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If we ever needed to be warned – now is the time!
By Editorial Staff at Chattanooga Coin
Throughout history, there have been many periods in which a people watched helplessly while the purchasing power of their money dwindled down to a fraction of its original worth. Such financial crises have come to virtually every nation at some time or another, our own not excepted.
These crises are not, as a rule, built up overnight, but develop from the cumulative result of various government decisions and internal circumstances. In our own country, we can look back to the years 1933- 34 as the period when the first seeds were sown for our present hard times. It was then, you may recall, that our gold coinage was demonetized, gold bullion nationalized, and gold itself revalued from $20.67 to $35 a troy ounce. This meant that the dollar, silver and paper, was suddenly devalued by some 40%, though, domestically, it did not at the same time seem to affect anyone but numismatists, whose collecting of gold coins was for many years restricted. But gold demonetization had two very bad effects.
First it permitted the government to issue as much paper currency as it pleased without fear of any run on its gold reserves by its own citizens. To be specific, it resulted in an increase of our money supply from $39 billion just before World War II, to the present $214 + billion. In the process, it assured us not only of a steady inflation, but, ironically, of the gradual erosion of U.S. gold reserves due to redemption of our overseas dollars by foreign nations.
Secondly, the retirement of a precious metal which, throughout history, had served as a standard of value in commercial dealings set a very bad precedent. It led in 1965, to the retirement of silver from the coinage (except for a token amount in the 1965-70 half dollars and certain of the Eisenhower dollars) and then, which was far worse, to the demonetization of silver certificates. Heretofore, it had still been possible to obtain silver granules for the value of these notes, but now the Government said in effect: “It is wrong of you to require us to back our paper with something of genuine value. We are the greatest producer in the world and our currency can never fail.” Thus, in little more than a generation, the money of the American people changed from a healthy bimetallism to a flat paper currency without any backing whatever.
Down through the ages, whenever such financial crisis threatened, prudent citizens have always sought to protect themselves by investing in various items which were expected, relatively speaking, to maintain their value. Among such items, objects of art and rare coins have figured prominently.
During World War I, the price of silver had risen to nearly its old parity with a dollar’s worth of gold, causing a severe shortage of the metal in British India. Great Britain appealed to the U.S., who had it been free of partisan interests, would simply have melted down the millions of dollars in its vaults and sold the bullion. But at this critical juncture, the silver interests again became vocal and brought about the Pittman Act of April 23, 1918. This act provided not only for the melting and subsequent sale of up to 350,000,000 silver dollars, but also that the government purchase an equal amount of bullion from American mine owners and strike new dollars for all those melted down! The result, of course, was our Peace dollars, which were issued from 1921 – 1935.
Prior to World War II, there seems to have been no shortage of the metal, and, as of 1941, its mean value on the New York Exchange was only $.351 an ounce. However, as in the case of World War I, the war years brought a sharp increase in value. By 1946, the metal was quoted by the New York Exchange at a mean price of $.801 an ounce. This trend reflected the increasing demands of the silver users (i.e. industry and the U.S. Mint) as against world production. For a time, the Treasury tried to help out by selling silver from its own stockpile, but it soon became apparent that this practice could not continue indefinitely and, on November 28, 1961, it was discontinued.
As a result of Treasury curtailment, the price of silver rose sharply so that by 1964 it was $1.29 an ounce. Seeing the inevitability of further increases, and realizing that they would once again result in the melting down of coins, Congress now took the fateful step of introducing base-metal subsidiary issues. The action had, of course, the further advantage of saving hundreds of millions of ounces a year, which could thus be used for other purposes.
In 1967, the price of silver jumped to $1.55 (the annual average of the New York Exchange), and further action was now deemed necessary. Of the total Treasury stockpile of about 520 million ounces, 430 million were then being held in reserve against the $55 million worth of outstanding silver certificates. On the assumption that most of these would never be presented for redemption, the Treasury Department asked Congress to order an end to the notes, permitting people to redeem them in bullion only for the duration of one year. One June 24, 1967, Congress enacted legislation to this effect, and, with most of its $555 million in bullion reserve now released, the Treasury once again resumed its sale to the public.
As of mid-1968, the Treasury Department was well-satisfied with its handling of the silver situation. It had stockpiled its objective of 165 million ounces of l.999 silver, come up with the 17 million ounces required for the Kennedy half dollar coinage, and lost only 70 million ounces through the redemption of silver certificates.
However, by mid-1969, it was apparent that much of the silver sold by the Treasury was actually being amassed by speculators. Missouri Representative Leonor Sullivan vigorously protested this “grievous blunder”, as she saw it, but to no avail.
Just how “grievous” it was really became apparent in 1971 when the silver users, directly or mediately, contrived to depress the silver market. The scene was already set in December 1970 when the head of the Silver Users Association predicted a dire decline in the value of the metal. This seemed the more strange considering that the previous suspension of Government sales of silver, nine years before, had precipitated an upward trend.
If the prediction was calculated to cause panic selling, it failed, however, and the market remained firm. Then, a month later, the prediction was parroted by an anonymous American broker who foresaw a price drop to $1.25 an ounce by the end of the year. Right afterwards, the price of silver did in fact tumble to a surprising $1.54 level.
Perhaps the best reasons we can give for an immediate investment in silver coins is that 1.) they can still be purchased at a multiple of their face value, and 2.) with the inevitable increase in the long-range value of silver coins like pre-1965 dimes, quarters and halves, their own value can only go up as collector pieces…of one thing there seems to be little doubt-namely that shallow, high-value ore deposits are gradually drying up. This means that the cost of labor to extract silver will continue to climb and in turn require an upward valuation of the metal. Even at the present time, only about one-third of the world’s silver production derives from direct mining, the rest originating as a by-product of lead, copper and zinc. A time must therefore come when the available supply of the metal, which is so much needed by the photographic and electronic industries, becomes critically low; and this in turn can only result in a dramatic increase in its price like it did recently when copper went to $4/pound.
One of the immediate effects of this situation has been the melting down of tens of millions of dollars in silver coins in order to meet anticipated future deliveries of silver in the months ahead.
What does this suggest for the future of silver? Most probably, and despite temporary oscillations, and that by 2015 the price could easily reach $60 - $75 per ounce. The same could be said of gold although it is certainly more international. Gold coins, bullion, and the like are all tangible assets that no printing press can take away. It has long been a store of value that everyone, young or old, can profit from and has in the past.
Gold coins are the most traditional investment had money buyers look for. U.S. classic gold (pre-1933) and pre-1965 silver coins seem to be the favorites of today’s generation. It’s no wonder then that as time moves forward, these collector pieces should escalate in value. Rumors of IRS intervention, gold confiscation and the 1996 issuance of new paper money to replace the familiar greenback all seem to point to protection of some sorts. For the last two thousand years the store of value in gold and silver has always been the source of wealth – either with inflation and crisis or without it.
The past is our guide to the future. Our brief summary of the last 75 years is nothing compared to what is coming in economic chaos. All paper assets including “cash” will be eliminated simply because they do not meet the most essential need for all humans: We need it to trade. The material you make money out of must be portable, divisible, homogeneous, durable, and valuable. Without each of these five qualities, it’s useless. Gold, silver, platinum, palladium and copper all fit these criteria – paper currency does not because it leaves out the fifth quality which is…it’s not valuable. It’s only paper!
So there’s always a temptation to print money out of thin air. And that’s what always happens. Paper money systems always end up collapsing. |
