When looking at the intrinsic value of hard currencies, like silver, relative to that of paper fiat currencies, like the U.S. dollar, some serious questions need to be asked and answered.
Here is one series of questions that can be used to initiate such an analytical process and some rational answers:
- What is the intrinsic value of fiat currency? The value of the paper it is printed on.
- What is the nature of a measuring stick? To provide a consistent gauge of size or value.
- What is backing all fiat currencies? Debt.
- What backs debt? The debtor’s ability to repay the debt.
- What supports the ability to repay? More debt.
- Why? No growth.
- Why is there no growth? Too much debt creates a higher servicing burden, which crowds out capital formation. No capital and no savings mean no growth.
The official solution to this troubling fiat currency situation has been to simply print more paper currency or generate more electronic currency.
Deeply indebted governments, which are enabled by private central banks that benefit from the interest being charged on this debt, typically wish to stretch out the ruler so that their debt appears smaller.
Nevertheless, debt is not a commodity. Debt is instead an obligation to repay. As more dollars chase fewer goods, the end user ultimately suffers from inflation eating away at their paper currency’s purchasing power.
The Promise to Pay Versus a Final Payment
Fiat currency is only a promise to pay. Providing a hard asset like silver is but one form of a final payment. Silver works as a hard currency because of its intrinsically valuable properties.
Silver is also relatively easy to use as a currency, which has been proven over the many years of its use in practice. This fact would have been commonly understood just 100 years ago, and it has been a matter of common knowledge for more than a thousand years.
In its physical form, silver was valuable even when it was plentiful. Now it is actually scarce, even more scarce than gold. This surprising fact has been hidden from the general public.
Perhaps the ultimate value of silver will come from the need of governments to use it as a final payment in exchange for massively overextended debt levels and the resulting loss of confidence in their paper currencies, as well as from the strategic need of silver for industrial purposes.
Future Silver Wars?
Looking forward, the ultimate battle for silver may eventually be fought between its industrial users and the big banks who will be desperately buying silver in a quest for quality collateral.
The big banks clearly have the advantage both in the paper marketplace and in political circles given their much larger lobbying capacity. Nevertheless, the end users of silver may appeal to the strategic, military industrial complex for control over its price.
At that point, the retail investor may be more aligned with the big banks that have for decades conspired to make cheap silver possible and accessible via their use of the paper futures markets.
From this perspective, it would seem a shame to miss out on the current opportunity to buy physical silver while its price remains artificially low before the silver wars begin in earnest.