Ready for the Roller Coaster?

Posted on April 28th, 2011, by Mike

You’ve waited in the long line, zig-zagging your way to the front.  Your anticipation grew as the train left the station, and the ratchet engaged, dragging you click click click up the long hill.  You know what’s coming next, right? That mix of terror and exhilaration, as the wild ride will finally commence once you get to the top…

Well am I the only one to hear the click click click that portends a wild ride of another sort, specifically the looming hyperinflation that is gonna make my future… interesting?

Things are getting more expensive, aside from houses at least.  People aren’t getting more employed, really, which might be a delaying factor for when the wild ride begins; if we all had decent salaries and were as free-spending as we have been in the past, then maybe all the undermining of the dollar would be met by a market ready to adopt across-the-board price increases.  But it does seem like a reckoning is coming; indeed, we’ve been assured that whatever inflation we see will be temporary, minor, nothing to worry about. Of course, this is the politically correct way of warning us that inflation is coming.

I’d say it is already here.  Oil is up a lot, but of course we’ve flirted with these prices before, without spiraling into inflation.  Still, the reason for modern price movements have been the global weakening of the dollar, nothing really to do with supply or demand.  As evidence, look at precious metals… pretty much any and all of them! As more folks look at gold, or silver, or even copper as a more trusted reserve currency than bucks, they continue to climb in value. Except, in a sense, they really aren’t climbing so much as the dollar is falling below them.

The rest of our economy, though, remains at relatively low values, due in part to inability of the consumer to spend much. So, while the raw materials of our economy get more costly, the finished goods are locked into price points that leave no room for profit.  Lack of profit means lack of growth, which extends the recession.  At some point, though, the ratcheting will stop because we have crested the hill.  The increased costs of production, such as the expenses of delivery using diesel fuel, will have to be passed along.  So get ready!  It’s gonna be quite a ride.

I don’t have an economic education, I’m just sharing my perception and thoughts. But it seems like the time is right to lock away some savings in assets that will ride out whatever inflation lies ahead, whether it be temporary and minor or Weimar Republic hyper.  That’s why I’ve set up an account with SilverSaver, a nifty program that can automate savings for you and make things really simple.  Of course, there’s other places one can go to buy silver and gold, and I’ve heard about investing in silver mining rather than physical silver or gold, but SilverSaver impressed me with its ease of use.

I only wish I had found out about it a lot sooner!  In the past year, the price of silver has tripled.  TRIPLED! A bit of research told me that, while this is in part due to the general flight to precious metals, it is also due to a change in the laws regarding fractional reserves.  In other words, the banks used to hold about 1% of the silver for which they issued certificates, or something along those lines.  Now, they must hold the physical reserves in total, or something along those lines.  I’m sure I am misrepresenting it, but suffice it to say that banks now exert a TON of demand on silver, so the steep rise over the past year has been something of an adjustment to a new normal.

What this means is that the current $45-$50 per ounce price of silver is not a “bubble” but rather a new baseline, which might go up a little bit more or a lot bit more.  With gold nearing $1600, and considering that silver is roughly 16 times more abundant in the earth than gold, one could expect the silver price to be $100 per ounce. Silver’s price had been held low by the fractional reserve banking methods that used to be common, and this was done in part because silver has industrial uses; expensive silver means expensive consumer electronics, etc.  Now that silver is climbing, some of these industrial uses may have to explore alternative materials (which were not previously employed because they cost more than cheap silver used to), or pass along the cost… i.e. inflation either way, at least for products that utilize silver.  Seems that the same story is gonna play out with other metals, like copper – can you think of any products you use that have copper in them?  Sure you can.

So I’m buying silver at $50, even if it was a mere $17 just months ago.  Not just because it can go to $100, but because if it does go to $100 it will be because $100 then will buy what $50 buys now.  Whatever ups and downs may come, I’m gonna stay on track. I’m strapped in, and ready for the wild ride to come!

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