I’m going to credit a Twitter friend for inspiring me to create the graph below. However, it was Mike Maloney’s hidden secrets of money which scared the absolute hell out of me that gave a backbone to it. What Mike does is paint you a picture of money throughout history. In my 10 years of college between undergrad and graduate – not ONE mention of any of this took place. Lots of Keynsian economics. Very little to no Austrian/Chicago school of economics. Today, I see why. They do NOT want you to know what has happened – to every single currency in history. Check out Mike Maloney’s “Hidden Secrets of Money” on YouTube if you haven’t yet. It’s a 10 part series that should be mandatory for everyone in high school!
We are at the end stages of the US Dollar. And, I’m not toooooo scared. Why? Because I understand the cycle.
Like my pretty chart?
In the 1970s, this country went through massive bouts of inflation. I wasn’t alive until 1975, and all I really knew of silver when I was a small child was my dad was a silver dealer in the run up of 1980 (and was robbed) and my mom was a foreign exchange student in Peru – and at the time had a lot of cool silver stuff. Only a few ounces total, but nothing like a llama silver ashtray to add to your collection!
I digress, back in the day, they were able to stop inflation, eventually, by raising interest rates ABOVE what the inflation rates were. Paul Voelker probably saved the dollar that day, and possibly the country. More on this below.
Where gold and silver really get cooking is when you have negative REAL rates. That is, you take the 10yr treasury rate and subtract the inflation rate (CPI). When rates increased in the 1970s, gold went UP. Why? Inflation was going higher. This created a negative real rate. This is why it is laughable for gold to be going down at 1.6%, when the REAL inflation rate may be 6-10% right now at the dinner table. I went much further into this topic a few weeks ago here.
Over the last 40 years, they have not been….truthful…about the CPI, and because of this, were able to take the 10yr rates down. And they continue to borrow and spend and refinance…and repeat…and now have massive derivatives. Check out Exter’s pyramid for what this kinda/sorta looks like…
So with my graphic above – everyone is seeing inflation happening on the back of QE 24, or whatever number this is. Nothing like getting a stimmy check for $1400 that actually cost you $5800. Pork…the other white meat.
The issue is this….
- The government has to sell you and others on the belief that there is no inflation. This helps keep the 10yr down. There may actually be a lack of inflation at the national level, but the dinner table inflation then has you no longer trusting government numbers.
- People are now visibly seeing lots of inflation, which is forcing rates up in anticipation of inflation.
- CPI numbers aren’t….exactly correct. They changed this formula many times to hide inflation. So macro levels of inflation could be much higher too.
- This means in reality, we are, and have been seeing significant negative real rates for a very long time. Perhaps as much a -4-10%
- Which means gold and silver have been severely, severely undervalued
- Which means inflation is running hot
- And, unlike 1980, we cannot raise the rates to 10% to stop inflation, or else we default on debt
- The only way out is to continue to inflate in order to inflate away debt.
- When the bond holders grasp this, they will sell. The only buyer will be the fed, and to keep rates from rising, Yield Curve Control may peg the rates at 1.5% where inflation is seeing 10-15% per year.
- This is rocket fuel for gold and silver, and most other commodities
- At some point, the debt can then be pegged back to gold, in a fractional backing. Perhaps 10% to gold may be a $15,000 gold price
- When gold could be $15,000, we might change currencies to perhaps a “Fedcoin” backed by gold at 10%. Maybe there’s a “gold dollar” or something.
This is where it starts…
This is where it goes….
And this is where you remove the pegging of metals to the currency…which is where all of society’s problems started (check how we have been since 1971)
Which always leads to….
Which is the reason this happens….
The solution of all of this is to fix the money. And, it’s getting to that point soon where it will be forced upon us.
If you paid people in silver equivalent ounces (SEOs) rather than a dollar number, that would mean minimums wage today would be $24. I fixed the graph above. Crude, but it works. This SEO wage is then not dependent on the dollar number.
The MAIN issue with that graph is silver has been massively pressured down artificially. Throughout history, silver was valued at 15:1 (some say 16:1) to gold. And, I had read that a day’s wages for a laborer was one ounce of silver. IF we know silver and gold is undervalued, and perhaps gold will get to $15,000 – this indicates silver would be $1,000 if corrected. That would be the equal of a days’ wages in Roman times. Now, when silver is $1,000 per ounce, everything has inflated – so with this $1,000 you might be talking about a $30 loaf of bread.
The overarching point here is we don’t have to go 1789 on rich people to fix the problem. We simply need to fix the money, square the books, and this will close the gap itself. I fear the move to socialism is people getting angry – but they don’t know how to fix it other than to demand “free” stuff from a broke government. When a monetary reset happens, I believe this will fix all of the earnings issues along with it.
- Don’t panic. They could keep this circus going another 3 months or 30 years.
- Take a little from each pay and buy some silver. You don’t have to go nuts. Apparently, 2 oz in Venezuela pays for food for a person for a year right now.
- “Survival” silver could be as easy as going to the coin shop and buying silver dimes. A roll of $5 face value of silver dimes is about 3.57 oz. That means 3 rolls of these, or about 10oz, could feed a family of 5 in Venezuela for a year. Point is, you do not need to think about thousands of dollars for this.
- Understand that you should not be buying stupid shit anymore. Those have days ended – or chould end soon. It would be prudent to buy things that directly impact your daily life.
- Necessities like food, water, shelter, clothing.
- Things for your health and welfare. Invest in a good diet plan and healthy food. Proactively cut medical bills by taking care of yourself.
- Improvements to your home. No real need to $300 sconces, but perhaps a finished basement adds value? If you have to sell, in a hurry, what would get you the best return?
- Sell all unnecessary stuff. Think about making $500 from a yard sale and buying 20 ounces of silver. Food for your family of 5 for 2 years in a bad situation. In that country, 10 oz pays a year of rent.
- No one knows what this will look like. Or when it will happen. History may not repeat – but it does rhyme, as I’ve heard people say. No one wants to have you think about worst case scenarios, but going there mentally can help you prepare for a lot of contingencies.
By extension of the above, I am mostly in miners. I have a LOT of posts with them, but the idea here is to have a little silver – but I like the idea of having shares in businesses that MAKE silver. IF this product is going to inflate much higher over the next 5-10 years, those who make it should be making a killing. And…there’s not a lot of them making it on the planet. So – I mostly invest in the liquid items now I can move quickly in a crash, and if there is a crash, I’m buying even more at the bottom.
For security purposes, I would not have a ton of silver at your home. The most important is that survival silver with some dimes, some silver eagles, etc. Maybe you vault silver in excesses. If things go south, you want to have a couple tubes of something and run. No need to stack thousands of ounces because you aren’t running anywhere with hundreds of pounds of silver.
Overall, I feel there’s a bank run in metals, happening now. Mainstream media isn’t going to cover it, yet, for the most part. Why? Because if there’s a bank run on metals, and it’s known, it would cause panic and loss of faith in the dollar. The problem with this, is by the time people actually realize what is going on, it will become “unobtainium” and “unaffordium”, borrowed from Mike Maloney. So what I’m saying is, is that I feel the major pools of metals are actually being drained as we speak. Have a crack online at finding stuff. Try the Perth Mint to start 🙂
March 18, 2021 at 10:08 am
Good morning as always great article I hope what you describe does not happen but it seems that all roads lead to Rome that is what we say in Spain. CEB and FED have gone crazy and we will all pay it good solution the junk silver
March 18, 2021 at 10:18 am
I think it’s prudent not to go overweight in miners. When the sh.t really starts hitting the fans what makes you think the governements won’t nationalise all mines. They can do that with the stroke of a pen under the guise of a (inter)national emergency….
March 18, 2021 at 11:07 am
I made some comments on twitter on that a few mins ago. You have seen in the past 70 years Cuba nationalizing things as well as Venezuela. What happens is – with a free enterprise, you create efficiencies to drive down costs and be competitive. Governments have found out the hard way that they are not miners, or petroleum explorers. These companies no longer are efficient, and run by government bureaucrats. The entities bloat costs and operate at losses, or go completely under. Also, when you nationalize, you prohibit foreign investment for perhaps decades. It is sooooooooooo much easier just to tax them higher. Look at what the US did with oil companies – “windfall profit tax”. If these miners are making 1000% profits, perhaps you see tax rates go up. So much easier to just get your beak wet rather than destroying the industries. I do not see this ever happening in developed nations. Perhaps nations where government is unstable and you find warlords want to seize the mines for power. I could be wrong, as always, but when I look at risk assessment – I look at the classical “Accept, Transfer, or Mitigate”. I will accept this risk in Canada, Australia, etc. Perhaps I mitigate this by having 30 different miners in the best jurisdictions worldwide. Perhaps if you are really risk averse, look at GDX, GDXJ, SIL, SILJ with their baskets of 100 miners or so to mitigate the risk of any one being nationalized. I also stay away from risky countries. Those FAR more savvy than me DO invest in those jurisdictions – but not in MY personal risk appetite zone.
March 18, 2021 at 11:19 am
“Perhaps nations where government is unstable…”
C’mon Nate…. with the Mother of all financial, economic & monetary armagedons at the front door do you really think the governement is going to stay stable ? Really ?
I think it’s wrong to make future projections based on the current status quo and Zeitgeist
When everything is faling apart and real money is in the ground just for the taking i’m sure they’ll go and grab it.
I think i just look at things an order of magnitude more doomy than you and most other people 🙂
March 18, 2021 at 12:20 pm
“I think it’s wrong to make future projections based on the current status quo and Zeitgeist” – it’s important that each of us makes our own risk assessments and “accept, transfer, or mitigate” to their comfort level. For MY comfort level, it is far more likely that a PNG or east african country nationalizes more than Canada or Australia. For me, I accept the risk in those regions. YOU may not accept that risk and choose to mitigate by not investing in mining altogether. I cannot advise you on how you wish to evaluate risk – but I’m educating you on how I evaluated risk and my choice of actions to accept/mitigate those risks. It’s a matter of probability, not certainty. No one can say it will never happen in Canada or Australia. I feel it is very low probability.
March 18, 2021 at 11:28 am
Thank you for another great read. With regards to inflation and who benefits I have to think of what I once read somewhere. It’s all about who get’s to spend the new money first. These people can still purchase assets at the old price before the money they use to buy them with will cause their value to inflate. Easy money making … or should I say currency.