The Silver Manifesto – Thoughts for the South African Investor Part 2 (chapter 1 synopsis and thought can be found here) commences with the following extracts from the US Constitution, which merits quotation in full:
‘Section 10: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of debts…’ Although the relevance and value of the above constitutional statement is still debated, the authors seems to hint that the existence of paper US dollars underpinned by nothing but thin air is indeed a violation of the Federal Constitution by the US Federal and State Governments. President Zuma is clearly not the first person or organisation to violate its own constitution. Who knew!?
The authors then go on to provide a brief history of silver and gold in the United States, and an excellent synopsis of the relationship between silver and gold, the various fiat money epochs and legislations, and the creation and development of the first central bank in 1791. While the actual history is fascinating, what has stood out for me is the validation of a statement made in chapter one. That is, it is in fact bank interventions (i.e. fractional reserve banking, artificial interest rate manipulation), are the cause of the cyclical boom / bust cycles in our modern economy. With the exception of a few luminaries (like Andrew Jackson, who abolished the central bank during his presidency), the havoc created by the uncontrollable consequences of fractional reserve banking is clearly imprinted on the history of the United States. It seems that the US has learned very little from the various disastrous monetary experiments in her own brief history, as her economic leaders have taken the monetary fiat experiment to a whole new global level.
A few points stood out for me as a South African Silver investor.
Firstly, it seems that within the broader history of the United States, silver was often preferred to gold because of its utility in commerce. Or, as stated by the authors, ‘silver lasted longer as a medium of exchange (real money) for the people, surviving until 1965.’ Gold circulation amongst the population ended with the 1933 Executive Order 6102 (a United States presidential executive order signed by President Franklin D. Roosevelt ‘forbidding the Hoarding of gold coin, gold bullion, and gold certificates within the continental United States’ (Wikipedia). Silver lasted until 1965. In South Africa, the new coinage that commenced from 1965 meant that silver was removed from circulation and replaced by cupronickel. I think that this is an important piece of information for those who are purchasing silver today. If the past is anything to go by, silver is used by the people, whereas gold will be preferred by governments (to settle debt in bilateral trade). Thus, the utility of silver during times of crisis may be superior to that of gold. After all, there is no modern historical precedent for silver confiscation, but there is for gold. Thus, while no one knows the future and how it may pan out, holding silver may be ‘safer’, more useful, and less regulated and controlled.
My second point is loosely related to my previous point above, but important and relevant none-the-less. In short, it seems that for the South African investor, there is plenty of gold available for purchase, but the situation is not appear to be the same with silver. While I could order a few hundred Krugerrands from authorised dealers in South Africa, the Rand Refinery seems to have no silver to sell to South African dealers. I made a call a few days ago requesting an application form to purchase silver bullion products from them directly as a dealer (some clients wanted to add 1 oz Rand Refinery bars to their collection), and I was told that currently, they do not have any silver to sell due to the long pipeline of silver owed to various parties. I am willing to accept that this was just another way of saying that they are not interested in new business. However, I think the person was being genuine, especially given the following piece of information that appears on their website: ‘Rand Refinery does not carry large stock of silver, and our obligation is to fulfill international orders as a first priority.’ (www.randrefinery.com/faqs_gold_sales.htm) Perhaps silver shortages in South Africa are not as unrealistic as many believe. It seems that the preference of adding significantly more silver than gold (in terms of value) to one’s physical bullion portfolio may prove to be the wise and prudent decision in the future.