Silver Under $30: Has the Silver Monthly Thesis Been Proven Wrong?

Ben Bernanke (l), Paul Volcker (r)

Silver has now closed below $30 for twelve consecutive trading days (and counting). At a current price of $27.82 per ounce, silver is down 1.2% for the year. Gold is also down nearly 1% for the year. Meanwhile, the S&P 500 is up 4.2% thus far in 2012, and the dollar recently reached a multi-year high against the euro.

Is the Silver Monthly thesis – that the dollar is melting down, that gold and silver are where you want to be, and that stocks and other dollar-denominated assets can’t hope to keep up with the Fed’s money printing – being proven wrong?

Ben Bernanke (l), Paul Volcker (r)

In the late 1970s and early 1980s, several economic doomsdayers predicted a financial Armageddon. History proved them wrong – or at the very least, proved them to be early in their forecasts. But these prognosticators– chief among them Ron Paul, Gary North, and John Pugsley – could have never predicted the radical actions taken by then-Fed Chairman Paul Volcker. Volcker did the unthinkable: he intentionally caused a recession by contracting the money supply, thus heading off the stagflationary death spiral that Paul, North, and Pugsley, among others, predicted.

The future is never a given. Unanticipated events can throw off even the most logical and seemingly inevitable of predictions. Ron Paul, Gary North, and John Puglsey probably would have agreed that if the Fed hiked up interest rates to the point of causing a recession, the fiat-money system could be saved – for a time. They just never thought a Fed Chairman would have the courage (or cojones) to do it. Volcker was a Jimmy Carter appointee, and when the next president, Ronald Reagan, assumed the office, he tried to have Volcker removed from his position. History has vindicated Volcker.

But in 2012, we’re faced with a much different scenario. In 1980, the U.S. was the lone capitalist super power in the world. Our only rival was the Communist USSR, which was an economic basket case. Today, by contrast, there is the formerly Communist, now market-oriented China – a huge and productive economy and our largest creditor. In 1980, we were not in debt – neither on a governmental or household level – the way we are today. And, of course, we were only nine years removed from the last vestiges of the gold standard – in the past thirty-two years, the fiat-money bubble has only grown larger; the financial house of cards only more precarious.

Does this mean it’s time to buy silver? Any time is a good time to buy silver. The Silver Monthly thesis remains unchanged: silver will eventually near, reach, or likely surpass its inflation-adjusted 1980 highs. It might end up making it much lower before then, but that will only allow us true believers to accumulate even more silver.

Earlier this year, we posited that $40 may be the new $30 – that turned out to be wrong. Heck, at this rate, we may even see silver in the teens again – wouldn’t that be nice? But ultimately, our thesis remains unchallenged because 2012 is not 1980. We don’t have a hard-nosed Fed Chairman going against the president and forcing fiat-money-drunk Americans to swallow the bitter pill of monetary contraction. No, we have Ben Bernanke, who sincerely believes the supposed-libertarian Milton Friedman’s asinine theory that the Great Depression was caused by a lack of money printing by the Fed. Bernanke will not fail to give the economy the medicine it needs because he lacks the courage to – that’s not the issue. The issue is that his diagnosis is dead wrong.