Silver Coin Clipping in
the Digital Era
By Dr. Jeffrey Lewis
market controls and market manipulation have become the modern day equivalent to
coin clipping in the silver market.
debasement is not a new phenomenon and has been practiced by various governments
throughout the ages, either as a way for them to profit at the expense of their
citizens or to pay off high levels of debt.
result of money debasement is the same regardless of the underlying motivation.
It also allows unsound money policies to proliferate as the can gets continually
kicked down the road.
Debasement in Rome
A classic example
of monetary debasement was seen when the Romans allowed the value of the
denarius to fall over time as the government changed the coin’s size and silver
The denarius was
originally made of almost pure silver and weighed 4.5 grams, but this weight
was reduced to 4 grams during the Julio-Claudia dynasty and then to 3.8 grams
under Emperor Nero.
By the latter half
of the third century, when it was replaced by the Argentous, the debased
denarius only contained roughly two percent silver.
The rush to debase
the Government Finance Bubble
typically the result of deep structural mal adjustments in an economy. They are
ultimately about credit failure, although another way to look at it would be
money failure, since all of the paper "money" in use today is actually either
debt or credit.
Since 2009, a
bubble in government finance that is very close to source of the U.S. Dollar’s
creation has grown to an unprecedented size. Like the private credit bubble that
preceded it by only a few years, this bubble is even more laden with risk
misperception that has in turn resulted in severe mispricing.
Of course, there
will ultimately be a rebalancing, and nowhere is that maladjustment likely to
play out with more drama than in the remarkably under priced silver market.
price of silver has gained 1,012 percent. Although many will be quick to point
out the corresponding 1,000 percent rise in prices over the last decade, when
this silver rally is compared with the rate of monetary and credit expansion —
and any semblance of non-academic reality in terms of inflation — this notable
rise in silver seems muted at best.
The silver rally
has certainly not been without its attendant media drama apparently intended to
keep most investors who could benefit from even a semblance of wealth protection
far, far, away from the demonized, but intrinsically valuable, metal.
silver looks attractive from just about every investment angle. Comparing real
supply and demand, current trading structure, technical price patterns,
inflation-adjusted pricing, ratios relative to gold, and excessively easy
monetary policy — all point to silver’s undervalued status.
Allow Silver Market Manipulation
After the Hunts
were shut down, it became easy for money printers to artificially control prices
using the futures and derivatives markets that did not obligate sellers to
deliver physical metal, just paper money. This manipulation led to an
accelerated boom for silver’s industrial users.
Yes, former U.S.
President Johnson and other world central banks had long ago de-monetized
silver, but the drawdown in its above-ground supply was substantial at a time
when prices remained trapped by derivatives that became permanently detached
from supply and demand fundamentals.
occurred in parallel with the credit expansion and the rise of shadow banking in
finance, both of which had essentially the same structural maladjustment result.
As always seems to
happen when the prospect of new credit creation ramps up paper markets, the
warning signs of monetary debasement will be enthusiastically dismissed by the
mainstream media. Nevertheless, the end result is much like clipping coins.
premiums and growing awareness of the disconnected state of the paper and metal
markets, silver’s undervalued state will not last long. Time is running out for
investors as the supply of real silver quickly vanishes.
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