Politics? Schmoliticks!
It is an understatement to say that last week was eventful. The biggest loss for an incumbent President’s party in over sixty years was coupled with the Fed announcement on Wednesday of more “quantitative easing” in the global fiat currency race to the bottom. It seems to me that Bernanke’s actions are cancelling out whatever fiscal austerity is being ushered in with the Republicans (which I don’t think is very much, anyway – sorry Tea Party.) Much has been written on our economic and political situation. One of my more liberal friends said that she was physically ill Tuesday night and actually threw up from the election results in the House and Senate. I wish I only threw up on one night from politicians—in one way or the other I have been vomiting over our political class (with the possible exception of Ron Paul) ever since I was able to vote in the mid-1990s.
You see, readers, as uncomfortable as it may be to say: I love liberty, not necessarily America. But I stand on the shoulders of giants in American history in this regard. Loving liberty more than country was the reasoning behind the American Revolution in the first place. Engineered by British subjects who once loved their Crown and Constitution because of its supposed liberty-loving character, the American patriots fought against what they saw as a cabal in London destroying liberty and pushing American colonists out of the empire. You could argue that the United States was founded to preserve a variant of British liberty, but a liberty betrayed in the homeland during the lifetime of Franklin or Adams. Remember our own Federal Constitution—a document that is now referred to by many as divine, and it may very well be. But remember that this very Constitution was also a document that all sorts of people with pitchforks and muskets opposed—in some cases violently (as in the Whiskey Rebellion in Pennsylvania in 1794)—because they hated and feared the new concentration of power offered by a distant federal government far removed from the states and the people. Some historians estimate that up to 50% of voting adults in the late 1780s viewed the Federal Constitution as benefitting elite private interests who were beholden to foreign investors, and who dreamed of global empire. Wow, what a bunch of paranoid hicks those people turned out to be!!
So while voting is always important to prevent the next Adolf Hitler from gaining power (I’m not necessarily making any references to the present), don’t forget that there are other, perhaps more edifying and constructive ways to be a citizen and participant in our civil society. Just because the lights have gone out in D.C. does not make you totally helpless among your family, friends, and communities. Important change could include trying to encourage people to embrace sustainable energy in their own homes and businesses, it could include encouraging people to grow their own food again, it could include trying to stand up to corrupt local politicians in our own communities (like those in Bell, CA), or it could include encouraging a genuinely free press by supporting websites such as the one where this article appears. And of course, it could include trying to spread the word about what is money and what is not money. We have not had a debate over the nature of money in this country in quite a while (the election of 1896 being the last one, perhaps?) I don’t know why it is so hard to understand that paper money eventually reverts to its innate value, which means that 20 dollar bill in your pocket is worth about 5-10 cents, give or take.
The Most Important Vote Last Week Was In the Silver Market
This brings me to the other big news of the last week: the price of silver moved decisively above what David Morgan has referred to as the game changing price of $25. We are now at a price in silver which puts most people who purchased in the 1979-1980 blowoff in positive territory. Just to review for the uninitiated, although the price of silver went to near $50 in January of 1980 for around a few days, few dealers bought or sold anywhere near that price—most people who purchased silver in 1980 probably paid, on average, a price in the low to mid 20s (the price swing in 1980 was manic—it got down into the low teens not long after it had been near 50, and then made one last push back into the 20s.) At any rate, it may be that the often underappreciated, “poor man’s gold” may start catching headlines. This in addition to all of the news, half-truths, and rumors regarding JP Morgan finally being investigated for its massive paper short position in silver (I’ll believe that when I see it), and regarding armored vehicles arriving in New York to take the last physical silver out of New York, etc, etc. To me (and many of you out there might hate this) I could care less. Because as long as you hold physical silver you will be handsomely rewarded once people start to wake up and realize this so-called industrial metal, or “commodity” is actually a form of currency that promises to redefine the economic term “inelastic.” Underground mountains of silver my ear! How much silver in coin or jewelry form is there? A billion ounces? (I don’t think anyone believes it is this high—but just for the sake of argument I’ll use it). This means that only ONE MILLION PEOPLE ON PLANET EARTH CAN OWN $25,000 IN PHYSICAL SILVER. In the immortal words of John McEnroe: “you cannot be serious!” Hard to believe, yes, but you had better not doubt the ability of this metal to launch to the moon.
Please remember where silver was in 1940: 34 cents. Please note where it went (for most people) in 1980: 25 dollars. To extrapolate from the low of roughly 4 dollars around 2000, this will take silver to somewhere around 250-300 dollars an ounce, which, by the way, is the inflation adjusted price for silver between 1400 and 1850, per the work of Mark Lundeen. It was only in the twentieth century that you had such insanely cheap silver, and I don’t think the facts of mining and resource scarcity will justify cheap silver going forward.
Mainstream Media and Precious Metals (Here We Go Again)
Two articles appeared in establishment business media last week, which reveal that gold and silver are gaining attention. Note I said attention, not support. In the Wall Street Journal Online, Susan Pulliam wrote a piece on Shayne McGuire, the Texan pension fund manager who sees gold at $10,000 an ounce. (Please see my earlier article on $20,000 dollar gold “Let Me Put in a Word For Greed”) Anyway, Pulliam ends the piece on McGuire by more or less comparing him to Henry Blodgett, and really did not address or consider the seriousness of McGuire’s various points to back up his argument. But the title of her piece is important in that it echoes a point many of us agree with: the world will not end when gold moves up by 10 times (or more.)
The other article on PM’s this week came from Martin Wolf in the Financial Times (“Could the World go back to a Gold Standard?” November 1). This article repeats the same old canards of how horrible the gold standard was, how the gold standard was the root of all our problems in the 1930s, and how those stupid people trying to reintroduce precious metals into the monetary system arena are a throwback to a less progressive, enlightened era. First of all, I would remind Wolf that according to the work of Roy Jastram, there was little price inflation over the course of the nineteenth century, and I would like to point out that the nineteenth century was a much more peaceful century in Europe than the twentieth century—the century of two world wars, the atomic bomb, and totalitarianism. I’m not saying the nineteenth century was perfect, but I would remind Mr. Wolf that the decision to get rid of the gold standard may not have represented monetary progress. It may be as in the Roman Empire where once they began to debase their currency, their politics, economy, and civil society went into terminal decline. I would also remind Mr. Wolf that gold and silver have outlasted any paper currency over the last millennium, and that the use of gold and silver as money were not invented by the British in the eighteenth century. Rather, gold and silver have been used by people as a store of value for thousands of years.And so gold and silver simply are not mainstream investments, and their prices are far from a bubble. As a small, anecdotal example of how gold and silver are still thought of as risky, scary, and unusual even among contrarian investors, allow me to relate the words used by one of my good friends regarding why he is only putting a small fraction of his money (as in 5%) into gold and silver. He said that “well you know, I am a pretty conventional investor” (which means stocks and bonds) and repeated what appears to be the sensible advice you might get from Vanguard or TIAA-CREF regarding asset allocation. This is someone who likes my articles, couldn’t agree more with me regarding the fiscal time-bomb otherwise known as the United States, is a gun owner, and fantasizes about living on a self-sufficient ranch in the middle of nowhere. And yet even this good man cannot bring himself to break with the conventional “advice” given him by his Human Resources Department. I don’t mean to pick on friends, and don’t want to come off as a know it all, but the above language used by my comrade underscores the herd mentality of investors as well as how hard it is for people to really break free from that herd. Leave conventional thinking aside, people. I know we all cling to delusions, or sometimes get snookered into thinking that down is up or up is down, or that 2 + 2= 5. I’m sure in many ways I’m right there with them. But we’ve all got to move on.
The Forrest Gump of Commodities Just Began Running
And you know when I saw the price of silver move something like 8 percent in 4 days, I thought of Forrest Gump. You remember Forrest: the slow kid who was picked on, had bricks thrown at him, and of course who was shackled by leg braces. And then one day he broke free, kept on running, and didn’t look back. It may sound a bit corny, but I absolutely look at silver as the Forrest Gump of commodities. Certainly the price performance of “poor man’s gold” from 1980 and 2000 (down over 80%) made it look pretty pathetic, and showed it to be unloved and under owned. But that was then, and this is now. I think you just saw the Forrest Gump of commodities break free form the bullies (J.P Morgan) and the leg braces (investor sentiment) and mark my words- its not going to look back. Please also remember that Forrest Gump, the “stupid” kid, looked a whole lot smarter than the fancy pants sophisticates he had contend with over the course of his life.
I think the most important vote for an honest monetary system occurred this past week. I think the most important vote against the arrogance of central planners took place last week in the silver market. And I don’t just look at the move in silver as a negative thing, as a system warning light. Well of course it is for certain banks and other such people. I should also add that I am not just glad to see silver higher because I own some. I see the price move in silver as real time evidence of people waking up from a long stupor, perhaps realizing that they were living a lie. Perhaps Americans are repenting of their embrace of debt slavery. Maybe we are on the mend, though I know the road ahead will be tough. Perhaps someone out there really is learning something, perhaps we are progressing after all, or perhaps growing up.
Or, maybe its just some really big hedge fund managers moving the white metal, but you’ve got to start somewhere.
