Do any think silver will go to $100/oz in the near future

Yuan is a general term like dollar. There have been multiple Chinese currencies under that label. Some have failed, and the current one, the renminbi is still in action. Just because the Australian dollar is in use doesn't mean the US dollar has to be for example.

China successfully used silver and copper coins for centuries until the Renminbi was introduced in 1948.

I think the more pointed question that gets to the root of this is: Have there been any solely fiat currencies that lasted longer than a century? To my knowledge the average age is around 40 years.

 

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REgarding the claim "gold has never been a danger", one should read Solzhintsin. In the Gulag Archepelago he details how rich people who did not turn over their PM were sent to work camps in Siberia. A Bolshevik gulag is not what I would consider "no danger". Other regimes around the world have done similarly, so I disagree that someone can hold gold danger free in any political climate. Even in the US, I believe it was criminally punishable to hold more gold than legally allowed from 1933 to the early 70's. Maybe not many, (or any), were caught and punished, but the point is they COULD HAVE been if the government got desperate enough.

PM IS a good asset. Its great to hold if YOUR currency is collapsing but others are not. What is unknown is if ALL currencies is collapsing because of a worldwide event. In that case its unknown how much people will want pretty metals versus survival supplies, so no sense arguing over it. I hold PM as inflation protection, or as a way to survive if ONLY the greenback loses major value, and also as a contra asset. That's it, no other reason. Any other reason than that I do not believe has adequate support to justify its use.

So, considering its good uses, its a nice play to have as a contra asset if your other assets decline. As a sole asset, though, I simply believe it has too much alpha risk to be a sole asset. Like some other assets, its valuable if held in conjunction with other assets, but too risky on its own.

Just my opinion.

 

This is one reason why I think it's wise to rotate your cash, as $5s and $20s seem to get a new look every few years. At some point, I can see the possibility of old cash getting phased out, and then Gresham's Law takes effect.

Second, to a point from way back in the thread, I think having some bullion is wise, as your LCS may continue to function, and they will be in the business of trading new money for old 90%.

In the alternate universe of SHTF, your neighbor farm may get tired of trading 22 bullets and cans of beans for fresh eggs, and may be tickled to get Mercs.

 

Name one purely fiat currency in existence before 1950 Inflexion. I cannot think of any, unless you do not count copper in the Chinese monetary systems as "hard assets", and I consider myself a student of monetary history. All systems befor the mid 20th century had some metal coinages included in them. CLOSE examples would be late roman coinages, (but they had gold backing to an extent), Yuan dysnaty paper money, (but had copper cash backing), etc.

Maybe there has been paper only currencies, or paper currencies with token coinages, but I cannot think of any save for the two examples listed above that were close.

 

Yes, you have a point about 'purely fiat'. However, in ancient Rome, Nero debased the currency by diminishing the silver content in the coins by around 85% when all was said and done. It lead to the very rapid demise of a longstanding empire. So you're not wrong, but I think the point I was making is still there.

 

Nero debased down to 90% silver in the denari. It was emperors in the 3rd century who greatly debased the currency down to nearly nothing. Anyway, that is beside the point.

Yes, I agree all currencies have been debased. Its like clockwork. A new regime puts out high quality, full weight coins, and soon thereafter they start losing either purity or weight. It is so common that you can immediately tell at what stage of a civilization a chinese coin was made. If its a full weight cash, its at the start of a new dynasty.

In that regard I agree ALL monetary systems collapse. The only advantage of older ones were if you owned the coins from the beginning of the dynasty you still retained full weight of metal, something those holding old US notes will never have. I am simply saying we are in uncharted waters, that was my point.

 

In the vein this thread seems to be following, let me ask a question of our resident sages. As far as I know, United States currency is still valid no matter the age. Could you still spend a $5.00 gold backed dollar or a 2 cent coin? If so, what other countries would this be true of? I mean I don't think I could spend my German Inflationary Currency, but if I can, I am planning my European trip now!

 

Where will silver go ??? To Treasure Island matey... Arrrrrrr !!!!

 

AFAIK, the US and maybe Canada are about the only major countries you can spend 100+ year old currency in. We are a little unusual that way. However, it still doesn't change the fact that the world has changed, and bonds are the defacto currency nowadays. If you wish to put money into USD, the smarter move, (ignoring interest rate risk), is to buy USD bonds versus holding currency.

This is why I say the USD has not lost 99.9% of its purchasing power. It has if you kept Franklins under your mattress, it has not if you had bought interest bearing bonds. Its just today you have to have it in bonds to keep up with inflation, you cannot hoard currency like you used to be able to hoard $20 gold coins.

 

Hey Ripley! I see a number... you see a number?

 

Yuan/Yen/Won are all the same word. Essentially, to answer your question, look at Japan and Korea. Both currencies collapsed significantly. If you're talking about the CYB/RMB or whatever other names the communist based yuan goes by, then it hasn't had enough time to collapse. It was fixed to the dollar for a very long time, so, by definition, in dollar-denominated terms, it wouldn't be able to collapse.

That said, with China (essentially) controlling the global money supply with a HUGE net export balance sheet, a collapse in the global basket of currencies would be the mirrored effect of a yuan collapse. Hyper-inflation, if should occur, would be a global phenomenon.

The greatest fear isn't runaway inflation, it's runaway deflation. This is why the world shifted to the petro-dollar and off the gold standard. If deflationary pressure is felt, you simply print more money.

I'll try to explain it as best as I can...

PM values in the short-run are a defensive holding. They protect you against spikes in inflation. In the long-run, however, they are speculative, at best. Sustained inflation means that PMs become a form of fiat, in and of itself. Why? Because we denominate the value of PMs in the standing fiat of our respective nations.

This is where deflation becomes a culprit. When inflation is happening, there is a flight to safety. In the short-run (say six months to three years, depending on if it's macro-economic or micro-economic), you have a spike in the value of PMs. People bid up the price of the PMs as insurance against inflation. The problem is that the insurance itself eventually becomes a tool of inflation. Once we reach a situation where the value of PMs exceeds the intrinsic value (in terms of utility) for an extended period, you end up with changing outcomes:

Gov't intervention. This is where gov't agencies outlaw possession or seek to prosecute individuals for market manipulation.

1) Producer intervention. Producers increase production in response to increases in price. With resources such as silver, shale oil & nat gas, you'll see start-ups to extract additional supply at higher prices. This creates a price ceiling on the underlying commodity, as producers know their industries. When prices settle, they usually close facilities that were unreasonably costly, hoping to curb in collapsing prices by restricting supply.

2) Consumer intervention. Consumers look to alternate products which are cheaper. As consumers change purchasing habits, opting for lower-cost base materials, the manufacturers decrease their consumption of high-priced commodities for their raw materials. This causes a drop in the underlying commodity prices.

3) Deflation. Because the utility of underlying commodities is diminished, you see a collapse in the intrinsic value of the commodity, which, in turn, leads to a collapse in the market value of the commodity.

Steps 1-3 are essentially the concept of "peak" commodity pricing. This is why PMs aren't the panacea that gold/silver bugs make them out to be. If fiat currencies truly failed (on the global scale that gold/silver bugs need), there would be chaos and anarchy. If we enter into that scenario, you won't want to be holding PMs, as no one would accept them in trade.

The inflation of the dollar is not a problem. The assets of the US government exceed the liabilities of the US government. The GDP of our nation still exceeds the service cost on the national debt. We aren't even close to being truly insolvent. The bigger problem is deflation of the global basket of currencies. If PMs raise in value in the US, stabilize in dollar-denominated terms, yet collapse in every other currency, all the PM bugs will be in dire straits.

I honestly believe we won't see $50 silver in constant dollars (adjusted to, literally, today's dollars) until someone discovers a good consumption vehicle for silver.

 

There were several very notable ones. The 2 most infamous ones were the German Reichsmark and it's predecessor, the German Papiermark. There was also a German Goldmark which was used for international trade. It was the Papiermark that caused the economic collapse during the Wiemar Republic.

The German Reichsmark, in not being tied to any real asset, i.e. full fiat, allowed Germany to build one of the most powerful militaries, from nothing in less than a decade. Their solution to the financial problems that eventually come from excessive money printing, was to import slave labor from the conquered countries as well as seizing assets which kept it in check. Of course we know how that ended.

 

A very well thought out and articulated post NorthKorea, and I agree with much of it, but I still disagree as I do with other posters with the assertion that nobody would accept PM's if the dollar collapses. I have beat the horse more times than I can count on why metals are the best money possible. It doesn't matter if people want to use metals or not, in the event that there is no fiat currency people will use metals because of the laws of nature. Anyone who resists these laws will simply be at a disadvantage as they try to barter with an inferior medium of exchange.

Another aspect I feel you are not taking into consideration is supply constraints. No guarantee that will happen, but that will trump every other force in the market if it does.

Regarding this part in particular:

I fail to see how inflation is not a problem. Maybe you don't mind having your buying power stolen, but I do. Deflation is more dangerous to the financial system, but inflation is still a real problem. Deflation is actually good for the economy, because then savers and workers can buy more which supports business. Businesses aren't impacted one way or the other by inflation or deflation since they will adjust their prices accordingly. Deflation means more goods and services flowing. It is really only bad for financial institutions that rely on bloated assets to stay solvent, but since inflation is a necessary tool in the class war it will continue as long as the current powers are at the helm.

With currencies being debased in Europe, Japan, and the US, among others, there's little realistic possibility that their fates will not be intertwined. Also, for PMs to raise in value they will have to become more volatile, and it's not the sort of situation that will stabilize at higher prices. High priced PM's mean loss of faith in fiat currency, and once embarked down that road the outcome is anything but price stability.

 

Deflation is bad for bankers and wall streeters. It's good for everyone else.

 

I would hoard $20 gold coins over buying bonds today, not that I can afford many, anyhow. My Dad used to tease upon leaving: "Bye-bye! Buy bonds!" He's not interested in them anymore.

 

Only if you aren't part of the economy. Deflation is the worst thing that can happen to ANY economy. The only ones who benefit are retirees with large retirement funds. The rest of the economy melts down around everyone else.

Deflation is good for those with cash, inflation good for borrowers. For the economy, deflation is the worst.

 

Umm, deflation is GOOD for bankers and bad for most everyone else. When there is deflation, interest rates drop, and bankers make more on existing loans (assuming they don't default). Additionally, during periods of deflation, people pay banks a premium to hold their money. Deflation is bad for most people, since they don't have adequate resources to take advantage of the situation.

Let's say the dollar strengthens significantly (say 50% deflation -- which would never happen, but it makes the math easier for the sake of argument). If $5 used to buy a half gallon of milk or a loaf of bread, it would now buy twice that. Businesses would make less per sale, and if they kept any sort of inventory on hand, they'd be taking a loss on each sale. As a result, many businesses will be forced to shutdown operations. Those businesses that are able to survive in the new economy would have almost no need for high cost labor. As such, wages would go down. When wages go down, consumption will also go down. When consumption goes down, businesses will see their revenues shrink further. This creates runaway deflation.

On an aside, Inflexion, my point wasn't that PMs as a whole would hold no value. I intended moreso to assert that without a consumption based demand for specific PMs, we wouldn't know which ones would hold greater value in times of long-term runaway inflation. (I feign to call it hyperinflation, as the idea of hyperinflation is based upon a micro- situation, and I'm trying to present a long-term macro debasement of all fiat.) This is similar to how silver and salt used to trade at significant premiums to where they stand today.

For example, look at platinum/gold/silver eagles.

$100 in platinum bullion = $1605
$100 in gold = $3396.20
$100 in silver = $3228

In the current economic situation, gold and silver trade at significant premiums to platinum, due to the decrease in catalytic converter production.

1992 $100 platinum was worth around $375 (1992 USD)
Mar 2004 $100 platinum was worth around $900 (2004 USD)
Feb 2008 $100 platinum was worth around $2150 (2008 USD)
Dec 2008 $100 platinum was worth around $800 (2008 USD)

1995 $100 gold was worth around $800 (1995 USD)
Mar 2004 $100 gold was worth around $900 (2004 USD)
Feb 2008 $100 gold was worth around $2000 (2008 USD)
Dec 2008 $100 gold was worth around $1500 (2008 USD)

1995 $100 silver was worth around $500 (1995 USD)
Mar 2004 $100 silver was worth around $750 (2004 USD)
Feb 2008 $100 silver was worth around $2050 (2008 USD)
Dec 2008 $100 silver was worth around $925 (2008 USD)

Note: Fatima has joined Detecto on my ignore list. I see no point with arguing ANYTHING with someone who doesn't have the decency to at least do some research before spouting off.

 

Exactly.......

The corps (also known as job CREATORS) get smacked, no jobs for the working folks, economy goes poof.

Oh yeah, lets go back to the gold standard, where the economy is dependent on what you can pull out of the ground. If you can't pull enough gold, economy deflates and everyone suffers.

 

In the current environment deflation is tied to raising interest rates, not lowering them. New money is printed to buy treasuries, more treasury demand means higher prices, and with bonds higher prices means lower yields. Without this inflationary policy the interest rates would rise due to lack of bond demand, and then borrowing would diminish. In 2008 interest rates finally hit zero, and so we had the crash until QE began, essentially going negative. I would agree that anything other than a slow, controlled deflation would be a shock to the system.

Bankers make money on zero interest free money that they loan to us for a premium that will always be higher than the amount they borrow for. Inflation and deflation have nothing to do with that spread, they get privileged borrowing status and can always tack on a premium to whatever the Fed rate is for the rest of us. The cheaper they borrow for, the cheaper they can loan to us, and the more loans that flow which is how they make their money, aside from quote stuffing and LIBOR rigging and whatever else they do. The other thing is, if it's a multi-talented bank that has say housing mortgages and such, then deflation could make them insolvent because their balance sheet shrinks when assets drop. Inflation gives them higher net worth, higher credit ratings, and greater borrowing capacity.

If businesses modify their prices to make however much they need to from the items then inflation or deflation doesn't impact their spread. It increases a consumer's ability to purchase, and so the right amount of deflation allows for greater potential for demand and thus greater consumption.

We have killed businesses by abandoning free market principles and bailing out too big to fail banks (with inferior business models or they wouldn't need a bailout), so they don't have nearly as much competition as before. They got all that free money in 2008 and still wouldn't loan to small businesses. And I'm not talking about the tiny amount of TARP money they paid back, I'm talking about the $16 trillion gift that came out in a GAO audit. These things are far more damaging than deflation would be, but they have to prop up the derivatives, they don't have a choice if they want to keep the lid on things. Now, if deflation requires that lid to come off, and the derivatives tank, then yes, it will be far worse, and while it would be causally related it still isn't the fault of deflation. It's the fault of whoever put the lid on the jar, whoever thought the bottom of the ocean was a good place to store a beachball. Markets seek equilibrium, and competing with nature is not a smart battle.

You are only looking at the last 20 years. If you look at a 500 year silver chart the old high was over $800/oz in 1998 dollars which buy more than 2012 dollars. In ancient times a worker would get paid ~1/10th of an ounce of silver for a day's labor, but today even the minimum wage would buy 20 times that. Today we have the lowest amount of available silver above ground as anyone alive has ever seen. I could see gold having a premium over platinum, but not silver. But gold is returning to a tier 1 asset so I wouldn't bet against it either. Platinum may be rare and have supply constraints but it isn't money according to lore. I would only bet on platinum if I was also willing to bet that the average person was educated about it.

I see it like this -- Real physical price is reduced X amount by a paper market with both artificial and diverted demand. Paper price is increased by Y amount due to ability to buy on margin plus or minus Z according to the net long/short position. It would be extremely difficult to use numbers from the last few years to make an accurate determination in this murky environment, which is why I like to take a broader perspective beyond the current temporary way of doing things. I consider the downside caused by X to be far greater than any upside from Y+Z.

 

Inflexion, the reason I only cited data from the 90s onward was the specific issue of US Eagle bullion. When 1/2 oz of silver was equal to a day's work, we had yet to find methods of extracting silver. As such, it was whatever could be found/melted.

Also, if we look at developing nations in Asia, some people still make less than 1/2 oz of silver for a day's work. Thailand, for example, passed a 300 baht minimum wage law that is being fought by employers outside of Bangkok. Why? The landowners that "hire" farmers at 250 baht per day really can't afford to pay a 20 percent raise.

So, for workers doing laborious work similar to that which paid 1/2 oz for 12 hours of work in ancient times, the rural developing nations labor costs are about the same (~$1 per hour of work), if not worse than they were "back in the day."