Thursday, September 22, 2016

Gold World News Flash

Gold World News Flash


Posted: 21 Sep 2016 10:30 PM PDT

from Harvey Organ:


The Shanghai fix is at 10:15 pm est and 2:15 am est

The fix for London is at 5:30 am est (first fix) and 10 am est (second fix)

Thus Shanghai's second fix corresponds to 195 minutes before London's first fix.

Read More @

Something Is Brewing And It Might Be The Catalyst That Ignites The Economic Collapse

Posted: 21 Sep 2016 05:08 PM PDT

 34% of Americans have $0 saved up. The US Government manipulated the wage earnings for the elections and to keep the illusion alive that economy recovered. Gallup CEO destroys the idea that the economy has improved and recovered. US freight and rail traffic has declined which shows the economy...

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Lindsey Williams : Why The Dollar Will Surely Collapse on 27 September 2016 ?

Posted: 21 Sep 2016 02:44 PM PDT

 Lindsey Williams : Why The Dollar Will Surely Collapse on 27 September 2016 ? MUST SEEThis collapse will be global and it will bring down not only the dollar but all other fiat currencies,as they are fundamentally no different. The collapse of currencies will lead to the collapse of ALL paper...

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Gold Daily and Silver Weekly Charts - As Old As Babel

Posted: 21 Sep 2016 02:43 PM PDT

The “Chicago Plan” to Save the World

Posted: 21 Sep 2016 02:38 PM PDT

This post The "Chicago Plan" to Save the World appeared first on Daily Reckoning.

Congratulations — of a sort — go out to dear Uncle Samuel…

The old coot notched a record this August. As Daily Reckoning contributor Simon Black notes, the federal government took on an additional $151.5 billion of debt last month — the "single biggest expansion of U.S. debt ever."

And this year's $1.36 trillion debt orgy is on track to be the third-biggest annual increase in U.S. history, adds Black. The only two years that tallied higher debt growth were the crisis years of 2009 and 2010:

"Federal debt is expanding at its fastest rate since the financial crisis, and one of the fastest rates in all of U.S. history."

And if the idea is to borrow the place into prosperity, it's come up snake eyes. Just today, the Organization for Economic Cooperation and Development (OECD) downgraded its U.S. economic growth forecast to a limping 1.4% for this year and only 2.1% for the next.

Meanwhile, federal debt has topped $19.5 trillion and is growing at a clip. That puts Janet Yellen and the rest of the bunch in a real spot…

"We currently face a monumental dilemma," moans economist Frank Hollenbeck before posing the $64,000 question: "How do we extract ourselves from all this excessive debt without crashing the world economy?"

Jim Rickards has said desperate elites will resort to a wild brew of "helicopter money," deeper negative interest rates and/or dramatically higher gold prices to animate the corpse.

But Hollenbeck prescribes an entirely different medicine, one the vested interests won't guzzle easily…

He summarizes it a "giant reset button on the world economy." He says it would cancel all government debt held by banks… and over $15 trillion of private debt. And cause real GDP to surge 10% into the bargain — a claim supported by the IMF.

It's called the Chicago Plan

Originally whipped up at the University of Chicago in the 1930s, Hollenbeck says the Chicago Plan is the answer to the "monumental dilemma" we face.

The government would exchange cash for almost all the banks' private and public debt. Most credit card debt, mortgage debt, student loan debt and auto debt would vanish at a stroke.

Swap out the debt, in other words. Wipe the slate clean. Start from scratch. And most importantly… never let it happen again:

"With a stroke of a pen, money would be substituted for debt, without the negative consequences of printing money. Banking would be restructured so that it never again leads to boom and bust cycles, and most debt, public and private, could be canceled. It's basically a 'one time' get-out-of-jail card for the world economy."

The crucial part of the plan would require banks to hold 100% reserves against deposits. Today, banks are only required to maintain less than 10% of deposits on hand. Loans are, therefore, created on foundations of sand. And the sand gives way on occasion, like in 1929. And 2008.

The Chicago Plan would shift lending to concrete footing. No more fractional reserve banking. Bank deposits would be separated from loans under the Chicago Plan, so banks would finally act as the true financial intermediaries they were meant to be, says Hollenbeck. Not the "fraudsters they are today."

Irving Fisher, big Yale economist of the day, continues Hollenbeck, "said that the plan would greatly reduce the severity of business cycles, probably eliminating booms and busts. Bank runs would be impossible, making deposit insurance unnecessary, and it would greatly reduce the amount of public and private debt."

Hollenbeck says the plan, if structured correctly, "would finally set the world economy on a stable path." Perhaps it would, and it sure sounds swell.

But at this point, Hollenbeck begins chasing rainbows…

He says central banks should be abolished (with a straight face, no less!). The plan would "finally stop governments from fiddling with the economy's most important price: the interest rate."

And Hollenbeck says a gold standard should be implemented to put handcuffs on governments, because they'll never constrain spending without one. True, but we've never seen the government voluntarily slap handcuffs on itself. It's a sight we'd happily crawl under a curtain to see.

The fantasy deepens. Under the Chicago Plan, governments would be forced to depend entirely on direct taxation to fund spending: "The government would have to explain to the taxpayer why he must forgo his flat-screen television at Christmas to pay for soldiers in Afghanistan or planes over Libya. The average citizen would finally realize there is no free lunch, and that government services require real sacrifices."

But Hollenbeck forgets his Bastiat: "Government is the great fiction through which everybody endeavors to live at the expense of everybody else." And to expect the government to scissor its credit card is to expect the devil in church.

The Chicago Plan never saw day in the '30s because the banks didn't want it to. Question: Why would it be any different today? The big banks are even bigger than they were before 2008, after all.

We have our suspicions about the Chicago Plan, of course, as we do about all "plans." And we prefer to taste ideas on the tongue before swallowing the entire dish. This Chicago Plan surely has its sour bits that would require some sugaring.

But is more of the same the way to go? No. Not according to Hollenbeck:

Inaction is not an option. Today, we are between a rock and a hard place with no good choices. We are left with the increasing likelihood of severe depressions and hyperinflations… It is essential that we start a banking revolution before it is too late. The Chicago Plan would restructure the banking system, leaving a world for our children that is stable without the booms and busts that have created so much hardship for so many.

Wake us when it happens, please. But that doesn't mean radical changes aren't in the offing.


Brian Maher
Managing editor, The Daily Reckoning

Ed. Note: The most entertaining and informative 15-minute read of your day. That describes the free daily email edition of The Daily Reckoning. It breaks down the complex worlds of finance, politics and culture to bring you cutting-edge analysis of the day's most important events. In a way you're sure to find entertaining… even risqué at times. Click here now to sign up for FREE.

The post The "Chicago Plan" to Save the World appeared first on Daily Reckoning.

In The News Today

Posted: 21 Sep 2016 01:56 PM PDT

As China prepares to announce their gold reserve amount by end of the month, debate over gold backed Yuan increases sharplySeptember 21, 2016 As part of their requirements to enter into the SDR basket of currencies in October, China will soon be revealing the quantity of their gold reserves sometime between now and Sept. 30.... Read more »

The post In The News Today appeared first on Jim Sinclair's Mineset.

The Fed’s Desperate Battle Against Stagnation

Posted: 21 Sep 2016 01:17 PM PDT

This post The Fed's Desperate Battle Against Stagnation appeared first on Daily Reckoning.

When you say "Independence Day" to most Americans, they think of the Fourth of July. That's not true for the Federal Reserve. At the Fed, "Independence Day" is the fourth of March.

And it's possible that this past March 4 may be the Fed's last "Independence Day" for a long time!

Why the fourth of March? On March 4, 1951, the Federal Reserve reached an agreement with the U.S. Treasury that restored policy independence to the Fed after nine years of domination by the Treasury.

Beginning in April 1942, shortly after the U.S. entered World War II, the Fed agreed to cap interest rates on Treasury bonds to help finance the war effort. The cap meant that the Fed gave up its control of interest rate policy.

The cap also meant that the Fed surrendered control of its balance sheet because it would have to buy potentially unlimited amounts of Treasury debt to implement the rate cap. (Such asset purchases had inflationary potential, but in World War II, inflation was managed separately through wartime price controls.)

We may soon be entering a new period of fiscal domination by the Treasury.

The Fed might again have to give up control of its balance sheet and interest rate policy to save the U.S. from secular stagnation. The Fed will subordinate its policy independence to fiscal stimulus coordinated by the White House and the Treasury.

The history of the Treasury-Fed Accord of March 4, 1951, is revealing. Why did Treasury not restore Fed independence in 1945 when the U.S. and its allies won the war?

After World War II, the Treasury was reluctant to give up its domination of the Fed. President Truman felt strongly that patriotic investors in U.S. bonds should not have to suffer capital losses if rates rose. The White House insisted that the wartime cap on long-term rates be maintained.

The Fed resisted this, but their resistance was soon overcome by the Korean War. This new war was used by the Treasury as an excuse to continue the rate cap.

It was not until 1951, with the Korean War in stalemate and a presidential election on the horizon, that the Treasury restored the Fed's independence on interest rates and the size of its balance sheet.

Today the Fed's independence is once again threatened: not by war, but by secular stagnation.

The U.S. economy has grown about 2% per year since 2009. This rate is below the economy's potential growth of 3%, and well below the pace of past recoveries.

Following the recessions of 1980 and 1981, the U.S. economy grew at about 5% for several years before settling back to trend. The U.S. economy had record peacetime expansions in the 1980s and 1990s. That kind of growth is like a distant memory now.

U.S. debt-to-GDP ratios are the highest since the end of World War II (and much higher if contingent liabilities for entitlements are considered to be debt). While U.S. deficits have declined, they are still adding to the overall debt faster than the economy is growing. The U.S. is still on a path to fiscal crisis and loss of confidence in the dollar.

Many speculate the Fed is out of bullets to deal with depressed growth. That is not entirely true. The Fed held steady today, as I predicted. But the Fed's policy rate is still off zero. The Fed has room to cut rates in December or in early 2017. (Quantitative easing, or "QE4," is certainly possible, even though there's little evidence that QE2 and QE3 achieved much.)

The Fed could also try negative interest rates. It's already been discussed extensively. When asked about the possibility of negative interest rates late last month in Jackson Hole, Wyoming, Yellen said that it wasn't out of the question. But the Federal Reserve has determined that unless the next recession is "unusually severe and persistent," negative interest will not be implemented. We'll see.

In order for negative interest rates to be truly effective, they would have to be accompanied by the elimination of cash. That may very well be coming, and governments have basically won the war on cash. But it will not happen on the necessary scale tomorrow or the next day. And it still faces great resistance.

And recent evidence from Europe, Switzerland, Japan and Sweden indicates that negative rates don't do any more to help growth than zero rates. In fact, negative rates may be counterproductive since they signal deflation fears. Such fears can lead to more savings (to make up for low yields) and less spending (based on expectations of lower prices). People in countries with negative rates have been buying safes to hoard cash.

That's the opposite of what central banks want. It's a vicious cycle that's hard to break.

The Fed might return to the currency wars and cheapen the dollar, as they did in 2011. A cheap dollar is in fact a key element of the "Shanghai Accord," which I've written about extensively. This could give the U.S. economy a short-term lift and import some inflation from abroad.

But U.S. gains come at the expense of trading partners whose growth is either already lower than the U.S.' (Japan and Europe) or dropping dangerously (China's). In a globalized world, there's no escape from a global slowdown.

If monetary solutions don't work, what can be done to restore growth?

I rely on what we call "indications and warnings" to detect momentous policy shifts in advance. The central bank money printing and currency wars will not be over soon. Global elites are getting desperate to try something new to stimulate growth.

These indications and warnings now are signaling loud and clear that the Fed must again surrender its independence to the big spenders.

A new global consensus is emerging from elite voices such as Adair Turner, Larry Summers, Joe Biden and Christine Lagarde. The consensus is that the only solution to stagnation is expanded government spending on critical infrastructure, health care, technology, renewable energy and education. (In a Republican administration, more defense spending could be added to the list.)

If citizens won't borrow and spend, the government will! It's the basic Keynesian idea from the 1930s without the monetarist gloss.

More government spending means more government debt. Who will buy these added government bonds? How will the Treasury keep interest rates low enough so that a death spiral of higher deficits and higher rates doesn't push the Treasury bond market to the point of collapse?

The answer is that the Fed and Treasury might very well reach a new secret accord, just as they did in 1941. Under this new accord, the U.S. government could run larger deficits to finance stimulus-type spending.

The Fed will then cap interest rates to keep deficits under control. Capping rates will have the added benefit of producing negative real rates if inflation emerges as the Fed expects. The Fed can use open market operations in the form of bond buying to achieve the rate caps.

This means the Fed would not only give up control of interest rates, it would give up control of its balance sheet. A rate cap requires a "whatever it takes" approach to Treasury note purchases.

The popular name for rate caps, and Fed bond buying to support government spending, is "helicopter money." The technical names are fiscal dominance and financial repression.

The implications for you are huge.

If deflation persists, rate caps can force bonds to much lower levels. Nominal rates and inflation would be in a race to the bottom in an effort to achieve negative real rates. This will produce big capital gains in U.S. Treasury notes.

If inflation emerges, the rate cap might be higher in nominal terms but still low enough to achieve negative real rates. In this scenario, gold and other precious metals like silver would perform extremely well. Treasury note holders would not suffer unduly, because the Fed's rate cap would put a brake on losses. Nominal interest rates will not be allowed to keep pace with inflation.

In deflation, you have huge gains. In inflation, losses are capped by the Fed!

Rate caps will not arrive until mid-2017 at the earliest. And it may well be later. The Fed will probably stick to the current game plan until it can no longer deny it isn't working.

The last time the Fed lost its independence — in 1942 — the reason was war. Now a new war on secular stagnation may very well cause the Fed to lose its independence again.


Jim Rickards
for The Daily Reckoning

Ed. Note: The most entertaining and informative 15-minute read of your day. That describes the free daily email edition of The Daily Reckoning. It breaks down the complex worlds of finance, politics and culture to bring you cutting-edge analysis of the day's most important events. In a way you're sure to find entertaining… even risqué at times. Click here now to sign up for FREE.

The post The Fed's Desperate Battle Against Stagnation appeared first on Daily Reckoning.

The Central Banks Have Prepared The Economy For A 50% Market Collapse

Posted: 21 Sep 2016 11:30 AM PDT

Economic collapse and financial crisis is rising any moment. Getting informed about collapse and crisis may earn you, or prevent to lose money. Do you want to be informed with Max Keiser, Alex Jones, Gerald Celente, Peter Schiff, Marc Faber, Ron Paul,Jim Willie, V Economist, and many specialists...

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Posted: 21 Sep 2016 08:42 AM PDT

 Lana Clements for Express UK reports NOW is the most dangerous time EVER to be an investor, as a giant bubble could be about to pop and derail the world's financial system, a financial expert has warned. The Financial Armageddon Economic Collapse Blog tracks trends and forecasts ,...

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There’s No Wall Between the Fed and Banco de Mexico

Posted: 21 Sep 2016 07:59 AM PDT

This post There's No Wall Between the Fed and Banco de Mexico appeared first on Daily Reckoning.

In regard to monetary policy, Mexico is a good neighbor to the U.S. It has been mirroring Fed policy since the financial crisis. As the U.S. Fed cut rates to zero, Mexico did the same by cutting rates to a 3% low by 2014.

When the Fed did QE, Mexico did too. When the Fed raised rates for the first time in seven years on Dec. 16, 2015 by 25 basis points, so did Banco de Mexico, the very next day. But, there's a twist…

Banco de Mexico raised rates again on Feb. 17, 2016 by 50 basis points. No one saw that coming. Thus, the peso — that had declined steadily from 10 to 19 to the dollar between 2008 and mid-February 2016 (and by 18% during 2015) — strengthened back to 17.66 to the dollar as of March 24, 2016.

Banco de Mexico didn't raise rates to fight inflation. Mexico has the lowest inflation in Latin America and one of the region's highest 2016 growth projections.

It raised rates to protect the peso. That way Mexicans could keep importing U.S. products without getting hammered on the exchange rate.

The rate hike also bolstered the $101.5 billion of U.S. foreign direct investment (FDI) in Mexico (the U.S. is the highest source of Mexico's FDI.)

But, in order to serve the political-financial Mexican-American elite, Mexico gave up its independent monetary policy (part of Jim's Impossible Trinity analysis, viewed by visiting). That boosted the peso and helps keep foreign capital in Mexican bank accounts. In turn providing slightly higher rates there than in the U.S.

Giving up its independent monetary policy also keeps Mexico from having to sell Treasuries to bolster its reserves. That helps the Fed keep rates low even if it raises rates officially. That's partly due to the cozy relationship between Banco de Mexico Governor Agustin Carstens and Fed Chair Janet Yellen.

These folks have no wall. If you go to Washington, DC, you'll see the Mexican Embassy is the closest G20 nation relative to the White House.

Bad Loans, Lawsuits and Corruption

Citigroup through Banamex, extended lots of loans to Mexico with cheap Fed-fabricated money. In September 2014, Citigroup-Banamex announced a $1.5 billion investment program in Mexico to be implemented over the next four years.

President of Mexico, Enrique Peña Nieto, Citigroup CEO Michael Corbat, and then Chairman of the Board of Banamex and co-President of Citigroup, Manuel Medina Mora were involved.

They said Banamex would particularly expand lending for small and medium-sized enterprises (SMEs) to $4 billion. And expand support to public and private projects in the energy sector by $10 billion through credits, debt and capital issuances.

But with the peso and oil prices down since then, loans that were in the process of getting extended got put on hold, and others began defaulting.

In addition, lawsuits on old financial corruption popped up. According to a suit filed this February, fraudulent Citigroup-Banamex's loans led to the 2014 collapse of Mexican oil services firm, Oceanografia.

The firm had enjoyed cozy high-level connections to senior politicians, though allegations of tightness to former President Vicente Fox and his family were denied, and did work for state-run oil goliath, Pemex.

Dutch lender Rabobank Groep is now suing Citigroup on behalf of clients and investors, for $1.1 billion in associated losses from those scam loans. The fraud became public knowledge in 2014.

Citigroup CEO Michael Corbat admitted in February 2014 that $400 million of loans to Oceanografia by Banamex were fraudulent. As a result Citigroup restated its 2013 earnings. The FBI launched investigations into Citigroup's lack of compliance with banking regulations, and the possibility of a money-laundering scheme.

Citigroup noted certain of Oceanografía's invoices "were falsified to represent Pemex had approved them." The current complaint alleges Citigroup-Banamex conspired with Oceanografia to accept falsified contracts in return for cash advances, while Pemex repaid Citigroup-Banamex with interest.

The suit resurrects that fraud and collusion exists between the financial and political parties and individuals involved. It may even point to Petrobras-type corruption that extends to more companies, government officials and banks across our southern border.

Meanwhile, bolstering the peso and rates stops some bloodletting for Mexican companies stuck having to repay dollar-based loans while losing money on the exchange rate. This helps Citigroup-Banamex ride out other possible loan problems, or lurking 'shenanigans.'

In addition, roughly $26 billion, or 80% of Citigroup's Latin America consumer loans last year, were in Mexico. Citigroup just announced it was shutting retail branches in Brazil, Argentina and Colombia, but not Mexico.


Because Citigroup's married to Mexico's elite. Plus, its retail business extracts credit card interest rates from Mexicans at levels over 40% per year. That's a great hedge if U.S. defaults rise.

Mexican bank accounts provide an alternative capital source for U.S. banks, like Citigroup. This advantage won't last long because of general economic weakening in the U.S. and Mexico.

There are also looming bank problems and crimes, but it helps Mexico for a short while, relative to the rest of Latin America.


Nomi Prins
for The Daily Reckoning

Ed. Note: The most entertaining and informative 15-minute read of your day. That describes the free daily email edition of The Daily Reckoning. It breaks down the complex worlds of finance, politics and culture to bring you cutting-edge analysis of the day's most important events. In a way you're sure to find entertaining… even risqué at times. Click here now to sign up for FREE.

The post There's No Wall Between the Fed and Banco de Mexico appeared first on Daily Reckoning.

The Fed Has Set Us Up for a Massive 50% Stock Market Collapse

Posted: 21 Sep 2016 07:21 AM PDT

The Fed is running a virtual repeat of 1937. The common narrative is that the Fed “didn’t do enough” during the Great Depression. This is used to justify the Fed’s use of non-stop extraordinary monetary policy post-2008.

Has the Silver Bullet Run Out of Fire Power?

Posted: 21 Sep 2016 06:10 AM PDT

Commodity prices and especially those of precious metals have been impressive this year. The price of Gold and that of Silver have rallied significantly since the start of the year and the current indicators seem to point towards a continuous rally for the rest of 2016, albeit at a slower rate.

What’s Happening With Gold?

Posted: 21 Sep 2016 01:34 AM PDT

Robert Alexander writes: GOLD WEEKLY :  Using cycle timing, we should be close to a low for GOLD, but I am expecting an ICL.  An ICL is a quick sharp sell off into a low, and then a move higher.  It shakes out the bulls. I have pointed out Prior ICL’s  on the chart below, and you can see that they come roughly 4-5 months apart lately. We are 4 months from the ICL at the end of May, and I have been calling for a Deep Meaningful Trade-able LOW at the end of September / early October for several weeks.

Gold Prices Rise Before Fed as Yen Defies Bank of Japan's Urgent New Inflation Plan

Posted: 20 Sep 2016 05:00 PM PDT

Gold prices rose sharply against all major currencies except the Yen on Wednesday, touching 1-week Dollar highs ahead of the US Fed's long-awaited September decision on interest rates as world stock markets rose after the Bank of Japan...

2029 Financial Collapse: Lionel Shriver’s Dystopian Outlook on the US

Posted: 20 Sep 2016 05:00 PM PDT

Those of us with a deep interest in economics and financial issues often try to peer into the future and speculate about what's to come. Sometimes, this exercise is meant to produce tangible investment advice, but other times, we're...

Silver Returns to Its Historic Role

Posted: 20 Sep 2016 01:00 PM PDT

This post Silver Returns to Its Historic Role appeared first on Daily Reckoning.

Do you have a flashlight, spare batteries and some duct tape stashed away for home emergencies like power outages or hurricanes? Of course you do. How about 100 ounces of silver coins? If not, you should.

In an extreme social or infrastructure breakdown — where banks, ATMs and store scanners are offline — silver coins might be the only way to buy groceries for your family. This is one of many reasons why sales of silver coins and bullion are set to skyrocket.

Once that happens, shortages will appear and the price of silver could soar to $60 per ounce or higher, a 200% gain from current levels of about $20 per ounce.

As you know, I write and speak frequently on the role of gold in the monetary system. Yet, I rarely discuss silver. Some assume I dislike silver as a hard asset for your portfolio. That's not true. In fact, in an extreme crisis, silver may be more practical than gold as a medium of exchange. A gold coin is too valuable to exchange for a basket of groceries, but a silver coin or two is just about right.

Jim Rickards

Here's a photograph of your correspondent inside a highly secure vault in Switzerland. I'm pictured with a pallet of silver ingots of 99.99% purity. The ingots weigh 1,000 ounces each, about 62 pounds. The brown paper hung on the walls behind me is to hide certain security features in the vault that the vault operators did not want to reveal. You may notice the small 1-kilo gold bar by my left hand, worth about $45,000.

Silver is more difficult to analyze than gold because gold has almost no uses except as money. (Gold is widely used in jewelry, but I consider gold jewelry a hard asset, what I call "wearable wealth.") Silver, on the other hand, has many industrial applications. Silver is both a true commodity and a form of money.

This means that the price of silver may rise or fall based on industrial utilization and the business cycle, independent of monetary factors such as inflation, deflation, and interest rates. Nevertheless, silver is a form of money (along with gold, dollars, bitcoin, and euros), and always has been.

My expectation is that as savers and investors lose confidence in central bank money, they will increasingly turn to physical money (gold and silver) and non-central bank digital money (bitcoin and other crypto currencies) as stores of wealth and a medium of exchange.

This is why I call silver "the once and future money," because silver's role as money in the future is simply a return to silver's traditional role as money throughout history.

Before the Renaissance, world money existed as precious metal coins or bullion. Caesars and kings hoarded gold and silver, dispensed it to their troops, fought over it, and stole it from each other. Land has been another form of wealth since antiquity. Still, land is not money because, unlike gold and silver, it cannot easily be exchanged, and has no uniform grade.

In the fourteenth century, Florentine bankers (called that because they worked on a bench or banco in the piazzas of Florence and other city states), accepted deposits of gold and silver in exchange for notes which were a promise to return the gold and silver on demand. The notes were a more convenient form of exchange than physical metal. They could be transported long distances and redeemed for gold and silver at branches of a Florentine family bank in London or Paris.

Bank notes were not unsecured liabilities, rather warehouse receipts on precious metals.

Renaissance bankers realized they could put the precious metals in their custody to other uses, including loans to princes. This left more notes issued than physical metal in custody. Bankers relied on the fact that the notes would not all be redeemed at once, and they could recoup the gold and silver from princes and other parties in time to meet redemptions.

Thus was born "fractional reserve banking" in which physical metal held is a fraction of paper promises made. Despite the advent of banking, notes, and fractional reserves, gold and silver retained their core role as world money. Princes and merchants still held gold and silver coins in purses and stored precious metals in vaults. Bullion and paper promises stood side-by-side. Still, the system was bullion-based.

Silver performed a leading role in this system. If gold was the first world money, silver was the first world currency.

Silver's popularity as a monetary standard was based on supply-and-demand. Gold was always scarce, silver more readily available. Charlemagne invented quantitative easing, or "QE," in the ninth century by substituting silver for gold coinage to increase the money supply in his empire. Spain did the same in the sixteenth century.

Silver has most of gold's attractions. Silver is of uniform grade, malleable, relatively scarce, and pleasing to the eye. After the U.S. made gold possession a crime in 1933, silver coins circulated freely. The U.S. minted 90% solid silver coins until 1964. Debasement started in 1965.

Depending on the particular coin – dimes, quarters, or half-dollars – the silver percentage dropped from 90% to 40%, and eventually to zero by the early 1970s. Since then, U.S. coins in circulation contain copper and nickel.

From antiquity until the mid-twentieth century, citizens of even modest means might have some gold or silver coins. Today there are no circulating gold or silver coins. Such coins as exist are bullion — kept out of sight.

The price of silver has shown great resilience in the face of significant headwinds. Silver has backed off a bit from its recent high of $20.37 per ounce on July 13. But it's still holding tough above $19 today.

This is true despite a bearish commitment of traders report from the COMEX, approaching futures expiration (usually a time for downward price pressure by shorts), reduced Brexit fears, increased COMEX margin requirements, a stronger dollar, and a new round of tough talk from the Fed about rate hikes coming in September.

Normally, any one of these factors would be enough to push silver significantly off the recent highs. The fact that silver has been resilient in the face of all six factors at once is a bullish sign.

In addition to holding up well in the face of bearish factors, silver is set to get a boost from several bullish factors that have not yet been fully priced in by the markets. Despite the recent strong dollar and tough talk from the Fed, the U.S. economy cannot afford a strong dollar.

The strong dollar is deflationary and pushes the Fed further away from its inflation targets. The Fed will not raise rates in September (and probably not for the rest of this year). Once that dovish signal gets priced in by the markets, the dollar will weaken and the dollar price of silver will get a boost.

Regardless of which party wins the U.S. presidential election in November, the U.S. is set for a round of helicopter money (fiscal stimulus monetized by the Fed) in 2017. If Hillary Clinton wins, that probably means a pick-up in Senate votes for Democrats and a bipartisan infrastructure spending bill.

If Donald Trump wins, he has already promised massive infrastructure spending, starting with "The Wall." Either way, we're looking at more spending, bigger deficits, more money printing and, eventually more inflation.

The market's anticipation of this outcome, starting in mid-November, will be a powerful tailwind for silver.

Investors should prepare now, before the spike.


Jim Rickards
for The Daily Reckoning

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The post Silver Returns to Its Historic Role appeared first on Daily Reckoning.

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