By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com

The general public probably attributes the recent strength in gold and silver prices to a huge surge in demand from a wide swath of the population. That perception is completely false.

Bron Suchecki of Australia’s Perth Mint was recently interviewed by the Financial Survival Network. By his estimation, the huge surge in demand for buying physical gold and silver in late 2008 represented less than 2% of potential buyers. Yet the demand from this small part of the public resulted in huge delays in availability of bullion coins and bars, often one to two months at the peak, and some even longer. Other coins in comparatively ready supply such as US 90% Silver Coins, reached retail premiums of more than 35% above silver value.

Suchecki further explained that this demand surge identified the main bottleneck in producing fabricated bullion-priced coins—obtaining sufficient blanks to meet demand.

silver gold planchets 275x185 What If Only 3% of Adults Wanted To Purchase Physical Gold And Silver?Producing planchets to meet the rigorous weight and purity specifications is more involved than might appear on the surface. In order to operate efficiently in an environment where demand can and does fluctuate to a great degree, many mints do not prepare their own blanks. As former US Mint Director Moy explained to me, he didn’t want to manufacture the blanks in-house because the equipment and personnel would too often either be idle or working overtime. Most of the time, it is more efficient for the mints to purchase the blanks as needed.

In 2008, for instance, the US Mint obtained its planchets to strike Silver Eagles from the Perth Mint and two US fabricators. The Perth Mint experienced a huge demand for their silver coins at the same time that the US Mint wanted more blanks provided by their three suppliers. In order to maintain future business from the US Mint, the Perth Mint had to trim output of its own coinage to devote resources to supplying planchets for Silver Eagle production.

The demand in late 2008 from a small segment of the population overwhelmed the ability of the planchets manufacturers and the mints to create product to quickly satisfy customers. Product delivery delays were not cured until after the spot price of silver jumped more than 50% in early 2009.

Suchecki is convinced that any surge of demand for physical gold and silver will again catch the mints unable to quickly fill orders. The recent actions of the European Central Bank and last week’s announcement by the Federal Open Market Committee promise to flood the currency markets with quantitative easing. Gold is already trading at record high levels as measured in the Euro and India Rupee. Coupled with continued efforts by China, Russia, Brazil, and other emerging economic powers to displace the use of the US dollar in international commerce, it is almost inevitable that there will be another surge in demand from physical precious metals.

Today it is still possible to acquire physical gold and silver for immediate or short-delay delivery and at reasonable premiums. I predict that both conditions will change within the next six months. Just imagine what might happen if only 3% of the citizenry wanted to buy physical precious metals!

pat heller What If Only 3% of Adults Wanted To Purchase Physical Gold And Silver?Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award.  He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects.  Past newsletter issues can be viewed at http://www.libertycoinservice.com.  Other commentaries are available at Numismaster (under “News & Articles) .  His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.

 

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29 Comments

  1. V.Kurt Bellman says:

    Not only do only about 2-3% of people HAVE physical silver or gold, only a TINY larger fraction CARE TO. That’s what is holding physical metals in check. The market is unbelievably thin. Those who do want it want lots and lots of it. Most people couldn’t care less. When I see, as I have, a man at an auction, clearly in his late 80′s or early 90′s, looking like a hobo, in a wheelchair, unshaven and literally stinking up the room, in threadbare clothing, bidding up gold coins, something is wrong. Buy a few pieces of cloting and some soap, man. Leave the coins alone.

    This man’s “future” is a SHORT number of years, and here he he “golding up”. It’s a sickness, guys.

    • Johnny Metal says:

      It’s my opinion that your opinion of that man is the actual sickness.

    • American Patriot says:

      I agree with Johnny.

      This wise old man is creating demand for sound money. Honest money. As a result of his demand, more of it will exist because more will be created to meet such demand. This money is, by definition, the OPPOSITE of unsound dishonest money, paper money, such as is being spewed forth by bankers at the Federal Reserve. Maybe he was “golding up” for the benefit of his family.

    • Abe says:

      You could say this about anyone buying anything. The man probably is sick. But that’s just a red herring. I see a guy in my area who owns a brand new magic wand car wash. But he is a total miser. He drives a really beat up old Chevy K Car with the mirrors hanging by wires or tape. The car doors are rusted completely through. It literally makes my head turn. It’s sad, but there is no connection to the car wash. It’s just the sad state of this particular brain. You need to take a critical thinking class.

    • Sergio of the Jungle says:

      Let me try and help you, if your mind is open to reason.
      Since abandoning the gold standard in 1971, the US$ has lost 82% of it’s value. Money isn’t supposed to lose value over time, if it is to fulfil its role and expectation as money. That’s why people save, for that rainy day. If you were saving in gold and you went to the bank to withdraw it and you found that the bank had clipped it down to 12% by weight from you deposited, you would be furious, no? Your money can be physically measured!!!!
      If you save a paper dollar and the bank returns to you a similar pretty piece of paper (it won’t be the same one) with a reduced value, the value of which they are allowed to control. They are allowed to dilute the value of your savings by creating 10x the amount you deposit, instantaneously and it is left up to you to deduct how much the pretty piece of paper has been tampered with. How can they tamper with it? By printing more of them.Its the system and that’s how it works.
      Imagine if you would, that the Mona Lisa was the treasure backing the money you used and they just happen to find another version of her. Then consider what the original’s value would be now there are two of them. Now consider that they find a trillion of them, all exactly the same; brush stroke perfect. Get the drift?
      The analogy is the same as printing money. If the bank and government get to spend it before it is passed down to you, you miss out on the purchasing power. That slow insidious inflation is the con perpetrated on savers. Paper is used as money representation of value. Paper money’s value is intentionally, surreptitiously elastic. Gold money is for saving. It is simply inelastic and only tampered with by overtly, physically altering it. That would be the end of the bankers if they visibly altered the saver’s property. Neat trick, huh? Now that’s sick. It would be foolish to let someone continue to steal the value of your savings from under your nose, wouldn’t it? Now that would be sick.
      Good luck.

      • V.Kurt Bellman says:

        Actually, Sergio, inflation is the LEAST of my worries as it pertains to my cash assets. A far more insidious and sizable problem, siphoning off far far more value than inflation is now doing or ever has, is BANK FEES!

        Most people’s accounts are being fairly quickly drained dry even WITHOUT inflation. In fact, a modest balance will be evaporated by the modern banking system’s fees faster than any conceivable inflation rate. Money as a store of value that shouldn’t evaporate? Nice sentiment, but not contemporary, Sergio. And the bogeyman isn’t the Fed, it’s the local bank.

  2. American Patriot says:

    I would be interested in seeing more in depth analysis of the numbers.

    If 3% of the citizenry wanted to buy metals and they all purchased 1 single solitary physical 90% silver dime, the effect will be a whole lot different than if 3% of the citizenry were to suddenly discover that their retirement funds are fundamentally unsafe and will probably not be available to them for retirement (which is increasingly the case these days) and if they were to liquidate half of their 401K by exercising their option to “borrow” those funds, with the desire and intent of using them to obtain physical metals.

    According to the US mint website a total of just over 241 million silver eagle coins were sold from the beginning of the program in 1986 till the end of 2010. This means that significantly less than 1 silver eagle coin for every person living in America is even available to buy.

  3. Can PMs save us says:

    American Patriot: Think about when the sleeping masses wake, when they all want any PM upon which they can get their hands because they realize the USD is worthless. their 401Ks have been stolen and gold and silver become the default currency. Stock up now.

    • mbtrader says:

      I’m with you, I see that folk are just going on about their merry little business shopping for unnecessary things and not even caring about their future. I was in the coin shop today doing my weekly buying, today I bought $500 worth of coins and divided 1/3 -90%, 1/3- Eagles, & 1/3 – Johnson Mathey Bars. I bought all of them except the Eagles near spot. Now is a time to wrack up like never before if you haven’t done so folk because the very near future is going to get crazy.

      Not to sound too hoardful, get food, guns and ammo, toiletries, OTC medications, fuel, and other things that you normally used in bulk to last up to about 3 months or more. Our future in America does not look bright.

      • Abe says:

        I noticed you said $500 worth of coin. I went into a local coin shop here in California to buy $500 in junk silver. They said I would have to pay sales tax unless I purchased at least $1,500 worth of it. I decided to wait and research this a little more first. Must I plunk down $1,500 to avoid the 8.5% sales tax hit? Any thoughts on this? Thanks in advance for your help.

    • V.Kurt Bellman says:

      @Can PMs…

      True believers in PMs have been predicting this Armageddon for decades. It’s like cold fusion; it’s always 20 years away. I view the “Weimaraner” culture as a mental illness, nothing more. Some people simply get off on being the “smartest guy in the room” predicting impending calamity. I refuse to play, and will gladly slowly and deliberately pick up part of their holdings at their estate sale after they shuffle off the mortal coil. But I promise you this: I’l buy NONE of it BECAUSE it is a PM. What I buy will be based on rarity and condition…PERIOD!

      • Rick says:

        Bellman is afraid he’s backed the wrong horse. All the sophisticated investors and bankers have too much time and money invested to admit their entire life and beliefs were base lies!

        Yes, keep dining on the Titanic and listening to the band play on! The music is lovely, and reality is much too ugly!

  4. Lowpro50 says:

    The number of folks “coming into the market” will increase big time in the near future. As a matter of opinion, the percentage could be as high as 5% before the PM bubble bursts. Either way, if you want to protect yourself from QE to infinity, back up the truck while you still can. I plan to dump my position when my neighbor starts telling me to buy silver & gold. (2-5 yrs in my guesstimation)
    Cheers !!

    • American Patriot says:

      I like the comments recently made by James Turk here:

      http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/9/5_James_Turk.html

      He said basically that you will know it’s time to sell your metals when you use them instead of Federal Reserve notes to buy things. I believe what he means is that this time there will be no Volker-style rescue of our current paper based monetary system. Volker arrested the 1970′s bout with high inflation by raising interest rates above the rate of real inflation. If sanity finally does return to the fed and interest rates increase, then start watching more closely for when it’s necessary to dump your PM. If interest rates increase but not to a small number greater than REAL inflation, then it’s still not time to sell. Today I believe John Williams of Shadowstats.com has the best approximation for real inflation. Considering REAL inflation rates TODAY are in the neighborhood of 10%, This means you shouldn’t consider dumping your physical PM till the rate you can get by placing the proceeds in the bank TODAY is about 12-13%. I think James is telling us that interest rates will not increase fast enough to catch up with runaway inflation, and complete destruction of the Federal Reserve based monetary system is likely to result.

      Paper money is in a bubble, not PM. The recent price action of PM is the RESULT of the paper money bubble.

      • Turk is a top personality favorite of Gold Anti-Trust Action Committee. GATA has frequently cited “experts” advocating Americans to expatriate their gold/silver to overseas jurisdictions, where it will be “safe.” Bad advice! How will you access it if you need it in your palm to pay for necessities, and electronic transfers are BLOCKED? Overseas travel may become severely restricted, the State Department controls passports; the State Department is an instrumentality of the metals suppressors top organization, “The Pilgrims Society” (denied any coverage by GATA, see start page linked!) All governments will be grasping for metal to stuff into their treasuries to use in international commerce; never mind the fact that commerce is properly the sole province of free enterprise. By concentrating quantities of PM’s in private depositories, governments task of nationalization/expropriation/confiscation is made much easier! Why knock on 50,000 doors when you can seize one depository? Wide dispersion is a block to confiscation; concentration invites it. Also, what assurance can vault operators provide to metals owners that loved ones cannot be kidnapped and held for ransom? No relatives, no problem, severe pain is a convincer. These points and questions are as germane as it gets, do not dismiss because someone is associated with GATA and wears a suit and tie.

  5. Silver Fox says:

    Just wait until the U.S.dollar goes the way of the dodo bird -the BRIC nations will see to that !
    For the most part it will be too late due to the fact that the BRIC nations will have made off with most of the physical gold and silver. Face it Americans by and large are just plain naive. Too Bad.

  6. Nevada Senator Patrick McCarran, quoted in The Mining Congress Journal, December 1942, page 21, remarked—

    “Today, the people of France are praying, clamoring for silver. I
    will tell you why. Those governments have issued paper money,
    paper money, paper money, until the masses of the people of the
    subjugated countries have lost faith in controlled currency,
    because they know the printing press runs on forever, and they
    have been through a period in their history when they could hold
    a bale of the paper in their hand, and couldn’t get a loaf of bread for it; but the fellow with a little piece of silver coin
    tucked away in his pocket could buy the necessities of life; AND SO THE TEEMING MILLIONS OF THE WORLD ARE ASKING FOR SILVER!”

    http://www.silver-investor.com/charlessavoie/cs_apl10_SenatorMcCarranonSilver.pdf

    “If the value of bank notes utterly breaks down, silver will come out of hiding and provide a currency”—silver historian Dickson H. Leavens (fact—yours truly today holds that title!)

    There’s no dispute that most people have forgotten about silver as money. Generations have been schooled in economics textbooks with indexes devoid of the mention of silver. We’re soberly told “it’s only second class jewelry!” What should also be clear is that a reawakening to silver is under way, regardless of the mass hypnosis, wall of silence, and occasional paroxysm of vituperation by media outlets railing against silver as a monetary force. People are continuing to be advised by their own government and conventional financial advisers, so to speak, to squat with their spurs on, in effect, by clinging to ever depreciating paper money—being hoodwinked by huckstering con men to keep paying the inflation tax. When corporations the likes of Dow Chemical, Du Pont, Ferro Corporation and a shady array of others, imply that hard silver should be arrogated to their sole demand, pay attention—they’re saying you should own some; they admitted that over a generation past— “I realize silver users don’t like silver investors AND WOULD RATHER NOT HAVE THEM AROUND.” —Jeffrey Christian of CPM Group, speech to Silver Users Association, reported in American Metal Market magazine, August 10, 1988.

  7. D H says:

    Is telling saying people are clamoring for silver. Imagine that. Silver Investor.com pimping silver.

    • Get your facts straight pal. I’ve been writing on silver for close to 12 years. No one was ever asked to pay so much as a wooden nickel to access my research, which has cost me dearly for personal time. However, there’s also nothing wrong with finding a way to make a legit living…I have other ways, writing on silver is a public service effort…the only real pimps in silver are the COMEX perma-shorts and the jewelry concerns who are members of the Silver Users Association. What a way to charge people for silver, at many multiples of spot, for fabrication and a snob name like Tiffany on a silly turquoise blue box! Innumerable of these charms were cast from silver from the formerly extant defense stockpile—an appalling theft from taxpayers and front line military personnel! More about what you call pimping—since I started using Silver Investor as a sounding board, silver was in the low $4 range—now it’s $34.52. Neither Morgan nor I ever advocated people to place investment funds into sterling jewelry by clip-joints like James Avery Craftsman, but rather into bullion and 90% coin and some hyper leveraged mining companies! Your innuendo that we’ve been leading people astray is not only dead wrong; it is shamefully fraudulent! Were I caught making an egregiously false statement, I’d consider changing my name! The annals of unfunded currency shrinking to cipher status always show peoples weary of central bank notes tumbling to wallpaper value, and realizing—”hey, what if we had moved instead into something that can’t go broke, namely, silver!” You realize your disgraceful accusation was allowed to see how I’d mow you down, don’t you? Or are you an incorrigible half-wit? Folks, think how people with savings accounts would have done in the same time frame, with their government callously swindling them by inflation—another REAL case of “pimping!”

  8. Abe says:

    Okay folks just speaking my mind but give me your thoughts on this one regarding silver manipulation. Let’s just assume that the silver market is being manipulated with paper silver being dumped/shorted whatever. Okay so I get it – that makes the price drop. Then buyers come with demand and voila the price recovers. My question is how long can this continue? Apparently a long time. Whoever is doing this has a lot of pull. But what about if actual physical silver starts to get low. Won’t news of that trump the paper manipulation tactics? And that brings us to the bigger question: How much ability do the manipulators have to actually counter a scarce supply of physical silver? Do they have last resort physical silver reserves? Is this even public knowledge? I wonder. I called a local dealer and asked them about their supply of junk silver and he said they had a lot. But he also said he was very busy…

    • mbtrader says:

      Go to Silver Institute and look up the amount of silver above ground, you will see that the stockpiles are almost gone and silver is a byproducts of mining for other metals. Silver is used in almost everything now so therefore the demand for it it higher but the supply is low, therefore you have an imbalance and this makes the price go up. We don’t have a infinite supply of silver it is inelastic meaning that it is used up and never returns unlike gold which is used for mostly jewelry and store of wealth. So which do you prefer to have? Do some research on Chris Duane’s stuff, Sons of Liberty, you will be in for a great education and then hopefully you can see straight. This is a huge deal and the real price of silver is not yet reflected in the market place, prepare for Armageddon when the US $ goes away because the whole world is on that sugar high. Get educated, keep stackin, your very financial future depends on it. I didn’t say might or could or maybe, I said it DEPENDS ONIT!!!

    • American Patriot says:

      Price manipulation down, as is the case with silver, will result in supply shortages. Price manipulation up, will result in surplus. This fact is simply an extension of the law of supply and demand.

      There does seem to be quite a push to get people to buy into warehoused PM’s as Charles Savoie has stated above. I believe the manipulators have been using several tools from the toolbag to manipulate price down. Keep in mind though that they need to find ways to get around the resulting supply shortage. This list is by no means exhaustive, it’s a list of only a few ways that are on my mind right now:

      1. Establish various price following stock funds and paper games backed by no physical that allows people in on the price action so long as markets function, but without having to back purchases with physical metal.

      2. Establish ETF, operate it on fractional reserve basis and don’t disclose the reserve ratio. Real people are investing real dollars into what they think is an ounce for ounce match with the real thing. This is simply not true. Read the prospectus. If the reserve ratio is not disclosed then actual physical backing legitimate purchases could be very close to 0.

      Establish all sorts of other depositories and storage vaults and encourage people to store their physical there. There may be legitimate vaults out there where physical backs 100% but I’d venture a guess that 99% are operated fractional reserve through multiple owners of numbered bars, especially those that are operationg “unallocated”.

      3. sensationalize and over-report violence and theft in our nightly news to scare people into storing their valuables in depositories and bank vaults. Metal in the home can not be stored on a fractional reserve basis. Operating fractional reserve serves to increase perceived supply over and above actual supply. this reduces price.

      4. The obvious short manipulation.

      5. CONSUME IT ALL. 100 years ago many governments held silver in their treasuries. Those days are gone. Stockpiles have been serving to facilitate artificially reduced price while those supplies supply the market. JPM just recently exchanged gold for the silver stock pile that up till this year was being held by Nova Scotia. They then no doubt hypothecated and re-hypothecated those physical ounces through their paper manipulations thereby holding price down a little while longer.

      6. establish “cash 4 gold” and buy up the metals from anyone who will sell. Think back, 7 years ago there were very few of these out there as compared to today. I went into UT Gold buyers and found that they only buy they do not sell and they would not disclose who they supply. Where is all that product going?? It’s serving to keep price low a little bit longer by subsidizing supply through temporary increased scrap flows.

      7. increase uncertainty. TPTB can ‘shake out’ gold from the citizenry by printing money. When it gets too hard to pay the house payment or buy food, even if your still employed, it becomes easier to go get those gold or silver coins that you inherited from grandma and take them in to cash for gold.

      At some point the piper will be paid and we are probably fairly close to payday. Inventories are all but gone, the citizenry is tapped out, and fraud events rule the day, as in the case of MF Global, Perigrene Financial, Sentinel, and their most recent ruling that, if not overturned by the US Supreme court, declares OPEN SEASON on savings accounts from pass book to 401K. This is eroding faith and trust. The critical point is here. Physical will control price soon. The next 5 years won’t be like the last.

      • Interesting implications suggested. No question the adversaries of gold and silver (especially silver, which they detest the most) would stop at no subversion to continue suppressing. While individuals may not be able to make their metals as physically secure as a vault operation, the certainties are that 1) metals owners can trust themselves more than they can trust anyone else and 2) if not held in public depositories, metals are more widely dispersed with more discreet locations and 3) these are blocks towards nationalization. There have been press accounts of metals dealers, usually called gold and silver exchanges, selling bullion, offering to store it, then playing daisy chain by selling it to others, who in turn agree to “store” it there, till the fraud breaks. Some years ago a major mining company bought 1,955 silver bars of 68 to 70 pounds each (1,000 oz) and subsequently refused to inform its public shareholders where it was being stored. I was told by the IR guy, who earlier got me into a private placement that was very beneficial to me, that “you don’t tell people where you hold your silver,” to which I responded “my case is not comparable as I’m not a publicly traded corporation having shareowner accountability.” Friends, stay with the person you trust the most—yourselves.

        • V.Kurt Bellman says:

          Agree with that last bit there, ol’ Charles. Running a metals trading scam is way too 1) easy, and 2) profitable to be avoided by the usual cadre of “investment du jour” fly-by-nighters.

  9. Abe says:

    I think inflation is greatly misunderstood. Prices have indeed appreciated steadily over the years, however, considering how much printing the FED has done; it is surprising how much purchasing power and acceptance the dollar still retains. The reason for this apparent “fiat dollar on steroids” effect, reveals to us the often forgotten and unknown link to why the dollar desperately hangs on.

    Inflation (weakness) of the dollar would already have exploded out of control if it had not been for the Petrodollar.

    In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

    By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection.

    The Petrodollar system puts a huge demand on the US Dollar as it is needed for all these massive oil transactions. As long as the US can stay in control of this system, the fiat dollar can be sustained. If this demand were to go away, the dollar would not be able sustain the repeated printings without a devastating effect.

    Big Oil will always get preferential treatment (product lines will continue provide excellent supply of quality stylish gas vehicles and a much weaker line of non-gas vehicles) as long as it is propping up the dollar.

    So the Petrodollar will continue to give the dollar a nice bit of protection. Once this system begins to break down due outside resistance or the eventual obsolescence of mainstream oil, other very significant US policies (extreme measures) will be introduced to replace the dangerous demand void created.

    • V.Kurt Bellman says:

      Abe,

      What you say about Petrodollars and its effect on U.S. dollar demand is largely true, but it ignores other equal truths. Look at international demand for U.S. Treasury securities – T-bills, notes, etc. The 10-year maturity is rattling around at between 1.5 and 1.7 percent annual yield. Just think of what truly means! If we say that inflation is ONLY 2% per annum (and most would insist it’s higher), the market is saying that it is willing to accept effectively FEWER fiat U.S. dollars ten years from now (negative real interst rates) than go anywhere else into anything else. That’s not all oil, brother!

      The best description I’ve heard of this phenomenon is the U.S. dollar is the worst place to be, except for anywhere else. The U.S. Treasury market is hundreds of thousands of times bigger than the entire physical delivery precious metals market. A lot of supposedly “SMART” money is okay with negative interest rates. Seems they are worried that EVERYTHING else, including PM’s, will be a worse bet.

      Economic colapse is not bullish for PM’s. Only FLIRTING with collapse is. That’s an awfully fine tightrope, boys.

    • V.Kurt Bellman says:

      Besides, the massive “printing” is largely a myth. It doesn’t show up in the M2 numbers, not even during QE2. It was a printing that just apparently evaporated. It didn’t get into the economy at all. Are you all aware that until QERED (Quuantitative Easing, Real Estate Division), the Federal Reserve’s balance sheet of Treasuries had actually SHRUNK?!?! There was all this buying and yet less was there than before. Somebody’s buying it all up, and it AIN’T the Fed, boys. Apparently not everyone believes silver is the next money. Oh,…yeah,… it was the PREVIOUS money. Easy enough mistake.

  10. Abe says:

    V.Kurt,
    I wasn’t insinuating that the Petrodollar System is the only driver of dollar demand. The Petrodollar System has unique qualities that set it apart from “Smart Money” demand on the US treasuries market. First of all, on bad news, the investors could decide to change their strategies away from treasuries and into some other form of investment. They are not dependent on treasuries on an existential basis. But most would agree we are dependent on oil BIG TIME. It’s not sustainable, and we could be doing much better in reducing our dependence. But we will not because it serves us in this special way monetary way. And look around and big oil is still almost single handedly fueling our transportation system…diesel freight trucks lined up on the Interstate, countless SUV’s, passenger vehicles 24 hours a day. The Petrodollar through is the demand that stays intact when other demand can fall off.

    On the one hand it’s a blessing for the US. We’ve done wonders with the Dollar. Look at all the infrastructure and development we have for such a new country. Automobile transportation system networked across our country is truly amazing. We have what seems to be thousands upon thousands of developed cities spanned across our nation. And that of course is just the tip of the iceberg.

    Perhaps we have grown too quickly; the fire over-fueled. People like ourselves who are really taking the time think and analyze the events leading us to this point, are starting to realize our frantic preoccupation with constant growth is unsustainable and headed for a crash. Our monetary system was designed from the ground up to require constant hyper-growth or face a massive shock to the entire system. Hyper growth cannot be sustained. Therefore we have a systemic flaw in our monetary & economic system (read FED) and again those who have analyzed our monetary history see it clear as day. Those who are not aware have absolutely no clue what is going on.

    In my view it is a blessing at this point that we can sustain. Anything else is a truly scary thought. But my concern is that to sustain this run of relative prosperity, our governmental system will take on a process in the same vain as a crack-addict looking for another fix. Not a good or trustworthy place to be, and the need for the creation of the Petrodollar is a example of that place.

  11. V.Kurt Bellman says:

    Abe,

    VERY thought-provoking stuff. Thank you for that. Far better than the quasi-religious metals fundamentalism in search of heretics usually found hereabouts.

    I have found myself agreeing with your premise, but not your recipe. We do have a serious undergrowth problem that is at the core of all our fiscal / monetary difficulties. But I don’t see why hypergrowth needs to be unsustainable, per se. I’m actually rather fond of the macroeconomic implications of continued hypergrowth. I guess I’m less convinced than you apparently are of “post-peak” oil reserve issues. There always seems to be a new discovery. Yes, some new discoveries require retooling, such as effectively using shale gas deposits for transportation use, but even that work is macroeconomically stimulative. I read that in terms of BTU’s of energy, just Pennsylvania’s gas deposits rival Saudi Arabia’s oil. That’s a lot of years of natural gas coming online to fuel a lot of industrial expansion!

    But troubles still do loom. We SEEM intent on re-electing the Full Monty status quo – a GOP House and a Democrat Senate and President. I am having a hard time imagining the post-election “fiscal cliff” NOT resulting in a high income earner tax increase of considerable weight. That will hammer top end gross wealth deposits at the alter of reducing monetary inflation pressures (tax revenues paying down debt and adding Keynesian stimulus at the bottom end).

    If that comes to pass, how do you see that working on metals? I see it unbelievably bearish, maybe ugly bearish.

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