Silver Lease Rates

Posted 11 Oct 2008

Silver lease rates have increased dramatically since the credit crises began last year.  A cause is the increased uncertainty with counter-party risk.  The crises of trust is reaching epic proportions.

Counter-party risk requires the financial ability of the promisee to perform the promise.  Because of the murky accounting rules, OTC derivatives and horrific fraud holders of capital are unwilling to take on counter-party risk.

For example, suppose you watch someone order a hamburger and pay for it at the first window and then 20 seconds later pull up to the second window only to be told that the hamburger joint was bankrupt and they would need to get in the bankruptcy line for their unsecured claim.

No institution is safe as OTC derivatives directly or indirectly affect almost every single publicly traded corporation.  GE has been smoothing earnings through the use of OTC derivatives for years.  The credit default swaps are like atomic weapons that vaporize companies.  No one knows who will be next so no one trusts anyone nor has any reason to.  This has caused LIBOR, HIBOR and TED spreads to go ballistic.  The velocity of money is coming to a standstill.  The Kondratieff Winter is deepening.

Gold is the primary monetary metal because of the large above ground stockpiles.  Silver is a quasi-monetary metal.  Because of the industrial demand component to silver it may offer more upside potential than gold.  The current gold/silver ratio is around 83.6.  Historically it is around 16 and has risen lately from a low around 55. 

In other words, silver when priced in gold is currently cheap.  This means that as gold continues to reassert its role as money that silver will follow faster.

Retirement accounts have currently lost about $8.4T of value.  If you are going to trade your life why get an illusory currency or other financial assets subject to counter-party risk that can become worthless in the blink of an eye?