Silver Fever! Many people today are talking about silver’s undervaluation relative to gold. Numerous analysts see gold prices moving higher and with them silver prices. Several large organizations have forecast $20 to $25 per ounce silver by year end 2010. This is silver fever! A look back in history tells us that silver has been around much longer than any fiat currency and had a much larger geopolitical impact.
1. Silver Fever
2. Silver in Antiquity
More important, it imposed severe deflation on China, the only major country still on a silver standard, which brought forward in time and in increased severity subsequent war time inflation and postwar hyperinflation. The silver purchase program thereby contributed, though perhaps only modestly, to the ultimate triumph of the Communists.
Milton Freidman, Franklin D. Roosevelt, Silver and China, Journal of Political Economy 1992 Vol. 200
Silver Fever! Many people today are talking about silver’s undervaluation relative to gold. Numerous analysts see gold prices moving higher and with them silver prices. Several large organizations have forecast $20 to $25 per ounce silver by year end 2010. This is silver fever! A look back in history tells us that silver has been around much longer than any fiat currency and had a much larger geopolitical impact. As I was researching the other day, I came across an article from Time Magazine from May 1933. The title of the article … “Silver Fever!”
It seems President Roosevelt decided to increase the price of silver by allowing the Treasury to purchase 400,000,000 ounces of the white metal in 1933, above the market price. The idea here, in part was to raise silver’s price through a sequence of open market purchases and hence help drive the U.S. economy out of its deflationary funk by remonetizing silver. The Roosevelt Administration was interested in creating a silver monetary economy given the depth of the Depression. In April 1933 the President authorized the Treasury to pay $.71 per ounce when silver was selling for $.64. The world took note. Speculators bid the price of silver higher.
The U. S. had purchased about 400,000,000 oz. or about 1 ounce in every 30 thought to exist. This was however twice the world’s annual output. So the US government had effectively cornered the global silver market. Time’s editorial writes,
“Eager to profit from the corner, speculators helped the U. S. boost the world price to the U. S. price, 71¢. Last week when it reached that level, Franklin Roosevelt raised the ante for a second time, put the U. S. price at 77¢.”
Speculators then took the metal to $.81 per ounce very quickly. There were no sellers. Silver went bid globally. As Milton Freidman pointed out in his 1992 article (above) silver’s prospective monetary role in the US was destroyed. Perhaps the saying “Be careful what you wish for …” has much verity here. It is interesting to note however that the Roosevelt Administration saw the silver re-pegging of the US monetary system as a way out of the Depression.
Since the printing press has seemed ineffective in our present situation, we wonder how Dr. Bernanke might feel about remonetizing today?
But every action has an equal and opposite reaction. China had been the one country that had remained on a silver monetary standard. With Washington’s silver purchase program their currency values (Yuan) soared. Physical silver left China en masse. China actually put export controls on silver and appealed to “all patriotic….
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