Guest Post: What The Silver Vigilantes Understand That You Probably Don’t (Arithmetic, Human Nature and other Stuff)

Tyler Durden's picture

Submitted by Mark McHugh from Across the Street

What The Silver Vigilantes Understand That You Probably Don’t (Arithmetic, Human Nature and other Stuff)

Sorry
about the insulting headline, but every last shred of evidence I can
find suggests that the most people remain utterly clueless about silver,
despite the efforts of the silver vigilantes, led by Max Keiser and
Mike Kreiger.  Their brilliantly simple plan (go get some physical
silver) promises to topple the criminally insane fraud that has
become US economy.  It doesn’t require politicians or regulators to lift
a finger either, you simply take advantage of what is undoubtedly
an artificially low price.  I can completely understand anyone who is
skeptical of that last statement; I’m sure you’ve been burned before,
but that doesn’t mean you should stop seeking truth.  

Part 1. A little math.

I’m not sure when performing basic arithmetic made you a conspiracy theorist, but here we are.  

The 2009 World’s population was about 6.8 Billion.  According to the Silver Institute,
total silver supply in 2009 was 889 million ounces.  That means there
was .13 ounces of silver produced for every human being on the planet. 
That looks like this:

Yep, your fair share of Worldwide silver production is a little less
than the silver content of two pre-1965 dimes.  That’s all.  A bargain
at about four bucks when you consider the amazing properties of this
element.  FYI: World oil production per capita is 190 gallons. 

This….

 …represents more than ten years of  worldwide silver mining
production divided by 2009 population.  Less than $35, and hell of lot
easier to transport than 7,600 quarts of Quaker State.  Please note that
so-called “World production” includes government sales and scrap.  Government sales and “scrap” have accounted for more than 25% of  “World Silver Production” from 2000 to 2009.  I’m not sure I believe that one out of every four ounces of silver gets recycled, but understand that without that bonus production, demand exceeds supply by 37%. 

Part 2. Who needs silver?

Just about everybody, it turns out.  Sadly, another way to get
yourself labeled a conspiracy theorist is by reading government
documents like the Constitution, or the Department of the Interior’s 2009 U.S. Geological Survey which states:

The physical properties of silver include ductility, electrical conductivity, malleability, and reflectivity. The demand for silver in industrial applications continues to increase and includes use of silver in bandages for wound care, batteries, brazing and soldering, in catalytic converters in automobiles, in cell phone covers to reduce the spread of bacteria, in clothing to minimize odor, electronics and circuit boards, electroplating, hardening bearings, inks, mirrors, solar cells, water purification, and wood treatment to resist mold. Silver was used for miniature antennas in Radio Frequency Identification Devices (RFIDs) that were used in casino chips, freeway toll transponders, gasoline speed purchase devices, passports, and on packages to keep track of inventory shipments. Mercury and silver, the main components of dental amalgam, are biocides and their use in amalgam inhibits recurrent decay.

 Yet you can actually find dunces out there claiming the digital cameras have made silver obsolete.  You should live so long…

Fun Fact:  Silver (not gold, copper or anything else) is the element with the highest electrical conductivity.

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

And…..

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

Since the invention of paper, people have been writing bogus notes,
and if there are two time-tested methods to become wealthy beyond your
wildest dreams, they are:  1)Selling stuff that doesn’t exist and
2) Selling stuff you don’t actually own.  Unless you believe there has
been a sudden outbreak of integrity in the banking industry, there’s no
reason to believe these dynamics are not still in play, is there?  As
recently as 2007, Morgan Stanley settled a class-action lawsuit with
22,000 clients who bought and paid storage on “phantom” silver (check
out the Ted Butler article Money for Nothing).

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? 
Or have they entrusted the storage to the big banks?

JP Morgan is the custodian of the ishares Silver Trust (SLV), which
now holds over 350 million ounces of silver, provides  sovereign and
corporate investors with precious metals solutions (JP’s website), and is the largest short seller of silver in the history of the world.  Berkshire Asset Management’s  Eric Fry writes:

Based on some of
the latest conjecture, Morgan’s short position totals a whopping 3.3
billion ounces. If, therefore, the buzz about J.P. Morgan and silver
is even half true, the prestigious investment bank could be cruisin’ for
bruisin’.

For perspective, 3.3 billion ounces is roughly equal to:

1) One third of all the world’s known silver deposits;

2) Two times the world’s approximate stockpiles of silver bullion;

3) Four times the annual mined supply of silver;

4) 30 times the inventory of silver at the COMEX.

If you can, forget about the conflict of interest, and ponder the enormity of the explosion.

 

Part 4. A little more math. 

 Estimates of total silver production since the dawn of man range
from 46 to 53 billion ounces (roughly 11x gold production), but unlike
gold, we’ve used pretty much all of it (although squandered might be a
better word).  It’s in our cemeteries (fillings)
and scattered throughout our landfills.  There hasn’t been a significant
surplus since 1990.  Ted Butler and others estimate that there is far
less silver bullion in the world than gold bullion and they back up their case with numbers 
that the paperbugs have never even bothered to refute.  So why does
gold trade at more than 45 times the price of silver?  Because JP
Morgan, the US government, and every other psuedo-capitalist
parasite wants it that way.  But that’s a truth for another day.

Part 5. Other things you should know.

 The Treasury has sold 34 million one ounce American Eagles so far in 2010.  Those sales total less than one Billion dollars. Apple (AAPL) trades about that much every hour the market is open.  Meanwhile the Treasury has issued more than 1.5 Trillion in
new debt (1,500 times more) in 2010.  Just for fun, let’s multiply 1500
by 34 million.  A transaction of that size would have equaled every
last bit of silver ever discovered at $30 an ounce.    Yet you can
actually find people who believe silver is the bubble.

Treasury doesn’t make it easy to buy silver
They’ll sell you bills, bonds and notes directly online, but
not precious metals at anything close to market price.   The mint only
does business with  11 Authorized Purchasers (a list can be found here),  Why the lack of savvy?

China can blow up the COMEXs silver market in the blink of an eye, at
any moment.  They can do it with their pocket change, as a goof. 
And if we piss them off enough, they will.

Part 6. So what’s silver worth.

The short answer is: more.  If silver were priced based on its occurrence relative to gold, it would be over $125/oz.  If it were priced on its availability – somewhere
around $2,000.  But if you are content to let the likes of Blythe
Masters dictate the value based on truckloads of worthless paper
promises, you can expect ultra-low prices until the whole thing blows
up.  Of course at that point, we’ll be so busy killing each other for
food no one will have time to say, “I told you so.”

The silver vigilantes just want you to re-learn what the phrases like, “cold, hard cash,”  and “payment in full” are
supposed to mean.  There not asking you to sink everything you
have into physical silver,  just a little.  Silver can’t be printed into
oblivion, or stolen by a cyber attack.  Why wouldn’t you want to own
some of your very own? 

A paper dollar from 1960 is worth exactly the same as a paper dollar
in 2010, but  four quarters from 1960 are worth more than $21.  Given
the fiscal insanity of the US government, I can’t imagine the US dollar
surviving another 50 years, but I’m quite sure that silver will still be
useful.  Please consider getting some while you still can.

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DavidPierre's picture

  Step back and view the forest from a far away perspective ...not get caught up in "looking at the trees".

Right now with 0% official short term rates and QE 1, 2, ?.... the Fed desperately trying to reflate. What used to require $Millions/$Billions to get a reflation started is now taking $ Trillions just to tread water.

The "$-drug" is no longer effective.

A question that NO ONE has asked and the Fed surely doesn't want to talk about is "what happens if the reflation works"?

Assume that Bernanke's reflation gamble works and "reflates the entire system", how does he tap on the brakes at a later date to slow inflation?

The current wreck was caused directly from the 2000-2002 lowering of rates and flooding the system with credit by Alan Greenspan, it may have "felt good" during the reflation of 2003-2006 but the ultimate destination was just another bubble. A BIG ONE!

Now, Bernanke proposes to blow another bubble, the BIGGEST ONE EVER! Then what?

Another crisis? Worse than now? Unfortunately THIS is exactly what Bernanke is hoping for. Not the collapse part, just the bubble part. He was on 60 mins. a week ago and said he was 100% confident that he could withdraw the stimulus "within 15 minutes". 

He is 100% correct. The Fed can tighten credit in 15 minutes but the problem is in a system as leveraged as this it would only take another 15 minutes for an all out panic of biblical proportions to ensue!

The Fed can NEVER EVER tighten credit again, EVER!

They can only step on the gas with the current stupid amounts of debt, they can only press harder and harder on the accelerator.

Don't believe they will be able to "reflate" and prod the system forward WITHOUT first destroying the currency. But, does it even matter?

Yes and no. Yes to those who haven't exited the paper system because their financial lives depend on it but a resounding NO for those who have exited. In reality, if you own precious metal assets and the Fed is successful in reflating you will "make money" in that cycle until we arrive at another point EXACTLY the same as today except at inflated levels.

Then ANOTHER crisis that is multiples of today  with exactly the same policy choices ... printing.

They fail? The Dollar goes the way of the Dodo: extinction. Here and now the Dollar dies. Those holding precious metals and especially the miners will end up with ALL THE MARBLES!

Any new currency system MUST have some type of backing to gain confidence and acceptability, owners of metal and miners will effectively perform the function of the central bank by returning their metal into the system at wildly higher valuations; thus "reflating the new system".

Nothing is a "sure thing" but over the long haul Gold and Silver cannot lose. Either the Fed gets what it wants and Gold and Silver continue their 10+ year bull market or the Fed loses and the precious metals go stupid levels.

Of course times are different ... more dire because "money" is no longer money: "too much debt kills".

This is a topic for a book.  History IS repeating itself with too much debt, trade wars, currency wars. This time nearly all sovereign governments are insolvent! The "school of hard knocks" is the only place that common sense and "street smarts" can be learned, an Ivy League business education will soon be rendered as valuable as Dollars.

viva lemet!

BigJim's picture

Yes, excellent post DP.

I'm very long PMs because I believe, in the medium/long term, they can only go up in value.

BUT... and it's a big but... how do we know that JPM are short 3.3 BILLION ounces? I've seen this figure bandied about, but haven't seen what it's based on.

My other concern is that there are credible rumours that the US seized large quantities of silver and gold from the axis powers at the end of WWII, now held in secret. If they can bring these to bear on the market... it could be a long time before we see our PMs going 'to the moon'.

Has anybody here done research on this?

Bring the Gold's picture

If they put that on the market China will gladly buy cheap PM's on the market. Look how hard of a time Sprott and China have had getting real metal (not an IMF book entry). If there was such a hoard, giving it up would delay the system reset and give China exactly what it needs to come out on top. Better to blow the thing up and reveal you have the most tonnage of anyone and be on top AGAIN. No I think not. Such a hoard, especially of silver, is very unlikely to exist and if it does they would be fools to sell it.

Malcolm Tucker's picture

Excellent post. Maybe ticked off homeowners will sell their houses and buy silver with the balance:

http://fedupmontrealer.blogspot.com/2010/12/banks-threatening-homeowners-who-ask.html

molotov's picture

even better. if your mortgage is underwater, default on the mortgage. then spend just half of your usual mortgage payment on silver bullion. It is time to stop all the nonsense. no red state, no blue state, no democrat, no republican... no socialist non-citizen president. Only terrorists in suits! Wake up People! Reclaim your Dignity!

...or not.

Cocktails anyone?!

zhandax's picture

You are overlooking the obvious....when TSHTF, mortgage pricing collapses, and PMs reach fair value you should be able to buy your mortgage from FRE/FNM with a couple of ounces of the shiny stuff.  My mortgage is not underwater but that is the real goal and it is not that far off........

In all honesty, it may happen in 2011 or it may take until 2016; but that day will come.

DavidPierre's picture

"Nowadays, the Chinese total reserves from diverse accounts totals $2.65 trillion, a center of great power.

The resentment over currency manipulation has a backfire. China is heavily motivated to purchase Gold and to convert reserves to Gold.

Heck, that is almost as much money as has been stolen by past US presidents, and stolen by US defense contractors, which happens to be about $1.5 trillion from Fannie Mae and $2.2 trillion from the Pentagon misappropriations.

 One must love the verbiage, as misappropriation sounds better than stolen.

 And that does not even address the $2.3 trillion in counterfeit USTBonds sold (over and above issuance) into the market by JPMorgan Chase, whose evidence was in the Building #7 at the World Trade Center, turned into a heap with pervasive thermite residue.

The engine for the global Competing Currency War is clearly the United States, where the asset bubbles were engrained in policy, where the multi-$trillion bond fraud originated for global export, where the criminal prosecution is nowhere, where the multi-$trillion monetary press is hard at work."

Jim Willie

http://news.goldseek.com/GoldenJackass/1292446800.php

 

StychoKiller's picture

Read it!  Either learn Mandarin, or buy Gold & Silver -- the choice is yours, folks!

4xaddict's picture

anyone ever wonder why culturally the chinese and indians buy gold as gifts for birthdays, weddings etc. These are VERY old cultures many 1000's of years of history and experience yet PMs still rate highly valued. People can make 10 fold on their money their by speculating in realestate but they save to buy PMs.

These cultures have lived through a lot of shit, seen a lot of very tough times and they all buy PMs in good times and bad. Maybe a little confirmation for all the PM bulls here that a few thousand years of experience also think you're correct....

4x

Gringo Viejo's picture

Nice piece.

And believe it or not,

so was Jane Fonda 40 years ago.

ebworthen's picture

I like precious metals.

I do remember the Hunt brothers and the absolute collapse of silver prices (two sides to every trade).

What do you see precious metal funds doing?  Not ETF's, but mutual funds that invest in precious metal mining companies?

And...can I currently get silver for dollar bills and must it be a Federal Reserve bank?

Thank You.

penisouraus erecti's picture

You want physical delivery - less room for manipulation.

No, you can't get silver from the fed. Paper yes, metal no.

 

qrad's picture

Yes! You must get the physical metal. Pledge your physical deliveries at http://standfordelivery.com ! Over 152,000 ounces pledged so far. 

Eternal Student's picture

And look at silverkeiser.net. Max's coins are sold out. 125,000 pre-orders in, what, two freaking days!?!

Holy smokes. That's just amazing.

sodbuster's picture

I've done a little business with these folks- recently aquired some Kugg's and Maple Leafs. Told my dad about the JPM bullshit- he just got 100 American Silver Eagle, no problem.

http://www.maguireref.com/index.cfm?Page=CoinsBars

 

 

 

GoinFawr's picture

Uh oh, it looks like somebody still needs "to re-learn what the phrases like, “cold, hard cash,”  and “payment in full” are supposed to mean."

Regards

 

Windemup's picture

A good read on the Hunt Brothers is "Beyond Greed".

Windemup's picture

BTW. 100 oz are staying with me here.

Fearless Rick's picture

Thriving market for silver coins, of all places, on eBay. Bidding is very accurate, usually winners are right around spot + or - a few percent. Actually, the sellers there aren't doing themselves any good, IMO, and there are many amateurs (I'm one of them). They pay eBay a 9% commission, so they're usually selling NET at spot -9% more or less.

Great, liquid market, however, if you're buying between $10 and $500 worth of coins or bars. Some bigger auctions from time to time. Lots of Morgans, though they're carrying a collector's premium in most cases.

trav7777's picture

i'm not seein much in the way of spot, seems to be closer to regular retail pricing

Temporalist's picture

Agreed it is rare that a single coin will go under spot but for the past 2 years any multi-ounce purchases are over spot a bit including shipping usually too.

fuu's picture

You have to get in early on each auction. Most of the time first bidder sets up the spot level purchase, everyone else has to settle for premium.

 

That said I watched 40 Seated Liberty Halves close at $225 on Saturday morning. Someone made $200 just laying in the cut.

penisouraus erecti's picture

Shhhhhh.....be quiet or the sheeple will catch on dude.

Yardfarmer's picture

25 lbs. here at last count.

GoinFawr's picture

Say, aren't you related to Biggus Dickus, and his son? You know, the A-team of notoriously incorrect PM top callers trolling ZH.

GoinFawr's picture

Perhaps in your mind.

So, what's the disingenuous game now? Jerk along stroking egos for awhile until you feel you've developed enough of a rapport to start introducing your 'misgivings' with a tone of paternalistic concern?

Or do I have this bass-awkward?

Sean7k's picture

Yeah, pretty much what he said...

TheGreatPonzi's picture

YOU CAN'T EAT SILVER!

Bitchez

Nothing is coming... the FED saved the economy, no more recession to come

doomers were wrong

In Argentina and zimbabwe, people are starved for US dollars! They don't even know what gold or silver is!

Even in an hyperinflation, nobody accepts silver as payment

TheGreatPonzi's picture

" "Absolutely, cash is king. And US Dollars and Euros are King of Kings. Just don’t display them in public too much or you wont live very long. That is why I recommend you guys to keep some Euros, just in case. Our local paper money lost its value (to USD) when the economy crashed in 2001 (lost 2/3 of its original value)
Quality health services are expensive for most, and they adjusted to the new value of money accordingly, meaning they almost kept to USD prices. You can pay for these with USD.

Gold and Silver did hold their value of course, but they are not used to buy goods and services".

Ferfal

Live with it, doomers!

Bernanke saved the economy! If he has been named Person of the Year by TIME, it's for a good reason

tmosley's picture

Watch the video, or get you face mangled like the kid in it.

But then, you're just a troll who probably believes the exact opposite of what he says (that is sick).

outamyeffinway's picture

He's totally a fucking loser troll!!! Who the fuck would invoke the name of Time Magazine? Holy loser!!

penisouraus erecti's picture

Baaaa......baaaaaa......baaaaaaaa

cosmictrainwreck's picture

yeah, what tmosley said..... holy shit - I thought the guy was jokin' around with us: hahaha! but I wonder.....man that is tooooo twisted

tmosley's picture

I only realized later that that wasn't gloomboomdoom.  He's just one of those guys who takes other people's avatars and makes fun of them.

penisouraus erecti's picture

I'm starting to see your point. Please contact me and I'll take any useless silver and gold you may have off your hands. No Conch shells or whatever that shit was you were posting  elsewhere, but the silver and gold I'll take.

penisouraus erecti's picture

Wait - Harry Reid said HE saved the global economy.......now I'm confused - which was it?

bigredmachine's picture

I agree. benanke will be regarded favorably as time passes just as keynes is