Silver markups decline

Premiums have fallen for pre-1965 90 percent silver U.S. coins. Since my article two weeks ago where I did some comparison shopping on what different dealers were quoting retail customers as their price for $1,000-face-value bags of circulated 90-percent silver coins, the wholesale market relative to melt value has fallen further.

Whereas the lowest price quoted by a dealer previously worked out to $1.44 per ounce above the ask silver spot price, there are now two companies selling these coins for a premium of less than $1 per ounce.

A premium this low now means that you can purchase physical silver in the form of 90-percent silver coins at a lower cost per ounce than what you would pay to purchase .999 fine 1-, 10- and even 100-ounce ingots from several of these dealers.

As a way of owning physical silver, 90-percent silver coins have multiple advantages. In years past, it was the most widely traded form of bulk silver, and therefore, the most liquid. It has legal- tender status. It is American, which will mostly make a difference in the United States. These coins were actually in circulation 50 years ago, so there is a segment of the non-collecting population that will recognize these coins for what they are. Finally, they are highly divisible. One 90-percent silver dime has approximately 1/14th of an ounce of silver, making it highly practical for use in barter or payment situations. Now that the premium has become competitive with almost all other forms of physical silver, it is my recommended form of bullion-priced physical silver for people to acquire.

Fed tries to push dollar down
After the end of its regularly scheduled meeting on July 27, the Federal Open Market Committee announced it was not changing the federal funds interest rate – as widely expected. This part of the statement was the focus of the news media coverage.

However, perhaps the most important section of this statement was the sentence that began, “The stance of monetary policy remains accommodative.” This repeated a phrase appearing in each of the FOMC’s statements since December 2015.

The English translation of this carefully crafted clause means that the Federal Reserve is committed to driving down the value of the U.S. dollar over time.

From Wednesday afternoon last week to Tuesday afternoon this week (as I write this), the value of the U.S. dollar declined almost 2 percent. The value of the dollar has now fallen below where it was when British citizens voted in late June to leave the European Union.

The government’s guarantee to reduce the future value of the dollar is almost certain to push up gold and silver prices even higher than where they are now.

IMF condemns its own actions
On July 8, the International Monetary Fund Independent Evaluation Office issued a devastating report on how the organization handled recent financial crises in Greece, Ireland and Portugal. Despite its significance, this report was virtually ignored by American media.

You can find the entire report here.

Among key findings and lessons, the report states, “The IMF’s pre-crisis surveillance did not foresee the magnitude of the risks that would later become paramount. It missed the build-up of banking system risks in some countries. In general, the IMF shared a widely-held Europe is different mindset that encouraged the view that large imbalances in national current accounts were little cause for concern and that sudden stops could not happen within the euro area.”

Under its analysis of the IMF’s decision making, the report reads, “The modification process departed from the IMF’s usual deliberative process whereby decisions of such import receive careful review.”

In the review of the program design, the authors wrote, “The IMF-supported programs in Greece and Portugal incorporated overly optimistic growth projections.”

The report makes five recommendations for IMF future operations. It urges procedures:
• to minimize political intervention when doing technical analysis,
• to strengthen adherence to agreed policies,
• to clarify guidelines on how program design applies to European Union member nations,
• to establish a policy for IMF cooperation with regional financing arrangements such as with the European Central Bank,
• and to commit to accountability, transparency and independent evaluation of the IMF’s activities.

For Greece, the report notes that the IMF’s 2010 Stand-By Agreement failed to restore market confidence, achieve debt sustainability, restore competitiveness, or carry out structural reforms. As a result, Greece’s recession was deeper than expected and unemployment tripled.

In Ireland, the balance sheets of the government, banks and businesses deteriorated more than expected, resulting in weaker domestic demand and higher unemployment.

To manage future failures of major banks, this report urges that the banks’ account holders and unsecured creditors have their assets seized (a practice called “bail-ins”) before any government bailout is offered.

I expect that the U.S. government will use this IMF directive as the pretext to require future failing major U.S. banks to seize some or all of their customer account balances before any federal bailout funds are forthcoming.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Other commentaries are available at Coin Week. His radio commentaries titled “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing.

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