One of the most misunderstood words in the English Lexicon, is “Shortages.” A brief lesson in basic economics follows, if you please.
It is now common for various web sites and articles, written by well educated people, to say or write that, “Silver is scarce.” I say, as a famous general said to Hitler in the Battle of he Bulge, when asked to surrender, “NUTS.” There can be no shortages of anything, unless there are price controls. At least that’s my opinion, and it is based on pure logic, of which I seem to have an overabundance. Think about it.
Is there a shortage of Model A Fords? No, because if you wish to pay the price, a restored Model A, which originally cost well under $500, can be bought for around $15,000. Lots of them are for sale in Hemmings Motor News. I own the only 1941 Plymouth 1/2 ton flat bed pickup in existence, which was originally bought in Silverton Colorado by Mountain States Telephone and Telegraph Co, for under $600. It’s worth $28,000, and not for sale. My son David helped me restore it when he was about 8 years old. There’s no shortage of them either, if someone wanted to pay me enough. There’s no shortage of air-cooled Franklins or 1951 Chevys, if you want one bad enough to pay for them.
Is there a shortage of water in the desert? Not if you want to pay enough for it by drilling a well or paying someone to haul it. Is there a shortage of antiques of any kind, shape, or condition? Of course not, if you wish to pay enough to buy one or all of them. I understand a rare nickel recently sold for over a million dollars at auction. Someone had enough bucks, and wanted it badly enough to buy it. Even though, as I remember, only two are known to exist, there was no shortage of them.
When the housing bust was in full bloom, prices crashed as much as 50%. Why? Because the supply was far greater than the demand. Prices fell, people bought them at huge bargains, and I hear the bottom has been reached, and prices are rising. The laws of ’supply and demand’ apply to everything, be it water in the desert, or even services, such as a new roof on your house, having your plumbing fixed, or going out to eat. If there are a large number of roofers, and plumbers, they will work for a lower profit, rather than be idle. Don’t kid yourself about restaurants, be they fast food or fancy. McDonalds competes with Burger King every day, as to price and quality. Walmart competes with Target, And HP competes with Apple or Dell. Competition keeps prices low, quality high, and provides a wide variety in the marketplace.
Under socialism or communism, competition is non-existent or minimal, and the results are high prices, and low quality. Ludwig von Mises, the Austrian economist, once described economics, as “People Act.” Could there possibly be a better definition?
When flat screen TV’s first came out, I bought a 60″ version, which I still have, and it works fine. It is very heavy, and I paid over $4500 for it. Now, a 60″ can be bought for under $800, and they are much lighter. I’m considering giving mine away, and getting an 80″. When computers first came out, they were crude and expensive. Competition, made them very common and cheap, with very high quality. Competition, made them ever more useful, and I am getting one with solid state works, so no more slow warm-up, and no more hard drive. Competition, almost perfectly describes “Capitalism,” which has made America great, and which is being destroyed by our meddlesome federal government’s regulations, endless laws, and inserting itself in to the private sector.
One of the most outstanding books I have ever read on the subject, is “HOW CAPITALISM SAVED AMERICA,” by Thomas DiLorenzo. (2004, by Crown Forum). Get it, read it, and tell everyone you know to do the same! Tom DiLorenzo also wrote another ’must read’ and that is “The Real Lincoln.”
Getting back to silver. Can there be a ’shortage?’. A perfect illustration of that, is when, in the 1970’s, everyone had to stand in line for gasoline. There was no gas! Was there a shortage? Absolutely not! There were price controls! On June 13, 1971, Nixon signed the “Wage, Price Controls Bill,” which instantly made for a potential shortage of gasoline. There were billions of barrels of oil, diesel, and gasoline, which wanted to be sold to thirsty customers, but obviously, the oil companies wouldn’t sell at a loss, which is what the price controls would have them do, so they didn’t sell. Very simple! On August 15th, Nixon, by executive order, froze all wages and prices for 90 days, and then it really hit the fan. Long lines and frayed tempers. It was awful. On January 13, 1972, he ended price controls, and suddenly, there was plenty of gas. Nixon hadn’t even the slightest knowledge of economics, and neither does Obama and his cohorts. ( I did NOT watch the State of the Union speech, as I might have gagged).
I really do believe there is more gold above ground that silver. Russia just ordered 572 tons of gold, saying it is her protection against flimsy paper money, such as the euro and dollar. Gold didn’t go up, but went down $15. Why? Because I am sure suppliers had that much to sell to Russia, or they mined their own and sent it to their own treasury, which wouldn’t affect world markets. If silver does get ’short,’ that condition will be reflected in its prices, just like other tangibles. When the demand is greater than the supply, prices will go up to satisfy that free market condition. Tomatoes are much cheaper in summer, when everyone has gardens, than in winter, when they have to be imported from Mexico, or picked when green and made ripe by gas in America. Supply and demand.
As I write this, the silver-gold ratio is 53 to 1, and historically, it should be 16 to 1. If that ratio resumed to 16 to 1, we would have $103 silver, not $31 silver. We believe it will happen eventually. That ’eventually’ may be years away, since no one has a crystal ball, but in all civilizations in history, that ratio was indeed 16 to 1, not 53 to 1. As far as I can see, silver has a brilliant future, but remember, it takes 53 times as much storage space as gold, and there is one other thing to consider. Most people in the world, who have a smattering of intelligence, are worried about their currencies, none of which are backed by anything. Most consider gold to be safety, not silver. The 16 to 1 ratio may not resume soon, since more people are buying gold than silver, as a result of their opinion that gold represents ’safety.’ Silver is just as much, if not more ’safety’ than gold, if you have a place to store it. If prices go up. that means the free market is telling us that the price represents its supply.
One other thing about physical metals prices: They are moved up and down by the futures market. There are probably millions of ounces of paper gold and silver in ’futures’ contracts. This is paper gold and silver, but the prices of paper metals, affects the prices of physical. Let’s say you have many silver futures contracts, which represent thousands of ounces of silver. Prices go up, and you have made a profit on paper silver. You sell, and that floods the market with paper silver, since you, and probably others, are selling and taking profits. This drives the price of physical down. It goes down, and futures buyers say, “Look, prices are down, let’s buy!” They do, and prices go up because they have taken paper silver off the market and this makes futures prices of paper silver, as well as physical silver go up. A ratchet type of movement, caused by people buying and selling when a profit is realized.
Many are storing food in case of an economic collapse, when food may not be available. Doing this, is ’hedging’ yourself against a possible future catastrophe. Buying gold and silver, and getting out of dollars, is doing the same, but with a certainty of the paper dollar continuing to fall. Getting out of dollars, and into gold and silver, is actually ’shorting’ the dollar, or betting it will go down, and at a profit when it does. Can there be a more sure bet, than betting the dollar will continue to lose value? Can there be a better way to protect yourself, than getting out of dollars, and into historic, beautiful, tangible money in all nations, throughout history? Gold and silver, of course.