Silver vs. Paper Money

Before we talk about silver, let’s discuss one of the problems with paper money as an investment.  The inherent problem with paper money is that there is too much of it.  How has this happened?  Well, one of the ways has been by the US treasury printing cash like there’s no tomorrow.  Another way is by a process known as fractional reserve banking.  Get a load of this.  Banks are allowed to practice this mechanism called fractional reserve banking.  What this means is that they are only required to have 10% of the total value of the loans that they provide to customers to actually be on-site at the bank.  So, if they want to make a loan to a client of $100,000, they don’t have to have $100,000 available in cash at the bank.  All they have to have is $10,000.  So you ask, where did the other $90,000 come from?  The answer: magic!  It was created out of thin air.  Don’t you wish we could do the same thing with our bank accounts?

This is the kind of thing that was on obvious display in the nauseating documentary, “The Queen of Versailles“.  In this movie, the billionaire CEO of a timeshare company suffers incredible de-valuation of his company due to the 2008 financial crisis in which all the banks that had loaned out the funny money used in timeshare mortgages suddenly realized that they had no value.  The banks, thus, called out for their loans, and the time share company was not able to cover its outstanding loans.  (As an aside, this company wasn’t invested in silver or gold).  This very thing is also on display by our government in how it spends more than it takes in, but then I digress.  🙂

Silver as a hedge on Inflation

Due to the fact that the real threat of inflation and even hyperinflation is out there, it behooves us to strongly consider investment in some solid assets.  The percentage of this particular investment in your overall portfolio is completely up to each individual, however this “hedge on inflation” is a good idea.  Most of the talk these days is about investment in gold, however one of the problems with investing in gold is the fact that a single gold coin costs about $1650 at the time of this writing.  Although $1650 could actually be pocket change should our country go the pathway of Zimbabwe, in all likelihood we would not want to be carrying around coins worth that much money.  That’s where silver as an investment opportunity can come in.

The spot price of silver at the time of this writing is $30.26 per ounce.  That’s a much more likely amount that the individual would feel comfortable carrying around and using for trade.  Silver has also historically traded at a price about 1/30 the price of gold.  Currently, that ratio stands at about 1/55 which means that silver is quite undervalued.  You can invest in silver bullion or silver coins.  Shop around in order to be able to pay the least amount of premium on your purchase.  The portability and excellent prospect of appreciation makes silver an attractive alternative to gold, and it may be worth considering.

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