Deflation and Silver

The relationship between deflation and silver may surprise you.

Deflation is a reduction in the common price level of products and services. Deflation develops when the yearly inflation rate drops under zero percent (a negative inflation rate), resulting in an increase in the real value of money – helping one to buy far more products with the same amount of cash. This must not be confused with disinflation, a slow down in the inflation rate (when inflation declines to lower levels). As inflation reduces the real value of paper money with time, on the other hand, deflation raises the real value of paper money.

Consequently deflation is bad for gold and silver because it raises the value of paper money. In other words one can buy a greater quantity of gold and silver with the same amount of paper money.

There were two substantial periods of deflation in the US.

The first was the recession of the late 1830s, following the Panic of 1837, when the currency in the USA contracted by about 30%, a contraction that is only matched by the Great Depression. This deflation satisfies both definitions, that of a decrease in prices and a decrease in the available amount of money.

The deflation of the Great Depression took place because there was a huge shrinkage of credit (money), bankruptcies producing an environment where cash was in frenzied demand, and the Federal Reserve didn't properly accommodate that demand, so banks toppled one-by-one because they were not able to satisfy the sudden need for cash.

We are experiencing a huge contraction of credit (money) at this time. However overall, what went down in the Great Depression is very different than what we have today. There's been no unexpected demand for cash and a run on the banks by members withdrawing their cash.

The second was following the Civil War, sometimes called The Great Deflation. It had been possibly sparked by a return to a gold standard, retiring paper money printed through the Civil War.

Once more, this is very different than what we have today. We're not returning to the gold standard neither are we retiring a lot of paper money.

In the video tutorial below, I look at 20 years worth of data on silver and the S&P 500 and show you something you may find shocking. I entirely debunk the idea that silver is a safe place in a plummeting stock market.

The relationship between deflation and silver may surprise you. Deflation is a reduction in the common price level of products and services. Deflation develops when the yearly inflation rate drops under zero percent (a negative inflation rate), resulting in an increase in the real value of money – helping one to buy far more products with the same amount of cash. This must not be confused with disinflation, a slow down in the inflation rate (when inflation declines to lower levels). As inflation reduces the real value of paper money with time, on the other hand, deflation raises the real value of paper money. Consequently deflation is bad for gold and silver because it raises the value of paper money. In other words one can buy a greater quantity of gold and silver with the same amount of paper money. There were two substantial periods of deflation in the US. The first was the recession of the late 1830s, following the Panic of 1837, when the currency in the USA contracted by about 30%, a contraction that is only matched by the Great Depression. This deflation satisfies both definitions, that of a decrease in prices and a decrease in the available amount of money. The deflation of the Great Depression took place because there was a huge shrinkage of credit (money), bankruptcies producing an environment where cash was in frenzied demand, and the Federal Reserve didn't properly accommodate that demand, so banks toppled one-by-one because they were not able to satisfy the sudden need for cash. We are experiencing a huge contraction of credit (money) at this time. However overall, what went down in the Great Depression is very different than what we have today. There's been no unexpected demand for cash and a run on the banks by members withdrawing their cash. The second was following the Civil War, sometimes called The Great Deflation. It had been possibly sparked by a return to a gold standard, retiring paper money printed through the Civil War. Once more, this is very different than what we have today. We're not returning to the gold standard neither are we retiring a lot of paper money. In the video tutorial below, I look at 20 years worth of data on silver and the S&P 500 and show you something you may find shocking. I entirely debunk the idea that silver is a safe place in a plummeting stock market.