Q: Hi! When we wake up one morning and discover that we have experienced the great RESET overnight and gold has gone up in multiples, will silver and all other PM’s experience similar outcomes, or will it take them time to catch up? I would love to see JP Morgan and ilk get stuck on their down side in everything or do you think they will be privy before hand and have exited their shorts?
Thank you for all of your priceless educational web site and especially for making it free to all of us who wish to be enlightened to the truth.
David Schectman’s Answer:
The “RESET” will be a reset of the value of the dollar vs. gold and everything else. It is not gold going UP, it is the dollar going DOWN. Down vs. everything. Hard to say whether gold or silver will benefit the most, but you will be happy to have either instead of dollars when that happens.
JPMorgan will not be left holding the bag. They are “the government’s bank,” and will be taken care of. You can bet you bottom dollar that they are doing the government’s bidding with a nod and a wink that they will not be left holding the bag.
“How much” and “when” are unknown but you can count on the inevitability of this happening.
Q: It would be difficult to find better authors than Bill Holter and Andrew Hoffman, and I scour for sources and regularly read from about 30 of my favorites regarding our topics of the day. Hats off to the entire Miles Franklin crew for their great work. My question today is for Bill. I’m not going to ask a question like…when? Or How? We all know that these cannot be answered in real terms. I would like to throw out a sidebar question however, one that has been touched on, but I’ll ask for it to be addressed again as this will directly affect us all in some way. Here goes; with a possible banking shut down and monetary melt down and reset, what in the heck is going to happen with home mortgages? Banks close down, so people will not be paid. Banks close down and nobody can withdraw funds, Banks close down so debit cards stop working. Banks close down, credit drops dead, products stop shipping including food and fuel, etc. I’m not expecting some bank jubilee but will all loan payments go on ice for a period of time? In the meantime I’ll continue to prepare as best I can for my family and friends. All the best, Joel.
Bill Holter’s Answer:
You saved the tough one for me Joel! This is hard to answer because there is very little prior precedent to go by. We do know that after the Weimar collapse, mortgages were rewritten in terms of the new currency. (As a side note, when the new currency arrived, real estate dropped 30% AND THEN started going down. This was because there was little “money on the streets immediately afterward). Assuming a bank holiday and no ability for anyone to pay, I believe the interest will accrue and be tacked on to the balance for whatever time period the banks are closed. If you are hoping a hyperinflation will wash away the debt, don’t. I believe the Weimar precedent will be followed and is actually “fair” because the banks should not be stiffed as they did lend you capital that had value to purchase a real asset of value to begin with.
That said, I do believe holding gold equal to the amount of a mortgage now will work out fine. In a reset scenario, gold will move higher in dollar price than mortgages are altered in any new currency. Also, in the event of a “reset” not happening, I believe you will be able to peel some of your gold off to pay your mortgage with some left over. All of this is hypothetical and my opinion but I do think something along these lines is what we will see.
Q: Considering all we know about paper silver vs. real physical silver, why do those who sell and deliver the real thing base their price on a fictitious determination such as the paper “spot price?” What is the relationship? Why would the physical sellers do this -especially today when the paper price is so far beneath the all in production cost?
Put another way, why do those who have real goods to sell, allow others who have no goods to sell, determine the price? Where is the justice in this?
Or perhaps, is what I am suggesting (real prices for real physical) actually happening for large orders most of the time, behind the scenes, and it is just not reported?
I don’t see how silver miners (those that focus on silver only) can have managed to stay in business as long as they have at these suppressed prices.
All the best,
Andy Hoffman’s Answer:
The physical price is always higher than the paper price, due to a variety of factors. Aside from “shortage factors,” said “spread” will always be anywhere from a couple of percent to 10-15%, incorporating commission, marketing, transportation, and other operational costs. Moreover, this spread can widen or narrow depending on said “shortage factors”; meaning, if supply is plentiful it can contract; and if scarce, it can widen. Sometimes, dramatically so, as in 2008, 2011, and parts of 2013 and 2014.
Additionally, nations were supply is particularly constrained by an inefficient supply chain, government regulation, or otherwise, can have extremely wide “spreads” regularly – as is typically the case in India.
As for miners, they have always been dumb enough to price their “off take agreements” with buyers at or near spot; which in some cases, is justified economically – by say, transportation logistics, low purity, etc.. Sometimes, they have more negotiating leverage – but from my experience, the buyers are far larger, more powerful entities. This is why the silver miners are in dire straits right now; and, for that matter, many gold miners.
Of course, this will all be moot when the surreptitious sources supplying demand run out – which assuredly, is coming sooner or later.