Articles & Blogs - Silver Commentary

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I had two purposes in writing today’s commentary. The most obvious intent is to help people avoid committing financial suicide in our real estate markets. However, an equally important goal was to provide people with some sort of quasi-objective “measuring stick” to answer an important question: how high is “high”, when it comes to precious metals prices – and in particular the price of silver?

The first topic can be dealt with (in general terms) rather quickly. The criminal near-zero interest rates imposed on us by our banker-serving governments mean that any and every economy which allows such recklessness will always have a housing market in some stage of “bubble”.

Near-zero interest rates punish savers. When near-zero interest rates are combined with high inflation, this is nothing less than the economic rape of savers – the specialty of Western bankers. With savers forced to disgorge any/all savings (to avoid it being ‘stolen’ via banker-created inflation), the first place capital flows in such situations is into real estate markets.

There are two reasons why real estate will always represent the first/worst bubbles to afflict such markets. First of all real estate is the most obvious asset-class to turn to in such circumstances. Secondly, many/most Western economies provide some level of subsidization for home-ownership – further “juicing” these real estate bubbles. The fact that the U.S. subsidizes home-buying more than any other economy is one of the reasons the U.S. housing market continues to represent the world’s worst real estate bubble (with massive, systemic fraud being the other main driver).

In such circumstances, there is no such thing as “investing” in real estate – only in gambling on it. The exponential money-printing and near-zero interest rates have resulted in more capital sloshing around asset markets than at any other time in history – by a factor of ten. In such circumstances no one can attach a rational/objective assessment to home prices. With absolutely no way of determining how overvalued is any particular real estate market, then obviously any/every purchase is a gamble.

This means that any sane individual contemplating buying a home today would do only one thing: run! With no real estate market on the planet being a desirable place to invest our capital, the only sane strategy for future buyers is to delay buying a home – and instead to prepare to make that purchase under more optimal conditions.

While we wait for our interest rates (and eventually our housing markets) to return to sanity, the obvious step for future-buyers to take today is to buy silver – to reduce the price they ultimately pay for a house to a small fraction of current prices. The dynamics could not be simpler: house prices (in “real” dollars) will fall a long ways in most/all markets, while the price of silver is headed to many multiples of the current price. With both of these price-trends clearly telegraphed, there has rarely been such an obvious opportunity for a profitable arbitrage in all of history.

The best way I can attempt to describe/define this opportunity would be to provide an estimate of how much silver it will take to buy a secure, comfortable home: 500 ounces. This is a figure which I have seen quoted by more than one other writer, so I will presume they have looked at some historical data which suggests such a price-relationship.

I made no attempt to verify this, for two obvious reasons: real estate markets have never (collectively) been so over-supplied and over-priced in all of history. Conversely, in relative terms silver has not been this scarce in thousands of years. This means that as the “pendulum” swings back in these markets that at some point there will be an opportunity for people (in many parts of the world) to buy a house with less silver than at any other time in history. Thus, when I use an estimate of 500 ounces of silver to buy a home I’m not thinking of a “best-case scenario” (for silver-holders) but closer to a worst-case scenario.

In some of the worst bubble-plagued markets that ratio would/will go much lower. In the U.S., Americans have a very realistic probability of purchasing a respectable home (at some point) in the future with 100 – 200 ounces of silver.

I realize there will be many who view such figures skeptically. I have no space here to debate that point. I can only encourage such skeptics to look over the dozens of previous commentaries which I have written about the U.S. housing market, and/or the dozens of commentaries which I have written about the silver market.

The more general point which I do wish to argue here is the necessity to look for new ways to express prices which are not dependent on/connected to the worthless paper currencies of Western bankers. An ever more frequent question asked of precious metals commentators is “how high will gold and silver prices go?”

Expressed in banker-paper (i.e. our worthless “fiat currencies”), this is now a question which has essentially become meaningless. When the bull market began for gold, the veteran commentators in this sector were gravitating toward $2,000/oz as a “long-term price target” for gold.  As we see today, that number could easily be our “rearview mirrors” (permanently) by the start of 2012.

Were those original commentators too timid, or lacking in “foresight”? Not at all, rather our paper-pushing bankers have been diluting their fraudulent paper so rapidly that gold and silver are more undervalued today than they were a decade ago. Rather than moving “toward a peak” in precious metals prices, we are more distant from a top in these markets than ever before. And in the more extreme (but highly probable) outcome of hyperinflation, the “prices” for all goods (expressed in worthless paper) are near-infinity.

This means that the only, rational way in which we can “price” any/all hard assets – in meaningful terms – is to price these hard assets versus each other. I have already endeavoured to “price” silver in terms of real estate, and now I will seek to do so with two other, notable hard assets: gold and oil.

By necessity, these will be crude estimates. The same banker-insanity which has grossly distorted real estate prices all over the world also impacts the prices of gold, silver and oil. However, with the current gold, silver, and oil markets also being the three most heavily-manipulated, heavily-suppressed markets in the history of the global economy, assigning precise price levels/ratios is impossible.

Naturally, the price-ratio where we can come closest to a precise estimate is the gold/silver price ratio, since we have nearly 5,000 years of price data to guide us – during which time the average gold/silver price ratio has been 15:1. However, as previously noted, in relative terms (i.e. “relative” to gold) there has not been this little silver in the world in thousands of years. This ensures that at some point before any long-term equilibrium can be reached that the price-ratio must descend to well-below that 5,000-year equilibrium.

A very conservative estimate for that ratio would be 10:1. In terms of above-ground silver-to-gold, the figures I have heard as estimates range from a 6:1 ratio and lower. With industrial demand for silver “massive” and rising, we know this supply-ratio will continue to shrink (in silver’s favor), since so much of the “industrial” silver is not recycled, but essentially “consumed”.

With today’s price-ratio still being at an extreme level of more than 40:1, this explains why all informed commentators in the precious metals sector expect silver to significantly outperform gold in the future (while gold itself “outperforms” all other asset classes). Let me note that I am not advocating that bullion-holders start swapping their gold for silver.

While we know that the gold/silver price ratio is going to move drastically in silver’s favor, we cannot predict with certainty over what time-horizon this adjustment will take place. Given that we are acquiring our bullion as financial insurance, and given that we could need such “insurance” at literally any moment, all prudent investors will hold significant amounts of gold and silver. For those who consider themselves “gold heavy” today, such individuals should simply focus on silver with their future purchases of bullion.

The most-speculative of these price ratios is the silver-to-oil ratio. Oil is one of the few commodities on the planet whose own scarcity rivals (and perhaps exceeds?) that of silver. Combine that with massive market-manipulation, enormous geopolitical uncertainty, enormous economic uncertainty, and extremely dubious numbers on actual oil “reserves”, and here we can literally do little except make our “best guess”.

My best ‘guesstimate’ on a rough equilibrium between silver and oil prices is for a 2:1 silver-to-oil ratio (i.e. two ounces of silver = 1 barrel of oil). Readers will immediately note that I expect this price-ratio to remain much “flatter” than the other two price-comparisons I’ve made. While we cannot assign precise price-ratios, we can certainly rank these ratios with precision.

With housing markets grossly over-supplied, and (demand) in Western economies certain to remain weak for many years to come, the silver-to-housing price ratio is certain to plummet by the greatest amount. The supply in the (under-supplied) gold market will remain relatively flat. Mine supply raises the total, global stockpile of gold by merely 1% per year, since very little gold is ever consumed. Under these circumstances, obviously the gold/silver price ratio will not fall nearly as far as the silver/housing price ratio.

My estimate with respect to oil reflects two, mixed dynamics. On the one hand, in terms of inventories the supply of silver is even more restricted than that of oil, hence the expectation for the price ratio to move somewhat in silver’s favor. Conversely, there is every reason to believe that we still have access to more “new” silver (still in the Earth’s crust) than “new” oil (again in relative terms).

Those people who mistakenly believe that we have “lots of oil” because of what has been identified in shale deposits need to refer to the ground-breaking work which Chris Martenson did in this area. To my knowledge, Martenson was the first to point out the most important dynamic here: that given current technology, extracting any of this shale oil will consume nearly one full barrel of oil for each barrel produced – leaving zero (surplus) oil for anyone to actually use.

When the brain-dead U.S. government begins massive extraction of its shale-oil, it will make a lot of Oil Oligarchs fabulously wealthy. It will pollute/devastate much of the U.S. “environment”. However, it will not ever produce any extra oil for us to “fuel” the global economy.

Certainly the subject-matter of this commentary is something about which I could have written several chapters, rather than merely a few pages. However, with any analysis here unavoidably speculative, I concluded that it was a better use of time (for both myself and readers) to produce a concise but general “guide” rather than endeavour to produce an exact treatise on the subject – given that such precision here is impossible.

More selfishly, when readers ask me in the future “how high will the price of silver go?”, my answer will now be as follows:

1 barrel of oil = 2 ounces of silver

1 ounce of gold = 10 ounces of silver

1 house = 500 ounces of silver

The best “service” which I and other precious metals commentators can perform for our readers is to divorce their thinking on “prices” away from the ludicrous/meaningless nominal numbers attached to the banksters’ fraudulent paper currencies – and back toward “pricing” assets in some sort of rational manner to each other.

Pricing goods in terms of “dollars” today is every bit as ludicrous as when the Dutch priced all goods in their society in terms of tulips (four centuries earlier). Just as we laugh at the Dutch for foolishly assigning extreme “value” to common plants which could be produced in infinite quantities, so too will our distant descendants laugh at us for foolishly pricing our own valuable assets in terms of utterly worthless scraps of paper – which have already been produced in near-infinite quantities.

Before I conclude this piece, I want to refer one more time to the proposition I raised at the beginning of this commentary: the marvelous “arbitrage” opportunity involving silver and housing. Readers of “business news” have always been looking for guidance on successful strategies for investing their wealth.

Living in an age of near-zero interest rates and worthless paper currencies has transformed this desire into a desperate quest to find somewhere/some way in which they can protect their wealth from the monetary depravity of bankers. To these people, it will hopefully come as a relief that they can adopt a strategy which is as simple as it is secure.

Buy silver today.

Buy a house tomorrow.

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written by Jeff Nielson, January 03, 2012

Jollyjugg, going back a few years it was always my intention to PERSONALLY be more broadly diversified across the entire spectrum of commodities - "hard" and "soft".

However, I feel that I've been 'forced' to back away from such diversification, at least with the CURRENT economic fundamentals which exist. The reason why I feel I've been 'forced' to concentrate my holdings in this sector is the degree of incompetence/economic mismanagment which we continue to witness across the West.

With 3/4 of the world's population in the EARLY stages of (perhaps) the world's largest/longest economic boom, we SHOULD be able to prosper as investors by being broadly diversified here.

The PROBLEM is that all Western economies have been brought to the verge of total financial/economic COLLAPSE. And when I look at asset classes which can whether EITHER the ravages of hyperinflation, or some horrific debt-default crisis (with accompanying Depression), I run out of candidates after gold and silver...

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written by jollyjugg, January 03, 2012

Jeff,

If one were to invest in OIL considering OIL is a scarce commodity as a fuel in the future, would that be a good idea? I already have investments in physical gold and silver and I want to consider adding OIL also to my portfolio. While physical OIL does not look feasible to me, how would you consider investing in crude OIL if you were to consider this? Would OIL ETFs be a good option?

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written by Jeff Nielson, August 13, 2011

Brian, Bobbbny I'm going to have to choose my words more carefully around here, as any "loose language" is being immediately noted.

Brian, regarding the "currency dilution" scenario I SHOULD have pointed out that we would STILL be suffering from the inflation caused by those large, nominal prices - although we would not suffer ADDITIONALLY from the prices of silver/oil.

Bobbbny, regarding the GENERAL inflationary effect caused by rising oil prices, "yes" the more that oil is the DRIVER of the inflation spiral rather than a (more eventual) CONSEQUENCE of rising prices, the more we will suffer from this inflationary scenario.

It should be noted that not even the "wealth preservation" characteristics of gold and silver will protect us (fully) from rising prices due to scarcity.

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written by bobbbny, August 13, 2011

Jeff, you said:
In other words, if (to use the extreme example) 100% of the price-rise was caused by currency dilution, then we would NOT be severely impacted by those prices, as they would purely reflect NOMINAL price-increases.

Conversely, should oil and silver go to those price-levels PURELY due to scarcity, then this would have a TREMENDOUS impact on the global economy. In relative terms they would have become prohibitively expensive. And with limited ability to "substitute" for these precious commodities that would cause inflation to spike AND would cripple economic activity.

I would submit that if oil prices would rise to extreme levels, all else would follow closely at its heels. So integral is oil to our economy.
Conversely, the ongoing currency dilution has the net effect of inflating all basic commodity prices, like food & energy. It is just a slower boiling frog.
The real impact on holders of PM should be negligible under either circumstance.
As to those on fixed incomes, the poor, the unemployed, and the elderly, they are SOL.
That is the point at which society itself is tested.

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written by uxhamby, August 13, 2011

In other words, if (to use the extreme example) 100% of the price-rise was caused by currency dilution, then we would NOT be severely impacted by those prices, as they would purely reflect NOMINAL price-increases."

I think the impact of this scenario would highly depend on the rate of change. If it happened over night = big impact, if it happened in the typical timescale of collective agreements = lesser impact.

Brian H.

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written by Jeff Nielson, August 13, 2011

How embarrassing!

Yes, obviously it was MY arithmetic which was faulty. This illustrates an important general RULE: never attempt to perform arithmetic BEFORE having had your FIRST cup of coffee in the morning.

Now that I am a little more AWAKE, let me add something (hopefully) "intelligent". How "severe" those prices would impact the global economy ($500/oz silver, $1000/barrel oil) depend on an important factor: what percentage of the price rise was caused by SCARCITY, and what part was caused by mere currency dilution?

In other words, if (to use the extreme example) 100% of the price-rise was caused by currency dilution, then we would NOT be severely impacted by those prices, as they would purely reflect NOMINAL price-increases.

Conversely, should oil and silver go to those price-levels PURELY due to scarcity, then this would have a TREMENDOUS impact on the global economy. In relative terms they would have become prohibitively expensive. And with limited ability to "substitute" for these precious commodities that would cause inflation to spike AND would cripple economic activity.

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written by ced_poi, August 13, 2011

Sorry Jeff, I don’t understand:
Your estimated oil/silver ratio is 2, this means:
1 barrel of oil = 2 ounces of silver
As of today this ratio is 2:
1 barrel of oil (i.e. 100$) = 2 ounces of silver (i.e. 2x50$=100$)
So, if silver is at 500$:
1 barrel of oil (i.e. 1000$) = 2 ounces of silver (i.e. 2x500$=1000$)

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written by Jeff Nielson, August 13, 2011

Ced-poi, thanks for the support.

Fortunately your fear is somewhat unfounded as you reversed the silver/oil ratio which I (tentatively) predicted. I'm roughly estimating 1 barrel of oil = 2 ounces of silver.

So with silver at $500, oil would be at $250. Still scary stuff, but perhaps not "terminal" for the global economy?

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written by ced_poi, August 13, 2011

Thank you Jeff for this very interesting point of view… this made me realize something scary though: If silver hits 500$ like so many forecast , this will mean… oil at 1000$ !!!! Imagine oil at 1000$: Very, very scary because if this event comes to reality, this will mean silver owners are millionaires living in houses now located in a third world country ….

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written by Jeff Nielson, August 08, 2011

Samix, if you haven't read them already, you might enjoy two older commentaries - which get into this aspect of economics (and propaganda) in more depth:

"Competitive Devaluation and Gold, or Gold and the Bond-Bubble(s)"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=15807:competitive-devaluation-and-gold-or-gold-and-the-bond-bubbles&catid=48:gold-commentary&Itemid=131

"Comparative Advantage Versus Competitive Devaluation"
http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=15873:competitive-advantage-versus-competitive-devaluation&catid=45:international-commentary&Itemid=133

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written by samix, August 08, 2011

thank you jeff for the clarification, indeed devaluing the currency to boost export is another esoteric branch of these economic wizards and always sounded "not convincing to me"

why would I want to export anything if my currency is the best export item available to me ?

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written by Jeff Nielson, August 08, 2011

Samix, part of the reason why this "competitive devaluation" game sounds CONFUSING is that our governments (and bankers) ever only give us their phony LIE about why they are doing this - while HIDING the two, real reasons.

The "lie" is that our currencies are being driven-to-zero to "make our exports competitive". LOL! This is nonsense. Any "advantage" of making our exports cheaper is LOST when we have to pay $150/barrel for oil - and sky-high prices for food and other commodities.

The TRUTH is that driving down our currencies is a HIDDEN means of driving Western wages to ZERO. Also, by driving all of the paper-currencies to zero at roughly the same speed, it will take us longer to NOTICE the collapse of the fiat currencies.

It's the same analogy as slowly "boiling" a frog in hot water...

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written by samix, August 08, 2011

hello jeff,

I have been following your site quietly for all this while, kudos to all your efforts. I had a question, recently in one of your pieces you said that the the ECB needs a pretext to devalue the euro, also I have read somewhere that once dollar starts to fall and euro begins to strengthen, the ECB will want to devalue the euro, whats the logic, why will I want to devalue my currency if the dollar is falling, phew this voodoo economics really drives me crazy at times.

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written by Jeff Nielson, August 07, 2011

Null, the phrase "bond parasites" IS a simplification, because (as you point out) the VERY wealthy don't hold/own all of these bond IOU's.

The reason why I don't discuss the non-parasitic bond-holders is for two reasons.

1) They hold the distinct MINORITY of total bond-holdings
2) Ordinary bond-holders are NOT part of the banksters' GLOBAL debt Ponzi-schemes.

As for what happens when default occurs, YES, the fat-cats will suffer BIG losses. This is WHY we see them DEMANDING that their servants in government not consider "hair-cuts".

At the same time, they are trying to squeeze as many $TRILLIONS in interest payments as possible. Note that is the INTEREST on these debts which is destroying economies at this point - which is what makes default inevitable. The "game" for the ultraw-wealthy is to squeeze as much of OUR wealth as possible from us, before we simply RENOUNCE their fraudulent debts.

Note also that IF our governments can bail-out the BANKSTERS on $TRILLIONS of their gambling losses, it is obviously FAR EASIER to justify bailing out institutional bond-holders (such as pension funds).

Also note what is important here is that the OVERALL debts are not "guaranteed" or "indemnified" - ONLY the PUBLIC entities which suffer significant bond-losses.

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written by Null, August 07, 2011

Sorry, I had neglected to read part 4, that may answer my question below...

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written by Null, August 07, 2011

So wouldn't the Rothchilds lose their wealth if the governments defaulted? If they and other bond parasites are controlling the government then does that mean it is unlikely the government would officially default because then only the bond holders would lose their wealth? What is the difference between the Rothchilds and a regular saver who has bought bonds as part of an RRSP? I know you have recently explained how they attack countries with the interest rate swaps. Just wondering how the bond parasites will prevent their wealth from disappearing when the bonds lose their value, either to inflation or outright default.

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written by Jeff Nielson, August 07, 2011

Null, sovereign governments are NET DEBTORS - in the $10's of TRILLIONS of dollars.

When I speak of the "bond parasites" I'm speaking of the ultra-wealthy "Houses" like the Rothchilds. By process of elimination, they are the ONLY possible answer as to WHO is holding those $10's of trillions in IOU's.

As for what is "the best way" to default. Yes, governments would prefer to do it UNOFFICIALLY by money-printing - since it is the cowards' way out, and doesn't require any "choices" other than to keep doing the same thing.

However, it is the WORST way for a government to default in terms of the people - because it takes EVERYONE'S wealth to near-zero (rather than ONLY the deadbeat debtors).

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written by Jeff Nielson, August 07, 2011

Brian, there are SEVERAL things preventing the CAD from decoupling from the USD - #1 on the list being the gross economic mismanagement of the Harper government.

It has literally been TWO STEPS behind every other government on the planet, going all the way back to 2008. Presumably this is because any time Stephen Harper needs to make a "decision" on something that he simply sits by the phone and waits for a call from Washington (or New York).

Then there is the "Loonie Assassin", Goldman Sachs Stooge Mark Carney. Never forget that the ONE thing these banksters are good at is "destroying things". In the case of Carney, it has mostly been "jawboning" - along with dragging Canada's interest rates to near-zero for NO REASON.

And NOT having any gold to back Canada's economy doesn't help either...

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written by Null, August 07, 2011

That's an interesting prospect Jeff about the governments selectively defaulting on their debts. So who would be the ones losing their money in that case? China, Japan and all the other countries holding that money would lose it. That might trigger very aggressive reactions from them. And then all the people who have bought mutual funds through their RRSP's and 401K's and have some bond exposure will lose it, which could lead to a violent populous revolt.

As you say the other option is to just print it away. The effect on the bond holders would be the same but would offer much better legal protection for the government because I'm guessing there's no clause in the bonds that states what the value of the dollar will be when it's paid off, but there is a statement saying that the dollar must be paid off at $1.05, regardless of how much real stuff that dollar will buy you. Inflating might also bring some political advantage because the government could argue that the bond holders should have known before buying the bond that the fiscal situation of the US is in trouble and should have expected such (which of course China should have, so China has no moral upper hand in this).

Us personally, we have bet on a significant amount of inflation going forward, at least past the initial deflation, or at least an appreciation of PM's relative to the dollar. We have enough parked in PM stocks to pay off the line of credit if we sell (although those stocks have gone down quite a bit in the last 6 months so if we sell, we lose). We also have a bunch of cash sitting around that is paying for living expenses until things finally fall apart. This has worked well. Over the last year we have paid 4% in interst on this, to buy G&S which over that period have appreciated by about 50% between the two. Sounds like a good deal to me! We maintain the line of credit to hold the physical PM's.

So we are hoping there will be an opportunity to pay off the line of credit with either the cash, or the stocks if we decide to sell (I am still skeptical that we actually own them - this whole "failure to deliver" thing has be concerned, the stock's just a piece of paper like the SLV or GLD). We have the online account all set up to do the transaction quickly if needed so I hope that we can do it before the banks close for good.

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written by uxhamby, August 07, 2011

Thanks for an interesting article Jeff.

I have recently found myself consciously equating routine day to day purchases, groceries, gas, hardware store etc to ounces of Ag for Interst and future reference. I thought it was just me but you point out good reason for expanding this habit.

The end of my mortgage is in sight and well within reach of the Ag I have in hand, once the fiat paper declines somewhat. I'm in no hurry but the insurance is nice to have in case of disruptions to employment or fuel shortages affect income.

For future articles, I'd be interested to read your take on the mechanics of how the $cad value is being manipulated to keep it so close to the $USA.

Regards,

Brian H.

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written by bobbbny, August 06, 2011

Here I will add only what I am doing, in the interest of preaching what I practice.
A house is an asset.
A mortgage is a liability.
The house is tangible.
The mortgage is payable in fiat.
I make the minimum payment & buy PM.
My theory is that inflation will kill the fiat, levitate the PM, and lower the mortgage (provided its at a fixed rate).
That being said, I cannot prepare for a change in law, confiscation of PM, martial law, or anything else they can throw at us.
I am trying to plan for a semi rational world.

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written by AuAg, August 06, 2011

Jeff, I'm not planning on selling the house, was just wondering how much silver I would need in the future to pay it off, once silver truly appreciates.

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written by Jeff Nielson, August 06, 2011

AuAg, I hesitate to actually advise anyone with a STABLE mortgage to look to "sell" simply to eliminate debt. We all have to live somewhere, and assuming you're happy where you are, then it's probably best to stick with the status quo.

It's only if you are ALREADY contemplating big "changes" in your lifestyle/finances, OR if you are highly leveraged with your debts that people should DEFINITELY be thinking about reducing their debt-levels - and eliminating a mortgage would be a good place to start.

This commentary is more to caution future/potential buyers than to try to "spook" established homeowners.

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written by AuAg, August 06, 2011

Thanks Posthumous & Jeff.

Actually the mortgage is in CAD and the value of the property has gone up.

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written by Posthumous, August 06, 2011

AuAg,
On to your second Question... The US ratings downgrade... feast you senses on this Video Blog:

http://www.youtube.com/watch?v...ture=feedu

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written by Jeff Nielson, August 06, 2011

AuAg, there is no doubt that the U.S. down-grade is bullish for PM's. However, I'm not expecting "the market" to be astute enough to figure this out - and certainly the propaganda machine will be trying to portray this as having no significance.

With respect to your mortgage debt (and "paper" debts in general), there are two ways of looking at such obligations.

The view expressed by Posthumous is one school of thought: continue making basic payments on your debt(s), but allow the banksters' serial currency-diluton to steadily lower the REAL VALUE of those payments/debts.

The other school of thought is to look to ELIMINATE debts to "fix your own balance sheet", and then wait until your debts have been nearly eliminated before funneling capital into investing.

I understand that Posthumous' advice sounds like the obvious "smart" way to handle the situation. Here is my concern. We do NOT live in a fair world. Yes, we KNOW that our bankrupt governments can't pay THEIR debts, and so there will have to be some sort of devaluation or default event.

Understand that in our fascist world with two DISTINCT tiers of "justice" that what our GOVERNMENTS do (and are allowed to do) to restore some measure of solvency to themselves will not necessarily be open to us.

For instance, instead of simply devaluing our CURRENCY (which would devalue ALL debts denominated in that currency), they could MERELY choose to devalue (or even ERASE) their own, sovereign debts.

In other words, they could "rig" the system so that all of THEIR debts more or less shrank to zero, while all of OUR DEBTS were still on the books at 100 cents on the dollar.

Worse, if our governments were to do some "deal" to off-load/erase their debts in some manner, then this would STRENGTHEN the paper currencies - sincce they would no longer be dragged down by sovereign debt, meaning that the real value of our debts could theoretically INCREASE.

Thus, while people may view such a scenario as "unlikely", the fact remains that we CAN devise scenarios where SOVEREIGN debts go to zero while OUR DEBTS remain fully-valued.

At the very least, this means we should NOT be looking to DELIBERATELY take on any new debts (thinking they will magicall erase themselves). If your mortgage debt is well under control, then you will likely be safe in following Posthumous's suggestion.

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written by Posthumous, August 06, 2011

AuAg,
I assume Your Mortgage is in US Dollars...You have a US Dollars Mortgage...Which has to be settled in US Dollars.
The bad news...This is a Debt...Not an Asset!
The Good news is, it is in a FIAT currency that is depreciating all the while; so your debts true value, is being diminished all the while.
The bad news is that I assume you Purchased the Property in a bubble so the asset is now worth less in US Dollar terms than you paid.
The Good news is at least you have an hard asset that will always be worth something assuming you continue the repayments.

What I suggest is,(if this is your position) Just pay the normal repayments (but no more) and Invest as much as you feel comfortable with in Precious Metals and this could be through what is normally thought of as "Luxury Gifts" .
Sterling Silver Cutlery! Silver Coins! Jewellery!.
...THIS IS INVESTING ...not SPENDING.

It may seem like crazy actions...But this the "Thinking outside the box" that is the making of people through history!

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written by AuAg, August 06, 2011

This is a great way to look at the price of silver/gold, I have about 350k left on the mortgage, hmmm, how many ounces do I need to pay that off.

On a different note, now that the US is downgraded to AA+ what impact will that have on the price of gold and silver, on Monday when markets open?

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written by Jeff Nielson, August 05, 2011

Bobbbny, I better get my eyes checked as I didn't see this comment yesterday.

It's nice to hear that you (and others) are ALREADY starting to think this way, as it likely signals that many OTHER people are RECEPTIVE to this message.

Posthumous, we are likely still underestimating the impact of "industrial" silver demand (in terms of inventories and prices), because it impacts the market in TWO ways. Not only is industrial consumption the major factor in reducing global stockpiles and inventories, but these industrial CONSUMERS of silver will be "competing" with us for each and every NEW ounce of silver mined out of the ground in the future.

With every reason to believe this industrial demand will remain strong even WITH a soaring price of silver, this can only mean a VERY LONG ROAD to price and inventory equilibrium - and likely HIGHER prices than what even most of the "optimists" are hoping for...

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written by Posthumous, August 05, 2011

Informative and accurate Commentry Bobbbny, and people should seriously heed Jeffs core message...That to measure the value of goods and commodities in FIAT is fundamentally meaningless.
Also the canniest way to be in the "Wealth Camp"...as opposed to the "Ruined camp"...in the not too distant future...is to sell Wealth tied up in property ...and to put the proceeds into Silver...Simples.
This is of cource speculative...but it is my firm opinion that the value of FIAT is based on one thing only, and that is TRUST; and that trust is breaking down as we speak.
Also Bobbbny, I came up with a figure of a undervaluation factor of 10 for silver as well...But of cource, the rarity is not taken into account so, ???,
The potential is "Explosive".

PS Check out "Relative values of sums of money" in my Dashboard

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