Tuesday, August 18, 2015

Precisely How Much Silver Do You Need Post-Collapse?

A concept I try to explain to either friends, clients, family members, or random hot chicks I try to seduce with my awesome economic knowledge on the street is that you don't need "that much" silver in order to hedge against an economic collapse.

The logic is simple.

If there was an economic collapse, all fiat currencies (ie - all major world currencies) would become worthless and an alternative currency (nearly practically guaranteed to be precious metals) would HAVE TO rise to replace them.  This "last currency standing" would be the default world reserve currency and it's supply would then have to (by necessity) purchase all of the "post-economic collapse" world's GDP.  And though that GDP would be less, there is far less precious metals in circulation to purchase said remaining GDP.  This increase in the ratio of "production to currency" would increase the value of the world's supply of precious metals and is why you don't need "$1 million in silver" to insure $1 million today's assets.

Of course, this logic does not translate into precise mathematical figures and still leaves open the question,

"Well, if I have $500,000 in assets today, how much silver (or gold) would I need to purchase to effectively insure against an economic collapse?"

So I looked into it and though the numbers are of course VERY back-of-napkin, I think I've come up with a pretty good rule of thumb most people can operate by.

Assume first, that during an economic collapse the world's GDP would shrink by 80%.  This would leave only $15 trillion left of the world's current $74 trillion in GDP in annual economic production.

Assume second, that the current world supply of silver of 1.4 million tons does not dramatically change AND that it is preferred over gold as gold is too precious (I know this is not a valid assumption, but just work with me on the math).  When converted to ounces this results in 44.8 million ounces of silver, the effective world's money supply to purchase said annual post-economic collapse production of $15 trillion.

Using simple division we get a value of $330.36 per ounce.

As I write this right now, the spot price of silver is $15.10 per ounce.  So buying one ounce of silver today would buy (under a post-economic collapse economy) $330.36 tomorrow.  Essentially a ratio of 22 to 1.

Of course, this does not speak to the fact that the world's remaining silver supply would not just buy one year's worth of post-apocalyptic world's GDP.  It would buy the world's GDP into the future until an alternative currency would replace it.  Ergo, if one wanted to be mathematically "correct" about it, you would take the NPV of that ounce of silver's purchasing power.  Here it's anybody's guess as to the "discount rate" one would use in a perpetuity calculation (don't worry if you didn't understand that, it's to get the finance nerd-technicalitists off my ass).  But applying a heavily discounted rate of 30% that would imply a purchasing power in today's dollars of $1,100.  A full ratio of 73.

Meaning for every $1 in silver you buy today you would have a theoretical insurance of $73 in a post-economic collapse future.

Now naturally silver will not be the sole currency left.  And naturally the discount rate is not going to be 30%.  And naturally, we don't know if global GDP would collapse by just 80%.  But somewhere between a ratio of 22 and 73 is likely the value of "insurance" silver would provide in a post-economic collapse world.

I say, for the sake of simplicity, let's just take the average and call it 48.

So to translate all this economic mumbo jumbo into English for normal people, this is the take away:

If you have $500,000 in network and want to insure it against an economic collapse,
Divide it by 48, and that's how much in silver you need to buy today.

Again, just a rough measure.  But a measure most thinking folk should consider.

And always, remember, Enjoy the Decline!


grey enlightenment said...

wound't cash be better? During a deflationary collapse, cash and treasury bonds have always done better than gold. Then you can buy on the cheap, like the smart folks in 2009 and the 1930's did.

sth_txs said...

If you had the means, silver and gold should have been bought about 10 years ago; quiet a bargain and after '07 or so (more or less) you would be above water. Of course, the trick in these collapses is to find people who have the same appreciation for silver as currency.

The 'publik skools' have dumbed down every one so hard to say whether that would work.

The Liberty Dollar took a shot at an alternative currency backed by real silver and was shutdown but the thieving corrupt federal government. No Republicans came to help this guy either.

lordofthejelly said...

Two questions:

1. Are we assuming in this scenario that the internet is gone for most people? (I ask because even people in ButtFuckistan have access to cell phones and internet cafes in today's world)

2. If not, and the internet is still here, what gives silver inherently more utility than Bitcoin?

msdtr said...

Curious what your opinion on gold and bitcoin is?

Also care to make any estimates on how much longer we have to go with the farcical status quo?

Lloyd Cheney said...

No, cash would not be better. "Grey Enlightment" you need to read up on fiat currency and the Federal Reserve.

Anonymous said...


Dont know why, but this guy reminds of you.


Anonymous said...

Only 1% of the population is even buying. If 5% wake up..look out. There will be none to be had.

Bobby Brown said...

Aaron clarey why are you so scared of me? It's really sad that a grown man like your self is so scared of words on a screen.

Bobby Brown said...

Why do you fear me? Why are you so scared? Is Israel threatening to kill your family? You're a filthy whore Clarey, you really deserve to die.

Bobby Brown said...

You deserve to be publicly executed.

Bobby Brown said...

You're a coward

Bobby Brown said...

Some one should rape your whore girlfriend. Id rape her and slit her throat if it was legal. Then I would make you watch her die, just like you deserve.

Bobby Brown said...

Someone should slit your throat, I mean it, my only solace is at least one day you'll be dead and buried. Rot in hell you goat fucking whore Aaron Clarey, and take your whore mother with you.

Bobby Brown said...
This comment has been removed by the author.
Bobby Brown said...

By the way only pussy faggots approve comments

Leif Christensen said...

I'd be very interested to know how precious metals were used by the average person living through an economic collapse. Seems to me like the people who want gold and silver will be too far away to barter with and will want them in quantities you will be unlikely to have. And much of the present demand seems to be driven by currency wars, speculators, and investors merely trying to hedge their portfolio. Actual end-user, non-industrial demand does not seem to be driving the markets. I'm not sure that will be a good thing for metal value in a systemic collapse.

I can see rings, watches and the such being much more useful than bullion in economic chaos. It's easier to barter with and is time-tested bribe tool. Street silver prices will probably be for low-quality pawn shop silver anyways, so investing in 99.999% purity stamped bullion would be a poor choice.

Father Thyme said...

Silver to the moon!

Eventually, I think the market will recognize the fact that there's something rarer than gold.

"...silver’s five times rarer."

What's Rarer than Gold..?

TroperA said...

If shit truly hits the fan, I think all metal (even the shiny stuff) is going to be looked upon as worthless. Who can eat metal when they're starving? Better things to invest in would be:

Vice Items: Booze and cigarettes. If these become scarce you can bet there will be addicts willing to trade their own children for them.

Equipment for Brewing Alcohol. Open up a dive bar and you've got an instant business. Bribe the local Warlord into giving you his protection for a steady stream of hooch.

Tools/Equipment/Skills for building/welding/medicine, etc. Ask yourself what you'd need to do to build a society from the ground up and learn a few skills from that list.

Antibiotics. You can buy pet antibiotics over the counter. These would be worth more than gold in SHTF Times...

Guns/Ammo. To trade or to keep others away from what you own.

SM777 said...

It sounds like Bobby is a provocateur agent. It also sounds like he works for one of those federal agencies (or the fed reserve) to try and undermine any efforts by well known people to advocate the ownership of precious metals.

SM777 said...

I mean it's very coincidental that this individual pops up on your website and tries to provoke you by posting on the precious metal article and no other.

j blog said...

Interesting how silver is sold in that exact quantity. In reference 500 oz of silver is called a monster box.

Anonymous said...

Thank you for the rough estimate Aaron!

I will use it and adjust accordingly.

What would be your estimate for Gold?

Thank you again!


Anonymous said...

I'm always blown away by people who claim that gold and silver will be worthless during an economic downfall or wartime situation.

When in all of human history has gold ever not been valuable? During every crisis known to man, precious metals have always been universally taken in trade. Always, without exception. Maybe the average starving plebe has no use for them, but the warlords and major players will always accept gold. They always have and they always will. Gold is universally recognized by human beings as being valuable. It's practically a part of human DNA.

I promise beyond a shadow of any doubt that in the event of an economic crisis, there will be a Chinese, Russian, Arab, or Indian guy who will desire gold. Just because Americans are retarded children with no sense of value, does not mean that the rest of the world is mentally handicapped.

That being said, we are living in truly unprecedented times. Who knows what will have any value if entire cities and regions are vaporized by thermonuclear bombs.

SM777 said...

"Just because Americans are retarded children with no sense of value, does not mean that the rest of the world is mentally handicapped."
Quite true. It's probably something they put in the water. Possibly fluoride?

Father Thyme said...

Of course you can't eat silver. Silver isn't for SHTF scenarios. Bullets, booze, and beans are for SHTF scenarios.

Silver is for the optimist who thinks civilization will continue to muddle along, even while fiat declines. Silver is sort of a put on Central Banks, or a call on The Maths.

"I will try to convince you, if you are an optimist, that silver is the best investment for you. If you are a pessimist, gold is for you."

Silver for the Optimist, Gold for the Pessimist

And even if you think nuclear war is a possibility, don't be totally defeatist. You'll likely survive it.

"An all-out nuclear war between Russia and the United States would...be far from the end of human life on earth."

Chapter 1: The Dangers from Nuclear Weapons: Myths and Facts
Nuclear War Survival Skills

Hell, it might be a blessing, as more r-selected humans than K-selected humans are in the big cities. Actually, it would be a "blessing," since etymologically speaking, "blessing" means "blooding." Yeah, look it up.

r/K Selection Theory - - Anonymous Conservative

Anonymous said...

"AND that it is preferred over gold as gold is too precious (I know this is not a valid assumption, but just work with me on the math)."

It's actually a very valid assumption due to Gresham's Law which stipulates that
people will hoard the more valuable currency and trade with the less valuable. This law will apply to precious metals as well.

So during a world economic crisis, people will want to hoard their gold and trade their silver.

So the trade infrastructures will be setup for silver and it will be more difficult to deal with gold. Just like it's easier to fill you car with gas than to recharge your electric car with electricity, because the infrastructure is built for gasoline cars vs electric cars.

While silver will not become more valuable than gold, it's value vs gold will increase and the disparity between the two metals will shrink.

Silver is the best choice to hedge against economic collapse.

Anonymous said...

"When in all of human history has gold ever not been valuable?"
During the Spanish Concepcion Shipwreck.

Anonymous said...

Now what you need to tell us is what commodity to buy with the silver once the economy has collapsed so that this commodity can be sold again for a profit when the economy recovers.

I'm old enough to know that when it comes to economics, nothing is static and everything is dynamic. Everything fluctuates.

So the high silver value vs all other commodities will not be there forever. The economy will recover and people will start issuing and using alternative currencies and the value and use of silver will eventually plummet.

So once silver reaches it's peak, what commodity do you advise we buy and hold in order to resell when the economy recovers.

Because I'm old enough to know that the apocalypse happens every while and then and that the economy always recovers afterwards.

We've survived and recovered from the great depression and from WW2, we will most certainly survive and recover from the next SHTF scenario.

The opportunity to capitalize on silver's peak value will not last forever.

Maybe oil and energy assets would be a good thing to invest your silver in as the price of energy will go up again once the economy recovers and demand for energy increases ?

Unless new energy technologies makes oil obsolete ?

Maybe trade silver for gold when silver is at it's peak value ? That will be difficult however as people will want to hoard their gold.

Anonymous said...

Bobby Brown please take your own advice.

Anonymous said...


come on, answer up. Participate in the discussion a little bit !

1) What do you think of bitcoin ?
2) What commodity should we buy when silver reaches it's peak ?

Don't just approve the comment, reply to it.

Anonymous said...

Here,here....and what would be the number for gold?


John Mclaughlin said...

It really is interesting to think about all the different kind of things that can be done to ensure that you are getting the most out of your silver investment. Something that is interesting as well is that just being prepared with the right amount of silver when this go bad can be a great investment. I personally would like to have a little bit more silver available since it does seem like something that would be needed eventually. Hopefully others are able to find this kind of information helpful as well. Thank you for sharing. http://roguevalleycoinandjewelry.com/services.html

Christopher Cich said...

Even Germanic warlords invaded Rome at its end for the equivalent of a 1000 ounces of silver... 1000 ounces that Rome didnt even have in its coffers.

Anonymous said...

For all of you who say Silver and Gold will be worthless dont understand history. Banks and sovereign nations keep it in reserve for the golden rule: He who has the Gold, makes the rules. Hitler wanted it, The Fed stores it, China and Russia are buying it in huge quantities. The Gold Rush put Charlotte and San Francisco on the Map, and the Silver Rush put Carson City on the Map. The only idiots not holding it are the morons who think Cash for Gold Companies are great deals... They only want that dollar. Greed is going to be huge in the collapse, and if i have something you want that will make your life better, you will do something for me to get it. That or you will try to kill me for it... Thats why I think Guns and lots of Ammo are important too.

Anonymous said...

I think silver will be just as valuable as gold. As Gold is treasured, Silver is trashed and used up as an industrial metal. There is multiple needs for Silver just as there are multiple needs for Oil. Gold has few uses.

Anonymous said...

I don't disagree with the concept, but there are a number of mathematical errors. To assume all silver in existence should provide one years gdp makes no sense. Dollars can be repent or unspent during one year; a better measure would be to compare silver to base currency. It's only a matter of time before some fractional reserve system takes over, but if you want to be very optimistic, you can assume all silver would replace M3, or some other measure of supply. Your conversion for tons to ounces assumes there are less than 50 ounces is a ton. The perpetuity analogy makes little sense too. An ounce of silver is equal to itself paid, once annually, forever? Is a dollar worth a dollar discounted back from perpetuity? It would serve the same function. You think money is a perpetuity of underlying recursive perpetuities?