I recently had the opportunity to visit and view a very large North American vault which changed my perspective on the U.S. financial condition. As you know, when I see something, I generally don’t take it at “face value.” I generally like to see something and “compare it” to something else. To me, everything needs to be “compared” in order to get a true perspective. An example would be a 3 ft. child seeing a 6 ft. adult for the first time and believing that the adult surely must be the fabled Gulliver. As a side note, I was 10 years old in 1970 and got to meet Emerson Boozer and Matt Snell (N.Y. Jets running backs) in person, my perspective at the time was that each one of their thighs was bigger than I was; they were giants beyond my comprehension!
One vault room that I viewed was filled with silver, 1,000 oz. bars that were stacked high and right up to the walls. The whole room if it was completely filled may have been able to hold 20 million ounces. The “pile” that I saw was a little over 10 million ounces, I did a little bit of math in my head and to my disappointment the total was only a little over $200 million. I say my “disappointment” because of the “perspective” it gave me. This was a huge stack of silver yet it had such little value. I say “little value” and will get to that in a minute but stay with me. Suffice it to say, this room inside the vault was my “Gulliver” moment.
OK, so I got to see 10+ million ounces of silver sitting in a room and beginning to tarnish, what was I actually looking at? I will speak in terms of the U.S. only rather than “global” terms because I want to show you just how out of whack we (the U.S.) really are financially. Upon checking, the total of all U.S. mines dig up between 30-35 million silver ounces per year (Silver Production | The Silver Institute), let’s call this $700 million worth. What I viewed in one single room was nearly 1/3rd of ALL U.S. silver production for a year! Was the room “impressive?” You bet it was but…
…But, really? The U.S. doesn’t even produce more than $1 billion worth of silver per year? $1 billion? Now, let’s put this in a little perspective. “QE” as you know has been reduced to $55 billion…per month; let’s call this $2 billion per day. Our “debt” is increasing at least $1 trillion per year…or rounded off, $3 billion per day. Let’s add these two “sources” of our “standard of living” and we get 2+3=5…”5″ as in $5 billion per day of either borrowing and or printing “wealth.” If we compare this number of $5 billion per day to the total annual U.S. silver production of $700 million…the U.S. “spends” 7 times each DAY the amount of silver mined in 1 YEAR. Put in final terms, the U.S. “over” spends 2,500 times the amount of silver that it produces. Yes, yes, let’s add in gold too and we still have an “over” spending of 200+ times our mining activity. Please keep in mind that this exercise only accounts for the “over” part of spending and thus only a percentage of “total” spending. And yes I know…I’m an idiot because none of these matters since everyone “knows” that gold and silver aren’t “money” anyways so I am comparing apples to oranges…but am I really?
Getting back to silver, did you realize that the U.S. is actually an importer of the metal silver (money)? That’s right; we “use” more silver than we produce. In fact, as of 2012, 57% of all the silver used in the U.S. was imported … Another little tidbit that you might not know is about those pretty little Silver Eagle coins that you have bought (or should buy)… more Silver Eagles have been produced and purchased since 2010 than our mines actually produced silver for. Do you see the irony here? The mint has been selling more Eagles than our mines are producing… oh, but wait, there’s more.
The amounts that the U.S. mint has sold each year have been “rationed” many times. There have been many “halts” to production for weeks at a time. (As a very funny side note, I can still remember Jeff Christian saying that there was “plenty” of gold and silver to be had, it was just that the mint couldn’t get enough “blanks.” At the time (I and several others explained his error to him) he thought that “blanks” were actual “molds or stamps” rather than the blank “rounds” of raw product and that once these were fabricated…the plentiful gold and silver coins would start rolling off the line again!) In any case, think about this, investors are and have been buying more Silver Eagles than ALL of the silver produced in U.S. mines combined. Where is the silver coming from for photography? Mirrors and solar panels, hi tech applications etc.? …We are “importing” it and paying for the imports with …you guessed it, dollars…lots and lots of dollars! I guess the simple and logical question is how will we import needed silver once the dollar is no longer accepted internationally? …But that’s just “crazy thinking” on my part huh?
Suffice it to say, I was awed to see so much silver in one place yet also surprised that the U.S. only produces 3 times as much as what I saw in one room in a single year. What really blew my mind was the “minuscule” dollar amount that uses a measly “m” when we now live in a world where “b”s (billions) are thrown around regularly, “t”s (trillions) come up quite often and we now even hear about the dreaded “q” word (quadrillion for total derivatives).
To wrap this up, I never really knew just how small that total U.S. silver production really was. Yes, I “knew” but I didn’t really know until I got to see this one single stack of silver with my own eyes for a perspective. Yes it looked like a lot of silver but I could have in the past seen this pile and believed it to be the production from just one company. Once I realized that this pile of metal (x3) was equal to total annual U.S. production…and put a dollar figure on it…now I really get it. There is not that much silver around and from a “dollar” standpoint…it is foolish and CHEAP when compared to the paper outstanding and continually being created! I do not see how there is any way that if production does not equal demand and this demand is continually “stoked” by excessive dollar creation…that price does not absolutely explode from here. This doesn’t even include the documented fact that silver production is slowing because the mines are being forced to produce at a loss…”Price” will be determined by real supply and real demand…the current pricing by COMEX will go down in history as some sort of bad joke on those who never bothered to purchase at COMEX prices.