July 17, 2008

Before getting into this missive, I would like to state that other silver commentators make a very strong case for silver being a metal that does well in good, prosperous times. I absolutely agree. If the world at large were gaining in real wealth and the economy were humming along, we all might be purchasing flat screen TV’s and using even more silver than we do today. Bottom line, silver does not need bad times to do well.

However, I am experienced enough to know two people can look at exactly the same thing and see it differently. This is what makes the world go round—an exchange of ideas. In fact, I am on record as stating there is nothing more important in a true free market than the free exchange of ideas.

My worldview is that silver plays a role in the best of times and in the worst of times. Right now there is a huge shift of wealth; wealth is being created in the East and wealth is being diminished in the West. It is and has been my very studied opinion that wealth cannot be printed, and therefore the role of gold and silver at this point in time comes mainly as a means to protect or build wealth.

Fannie Mae (FNM) and Freddie Mac (FNM) were on the verge of collapse, only to be saved by the full faith and credit of the United States. But in reality the Fed did not save them, YOU did. If you are a U.S. citizen, the bailout has your name on it and you don’t even know it, do you?

When a financial institution, bank, broker, hedge fund (Long Term Capital Management) gets bailed out, it is the taxpayer that ultimately pays for it. The Fed “loans” money to the failing institution and rewards mismanagement, but the loan is paid for by collecting taxes from you! How often has your friendly banker asked you to bail out others that have made poor business decisions? The answer is, plenty of times, but those who read the mainstream press never get a clue that the full faith and credit of the United States means simply, the ability of the federal government to tax its citizens. It is just that simple!

The U.S. government is coming to the rescue (through you), but is this “too little, too late”? All of this fear is also being fanned, thanks to statements by Federal Reserve Chairman Bernanke, who told Congress the U.S. economy is faced with "numerous difficulties," such as strains in financial markets, a shaky job market, and ongoing weakness in the housing market. These difficulties are persisting, despite the Fed’s massive interest rate cuts and expanded lending efforts over the past year. Will the Federal Reserve and Treasury be able to save the country from suffering a massive financial collapse?

It depends. It depends upon what you consider a financial collapse, and I tend to look at it from a very realistic point of view. On a case-by-case basis. If you had your entire retirement account with Enron, then you have had a financial collapse. If you are an autoworker for General Motors, then you may be feeling a bit unsure of your future.

The only real way to gain an idea of whether this latest move by the Treasury and the Federal Reserve is going to help is by objectively asking yourself what currency has survived the test of time. The answer is NONE; no piece of (government backed) paper has ever stood the test of time.

However, fear not, because two commodities have stood the test of time and they are gold and silver. These metals have a 5,000-year track record of preserving wealth and at certain times enhancing wealth. You see both of these monetary metals stand outside the entire financial system and yet are money in and of themselves. They are immune to bank or brokerage failure, poor management, or even government intervention. That is the beauty of owning an asset outside the financial system: you have the peace of mind that some of your savings is safe no matter what happens.

Do Even Greater Troubles Lie Ahead?

Thomas Jefferson offered these words at the founding of our country, “Banking establishments are more dangerous than standing armies.” The next few months may prove to be very difficult if the financial crisis spreads throughout the world.

The big “IF” is, if perhaps the worst is behind us, the system will continue and the past errors made by leading financial institutions will be resolved. Certainly, if you are objective, this is a “possibility” but in my view a very remote one. The problem is that if things deteriorate slowly, more people will not wake up in time to really take action.

Which action? The act of buying a metal that reflects the light of truth in good times and bad—SILVER.

It is an honor to be,

David Morgan
E-mail: ibtimes@silver-investor.com

Mr. Morgan has followed the silver market daily for over thirty years. Much of this Web site, www.silver-investor.com, is devoted to education about the precious metals.