Tuesday, November 8, 2011
Is Silver Money?
As tribute the ultimate Silver Guru, a David Morgan essay from July 2001, when silver was around US$4/oz.
By David Morgan:
I took out my Black's Law Dictionary and looked up money. Interesting when will look at the legal aspects of things. I will admit I have an old version 1968 to be exact. The reason is bias on my part. It seems the definition of things keep changing as we move forward in time. To quote Blacks Law Dictionary, Money." In usual and ordinary acceptation it means gold, silver, or paper money used as circulating medium of exchange, and does not embrace notes, bonds, evidence of debt, or other personal or real estate. Lane v. Railey, 280 Ky.319,133 S.W. 2d 74, 79, 81."
Reading further we find:
In its strict technical sense "money" means coined metal, usually gold or silver, upon which the government stamp has been impressed to indicate its value. In its more popular sense, "money" means any currency, tokens, bank-notes, or other circulation medium in general use as the representative of value. Then under that several more sites are named.
Silver has the six aspects of money in a classical sense. It is divisible, durable, convenient, consistent, has utility value, and cannot be created by fiat. Silver is used as a medium of exchange and as a store of value.
Before we get into a big argument about whether silver is money or not, I need to point out a couple of details. First, it is a recorded fact that silver has been used in more places and for longer periods of time for money than gold. Secondly, I would like to quote Nobel Laureate Milton Friedman, who stated "The major monetary metal in history is silver, not gold."
Quoting from the Silver-Investor.com web site: It is impossible to write about silver without evoking emotions, although it is my goal to be as objective as possible. There are very strong views about this metal both positive and negative. One such area involves the silver as money issue. The facts are that precious metals are rare, fiat currencies can be printed at will, and have always been abused.
My projection for the ultimate price of silver would be meaningless, but the facts surrounding the value can be objectively studied. In the end we all have a vested interest in the monetary system holding together. Precious metals are a barometer of world financial health. If gold and silver start moving up in a manner similar to 1979-1980, then the paper money game is essentially finished . Will this happen? Objectively, I do not know! However, I do know, throughout all of recorded history when a country has adopted a monetary system founded on edict (fiat), the nation has had a financial collapse. As we enter the next Millennium, remember the gold window was closed in 1971 and for the first time in history, the reserve fiat currency is worldwide phenomena.
The price of silver is a function of the understanding of the market itself. When the market understands that money based on unsound principles cannot help but fail eventually, then the true value of silver will be determined. Until that time arrives it is prudent to prepare some savings in the form that best retains value.
It would be of tremendous importance to everyone if I were able to predict one event in the investment world that had a 100% certainty of being fulfilled. I cannot, however here is something to ponder. All fiat currencies have eventually reached their intrinsic value of zero. This implies that the dollar will reach zero as well. Now, we currently are under the influence of a "strong" dollar. We must ask ourselves; strong relative to what? If the Federal Reserve admits that today's dollar is worth the equivalent of five cents in 1913, we have lost 95% of the purchasing power. So I ask how strong is today's dollar? Is the dollar's strength based upon the restraint of the printing press, the rate of return ( interest rate), the productive capacity of the people, or faith?
Now, take the time to look at your "money" be it coin or currency. You will notice that all have the statement "In God We Trust". Are we to put our trust in Mr. Greenspan, the Fed, or any political affiliation? Or are we to trust the source? Before, I am accused of going religious on my readership, let me make my point. The source of all wealth is land. If you believe God created the Earth fine, if not fine, we all can agree we live in a physical universe and land composes part of the Earth's character. Let me repeat myself, the source of all wealth is land. That is an interesting concept is it not? Gold and silver are mined out of the earth, many foodstuffs are grown in soil, houses , apartments , and shopping centers are built on it. In fact most of the list of commodities are derived from the land in one way or another, from soybeans to cotton, from sugar to copper. However, there is one subset that trades on the commodities exchanges that are the sole creation of man- fiat currencies, bonds, notes, and bills. (Not money according to Black's).
The world has entered into a great economic shift from paper assets to hard assets. This cycle repeats itself and now is the time when investors should be or should have liquidated their stocks and bonds and begun to accumulate physical commodity type assets. This is the real thing, commodities cannot and will not go bankrupt, there is real tangible value and most commodities are required by mankind.
Now we have some insight into where we are in the economic cycle between paper assets and physical assets. What takes place at the end of great inflations? What does history teach us? Actually, at the end of the inflation two interesting things happen. First, real money as defined above begins to appear in the market for everyday transactions. Almost anyone on the internet is aware gold can and is used for transactions through e-gold, GoldMoney and a few others. Once a person or business has enrolled with an internet gold holding company transactions over the internet can be made using gold. There are also some actual warehouse receipts being used by NORFED and Millennium Money. These warehouse receipt are exchangeable by the bearer on demand for actual silver or gold. The receipts themselves can also be used to purchase everyday items.
The second issue is that man made instruments are exchanged for real wealth at an accelerating rate. Those that have saved U.S. "dollars" decide to buy something with them. The problem is that once this transfer begins there is not many places to find safety. Because money represents something that can be use presently or stored for future use this shift becomes very intriguing. Although the major shift is into commodities, which of the commodities are able to fulfill the ability to be spend presently or store value for future use?
Yes, land and real estate can and will be used, but land is not very liquid. The only real places to transfer the financial asset class is into the metals.
What would happen if one of our foreign exchange partners running a balance of trade surplus decided to use some US dollars ( bond holdings) to buy real wealth? It would have to funnel money into the area slowly because too big a buy at one time would move the market a great deal. Once this shift was seen by the market the tendency is for others to follow.
Mexico is considering using its silver as a financial store of value. Some banks actually offer their customers money as defined above. This is a noble and valiant act. Some economists in Mexico have argued that the Mexican people have imported about as much U. S. paper as ever need and it might be wise to recycle this paper.
Grupo Elektra, quoted on the NYSE under symbol EKT, and Banco de Mexico, Mexico's Central Bank, have signed a contract authorizing Grupo Elektra as a distributor of Banco de Mexico's "Libertad" one ounce silver .999 coin, which has no face value and is legal tender under certain circumstances.
Grupo Elektra operates 550 stores throughout Mexico. It will initiate operations in silver sales and repurchases from the public at five stores in the Cuernavaca area, for the purpose of gathering experience in this field, which is new to the company. National expansion will follow shortly thereafter.
An interesting question to ask yourself is "When or under what circumstances would silver ( or gold) be the most valuable? This question poses some interesting aspects because it tests your own belief system. Do you trust the government or the source? The most important time may be when the man made asset class loses value and is shunned in favor of something real. Since there are too many paper claims outstanding versus the amount of silver or gold available not everyone will be able to shift into a financial asset that has stood the test of five millennia.
Sooner or later, nearly everyone everywhere will catch on to the fact that the currency game is drawing to a close, that all fiat currencies are doomed. Action in the marketplace, suggests this recognition is spreading; using gold back internet currencies, and the potential for a major silver producer (Mexico) to encourage its people to obtain value based money. A flight from all national currencies into real values is developing and will gain momentum. Ultimately people not government determine what money is and what money is not.
July 10, 2001
David Morgan
www.silver-investor.com
email: silverguru22@hotmail.com
China’s gold imports jump sixfold
FT.com is reporting that China's gold imports (via Hong Kong) have risen significantly in September, a factor of six over the corresponding period last year and almost equaling half of the total imports for 2010.
Reason quoted is the recent fall in the gold price encouraging bargain hunters, which no doubt is true, but I suspect it has more to do with the increasing acceptance of the Government advertising to invest in Gold and Silver and the increased easy of doing so by physical allocated bullion accounts offered to 100's of millions of bank clients. For the FT article go here.
For details on how the Chinese Communist government encourages the politerate to save in real money see this posts from the the first week of this blogs' existence, here.
Italian bonds hit record as Berlusconi fights for survival
Italian Prime Minister Silvio Berlusconi fought off resignation rumours on Monday as borrowing rates hit a new record on the eve of a key test in parliament and as Europe stepped up pressure for reforms.
"Rumours of my resignation are baseless," Berlusconi said in a Facebook post following a rash of defections from his coalition and after a key ally said the 75-year-old billionaire's demise was "a matter hours, if not minutes."
In a stern warning to doubters from with his own ranks, Berlusconi told the newspaper Libero: "I want to look anyone who tries to betray me in the eyes."
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The rumours triggered a rally on the stock markets, with the benchmark FTSE Mib index jumping almost 3.0 percent before falling to 1.66 per cent.
Bond yields spike
Market pressure has been unrelenting, with the yield on Italian 10-year government debt bonds rising to a euro-era record of 6.67 percent on Monday -- a level considered as unsustainable over the longer term.
The European Central Bank, which has been propping up Italy's debt market since August, was again forced to intervene on Monday, traders said.
Read more: http://www.smh.com.au/business/world-business/italian-bonds-hit-record-as-berlusconi-fights-for-survival-20111108-1n49s.html#ixzz1d4fw5a6h
Gold teases at the $1800 level
Gold rose overnight and consolidated in Sydney trading on renewed fears of Italian financing costs and government instability. Also one could argue the fear trade is being stoked by the recent saber rattling of the US, UK and Israel over the alleged Iranian nuke program (which is bit rich seeing all the afore mentioned countries have hundreds or in the US's case thousands of nukes themselves).
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