A Nervous New World
By: Theodore Butler
For more than 25 years, I have closely studied the silver market from a supply/demand and market structure perspective. For almost 15 years before that, I traded silver, along with other commodities, as a commodity and stock broker. In all those 40 years, I have tried to avoid analyzing silver in the context of it being an asset of last resort in a world financial crisis. Not because silver is not an asset of last resort but because that attribute has always been widely accepted and written about. I have always strived to uncover new and unique aspects to silver; there was no real value added in me writing about what was already known.
Today, however, I would like to share some thoughts that have come to concern me recently about general world financial conditions and silver. Before I do that I wish to assure you that I still hold an optimistic outlook that many of today’s financial problems in the US and the world will be resolved in a fairly reasonable manner. But I don’t think resolution will come easily or without some type of a real scare. Nor do I think a worst case outcome is impossible. Importantly, I don’t want to paint a picture that silver should be held only because the world is headed to hell in a hand basket. Based upon all the facts, silver should do fine almost no matter what world financial circumstances are eventually witnessed.
One of the things that concerns me the most is the proliferation of debt in almost all quarters, particularly on a government level. Any time the quantity of anything is greatly increased, value is decreased. That collective world debt has grown disproportionately to the world’s ability to service that debt is a serious problem. Sluggish economic growth in the western world makes the choices for reducing debt burdens more difficult. Even with shared sacrifice, the reliance on debt will not go away quickly or easily. Because almost all government debt is basically a paper obligation (backed by creditworthiness, as opposed to a lien on specific property), all paper obligations may become suspect in a financial crisis. Assets completely disconnected from the ability of a creditor to meet obligations generally become more valuable in such crises. Hard assets, like silver, become more in demand if paper assets are shunned. In a moment, I’ll try to explain why silver may be the best hard asset refuge in a crisis.