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Silver in a Deflationary Crash

Commodities / Gold and Silver 2013 Oct 25, 2013 - 12:40 PM GMT

By: Dr_Jeff_Lewis

Commodities

Silver may be the good news metal, but it's about to have a serious retest of its “bad news” capacity.

The 1970’s

It's been a long while since we've witnessed visible inflation. 


The last time occurred after Bretton Woods was rescinded in 1971 and the US Dollar was allowed to float.  Essentially, this was yet another in a series of defaults. Inflation rates soared.

Stealth Inflation

One of the most effective perceptual tricks played on the mainstream has been the modification of consumer price inflation.

Obviously, the new adjustments have helped to overestimate GDP and reduce the amount the social security price increases. In addition, the have completely masked the perception of real inflation and the reduction of purchasing power.

Inflation is real for those who eat and purchase fuel for their automobiles.

According to the Intuit Spending Index, over the past two years expenses such as daycare, tuition, health care, and utilities are up by solid double digits - while CPI remains below 2%.

Stealth inflation involves the growing implementation of product redesign. It also involves mainly resizing or re-weighting across the boards - from sugar to diapers.

The Next Visible Downturn

Any meaningful, sudden drop in equities would put immediate pressure on the FED to further support the financial systems and, mainly, the banking sector.

Despite warnings from the Treasury Board Advisory Committee (TBAC) with regard to limited collateral available for the REPO market, political pressure could very likely result in a fully captured Federal Reserve.

Leftover Federal Reserve independence (if any) would be gone instantly, and this could be the final nail in the coffin for confidence. A treasury default or collateral-induced credit freeze would likely create a much larger crisis, one that could quickly spiral out of control in terms of interest rates.

Sovereign creditors will not likely sell dollar denominated assets by choice. Rather, they would respond in the same manner as their Western counterparts - via an act of aggression or reaction to a crisis.

The Fed would need to step up, stoking money velocity and sending commodity prices soaring.

There is an irony to the results of this series of events. While solid industrial demand competes with silver investment demand, the drop in nominal economics activity would light the fire under investment demand - effectively ending price manipulation. 

For more articles like this, and/or for a breath of fresh silver market reality amidst the stench of denial and technically meaningless short term price obsessed madness, check out http://www.silver-coin-investor.com

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com

    Copyright © 2013 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Dr. Jeff Lewis Archive

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