How would common transactions work in junk silver after the collapse?

[KenJackson]

A few years ago, I would have viewed anyone as kookie who discussed acquiring silver (especially "junk silver") in preparation for a collapse. Now I think it's wise.

But I still have trouble grasping how it would work.

It seems early 60's 90% silver quarters have about $3.50 worth of silver in them today, so if the collapse multiplies the price of silver by 10, they'll be worth $35 each. Would I walk into the grocery store and expect to walk out with a couple bags of groceries for one 1964 quarter? Would I fill-up my car for four dimes?

[PatColo]

since whatever TPTB have deemed their "legal tender for all debts public and private" is what all above-board merchants will want to do biz in, I'd expect silver/PM coins to remain in the black market shadows. But i could see going into your friendly coin dealer's shop from time to time to trade some silver for said legal tender. Black market, you could just trade your silver straight for product.

Welcome aboard GSUS, KenJ! :)

[palani]

But I still have trouble grasping how it would work.

You would take your gold, silver or other PMs to a dealer who transacts business in those items. He would then exchange them for coupons which would be accepted by lesser dealers in other commodities.

Oh, wait ... that is how things work now. No need to wait for a collapse because that happened years ago.

Welcome to the forum.

[Silver Rocket Bitches!]

I heard stories about the long gas lines of the 70s where some gas stations had pumps strictly for those paying with silver coinage. Could be an urban legend.

[KenJackson]

I'm not sure any of these address the issue.

I think I understand there will be two affects. First, the dollar collapses, meaning that hyperinflation changes it's value (downward) every day. This is a result of the Fed creating trillions of dollars continuously. It's what happened in the Weimar Republic (Germany) from which we have pictures of people pushing wheel burrows overflowing with fiat currency to buy groceries.

Second, the Fed and the bankers will no longer be able to manipulate the prices of gold and silver, so they will seek their natural value. I've read some guesses that silver may go to ten times it's current value. And I think this means value independent of the value of the dollar.

So if both affects happen at once, as I am led to believe will happen relatively soon, the silver in a 1964 quarter will be worth many, many dollars.

I still can't picture it happening. I can't imagine a shopkeeper valuing a worn-out quarter more than a fistful of dollars. (And what on earth will become of credit cards?) Analogies from today don't seem to fit. So I was just asking.


I heard stories about the long gas lines of the 70s where some gas stations had pumps strictly for those paying with silver coinage. Could be an urban legend.
I remember those lines. In PA, the government restricted gasoline sales to odd or even days based on your license plate, which was a big nuisance but solved nothing. I don't remember any discussion about silver (though if I did, I probably would have ignored it).

[madfranks]

Consider this: the value of a junk silver quarter may increase dramatically, but in a disaster scenario so will the prices of all the things you want to buy with it. Assume your silver quarter is going to have the purchasing power of around $35 today, then a can of beans and a cup of rice may be priced at $35. So I wouldn't count on your junk silver being worth a fortune in such a scenario.

Remember, the people who did best during the Weimar collapse sold their paper money for gold early, and then left the country before the shit hit the fan. Those who stuck around and endured the collapse didn't get rich buying cheap things for their gold, everything was getting expensive.

[Sparky]

Great question Ken. This hypothetical question opens many areas for discussion. Welcome to the forum.

In my mind, there are many "collapse" scenarios. One of the most extreme would involve silver transactions. But it begs many questions.

In the hyperinflation scenario, paper money is still around, but just worth much less. In madfranks' example, a can of beans may cost 35 "dollars". But my question would be, if dollars were so plentiful that they were worth very little, why would you part with your silver in order to pay for the can of beans? Why wouldn't you keep your silver an pay with paper dollars? One reason is that the grocer may offer two different prices: a paper price and a metal price. In this example, if a silver quarter was worth $35, he might charge 35 paper dollars or only two silver dimes. But he'd be willing to do that for the same reason that you'd prefer to pay him the 35 paper dollars, so it's not clear under what circumstances you'd rather give him silver. Perhaps you'd offer him one silver dime.

Here's something I've thought about: Our current silver "price" is determined by some large global market which is able to establish a price and publicize it. (Even if you think it's manipulated, it does establish some benchmark for price with a dealer which is generally adhered to.) But what happens if a collapse is so dramatic that this financial process is interrupted? If a "spot price" has been unavailable for a month, how do you possibly negotiate a "fair price" with a grocer, or your neighbor?

Then, there's Ponce's scenario where paper becomes so distrusted that current circulating coins begin to have re-defined value based on their copper and nickel content.

[Shami-Amourae]

After "the collapse" people will more likely trade in ammo.

In the post-SHTF video game/book series, Metro 2033, ammo is the currency:
http://www.escapistmagazine.com/articles/view/video-games/columns/extra-punctuation/10364-Metros-Bullets-Make-A-Better-Currency


https://www.youtube.com/watch?v=LWINNO5JgOI

[Hitch]

Great thread and welcome to the forum.

Also consider this example. In a high inflationary environment, if you were a shopkeeper, would you sell an asset holding it's value for one that's not? Say, would you sell a can of beans today for $5, when you could sell that same can of beans tomorrow for $6? You will hold that can of beans until the currency stabilizes, or you will barter for other tangibles. Tangibles that hold value when paper no longer does.

Silver junk is for bartering. In an inflationary collapse environment, that's what businesses will do. Will barter. Not sell their goods, trade for them. Silver junk, ammo (22lr), as pointed out. Because the value of a tangible will be consistent during those times.

[Neuro]

Great thread and welcome to the forum.

Also consider this example. In a high inflationary environment, if you were a shopkeeper, would you sell an asset holding it's value for one that's not? Say, would you sell a can of beans today for $5, when you could sell that same can of beans tomorrow for $6? You will hold that can of beans until the currency stabilizes, or you will barter for other tangibles. Tangibles that hold value when paper no longer does.

Silver junk is for bartering. In an inflationary collapse environment, that's what businesses will do. Will barter. Not sell their goods, trade for them. Silver junk, ammo (22lr), as pointed out. Because the value of a tangible will be consistent during those times.
Good points! Shopkeepers may only want to sell their perishables (bread, fruit and veggies, and meat) for cash, the rest they may only want to part with for other tangibles!

[agnut]

Hi KenJackson and welcome to GS-US. A most interesting question you have there.

In the coming monetary “changes” either gold and silver become mainstream as physical person to person transactions or they are traded side by side with fiat currency with posted prices for both forms of money. Of course, the powers that be could derail things, as is their tendency, and make new laws (rules, really) that restrict gold and silver transactions by taxation or out and out illegality. Forget what is moral and right; that ship has sailed and sunk a long time ago.

Mankind must have a reliable form of money for use as the intermediary for transactions. Straight bartering and horse trading would be too complicated and therefore slow for the myriad of financial deals we do today. There is a portion of bartering going on and it will continue in the future. I believe that the amount of bartering will increase in the future, mostly out of necessity. A farm tool for a couple of chickens, a measure of wheat for a day’s work; you get the idea.

Or even a couple of silver dimes for a gallon of gasoline or diesel. Sure, if you have the silver you know what the value is but what of the other party to the transaction ? Will there be a standard value in relation to whatever fiat currency is floating around at that time in the future ? Well, don’t we have such a value system right now ? You can go to a local coin store and trade your silver for a specified amount of fiat dollars. The fiat dollar price is ever changing but at any time it has a specific price to the penny ! This works quite well; the silver buyer may buy at the current spot silver price and then later sell at a small premium, say 50 cents or a dollar per ounce. The last time I checked with a local dealer he was charging $1.30 premium per ounce. Now this may sound like a lot but back when silver was $5 per ounce the premium was 50 cents. But now with the silver spot price at about 4 times higher the premium would be $2, but it is “only” $1.30, some 70 cents less. See how the changing spot prices can cloud our judgment ?

I see the potential in the future for silver to demand a larger premium if there is a much greater demand for physical silver that the supply. I have seen times when silver would have to be ordered but not delivered for several weeks. To me, that is a scary situation. You have paid for your silver but don’t possess it for who knows how long. You are depending on a promise from a stranger. He is not a friend or family, is he ?

When dealing with precious metals always remember that you are dealing with your and your loved ones’ futures. Extreme care must be taken here. Gold and silver are wealth and therefore a means of concentrated wealth storage. Nobody know exactly how the future will play out. But we do know the long history of gold and silver as to their value to humanity through the past 5 thousand years. We are and have been living within an aberration, a distortion of what is money and what is fiat currency masquerading as money.

Everyone must individually decide for themselves where they will put their trust in the future. The more we share and discuss the more we learn and can more intelligently position our savings for this our uncertain future. Nothing is assured; we have to make the best choices and live with them. These are adult decisions in a childish world.

Best wishes,

agnut



"All the perplexities, confusion and distress in America arises not from deficits in the Constitution or Confederation , nor from want of honor and virtue, so much as downright ignorance of the nature of coin, credit, and circulation." -- John Adams

"The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks." -- Lord Acton

[Sparky]

...
Sure, if you have the silver you know what the value is but what of the other party to the transaction ? Will there be a standard value in relation to whatever fiat currency is floating around at that time in the future ? Well, don’t we have such a value system right now ? You can go to a local coin store and trade your silver for a specified amount of fiat dollars. The fiat dollar price is ever changing but at any time it has a specific price to the penny !

Yes, we have one right now, but the point is, will this global market for establishing a spot price be available after a financial collapse? Your local coin dealer isn't establishing this baseline. He's basing his prices on the spot price. Wouldn't this type of market price discovery be a victim of a global collapse? How can my neighbor and I ever establish a "fair" PM price without some over-arching market data?



This works quite well; the silver buyer may buy at the current spot silver price and then later sell at a small premium, say 50 cents or a dollar per ounce. The last time I checked with a local dealer he was charging $1.30 premium per ounce. Now this may sound like a lot but back when silver was $5 per ounce the premium was 50 cents. But now with the silver spot price at about 4 times higher the premium would be $2, but it is “only” $1.30, some 70 cents less. See how the changing spot prices can cloud our judgment ?

I always argue that we are already on a gold standard, for the exact reason you describe hear. In some sense, I don't have to be a victim of depreciating fiat, because there is already a mechanism for converting paper into a tangible asset.

The shortcoming here is the price spread. Using your numbers, I pay a 6-7% penalty every time I convert my paper to metal. If I convert my paycheck to silver, I lose 6-7% every time I need to convert back to paper in order to make a purchase. Even worse if I need make multiple conversions back and forth during the year; I'm paying the penalty repeatedly. This is more costly than the penalty of the depreciating dollar, and defeats the purpose of using precious metals as inflation protection. Currently, it is only protection if you hold it long term, and don't use it for transactions. I would like to see the establishment of some entity that allows fiat-metals exchanges for 1-2%. This would be the perfect function for banks (like it used to be), if they weren't the bad guys.



I see the potential in the future for silver to demand a larger premium if there is a much greater demand for physical silver that the supply.


You aren't being very precise in your discussion of premium, spread, and price. The premium is the price over spot; the spread is the buy price over the sell price. Why would greater demand for physical increase premium? Why wouldn't it simply increase price?

This is a good discussion. Thanks for your input agnut.

[Neuro]

Sparky, the spread for physical silver and gold here in Istanbul is between 1-2%, approximately the same as with exchange between foreign currencies and the Turkish Lira... There are probably thousands of gold dealers here though. Not so many silver dealers though, but that spread is for the one I go to that only deals in Silver granule. Which I doubt is very good for WTSHTF!

[Neuro]

You aren't being very precise in your discussion of premium, spread, and price. The premium is the price over spot; the spread is the buy price over the sell price. Why would greater demand for physical increase premium? Why wouldn't it simply increase price?
He is talking about premium for physical over spot paper price! If there is a shortage of physical but an abundance of paper silver for sale, and people want physical, you'ld get an increase in physical price premium, like happened in 2009, when premiums were up to 50% ($9 spot and $13 physical)... As I recall it dealers payed more than spot then to get your silver!

[Sparky]

He is talking about premium for physical over spot paper price! If there is a shortage of physical but an abundance of paper silver for sale, and people want physical, you'ld get an increase in physical price premium, like happened in 2009, when premiums were up to 50% ($9 spot and $13 physical)... As I recall it dealers payed more than spot then to get your silver!

Yes, I suspected that's what he meant. But this generally is equivalent to the spot price versus the buy price, where the spot price tends to be much more representative of the paper price, such as in the 2009 example you cited. But I think agnut is pointing out that this premium (spot/buy or paper/physical) is largely driven by the relative availability of physical at any given time, of which I totally agree.