-- Posted 27 June, 2005 | |

In my previous article, “The Silver Conundrum”, I argued that the current depressed price of silver is essentially a political artifact with two interlocking purposes: 1) Maintain confidence in fiat money by depressing the prices of gold and silver; 2) Discourage any return to commodity money by liquidating large publicly owned silver stocks.  It is political, because government was necessary to provide the silver at a low price and to provide cover and credibility to the price-fixing mechanism at the CRIMEX (as the New York bucket shop is affectionately known).  This seems self-evident to me, but if you want to know more, I am pleased to refer you to the writings of Charles Savoie at David Morgan’s Silver Investor website, where you can drink from a firehose of factual support for this opinion.  We all owe a debt of gratitude to both of these men for the spadework they have done.

They tell us, sir  that we are weak -- unable to cope with so formidable an adversary. But when shall we be stronger?

Several silver investors have written to me, wondering if there is really a light at the end of this tunnel, or must we live forever on hope?  After all, people have been expecting silver to “explode” for years, even decades.  How can the silver short cartel ever be beaten, if not only the bureaucrats and the politicians, but even the silver producers themselves seem content with the status quo? 

I know of no way of judging of the future but by the past. And judging by the past, I wish to know what there has been in the conduct of the British ministry for the last ten years, to justify those hopes with which gentlemen have been pleased to solace themselves and the House?

To answer these questions, we have to come to grips with the ugly heart of the problem: We’ve been robbed!  Robbed by executive edict, in violation of the US Constitution, but robbed nonetheless.  As Woody Guthrie once said, “Some people will rob you with a fountain pen.”  In 1933, President Roosevelt removed the gold money belonging to the people from circulation.  In 1965, President Johnson removed the silver money belonging to the people from circulation.  The Federal Reserve Corporation replaced the money with their “Notes” (FRNs), which obligate them to repay nothing at all.  All of our silver money has now been sold at give-away prices.  Nobody knows for sure what became of the gold money, because there has never been a reliable audit to determine the amount of gold held by the federal government and how much of that gold has been pledged or sold to others.  Government has amply demonstrated that they will do everything in their power to defend their actions by preventing this from ever being widely understood or acted upon.

It is in vain, sir, to extenuate the matter. Gentlemen may cry, "Peace! Peace!" -- but there is no peace. The war is actually begun!

So, I have a question for my readers: Do you want your money back?  Or are you content with the FRNs that we were given in its place?  Do you think that the Federal Reserve has been a wise steward of our money system, or is it time for them hand back the keys?  Why not work together and give them some trouble?

If we wish to be free . . . we must fight! I repeat it, sir, we must fight!

If you want your money back, I suggest that you trade your worthless FRNs for silver coins, the money of the Constitution, while you still can.  This is in our power to do right now, as individuals.  It requires no extended political campaigns or compromises or majority votes.  It is legal, moral, and will likely be profitable.  No, we can’t directly spend these coins at present, but that is a subject and a battle for another day.  What we can do right now is acquire them and save them.

Let me just briefly make the case that most of you have already heard many times before.  Far more silver is consumed every year than is produced.  Identifiable stocks are nearing exhaustion.  Prices have already broken out above the perennial $5 cap, and even penetrated $8.  Had you bought silver three years ago, you would have already gained above 60% on your purchase in terms of FRNs, with almost no downside risk.  Silver has been a superior cash position. 

Furthermore, your money would be safe from the growing risk of fiat money destruction and bursting bubbles.  You would be saving real money, of growing purchasing power, by simply putting it safely away where thieves and politicians will have a very hard time getting at it.  And with each purchase, you get the equivalent of a lottery ticket that could pay off in gains of hundreds of percent if and when silver finally does “explode”.  If not, you’ve done the right thing, and protected yourself.  It’s hard to find much wrong with this program, except perhaps that it requires patience.

Our petitions have been slighted; our remonstrances have produced additional violence and insult; our supplications have been disregarded; and we have been spurned, with contempt . . .

Right now, the key to the price of silver is investment demand.  That is the joker in the deck.  As growing numbers of us begin to take our money back, we are shortening the time before an industrial shortage of silver appears.  Frankly, I think this is the only thing that will be able to crack the silver short cartel.  Thanks largely to the efforts of Ted Butler, we have learned that the CRIMEX is politically impregnable, with the CFTC running interference for them when necessary.  They simply don’t care what we think, and they can afford to ignore our complaints.  But when companies such as Kodak and other big consumers of silver begin having trouble getting delivery, these large users of silver will then have to bid against each other or curtail operations, and they won't be constrained by the ridiculous CRIMEX price.  On that day, a dogfight will develop for physical silver, and the CRIMEX will cease to be the price setter – but probably not before.

. . . we are not weak, if we make a proper use of the means which the God of nature hath placed in our power.

This is why I see silver as the weak link in the Fed’s chain of monetary control.  Controlling the price of silver helps to control the gold price, and managing gold prices protects the market value of the FRN.  But no matter how much gold retail investors may buy, it will be hard to make much of a dent in the official government stocks.  They may not want to sell it, but they do have it to sell, if need be.  Silver is a different story: while government stocks were large, silver could act as a “choke collar” on the price of gold.  But today, the US government is a buyer of silver, not a seller, and the situation is reversed.  Investment demand for silver can quickly dry up what silver is readily available and reveal the true condition of scarcity, ending the reign of the CRIMEX short cartel.  This in turn would help release the price of gold and show the FRN for the fraud that it is.  As Steve Saville recently wrote,

“Under the current monetary system gold bull markets are all about confidence in central banks, in paper currencies  . . . When confidence is in a long-term downward trend then gold will be in a bull market. . . End of story.” 

Today, silver is the Achilles heel of this confidence game.

The battle, sir, is not to the strong alone; it is to the vigilant, the active, the brave.

Many of us have asked, “Why don’t the major silver producers get together and do something?”  “Why doesn’t some big investor like Warren Buffet corner the market at the CRIMEX?”  Think about it: these people are big players, but that makes them big targets too.  They have a lot to gain, but also a lot to lose.  It’s easy to see them coming, and easy to apply pressure to get them to back off.  If we know one thing for sure, it is that the CRIMEX short cartel has political connections at the highest levels.  This battle calls for an army of Davids, not a Goliath.

. . . millions of people, armed in the holy cause of liberty, and in such a country as that which we possess, are invincible by any force which our enemy can send against us. Besides, sir, we shall not fight our battles alone.  There is a just God who presides over the destinies of nations, and who will raise up friends to fight our battles for us. 

This is a job that is going to have to be done by We the People if it is going to be done at all.  Demand at the retail investor level will pass back up the line and put pressure on the CRIMEX, but there will be no convenient scapegoat to point the finger at and cry, “Evil Silver Speculator!”, and no single large stock of silver to tap when things get tight.  Silver will once again be back in the hands of the general population, where it belongs. 

He who has the silver (and gold) makes the rules.

Stephen Kovaka

Corydon, IN

stevek@dewater.com