Purchasing Power – In Silver

May 8, 2018

We know:

  1. Federal Reserve and U.S. government policies devalue the dollar—down about 98% since 1913.

  2. U.S. government spending is out of control, increases every year, regardless of revenues, and shows no sign of plateauing or declining.

  3. Few people encourage balanced budgets and LESS spending. All government agencies, lobbyists, congresspersons, military contractors, and many corporations encourage MORE spending, and by necessity, more debt.

  4. Debt based fiat currency units “printed” almost without limit enable deficit spending.

WHAT IF WE EXAMINE PRICES IN TERMS OF SILVER?

Crude oil is the world’s most important commodity. It takes three to four ounces of silver, at current prices, to purchase a barrel of crude oil. That has changed little in 35 years.

Crude oil and silver prices rise and fall, but silver’s purchasing power for crude oil has been flat for 35 years. As the dollar devalues, silver and crude prices increase.

Houses are a wasting commodity. We must maintain houses or else their value plummets. Regardless, nominal house prices rise because the dollar devalues. In terms of silver, house prices have been relatively flat for thirty years, excluding the obvious bubble in house prices in 2003 – 2007.

The St. Louis Federal Reserve reports average hourly wages. Average wages rise, but less rapidly than debt, government expenditures, the S&P 500 Index, and currency in circulation (M3). This benefits the political and financial elite and hurts the middle and poorer classes. However, the middle class and poorer class don’t own congresspersons or lobbyists, so this imbalance toward paper financial assets is not surprising.

SUMMARY

Commodity prices, house prices, and wages rise as bankers devalue the dollar. However, in terms of the purchasing power of silver, they have been flat for many decades, unlike debt and paper assets.

WHAT ABOUT DEBT AND PAPER ASSETS?

U.S. National debt approaches $21 trillion. Unfunded liabilities are five to ten times higher. The debt bomb will explode but it is difficult to find anyone in government that cares. For perspective:

National debt in 1913: $2.9 billion

National debt in 1971: $398 billion

National debt in 2018: $20.9 trillion

The compounded increase since both 1913 and 1971 has been 8.8% per year – every year. The time to double is less than nine years.

Assume the impossible and pretend official national debt will increase at 8.8 % per year going forward. Due to tax cuts, military spending, baby-boomer retirements, Medicare expenses, and more it will probably accelerate. Regardless:

In 2024 the national debt is targeting $34 trillion

In 2030 the national debt is targeting $57 trillion

In 2050 the national debt is targeting $310 trillion.

Exponential increases in debt, population, commodity production, pollution, and economic craziness cannot persist in a finite world. There will be a reset. The damage will be considerable unless we prepare with gold and silver assets.

Excessive government spending is the primary reason national debt increases. Spending beyond income leads to tragedy, which takes longer for a government that controls the currency units, when compared to an individual.

Government expenses and silver prices increase exponentially as the dollar devalues. Unless government reduces spending and debt, silver prices will rise substantially in coming years.

Social programs develop a life of their own. One example is the SNAP (food stamps) program. This program spends over $70 billion per year, or about one-third the current value of (supposed) Fort Knox gold each year.

Hmmmmmmm! Conclusion: Gold is under-valued and the U.S. government spends too much on SNAP. Expect a reset!

Examine the cost of SNAP when priced in silver. How long will silver and gold remain undervalued as uncontrolled spending blasts total debt into uncharted territory?

As dollars devalue the S&P 500 Index rises. As economic confidence, earnings, High-Frequency-Trading, central bank “printing” and media hype increase, so does the S&P 500 Index. Occasionally stocks “bubble” higher, as in 1987, 2000, 2008 and 2018. They inevitably correct. When priced in silver the index slowly increases.

SUMMARY

Paper assets, government spending and debt – unlike commodities and wages – increase more rapidly than silver prices. This benefits the political and financial elite who own more congresspersons and lobbyists than the poor.

CONCLUSIONS

  • Exponential increases in debt, spending, and social programs have a limited lifetime in our finite world. If something cannot continue, it will stop. An ugly reset is inevitable.

  • Silver prices rise as the dollar is devalued. When priced in silver ounces, most commodity prices are stable. When priced in silver, debt and paper assets have risen since 1913 when bankers paid congress to approve the Federal Reserve.

  • Silver has been money and a common currency for thousands of years. Treasury notes and digital dollars have been important for a few decades. The distinction is important.

  • Out of control spending, excessive debt and ever-increasing currency in circulation devalue the dollar. The result is higher prices for commodities and paper assets. Occasionally Wall Street and commercial banking create bubbles. It is unusual for multiple asset classes to spike upward into bubbles, but debt, stocks, and currencies are in bubbles in early 2018.

  • Bubbles crash and asset values reset. The intrinsic value of the U.S. dollar is zero—the ultimate target for its purchasing power.

  • The intrinsic value of silver is substantial. Silver prices must rise as currency units devalue toward zero.

Silver is one of the most under-valued assets in the world. Silver prices may not reset higher next week but silver prices will continue their exponential trend upward and rise far higher—unless the United States returns to sound money, honest accounting and eliminates the central bank.

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GE ChristensonGary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.

Man has had the ability to separate silver from lead for as far back as 4000 B.C.