SLVO - Silver And The Popping Of The Debt Bubble
2023-06-07 06:30:00 ET
Summary
- The US is currently facing a massive debt liability and a rising interest rates environment, while the nations are actually about (and already beginning) to abandon the US dollar over the coming years.
- Interest rates are an indication of the value the market places on debt. If interest rates are low, then the market places a high value on debt, and if the interest rates are high, then a low value is placed on debt.
- However, when it comes to silver, it is the opposite. When interest rates are low, then the market places a relative low value on silver, and vice versa.
We have now moved into an era of rising interest rates that is similar to a period that started in the early 1940s.
At the start of this period, the government debt-to-GDP ratio was also around 120%, close to where it eventually topped/popped. Despite high relative debt levels and a rising interest rate environment, the US was in a good position due to the US dollar being the premier world currency as a result of the 1944 Bretton Woods agreement.
Instead, the US is currently facing a similarly massive debt liability and a rising interest rates environment, while the nations are actually about (and already beginning) to abandon the US dollar over the coming years.
During this rising interest rate environment, silver experienced a massive bull market, going from about 35c in 1941 to about $50 in 1980.
Understand that interest rates are an indication of the value the market places on debt (or bonds). If interest rates are low, then the market places a high value on debt, and if the interest rates are high, then a low value is placed on debt.
However, when it comes to silver, it is basically the opposite. When interest rates are low, then the market places a relative low value on silver, and vice versa.
So, given that the interest rates has been declining to an all-time low in 2020, one can consider the 2020 bottom in silver to be a very significant one.
The current rising interest rate era is likely to dethrone the US dollar as the reserve currency of the world, and this will likely be an added boost to silver when compared to the rising interest rates era of the '40s to the early '80s (when silver went from 35c to $50).
Below is a long-term chart of interest rates:
The 1941 bottom in silver (point 3) came at about the same time as the bottom in interest rates. This was the start of the rising interest rates era that topped in the early '80s.
The 2020 bottom in silver (point 4) came at about the same time as the bottom in interest rates. This is where the new rising interest rates era started.
In my opinion, silver will again rise like it did from about 35c in the early 1940s to about $50 in 1980. However, this time it is while the monetary system is collapsing, so there will be nothing orderly about this reprice (or revalue, if you like) of silver.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Silver And The Popping Of The Debt Bubble