5) Deu 22:19  Damage paid in a court of law for taking someone's daughter's virginity.  100 shekels of silver

6) Jdg 9:4   Wage paid to unspecified number of assassins.  70 pieces of silver

7) Jdg 16:5  Compensation paid to a special agent for a seduction/assassination mission. 5,500 shekels of silver.  Wow!

8) Jdg 17:4  Commission to a sculptor for a statue.  200 pieces of silver

9) 1Sam 24:24  David bought a threshing floor and some oxen.  50 Shekels of silver

10) 1Kin 10:29  Price of Egyptian Chariot (=Bradley fighting vehicle), 600 shekels of silver, Egyptian horse (Harley) 150 shekels of silver

Interestingly, even very large transactions (say 5,500 shekel) were settled in silver instead of gold


eaglefalcon's picture

Strange thing:

 

assuming 1 shekel = 0.35 ounce,

in biblical times, 1 horse sold for 50 oz, today a horse is worth 1000 oz

bodily injury, 10 oz then, > 3,000 oz now

virginity 33 oz then, ???? oz today

burial plot for a family of 7, 133 oz then, 1,000 oz now

slave 7 oz then, ??? oz today

threshing floor + oxen  17 oz then, 1,000 oz now

 

seems to me that silver doesn't hedge against inflation at all

tmosley's picture

For starters, silver was MORE VALUABLE THAN GOLD for a good portion of the history of Egypt, which includes a not insignificant amount of the old testament.  For quite some time after that, silver traded much closer to the price of gold than it does today.  Further, the current price is very much suppressed.

In addition, a few other things have changed between then and now.

Horses are far rarer today than they were then.  Bodily injury costs much more to treat (due to medical fascism), plus it doesn't say how much injury, nor does it mention how much the salary of the injured person was.  Virginity can probably be had from a new worker at a brothel for as much as there, however that was a PENALTY, which tends to be much higher than a price.  Burial space is more limited now than it was then due to overcrowding and the contract for hundreds of years of maintenance.  7oz was what the brothers sold their brother to slave traders for, not the amount he was worth on the open market.  I don't know about threshing floors, but oxen are practically unavailable today, so their cost is bound to greatly exceed the cost back then when they were common.  Better to compare to a time share of mechanical thresher.  I don't know much about hte prices of such things.

eaglefalcon's picture

For starters, silver was MORE VALUABLE THAN GOLD for a good portion of the history of Egypt, which includes a not insignificant amount of the old testament.

 

that sounds reasonable.  The old testament , in about 200 occasions, mentioned the 2 metals together.  It always said "silver and gold" instead of "gold and silver"

strannick's picture

That Fofoa discourse reminded me of an undergrad epistomology lecture in Philosophy 101, or a Federal Reserve Economics paper. I think Fofoa has been having to many socratic dialogues with his anacronym friends 'A' and 'F.O.A.'. Sometimes a little common sense saves alot of high falutin obfuscation.

1. banks are mega short silver

2. industrial users are experiencing silver shortages

ergo, silver goes up in price.

blunderdog's picture

The speaker in the attached video is a poor advocate.

Dr. Gonzo's picture

Nothing new here. I've already gone through hundreds of PM war games in my brain too and the outcome is different every single time except for one thing...the irredemable paper money always goes to zero. My personal preference is a tie between my lust for gold and platinum however my vast holdings are in silver and I'm personaly fond of it too. That being said palladium does not do it for me on a viceral level when I hold it in my hand but I have respect for it's freakish properties and intrinsic value and don't mind making lots of money on it either. So once again we did not re-invent the wheel on this thread but still had a good time thinking about shiney, heavy, rare, enduring, useful, and valuable PM's.

DoChenRollingBearing's picture

Platinum: pant, pant, pant!  My favorite of the lot, though I do hold a lot more gold.

I have a nominal (10 oz) of palladium for its exotic properties as well as an interesting speculation.  That was a fine observation about Pd not really doing it on a visceral level, me either.

But, Au, Pt, and Ag (in that $ value order) are my real holdings.

mark mchugh's picture

Hey Shithead,

You really should consider spending more time reading, comprehending, and thinking and a whole lot less time slapping the keyboard.

Next time you attack my work, you should really put out the effort to understand it.  I spend a lot of time boiling points down so they can't be misconstrued.  And then a fucktard like you comes along.....

Sorry, but that's all the response you get from me.  I wouldn't wipe my ass with your "work."

 

essence's picture

Granted brevity isn't FOFOAs strongsuit, however I suspect the bulk of the
negativity here stems from folks having committed some of their savings
to silver and thus having a protective attachment that hinders FOFOAs argument.
Does this means Silver won't appreciate? I don't recall FOFOA saying that.
Could FOFOA be more concise? Certainly, however that's just his style
and why let it detract from the merits of his reasoning.

Separating the store of value from the unit of transaction makes sense in
that it provides a means to adjust liquidity to changing economic conditions
while providing citizens a means of evading the effects of inflation.

If I understand FOFOA correctly, he envisions Gold to be a means of international
settlement while each country remains free to manage the issuance of their respective
fiat. Note that excessive fiat issuance will result in ones paper buying less foreign
goods (e.g. oil). That should act as a throttle on governments baser habits
and provide an incentive to be more financially responsible.

As most of you are well aware, fiats are on a collision course with reality
and the world will soon need a replacement for the USD/reserve currency meme.
There's no way to feed and care for 7 billion people using simple barter so
we'd better start serious discussions on our future monetary system.

The real issue is how to transition without the big multinational banks
corrupting the process and setting themselves up for a millenium of rule.

mark mchugh's picture

OK I'll talk to you.

People don't have much silver.  Not rich people, not poor people, not governments and not JPM.  It's gone, get it?  It's usefulness has made it more scarce than gold.

The only reason peasants can get it is that rich people, governments and central banks (and probably this dim-witted author) have long favored gold because it was percieved as a more dense storage of wealth.  The fact of the matter is what's left of the world's silver supply is more valuable to the world than the world's gold supply.

We can settle international trade imbalances with weapons grade plutonium if we have to pick "one thing" (personally I think that would work better than gold).  But we don't.

What you have here is someone trying to rationalize a less than optimal decision, by saying the better choice "just won't work."  In short, he's an idiot.

Trust me on this, the powers that be are way more afraid of silver than gold, because they don't control it anymore.  They gave it away, and now they are trying to convince people it isn't important.  Fine.  Keep beating down the price...

When the game blows up, we may being calling gold "the poor man's silver"

essence's picture

Obviously you are passionate about Silver.
I have some silver, gold too. Can't get too excited holding
either in my hands, but both have a history as a store of value
and having stored as much food and supplies as practical, I need
something concentrated (and I can't imagine 'taking delivery' of any plutonium).
I will note that Silver is far more bulky than Gold, and lack of portability
is one aspect of Silver I consider a liability (if things seriously degrade,
I might have to relocate).

FOFOA, and the guy behind the flowofvalue site having gone into
detail about the wisdom of having a transaction unit separate from
the store of value. They've covered it extensively from a multitude of angles.

Having read and pondered their words, Gold seems the strongest candidate
as that store of value; however if you can articulate in depth why it should instead
be Silver, by all means I'll listen.

Regardless of our collective future choosen 'store of value', I repeat what I stated earlier, the owners of the big banks will be working to skew the process so that
they continue to come out on top.

Keep your eye on the donut and not on the hole.

 

mark mchugh's picture

The skewing of prices is what the silver movement is based on.  I'm going to say this one more time, silver is more scarce than gold.  Yes the silver is still on the planet, but the expense to recover and re-use it would be enormous. 

The notion that one ounce of gold is worth fifty ounces of silver is laughable.  Downright comic.  And anyone willing to make such a trade is a fool.

And FYI - what I'm passionate about is reality.

blindman's picture

@"Having read and pondered their words, Gold seems the strongest candidate
as that store of value; however if you can articulate in depth why it should instead
be Silver, by all means I'll listen."

in the future if you would like to make a transaction using money you might

need / want change and it might just be silver.?  or it could be links from a

chain of gold or silver ...  the possibilities are endless.

i think there are also infinite potential stores of value, the imagination

being the only limit.   

kroak's picture

300 comments, and almost nobody getting freegold. Hopeless. I agree, FOFOA is loooooong, and reading this post alone won't let you understand this. You need days of reading.

People talking about paying with gold coins make me laugh. People talking about a new gold standard make me laugh. People saying that we are right now on freegold make me laugh. Come on, make some effort, read and think realistically.

In short, under freegold you will still have dollars/euros or whatever currency. You will still pay and be paid in these currencies. With some 1-5% annual inflation rate like today, you won't care for daily shopping. It is only for long term savings, several years, that you will convert your currency into gold, which will be naturally hedged against the inflation of the currency -- The currencies will float freely against physical gold (not paper gold).

FreeMartinArmstrong's picture

took me a few weeks actually ...

me thinks, besides sex, never spend any better time, it changed my world, but saved my life. me thinks for myself again. will make up for lost fun after recapitalization, until then, me waits and smiles ...

DoChenRollingBearing's picture

+++

Spending the time to read and ponder FOFOA is about the best you can do (outside the bedroom and doing Tai Chi...).

mark mchugh's picture

The battle against stupidity never ends.......

You're re-inventing the wheel, and the sad part is you think you've discovered something new.

Pathetic.

kroak's picture

Please, develop.

I have not laughed enough today.

Dick Buttkiss's picture

Wealth is production beyond subsistence, i.e., production saved for future consumption and/or exchange for the saved production of another. Money is wealth that facilitates the latter, gold having stood the test of time in this regard, with silver not far behind. Regardless of what form of wealth money takes, however, if it is genuine money, it is not, as FOFOA claims, "debt, by its very nature," since one cannot simultaneously owe what one owns. For if this were so, then the more wealth one had, the more in debt one would be.

What complete nonsense.

 

 

Flore's picture

the dollar is a small part of the entire mountain of debt the usa has...

FreeMartinArmstrong's picture

the more wealth you'll have, the more debt is owed to you

almost there, just around the corner, keep going !!

Dick Buttkiss's picture

OK, let's see: Sam the Squirrel works overtime storing up nuts for the winter, which Willy the Weasel then steals.  According to FOFOA, Sam is now out of debt but starves to death, while Willy takes on the debt, which he fattens himself up with all winter long.

What a crock of shit.

FreeMartinArmstrong's picture

sam is not out of debt, he never was in debt either, after willy's visit sam did lose his wealth though, next time he will be more carefull who he invites or he will lock his doors much better me thinks ...

but you probably think I assume willy is in debt now, so please think and assume for yourself, and let others with clearer view be the judge. we might be better off ...

 

Dick Buttkiss's picture

"sam is not out of debt, he never was in debt either..."

That's my point.  Contra FOFOA, (real) money is not debt, nor can it be, as it is surplus (saved) production used as a medium of exchange, gold (and silver) being the historically preferred medium.

FreeMartinArmstrong's picture
what would you call the services you are going to buy for your coins ? those are services someone ows(!) to you in the future, and looking at it in that way, money is by nature debt. money is storing future services to the holder ... is the path getting clearer ?
Dick Buttkiss's picture

What? I am "going to buy" someone's services, so I am owed them?  How about somebody exchanges a service that he accordingly owns in exchange for the good (money, if used as a medium of exchange) that I own?  

Looking at it that way, as in the common sense way, ownership of one thing is exchanged for that of another, and all the parties "owe" each other is the good faith -- i.e., the reciprocity -- that lies at the heart of all market transactions.  If one party doesn't reciprocate -- if one party accepts the other's good or service but does not exchange his good or service for it -- then he is committing theft, in which case he is in debt, the payment of which is called restitution.

Is the path getting clearer?

FreeMartinArmstrong's picture

you are helpless and lost, better try to understand what someone is trying to tell you instead of digging in and making it a definiton question of something you really don't understand. you might learn something. a lot actually.

good luck and since you probably want to be the last to say something, good luck with trying to be smart too ! you'll need it ...

THE DORK OF CORK's picture

OK the euro has a free floating gold standard.

It is also very possible that Europe has most of the Gold both public and private but espescially private.

If Gold goes on a upward trajectory towards the monetory base value of currencies wether on a free or standard mechanism then Europe will have the first call on the worlds resources in terms of its monetory wealth.

Fair enough but will America and Asia allow this monopoly of wealth to reside in a continent with little physical resources ?

If we get free gold America will be a big loser.

When Germany lost the great game in 1919 - after a decade or so there was a reaction and a terrible one.

While America is now in a sorry state unlike pre Great war Germany it still has something of value.

 A poltical / economic and possibly military backlash could occur if America wakes up and especially if the FED is removed from Washington a new system could emerge.

I think a new silver monetory union between US , Canada and Mexico could be a possibility given their large share of the worlds silver resources.

This could prevent Gold owners in Europe and inside America gaining a monopoly of power.

This could operate a bit like the old Latin Monetary union but instead of having a Franc or Lira standard price / weight they would just have a recognized weight - this currency would be goverment sanctioned and trad able withen this monetory zone on a weekly , monthly or yearly changing  price scale.

The price could be based on the total money in cash and deposits withen the three currencies  or maybe just the dollar divided by the number of official silver coin  - a yearly revision may be appropriate.

 

This would be inflationary over time but would enable America to industrialize as the surplus created from industry would not flow to the bankers.

However America is deficient in oil resources - if it refuses to develop natural gas for transport and continues to waste this energy on electrical generation then it would remain a second world state as it would have to pay for oil via Gold or expensive military projection.  

eftian's picture

In the case of France in 1870 above, they realized they would have to buy all the excess silver in the world to keep a silver monetary standard.

 

This may have been impossible in 1870 with 10 billion-ish ounces of silver floating around and little industrial consumption, but today with 1 billion oz of silver left above ground and huge and growing industrial demand makes this a totally different situation. Silver is a 30 billion dollar market. Just one or two of the very rich could (theoretically at 30/oz) buy the worlds above ground supply.

Didn`t we just spend 600 billion on something?

Ignatius's picture

"The road will seem so straight and fair to travel, you will kick yourself for stumbling through the brambles for so long, and wonder at your neighbors who still can't see the path, though it is truly a freeway." (Aristotle -- the blogger -- courtesy of FOFOA)

"Them that don't know don't know that they don't know." (An old song courtesy of Joe Bagent)

 

Normally the discourse here at ZH is quite good. Today? Hmmm....

 

1)  These essays are not policy prescriptions, but an attempt to turn our gaze in the direction of highest probability, i.e., where we are going, not where we've been.

2)  "All money as debt" is a reference to the fact that all monies saved are a claim on future production.  If one saves in the same medium that one spends it's akin to driving a car while applying the gas and the brakes (on the economy) simultaneously. Typically, not very efficient (and by "efficient" I mean fuel consumption, not winning NASCAR).

3)  Hoarding gold as savings is by no means the only way to save, simply the most efficient.  Hoarding items other than gold (with some exceptions, to be sure) impacts the efficient functioning of the economy.

4)  All fixed values and ratios are eventually overcome by human nature and experience.

5)  People may very well choose silver as money and savings, but it is not likely the best use of silver.  Disclosure:  I own some silver.

6)  We use fiat currencies because they are so damned efficient, and that is unlikely to change anytime soon, if ever.

 

 

 

 

Elmer Fudd's picture

Brazil's CB is buying gold?

THE DORK OF CORK's picture

Just found a GATA video by a nice Mexican man - Hugo Salinas.

This man has perhaps a more elegant solution then my suggestion.

The Goverment sanctioned coin will have a minimum value above the present market value of silver.

If inflation causes the price of silver to rise above the minting cost then the Central bank will be obliged to increase the official price of the coin.These price rises could be acheived ever few years

The coin price is never allowed to fall.

The video comes in three parts and is a refreshing antidote to the FOFOA elitist bias.

Silver rewards work.

www.youtube.com/watch?v=k7DHz6O1xPo

 

essence's picture

Forget coins (whether silver or gold). They just won't scale.
As stated above by several posters ...fiat is efficient.
Even FOFOA admits there's a vital role for fiat.

Sure we're all gun shy of fiats due to central banks having been
corrupted and politicians using inflation as a backdoor to vote buying,
nevertheless.... fiat is likely here to stay (although I'll throw in the cavet
that if things totally meltdown and we end up in a 'Mad Max' style world,
then barter and PM coins might be all we have).

These debates are worthwhile and need to be held publicly on a worldwide
level so that some sort of consensus can be reached. I'm hoping that someone
the likes of Jim Rickards will get wind of FOFOAs freegold ideas, give it some
thought and weight in on how it might work out.

One thing is for sure, we don't want a new currency standard jammed
down our throats by the likes of Rothchilds or Rockerfelles (working
through their bought off government minions).

 

 

THE DORK OF CORK's picture

I would have no problem visiting Canada with a tube of maples in my pocket if they were worth 500 loonies rather then the official 5.

Your point is redundant if the "Face Value ?" monetory silver is worth more then its intrinsic value.

blindman's picture

Wall Street’s Pentagon Papers: Biggest Financial Scam In World History
$12.3 TRILLION in taxpayers’ money.

by David DeGraw
http://www.globalresearch.ca/index.php?context=va&aid=22291

.

 

qussl3's picture

FreeGold -> Gold Moonshot -> Silver moonshot

Real global growth -> growth in end demand -> Silver moonshot

QE -> loss in confidence in fiat ->Commodities moonshot -> silver moonshot

CBs stop monetizing deficits, austerity for the whole world -> paper silver goes to toilet -> physical disappears

Forget gold vs silver for a while but can anyone make a negative argument for the price of silver over the long term?

It gets somewhat disconcerting when its so one way.