As you know, I'm going to be out all day Tuesday. Two of our longtime site members, SilverSeeker and AGXIIK put together this extensive column a few days ago and today seemed like the perfect day to post it.
Please look this over and feel free to provide your feedback. Hopefully, SilverSeeker and AGXIIK will be around at times through the day to answer your questions and interact with your comments.
Section One – Overview
What an intrepid time to be alive!
Long-time observers and analysts of the precious metals see an awakening. Is #Silversqueeze a "Hacking at the Roots" 4th turning coming into focus?
Does it start and end as a trade?
Have you been pondering that? What are we asking to happen if the #Silverqueeze works?
Is there some systemic remedy that could actually be proposed which makes Silver a durable solution preventing future banker abuse?
Could a Silver Monetary Link and reference to a circulating currency be reintroduced into our modern banking system?
This is not hyperbole... this has happened all through history!
If you have not yet read Hugo Salinas Price's 'Proposal' on how it could function...
Hugo offers a brilliant proposition which can function seamlessly in parallel with any Sovereign circulating currency.
Silver Ounces don't have to be 'spent' or carried around... They are simply recognized by any bank as 'One Ounce of Silver'; which will have a Sovereign declared currency equivalent value. Here are the practical scenarios:
1. Silver Ounce Deposits vs. Currency Deposits
A saver surrenders currency at a bank window and says; "please convert this currency into a Silver Ounce in my account".
- The bank secures the Silver Ounce in the interbank market; (it MUST physically exist as an Unallocated Ounce on the digital ledger); and registers that Silver Ounce via blockchain; Allocated to your account. This Silver Ounce would be date stamped and record the Silver Ounce Price you paid in currency. (This is an importance feature of a smart contract in the blockchain; more later).
- A saver tenders a Silver Ounce and asks for it to be deposited. The bank registers the new Silver Ounce on the blockchain; as above; and it is added to the Allocated Silver Ounce register in your account. Since you have not tendered currency; but an actual Silver Ounce; there is no date stamp. This Silver Ounce is redeemable immediately upon demand for a physical Silver Ounce; or currency @ the present Silver Ounce Quote at time of demand. It is a fully vested Ounces.
2. Silver Ounce Withdrawals vs. Currency Withdrawals
A saver demands a Silver Ounce. The Silver Ounce must be a vested ounce from within the saver’s Allocated Account. Period.
A saver tenders a Silver Ounce; and asks for immediate payment for the Silver Ounce in equivalent currency. The bank tenders the currency; and registers the Silver Ounce as Unallocated Silver on the bank balance sheet.
That is it!!!
If the economy is good, and Savers are demanding more Silver Ounces than are on the banking pool unallocated ledger; and new mine Silver supply is not available due to industry consumption; the Sovereign interbank, or Central Bank; via policy statement would increase the quoted Silver Ounce Price an amount sufficient to induce Savers of vested Ounces to tender their allocated physical Ounces in the system for currency. This would rebalance the market; adding to the unallocated pool of Silver held in the interbank system. Notice; any time-stamped Silver Ounce Balance would not be eligible for the new higher price Silver Ounce Quote until it becomes a vested Ounce. Why this works will be revealed shortly.
If the economy is bad; and Savers are dishoarding their vested Allocated ounces; and industry demand remains slack… then the Quoted Silver Ounce Price is held stable; the excess accumulating Unallocated Silver Ounce balance in the interbank system can accumulate as a reserve for future economic cycles… a line item; blockchain verified; deposit in the Treasury of unallocated metal on the bank balance sheet. The stable Silver Ounce Price offer maintains or even increases a saver’s purchasing power during this period; as reserve vested capital! <<Gold maintained a constant official currency link and quote of $35 for over 30 years. The banks fucked up when they refused to raise the official price quote; thus allowing inflation to destroy fix price Gold Clause contracts… end of story.>>
The above scenario is superior to competing Alt-Coin or CBDC propositions because Silver is consumed and vitally needed worldwide. You do not need a Decree that Silver is valuable or has value; it is universally agreed that it is vital; and it is consumed. This intrinsic fact alleviates any marginal balance of unallocated metal; should a deflationary scenario occur. Further, if mine supply continues in surplus to monetary demand; the free float of metal would sustain a stable price environment and Silver Quote rate; and the exchangability between Silver Ounces and currency would approach equilibrium.
Thousands of years of mining has taken all Bonanza Grade deposits from the Earth's crust; there is no danger of a repeat of a Comstock Lode; where a massive rush of new Silver Ounces could disrupt the economic Unit of Account. In fact, globally; ore grades are continuing to fall... mimicking the 'halving' effect so cherished by BTC adherents.
Over time... decades, centuries even... Savers now have a means to accumulate inflation proof wealth in Silver Ounces. Or if they prefer; hold Silver Ounces in hand; with assurance that during inflationary times, a rising Silver Price Quote will keep Silver in balance with the purchasing power of currencies. In retirement; they are not running to keep pace with inflation; and in fact are generally far less dependent on Government deficit Spending as a Social Safety Net. This is proven via the 18th -19th centuries, where there was little need for state welfare... The money was solid and prices generally fell over time as productivity increased. The incentive to save was strong because the money stayed strong.
Notice, the Silver Ounce Proposal is not displacing nor competing with a Sovereign currency... it is simply and profoundly acting as a capital formation system; in parallel with circulating currency..
Section Two- Monetary flows; Time Preference Considerations
HSP’s proposal does not harm industry; even though it monetizes Silver which is currently hidden in hoards, and not circulating as capital in the banking system. How can this be so; if a Giffen Good virtuous demand for monetary metal seems immediately apparent in the above system?
- Central Bank policy to monitor the Allocated/Unallocated Silver Ounce balance and set its price needs ONE, a single additional tool.
a. If a speculator or wealthy entity chose to Allocate currency to metal; and hold until vested; it would produce a time deposit rate of return which could be ‘squeezed’ higher if a continuous demand for Allocated Metal persists.
b. The Central Bank merely needs to set the currency interest rate curve to match this Silver time deposit curve. If currency interest rate is too low; currency will demand Silver Ounces; and vice-versa. A speculator must now consider the carry cost of metal if held as vested and allocated in a private vault, or home safe; or on deposit in an Allocated vesting schedule in a bank; or simply held in currency earning interest as currency on deposit; per traditional banking.
So how is the new policy communicated and monitored within the banking system?
1. Every six weeks when the Fed or a Central Bank meets; two line items of discussion would be:
the “Allocated to Unallocated Silver Ounce Balance; or Ratio”; driving a decision on the Silver Ounce Price
2. the currency interest rate curve; based on the following data:
- If the Silver Ounce Price is too low; people will prefer to hoard their in-hand Physical Ounces in a home safe or keep their Silver Ounces on deposit in the interbank system as ALLOCATED. They may also choose to acquire Unallocated Silver Ounces to deposit into a time deposit towards vesting and Fully Allocated.
- The currency interest rate curve could be raised or lower to encourage (dis)hoarding of Allocated Silver; thus regulating the Unallocated/Allocated Silver balance available in the Interbank System. The Silver Ounce Price could be raised to encourage mine supply.
- If the Silver Ounce Price is fair or too high; people will tender Ounces for the Sovereign currency and go out and deploy that capital into the economy.
- Those Ounces then reside as UNALLOCATED Ounces in the banking system and part of their balance sheet! Notice; a speculator cannot simply acquire these unallocated Silver Ounces to flip; because they will get a time stamp and Silver Price Paid on the Blockchain; and be subjected to the vesting period. Recall scenario 2a above: No party or entity can tender currency and receive Silver Ounces on demand unless they are vested Silver Ounces on account the party is authorized to access.
- If this overheats the economy; or mine supply accumulates as excess Unallocated Silver Ounces; the Interbank system simply retains as a balance sheet asset. The high Silver Ounce Price encourages industrial conservation; and savings may again flow into time deposits in currency or Silver Ounces; at a savers’ preference. Again, if the economy is good; people are making plans within a solid competitive currency system.
Interbank business and regulations
The interbank Silver Ounce Blockchain Ledger would retain a record of your Silver Ounces just like APMEX OneGold… you could spend cash or credit currency just like today (or Silver Ounces at the present currency value) via the App on your phone, or a Credit Card linked to your account(s). Silver would also be readily accepted in commerce since it would have an official exchange value.
Via a return of The Coinage Act of 1792; the Silver Ounce would be maintained, audited, registered and vaulted as was customary during the enforcement period of the Act. Fraud carried Penalty of Death if conviction via Jury Trial.
So, currency and the present system continues with zero disruption. The Central Bank can even continue its Zero Interest Rate Policy… but Savers could now monetize their Silver Ounces and banks could build a Strategic Unallocated Reserve of Silver… Nobody even HAS to participate… but Price will balance the system.
Let’s add Currency Exchange considerations and test the practical Silver Market flows given the above proposal:
Is this a virtuous loop where Silver Ounces Price could be driven higher?
- What is to prevent a Sovereign; a Bullion Bank; Billionaire or the public at large from just printing up a bunch of currency, or dumping their currency to buy Silver Ounces, raid another Sovereign treasury; and thus driving a Speculative frenzy like BTC; or a Giffen Good virtuous loop?
- Silver Ounces Allocated at the Quoted Price which are deposited and recorded on the interbank ledger are redeemable at the acquisition price; as recorded in your transaction; not a penny above! These Ounces are NOT redeemable via tendered currency.
- Unallocated ounces acquired with currency; even foreign exchange currency; gets time stamped and retains the then current Silver Ounce value which vests over time; towards Allocated Ounces. Those Silver Ounces would then be cured and eligible for future upwards currency value revision, or simply redeemable as a physical Silver Ounce! You could not FLIP for a higher quoted currency price during the vesting period. (This is key). Now there is a TIME PREFERENCE of money… do I spend currency on Silver Units and try to Squeeze the Price; a guaranteed return… because I am overwhelming the Silver Ounces with physical demand? YES… but now the clincher: The banks will see the Allocated demand and offer an interest rate policy for currency deposits; (bonds, etc) that balances the Unallocated and Allocated, and vesting Silver in the interbank system.
Is this a RESET? What happens to all the debt obligations outstanding at record low interest rates? The government can’t afford to pay interest per the above! Let’s run through the scenario:
- An official nominal Silver Ounce Quote is offered, and an initial interest rate policy is introduced. The Silver Ounce Price is adjusted over a three year transition period to dishoard > 1 Billion ounces world-wide… Central Banks will monitor the Allocated/Unallocated and vesting Ratios of metal coming into the Interbank Ledger.
- This dishoarding and monetization of Silver in private hands is the STIMULUS the banks are desperate to create! There is a huge pool of hidden capital just sitting in people’s safes!
- Every six weeks, the Central Banks evaluate the money flows; with a target of minimum reserve Ounces- Unallocated Silver accumulating in the interbank system. If the Unallocated account does not grow; either the Silver Ounce Quote OR the Currency Interest Rate can be adjusted… this will take several meetings; but you will end up with a few Billion Ounces in the system, an equilibrium Silver Ounce Price AND a Currency Interest Rate.
Discussion- Frequently Asked Questions:
1. Will the silverbacks be forced by law or 'price nudging' similar to gun buy backs (when the government never owned the guns in the first place) to dishoard their silver like FDR's EO?
NO! Absolutely not. Hugo’s Proposal is designed to work within a present operating currency system. A saver will always be free to buy, sell, save and hold Silver outside the system, or registered in the system if they prefer. The Silver Ounce Price policy finds a market equilibrium price for Silver that balances monetary demand with industrial demand… Period!
2. If silver ramps to $100 an ounce, forcing the USG to mandate we sell our silver to the USG because of an Emergency Order such as contained in NDAA?
- Hugo’s Proposal provides a solution to the above problem, which we know is coming. By bringing Silver back into the monetary system, and allowing it to be priced so as to equalize monetary demand with industrial demand; no EO is necessary. People will monetize their Silver if the Proposal is enacted as Proposed!
3. Currency pricing and value would be reliant on sound money. Blockchain is all well and good, but would it be the absolute to our monetary system or could we simple use Silver coins to transact commerce?
- This is likely a confusion caused by the current alt-coin frenzy. The ’blockchain’ is just a digital open record keeping system, it could be used to record ownership of a “coin”; or any other conceptual or physical contract. It cannot be forged because millions of copies are saved in the network, and the network is always comparing new edits to existing ledgers; so nobody can forge an entry. A ‘smart contract’ use of blockchain applied to Hugo’s proposal simply records YOUR metal to YOUR account; time of transaction and whether it is an Allocated vested Ounce, or a new claim for an ounce which is not yet vested. Like a Fidelity brokerage and retirement fund… there’s balances which have variable rules applied. All METAL existing in the blockchain is record of Silver Ounces. Any Fraud = Death.
- If you tender METAL; it is immediately vested and redeemable as METAL or currency on demand.
- If you tender currency; you can buy Unallocated METAL; which has a time stamp and vesting schedule before it is Allocated in your account.
This means I can:
- Hold physical in my possession, and at any time; deploy it for currency if I think the price is adequate, or spend it directly when I choose, since it will have a market price at any bank all day- every day.
- Hold physical and never deposit or spend it, and enjoy it as I do now; with no counter party risk; because I will never deposit it at any price.
- Spend currency to acquire an unallocated Silver Ounce and hold until vested. (And weigh the potential return against currency interest rate)
- This also creates a standing ‘street corner’ currency offer for physical METAL… someone will always want to buy your ounces for currency because it can be deposited as an Allocated ounce and is just like the old Silver Dollars that circulated when we had a functioning monetary system. There is no arbitrage here; unless the government mucks up the currency interest rate or Silver Ounce price… it is always regulating itself.
There is an equilibrium price for a Silver Ounce; it has just been longer than any of us has been alive since that price was ascertained.
4. Even at $10,000 per Silver Ounce, 1 Billion Ounces of hoarded silver would be pocket change in light of $28 trillion national debt. Silver at $50,000 might make a dent in the problem of national debt.
- 1B Ounces x $10,000 is $10 Trillion… so there is some sanity in the argument of that potential equilibrium price if Central Banks offered no competitive interest rate, and EVERYONE decided they wanted only Silver as savings and their preferred currency.
- Silver Ounces saved do not compete with nor solve the National Debt, Deficits, nor set monetary policy… Silver Ounces simply offer a way for savers to protect, monetize and benefit from sound financial planning; thus relieving the need to deficit spend to support paupers because monetary policies destroyed savers; which is systemically collapsing now.
5. No one entity I know of has tried to suppress BTC including the handful of people who control 95% of the BTC addresses. From its original price of $1 it's 50,000 times as valuable right now. Why does my Morgan Dollar not buy $50,000 of something? That is a question for the centuries!
- Failure of monetary policies has driven a wild speculative alt-coin bubble; not the first in history; but certainly a danger to the present value of all Sovereign currencies.
- The blockchain record offers a ‘price paid’; and could be referenced during an unwinding of this speculation. There is no objective valuation of an alt-coin; because there is no contract, no linked asset. It is therefore an abstract Ponzi scheme; where each participant is eying the exit door; and every participant is funding that person’s escape.
- A Silver Ounce is conversely a universally recognized commodity which will attain and retain value in a Silver Ounce linked monetary system; where the intrinsic, monetary, and industrial demand reaches equilibrium. Will your Morgan Dollar be worth $50,000? That is a nominal question, and the unit of account does not equate to its purchasing power.
6. What’s to stop someone from printing currency then buying up all the bullion bars and coins so they’ll have a bunch of Allocated Silver that can held to ‘squeeze the market’ then be deposited into the Bank?
- Even 1000 ounce Comex Bars will command some premium to the Silver Ounce quoted value; due to refinery costs, dealer costs, etc. Art rounds,bars and private Mint products enjoy a vibrant market today; selling at a premium to ‘spot’; and they would continue to be sold to savers or speculators whom choose to take that metal directly and hold outside the banking system… If the official Silver Ounce price is too low; savers or speculators will demand bullion; even at premium, with speculation it is worth more than the currency. Any continued attempt to disrupt the price signal via collusive or disaggregate buying would cause supply bottlenecks and the acquired bullion metal would have carrying cost above the premium to spot. As this sequence progressed, premiums in the bullion market would rise well above the Silver Ounce price; thus dissuading further speculative buying.
MANY THANKS TO SILVERSEEKER AND AGXIIK FOR PUTTING THIS TOGETHER.