Price suppression, market controls and market manipulation have become the modern day equivalent to coin clipping in the silver market.
Monetary 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.
The inflationary 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.
Monetary 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 content.
The denarius was originally made of almost pure silver and weighed 4.5 grams, but this weight was reduced to 4 grams during the Julio-Claudian dynasty and then to 3.8 grams under Emperor Nero.
By the latter half of the third century, when it was replaced by the Argenteus, the debased denarius only contained roughly 2% silver.
Depressions and the government finance bubble
Depressions are typically the result of deep structural maladjustments 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 the 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 underpriced silver market.