SILVER Declared Critical as Supply 'Very Tight' - How High Can it Go? Mark Thornton

Key Concepts

• Silver Market Dynamics: Industrial demand, investment demand (stackers, jewelry), byproduct production, inelastic supply, price volatility, manipulation by bullion banks.
• Gold Market Dynamics: Government intervention (currency inflation, international disturbances), central bank buying, private investor concerns about fiat currency, debt, and uncertainty.
• Fiat Currency and Moral Degeneration: High time preference, focus on immediate consumption, decline in saving and long-term building, impact on family and societal values.
• Government Debt and Deficits: "Kicking the can down the road," benefit to political elites, negative impact on youth (housing, education, debt), immoral choice.
• Return to Sound Money: Possibility and inevitability of a gold/precious metal standard, individual actions (savings plans), central bank shifts (BRICS nations), potential for cryptonized precious metals, decline of the dollar.
• Geopolitics and Conflict: War as a lie, rise of socialism and government intervention, exploitation of domestic and foreign economies, trade wars as precursors to actual war.
• Austrian Economics Solutions: Bottom-up approach, individual responsibility, intellectual understanding of free markets and government's negative impact, education and example-setting.
• Mises Institute and Austrian Economics Promotion: Long-term progress in promoting Austrian economics, free resources (podcasts, books), focus on educating youth, the power of ideas against big government and socialism.

Silver Market Catalysts and Bull Cycle

Dr. Mark Thornton identifies several key catalysts driving the silver market. In the short run, he notes "growing pains" due to the influx of traders and institutional players, leading to increased volatility. However, he emphasizes that the long-term drivers are more significant.

• Demand Side: Silver demand is divided between stable industrial users and investment demand, including silver stackers and jewelry buyers.
• Supply Side Inelasticity: A crucial factor is that 70% of new silver supply comes as a byproduct of industrial mining. This byproduct production is "relatively insensitive to price," meaning it's inelastic. This explains why silver prices often gyrate around gold prices.
• Impact of Industrial Metal Production: Expansions in industrial metal production can lead to increased silver supply, keeping prices lower. Conversely, contractions in industrial metals, such as during economic calamities affecting construction and infrastructure, can lead to tight silver supplies and price surges. Dr. Thornton notes a multi-decade increase in industrial metals has kept silver prices relatively low.
• US Critical Mineral Status: The official addition of silver to the US critical minerals list is seen as a significant bullish tailwind. This will likely lead to government restocking of silver stockpiles (previously depleted), policies promoting domestic production, consumption, and storage. Silver is deemed a "strategic metal" vital for alternative energy, electronics, AI, and computing. This government action is compared to central banks accumulating gold reserves.

Manipulation in the Silver Market

Dr. Thornton acknowledges the suspicion of manipulation in the silver market, particularly by bullion banks. He states that the market is controlled at the wholesale level by a "very few players, very few number of bullion bankers," giving them "very tight control."

• Bullion Bank Role: Bullion banks manage the price of silver and escort production from mines to fabricators, financing this movement. Naturally, they sell silver futures contracts, which is a normal part of their business.
• Illicit Activities: He notes that bullion banks have been caught engaging in illicit activities, allowing them to manipulate the market in the short run, especially by selling extra future contracts.
• Long-Term Dominance of Fundamentals: Despite short-term manipulation, Dr. Thornton firmly believes that "basic supply and demand is going to rule out manipulation of any price in the long run." He argues that without government-granted monopoly power, long-term price control is impossible.

Gold Market Drivers and Future Outlook

The gold market is experiencing a similar run to new all-time highs, driven by strong fundamentals. Dr. Thornton highlights the significant differences between the gold and silver markets, which influence the gold-silver ratio (currently fallen from over 100 to the low 80s, with expectations of further decline).

• Government Intervention: In a free market without government intervention, gold prices are historically stable. Therefore, gyrations in gold prices are primarily attributed to government intervention.
• Key Drivers:
  • Fiat Currency Inflation: Governments are inflating fiat currencies.
  • International Disturbances: Global uncertainty created by geopolitical events.
  • Central Bank Buying: Central banks worldwide are accumulating gold reserves and purchasing a significant portion of new gold supply. This is identified as the "foundation of the upward movement in gold prices."
  • Private Investor Concerns: Investors are concerned about government inflation, excessive borrowing and spending, and the resulting uncertainty. They are diversifying away from dollars and government bonds into precious metals.
• Government-Driven Movement: Dr. Thornton concludes that the current price movement in gold is "not a natural feature of things of the free market. It's all government-driven."

Fiat Currency and Moral Degeneration

Dr. Thornton draws a direct and strong connection between moral degeneration and the fiat currency system, a core tenet of Austrian economics.

• Holistic Analysis: Unlike mainstream economics, which compartmentalizes issues, Austrian economics views most major problems as stemming from fiat money.
• High Time Preference: Monetary inflation and zero interest rates foster "high time preference" among individuals. This means people prioritize immediate consumption ("what's good for me right now") over saving, investing, and building for the future. This leads to a focus on consumption rather than long-term development.
• Impact on Family and Society: Research by Jeffrey Dagner (PhD in economics) on the impact of fiat money on the family demonstrates a direct relationship between monetary inflation, the ability to save, and the encouragement of consumption. When money depreciates, people consume it, leading to a habit of degeneration rather than building.
• State's Negative Impact: Professor Georg Hollesman's work highlights how the state negatively impacts natural impulses like charity and generosity in a free market.
• Process of Degeneration: Fiat money creates a process of degeneration of societal morals.

Risk of Fiat Currency System Collapse

The sustainability of the current fiat currency system, characterized by massive debt and deficits, is a critical concern.

• Unknown Timeline: Dr. Thornton states that the exact timeline for a societal meltdown is unknown, as events like war and hyperinflation can occur suddenly.
• "Kicking the Can Down the Road": This strategy benefits politicians and power elites who "engorge themselves at the expense of society." It does not help the working class or young people, who face exorbitant housing prices, expensive education, and trillions in student debt.
• Immoral Choice: Dr. Thornton views "kicking the can down the road" as the "immoral choice." While stopping it requires catastrophic changes, it has been done before and can revitalize economies by removing uncertainty and debt, creating opportunities for growth, jobs, and homeownership.
• Daunting Situation: The current situation, with trillions in debt and more being added, is described as "daunting."

Return to a Gold or Silver Standard

Dr. Thornton is optimistic about the possibility and inevitability of gold or silver returning to the global monetary system.

• Forces Driving the Change:
  • Individual Action: People are already adopting a precious metal standard by converting savings into silver and gold.
  • Central Bank Shifts: Central banks, particularly in BRICS nations, are moving towards a gold standard, with gold becoming their primary reserve asset.
  • Investor Behavior: Stock market investors, after crashes, are expected to turn to gold.
  • Hyperinflation: In hyperinflationary scenarios, people may resort to barter or use "constitutional junk silver" for exchanges.
  • Cryptocurrency: The potential for Bitcoin and crypto crashes may lead younger generations (Gen Z, millennials) to embrace "cryptonized gold or silver."
  • Dollar Decline: As the dollar falls, countries and black market economies that relied on it will "jump ship."
• Commodity-Based Systems: The world is moving away from the dollar and fiat currencies towards more commodity-based monetary systems.

Geopolitics, War, and Socialism

Dr. Thornton expresses deep concern about the rise of global conflict and its connection to socialism and government intervention.

• War as a Lie: He unequivocally states, "War is a lie and war is nothing but death and destruction."
• Socialism and Interventionism: Conflict is rising due to the long-term increase in socialism and government intervention, which has peaked in recent years.
• Exploitation: Socialist politicians, unable to create wealth, must "take" from others. When domestic economies are depleted, they seek to exploit foreigners, leading to trade wars and actual conflict.
• Historical Parallels: He draws parallels to Hitler and Mussolini, who ruined their domestic economies through socialism and then sought to exploit other nations.
• Trade Wars as Prelude: Trade wars are seen as a prelude to actual war.
• Crippled Economies: Environmentalism and government intervention have crippled the ability of the US and Canada to produce natural resources, invest in capital and infrastructure, and create opportunity. This leads politicians to point fingers outward.
• Election Year Tactics: The situation in Venezuela is described as a "show" staged to boost Republican votes in an election year, not a genuine solution to the fentanyl problem. The use of fentanyl as a tool in trade wars is also seen as a political sidebar.

Solutions from Austrian Economics

Dr. Thornton outlines solutions rooted in Austrian economics, emphasizing a bottom-up approach.

• Individual Responsibility: Individuals should focus on their own situations, build themselves up, adopt "gold standard savings plans," protect their families, and set a good example.
• Intellectual Understanding: It's crucial to understand the scientific principles of why free markets work and why government intervention is detrimental. This knowledge is needed to explain these concepts to others.
• Bottom-Up Approach: The free market is a bottom-up process, not top-down. Individuals must understand why freedom is a practical good and government produces bad results.
• Mises Institute's Role: The Mises Institute works to educate youth and the general public on free markets and Austrian economics. They offer free resources like podcasts and books.
• The Power of Ideas: Dr. Thornton believes that ideas are more powerful than big government and socialism and can ultimately defeat them, as they have in the past. He sees the path forward as both an adventure and a winnable battle.

Work at the Mises Institute and Resources

Dr. Thornton has been associated with the Mises Institute for 42 years, witnessing significant progress in promoting Austrian economics and the gold standard.

• Progress Made: Millions have heard of Austrian economics due to the Mises Institute, Lou Rockwell, Ron Paul, and others.
• Free Resources: The Mises Institute offers six podcasts, including Dr. Thornton's "Minor Issues Podcast" (10-minute economic podcasts). All resources are free to download.
• Current Promotion: They are currently giving away free copies of F.A. Hayek's "Greatest Hits Articles." Interested individuals can get a link by commenting "Hayek" on the podcast episode.
• Donations: Donations of appreciated precious metals are accepted for tax deductions. Individuals can comment "Mises" to receive a link.
• Call to Action: Dr. Thornton encourages everyone to get involved, become more knowledgeable about free markets and Austrian economics, and contribute to the movement.

Conclusion

Dr. Mark Thornton presents a comprehensive analysis of current economic and geopolitical trends, firmly rooted in Austrian economic principles. He argues that the fiat currency system is unsustainable, leading to moral decay, economic instability, and increased global conflict. While acknowledging the power of vested interests, he believes that a return to sound money, driven by individual action and a deeper understanding of free market principles, is not only possible but inevitable. The Mises Institute plays a vital role in disseminating these ideas and empowering individuals to navigate and ultimately influence the future economic landscape.