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!
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!
