24hgold.com / By Antal E. Fekete / From the Archives / Originally published January 31st, 2008
Even the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.
For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows. China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century. China’s external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.
Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China’s primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.