Uncle Sol Starting a thought farm

Silver and Gold

Here is an interesting piece by Karl Denninger at the Market Ticker from over the weekend about gold and silver and their value as currency. I've heard all the rants telling everyone to buy up as much gold as they could and the hyperinflationists all tout it as the one thing you must have to protect yourself.

My personal take has been that gold is currently bubbled and will soon collapse, leaving those that buy it now with far less than they paid. Since I believe what we are currently in is a deflationary spin, gold will not serve as a hedge. I have, though, advocated buying gold as a hedge against a complete systemic collapse because it will give you something of value to trade that people will trust - but certainly not as an investment or hedge against inflation.

Denninger's piece has me thinking now that silver is probably the better metal to have as a hedge against a systemic collapse, though I still believe that even in such a situation gold would still retain what Denninger calls "credit value" sufficient to be tradeable for hard goods.

This is a very interesting read if you are at all interested in currency valuations in speculative vs intrinsic contexts.

Every man has the ability to create wealth and most can create credit, which is the essence of money. When Wimpy promises to pay for that hamburger next Tuesday he has created, in point of fact, both credit and (by common definition) money. But only government has the authority to use force to extract both from you - that is, to force you not only to turn over current production but to compel you to produce in the future as well. You have your balance of powers exactly backwards sir.

Moreover, even though most people don’t realize it, even today the dollar is only acceptable as money because it is indirectly “backed” by Gold (via the derivatives market) i.e. you can get Gold in exchange for paper dollars on the open market. The proof of this lies in the fact that were, for some reason, the convertibility of Gold into dollars suspended today [on the open market], the dollar would instantly collapse.

Absolute and abject nonsense. The convertibility by law was disposed of by Richard Nixon. The dollar did not "instantly collapse" (although many said it would.) In addition there was no right of exchange during the period after FDR's confiscation through the repeal of those regulations and laws, and again, the dollar did not "instantly collapse." This claim is utter and pure horsecrap as the dollar was maintained through forty years of being non-convertible.

This is also exactly why the founders of America prohibited anything except Gold and Silver to be used as money, and why the governments go to great lengths to suppress their price.

The founders based our monetary system on silver, not gold. The reason for this is quite simple - silver is both consumed and thus has industrial purpose - that is, it has significant intrinsic value.

Indeed the banking cartel in London tried after the Revolutionary War to change this, going so far as to bribe Congress. Why? Because with gold-backed money and the control of said cartel, along with the lack of utility (intrinsic) value, gold supplies and the speculative premium in its value (its "moneyness") could be easily manipulated. With silver being an industrial metal this was dramatically more difficult to accomplish; ergo, silver was seen as undesirable by the banking cartel - and no wonder.

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