For his entire career after leaving the army, my father was employed by the NSA as a cryptographer. His work sometimes required him to travel. In the early days, when I was a small child, he often traveled to Germany, the North of England, and Alaska. Many years later, long after he retired, I realized that those locations must have been listening stations where the agency was picking up the SIGINT that he was tasked with decrypting. I also realized that that was the reason why he had a Russian-English dictionary and a Russian grammar on his bookshelf (he also had a Swedish-English dictionary, but I’m not sure why he needed that).
Later in his career, as his work became largely administrative, his travels were generally more mundane. In 1964 he paid a visit to St. Paul, Minnesota (maybe there was an NSA field office up there) and stayed at the Twins Motor Hotel. For some reason he brought back a menu from the motel’s coffee shop, and I’m glad he did, because it gives me a little window into restaurant prices back then. I was still too young to pay much attention to prices and inflation, so I wouldn’t have otherwise remembered.
Just as a thought experiment, imagine that my father bought the “Burger Steak Supreme” with a cup of coffee. Salisbury steak, fries, cole slaw, and rolls for $1.25. Coffee was a dime. My father was decent tipper, so he probably handed the waitress a dollar bill, two quarters, and a dime, and told her to keep the change.
The dollar bill would have been a Silver Certificate, and not the Monopoly money — Federal Reserve Notes — that circulates nowadays.
You could take a $1 Silver Certificate down to the bank and exchange it for a silver dollar. I remember doing just that, and getting one of those beautiful Morgan dollars. I was still little, so it felt huge and heavy in the palm of my hand.
My dad wouldn’t have used a silver dollar, though. They still circulated, and you would occasionally see people spending them (usually the later Peace Dollars, which were much less attractive), but quarters and half dollars were used most of the time.
To continue this thought experiment, let’s imagine that he paid for his meal with two Franklin halves, two Washington quarters, and a Mercury dime. Roosevelt dimes were more common by 1964, but Mercuries (strictly speaking, Winged Liberty dimes) were still in circulation, and were more pleasing to the eye, so I prefer to imagine one of those.
Now let’s imagine that he decided to spare his waistline, forgo his lunch, and use his $1.60 in silver to open a savings account for the benefit of his young son. In those days banks were statutorily required to pay 4% annual interest on savings accounts. I remember my passbook, with occasional small deposits noted inside, and the line where a little bit of interest was added each quarter.
At some point between those halcyon days and 1980 the rules changed, and banks no longer had to pay 4% on savings accounts. Interest rates became paltry, and anyone who wanted their savings to accrue significant interest found other vehicles for their money.
But let’s pretend that somehow that little savings account kept chugging along at 4%. When I reached my majority I eschewed withdrawing the money, and left it in the account. As of today it has managed to increase in value to $14.96.
“Big woo, Baron,” I hear you say. “That doesn’t even beat inflation.”
No, it doesn’t. But the funny thing is, neither does the current value of the silver. More on that later.
If my father had hung onto those five silver coins, and I had inherited them, as of today they would be worth approximately $33.60. If I took them down to the local silver dealer, that’s about what he would give me in Federal Reserve play money for their “melt value”. A savings account would have had to pay roughly 5.5% annual interest in order for the deposit to have accrued that much value since 1964.
Now let’s think about what the same meal would cost you today. As it happens, I ate almost the same lunch a couple of days ago at a diner in the little town in the hinterlands where I went to visit relatives. I had a more upscale vegetable than cole slaw (greens), but I had to order it à la carte. Since the diner wasn’t as swank as the Twins Motor Hotel, we’ll just assume they more or less even out. With the coffee (which costs a LOT more these days) and tip, my meal came in at just over $19 in pretend money. That’s more than the 4% savings rate would have given me on the original $1.60, but less than the current value of those silver coins.
However… Restaurant prices haven’t inflated to the extent that other commodities have. Consider what a car or a new house cost you in 1964. Back in the late 1950s my parents paid $22,000 for a custom-built three-bedroom, two-bath brick ranch on a large lot. If I still owned it, that property would be worth about a million in today’s market. In comparison, 22,000 silver dollars are now worth about $460,000 — less than half as much.
So what gives? Why didn’t silver keep up?
I bring all this up because one of Francis W. Porretto’s recent posts discussed Silver Certificates, the Federal Reserve, legal tender, and currency in general. It got me to thinking about changes in the currency since 1964.
As it happens, 1964 was the last year that the Treasury minted silver coins. At that point no silver dollars had been minted since 1935. From 1965 on dimes, quarters, and half dollars were made of a copper-nickel “sandwich”. People called the ugly new coins “Johnson slugs” because they were introduced during the Johnson administration.
The Treasury also stopped printing Silver Certificates, and began issuing Federal Reserve Notes instead. You were allowed three or four years to claim your silver, and then after that you could no longer acquire a Troy ounce of silver for a dollar bill.
Instead of being backed by silver, a dollar bill was now backed by the “full faith and credit of the United States government”. Uh-huh. That sounded a lot more reassuring to me in 1965 than it does today.
It’s no coincidence that a major surge of inflation began in the 1970s. With the dollar no longer moored in anything but “faith and credit”, the Treasury and the Federal Reserve were able to engage in whatever jiggery-pokery they wanted to with the currency. Price inflation was a way to tax people’s savings without having to go through the pesky process of raising taxes, which would have required action by Congress and tended to annoy voters. This way ordinary people’s money just quietly disappeared while the government and major corporations kept acquiring more and more.
Speculation, rather than actually creating something of value, became the easiest way to turn a quick profit. With unlimited credit, low interest rates, lax securities rules, and government bailouts of too-big-to-fail institutions, debt could be profitably traded as if it were a commodity, like pork bellies or boatloads of shrimp. More quantitative easing, more acquisition of debt, and a huge trade in debt-derived instruments — we’re currently in an asset bubble the likes of which the world has never seen.
Under these circumstances, the prices of silver and other precious metals should be sky-high by now. Yet they aren’t. Why?
Think of it this way: there has been significant inflation in commodity prices since the investiture of the Puppet last January, somewhere between 5% and 15%, depending on the commodity. Yet the price of silver has remained largely unchanged during the same period, bouncing around in the range of $21 to $24 per ounce. This doesn’t make sense. In a time of inflation, one would expect capital to migrate to precious metals as a store of durable value, bidding up the price in the same way that oil and steel have been bid up.
But that hasn’t happened. Relative to other commodities, silver is deflating in price.
I first became interested in the precious metals markets during the financial crisis of 2008-2009, and have been watching them closely ever since. I’ve noticed a recurring pattern in the fluctuation of prices: during significant crises when one would expect the stock market to tank while metals go up, the prices of gold* and silver show an initial spike, and then suddenly drop back down, usually within the same day. It seems clear at that point that some sort of intervention has taken place.
I’ve spoken a number of times to various people who work in the metals markets, and they all agree on one thing: Far more shares of silver have been sold than can be covered by existing physical silver. When I asked “How much more? Ten times as much?”, they told me it was way more than that, hundreds of times as much. If all the holders of silver shares were to attempt to take delivery at the same time, it would trigger a crisis of unimaginable magnitude.
The system relies on people buying paper silver and not wanting to take delivery. When the price starts to shoot up, certain major firms (I don’t know if corporations can sue for libel, and I don’t want to find out, so I won’t name any specific companies) dump more paper silver into the market to bring the price back down. This is done with the full awareness of the SEC, the Treasury, the Fed, the relevant congressional committees, and all other oversight bodies. The purpose is to keep the price of silver stable, because a sudden rise in the price of silver would be seen as a sign of dangerous inflation, and might trigger panic in the markets.
The price of precious metals must remain relatively stable, no matter what. The system is thoroughly corrupt, and all the major players have an interest in maintaining the scam.
One clue to what’s going on is the amount of premium — an addition to the price per ounce — that is charged for the delivery of physical silver. It used to be that premium was typically a dollar or two per ounce. So if the spot price of silver was $19, you might have to pay $21 for each ounce that was actually shipped to you.
A few months ago there was a shortage of available silver bullion. Many dealers were simply out of it. At that point the premium rose to the $8-$10 range, so that a nominal price per ounce of $24 translated into $32 or $34 for a buyer to take possession of each ounce of silver.
Fortunately from the point of view of the system, people are mostly still trading paper silver back and forth. I don’t know what will happen if a run starts, and people start demanding the fulfillment of all those promises of silver. When the time comes, however, I assume George Soros will be the first to jump.
So what would that $1.60 in silver coins be worth now if the price were to rise to its real level?
I don’t have an answer to that question. Some writers say that silver should be $40-$80 per ounce. Others — the alarmists — say $600 seems more reasonable.
So that forgone lunch at Twins Motor Hotel might now be worth $200 or so.
The only thing everybody agrees on is that silver is severely undervalued by the market, and that this is being done deliberately, with the connivance of all the major governments and corporate players.
When the price of everything but silver is inflating, you know that something hinky is going on.
|*||The situation with gold is more complicated than that of silver, and I don’t fully understand it. It involves the leasing of gold reserves by sovereign nations, and the crooked accounting for such leases. Gold is also undervalued, but silver is reportedly undervalued to a far greater extent.