David Morgan, Publisher & CEO, The Morgan Report

Special Interview on The Silver Standard

This special interview with David Morgan analyses the impact of asset bubbles, fiscal policy and macroeconomic trends in the American economy.

EG: In an era of unlimited QE, Yield Curve Control (YCC), MMT, Zero and Negative Interest Rate Policy (ZIRP), how could not investing in commodities like silver be a lost opportunity?

DM: With all that has occurred in the financial system, the basics have been overlooked for a very long time. The old adage to ‘buy low and sell high’ however, is still valid and applies to commodities more than any investment sector. The commodity sector taken as a whole, is at an inflation-adjusted low that occurs once in a century.

The money metals- (particularly silver) do BEST during a currency crisis, which the world is experiencing right now. The run into money of historic value that cannot be debased, needs no phone or computer to transact, remains private and is universally known, will be sought with a vengeance once the velocity of money increases based on knowing tomorrow’s currency unit
will be worth less than today’s.

EG: Tell us about the demonetisation of silver with the crime of 1873 and the current impact on economic life today?

DM: Silver was, and has been- the money of the people since humanity decided that precious metals made the best form of money. The bankers at that time in 1873, wanted complete control of the monetary system and forced a bill through to take silver out of the money supply. There is a film about this called The Secret of Oz by Bill Still. Furthermore, I did a lecture on this,
titled – What If Silver was Treated Like Gold?

EG: And why may silver actually be more exciting an opportunity than gold?

DM: Silver has a dual purpose, one is money, the other is the best, most useful element in a high tech society. This second reason puts a demand floor underneath silver, regardless of economic conditions. The amount of silver used in industry has generally been increasing over the past two decades, to where now it is more than half of the available silver mined each year.

Because we are in a currency crisis, silver in 2020 had monetary (investment) demand that set a record. The silver market experienced an offtake even greater than industrial demand. If this big move into silver continues, we will reach a point where industry and investors
are competing for an ever-shrinking supply of silver.

EG: What impact will current U.S. Fiscal policy have on an ageing generation of Baby Boomers with their nest egg in 401Ks, Roth IRAs and pensions plans?

DM: Monetary policy has been a failure and most astute people in finance know this. All that can be done is to “print more” and pray. On the fiscal side, most governments have done very little and it may be of some value if new infrastructure, repairs, upgrades, and projects providing for the general welfare are established. However, from my perspective- it seems governments are being very lazy and simply wish to paper over the problems with stimulus checks, that eventually turn into Universal Basic Income. Paying people to survive with no commensurate economic benefit
to them or their fellows, leads to a poorer society.

Digitisation and Wealth Preservation

EG: With the emergence of Central Bank Digital Currencies, there is clearly a push towards digitisation of the economy. How may this be bad for wealth preservation?

DM: This would be bad for wealth preservation because the currency issuer has complete control you could be prevented from buying something you want or need, just because your ‘social behaviour’ does not match some algorithm that determines if you are a “good” citizen or not. If you cannot access your savings just because Big Brother says so, then it does nothing for the saver at all.

EG: Stocks. Bonds. Real Estate. Commodities. Given the amount of currency and credit that has been monetised now, where should asset valuations, along with the price of gold and silver, really be right now as of this year?

DM: By any standard metric used- Bonds, Stocks, and Real Estate (with few exceptions) are all over valued at this point in monetary history. Commodities are near a 100 year low as stated earlier. Gold in U.S. “Dollar” terms, would measure over $15,000 USD per fine ounce, based on the Base Money Supply divided by the amount of gold reported in Ft. Knox.

If we look at the US Debt Clock, we find the dollar to gold ratio to be $34,000 per ounce and silver to be $4,500 per ounce. This number is determined by taking the year over year increase in the U.S. money supply divided by the annual production of gold (silver) in ounces.

What is interesting here, is the gold/silver ratio. If we divide the gold price by the silver price produced by the debt clock entry, we find 7.5, which is the true ratio of gold to silver, which means silver is seven or eight times more plentiful than gold but sells in today’s market for TEN times less on a ration basis, because the current ratio is about 75. Something to think about if you are going to purchase or add to your precious metals holdings.

EG: During the Great Depression of the 1930s, mining shares skyrocketed. Tell us why Swiss and other Central banks have invested in gold mining stocks and how the next economic depression may provide similar upside returns?

DM: During the Great Depression gold was outlawed for citizens to own, so the only way to gain exposure to gold was through the proxy of mining shares. Today, this is not true and my guess is that the Swiss especially know what is coming, have a studied view of the possible future and want exposure to future supply.

Shares are primarily leveraged to the asset price of gold or silver. As earnings increase, the share price increases. The leverage at a certain point becomes extraordinary in a rampant bull market.

EG: JP Morgan famously once said ‘Gold and Silver is Money. Everything Else is Credit.’ How may Exeter’s Pyramid be fundamental to gaining a greater understanding of asset valuations and markets today?

DM: John Exeter’s Pyramid is inverted (upside down) and is used to visualise the organisation of asset classes in terms of risk and size. In Exeter’s idea the concept is that gold as an investment, forms the small base of the most reliable assets and that other asset classes on progressively higher levels are riskier. The larger size of asset classes at higher levels, is representative of the higher total worldwide value of those assets. Exeter’s original pyramid placed Third World Debt at the top, but today derivatives hold this dubious honour. We would place silver at the very tip of the base of the pyramid, because it is far more liquid than gold and will be used in far more transactions in the economic collapse that Exeter wrote about.

As the currency crisis unfolds further, we move down the pyramid to the ultimate money, which means the monetary metals. These two metals have thousands of years of history as the money that is most trusted.

EG: If you were secretary of the U.S. Treasury tomorrow, what would your first three major legislative acts concerning banking, taxes and fiscal policy be, and why?

DM: First I would abolish the Fed and have the Treasury “print” United States Notes, because it would put the money power back into the hands of the people and away from the privately held Central Bank.

Re-establish Glass-Steagall to have commercial banking separate from investment banking, because money used for real tangible assets with little risk would not be mixed with speculation funds run by Wall Street.

I would then Abolish the income tax and put a general tax on the point of sale, because this would eliminate tons of fraud and an outdated, convoluted, and unnecessary system.

EG: What role, hypothetically, could silver play in saving the U.S. dollar from hyperinflation or from the need to digitise currency?

DM: That is a tough one. In theory we could go back to a silver standard and the value of silver would need to be established by the market. This would mean that one ounce of silver is equal to a skilled labour job. So, you might think $150 per ounce. If we go back to Roman times, we would see 1/10th that amount, which means a Roman Soldier received 1/10 ounce of silver per day.

Almost all of the silver in artwork, silverware, and a large supply of silver jewellery would come back to monetary form. Even with that, the total supply might be 6 to 10 billion ounces. Since this would be a fixed supply and likely to grow annually by roughly one billion ounces per year, the increase in production would be met with an increasing silver supply- but it would be limited.

In other words, it is highly unlikely that there would be inflation due to a huge amount of “new” silver being mined, there simply is not much to be mined. Mining supply has decreased the past few years in a row.

A fixed money supply coupled with a growth rate that matches real physical economic growth, would in theory be a system that is fair across the whole spectrum of humanity.

EG: When the dust settles, the smoke has cleared, the U.S. Federal Reserve and other Central Banks finally raise interest rates in a meaningful way- what does that world look like?

DM: A First, let me state for the record that this is what all the bankers are trying to avoid and depending whether or not all nations are forced on to a CBDC (Central Bank Digital Currency) will determine what the world will look like.

If the market forces do take hold, and interest rates do rise because the risk of sovereign bond defaults is almost 100 percent, it becomes a game of Old Maid. No one in their right mind would want to own a bond backed by a government that will be inflated away to being absolutely worthless, no matter how high the yield.

We were close in 1980, and the U.S. Fed under Volcker raised U.S. Treasuries to about 20 percent. This saved the financial system from ending in a hyperinflation at that time. The best place to invest and park currency long term, was the U.S. Bond Market. Now that thirty plus years of a sure thing has become impossible as an investment and guarantees that those left holding the bag (or bond)
will see their currency destroyed.

This is the BIG TRUTH that no one dares speak about at all. Will it happen soon? It could, but the bankers are good at maintaining control, just go back to the Wizard of Oz. Expect the unexpected, and learn real value, the value in the physical economy. Align your-self and your financial house as much as possible with real things, real value, and real money.

David Morgan is a widely recognized expert on silver. He is author of the book The Silver Manifesto and Second Chance. In addition to advising private clients and fund managers, he writes The Morgan Report, covering economic news, the global economy, currency debasement, and stellar opportunities in precious metals and mining stocks: www.themorganreport.com

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