Yesterday, when we emailed the mineweb.com’s article Silver supply seen as in surplus to our Articles of Interest list, I suspected we’d get comments from investors who objected to our “spreading negative information about silver.” Right I was.

The article was a summary of the second issue of The Silver Book, which was compiled by research house VM Group, (formerly Virtual Metals Group), London. VM Group says that the silver market was in surplus in 2007, and they expect the silver market “to remain in surplus this year.” They do not expect a big surplus, but a surplus nonetheless. Read the article for the details.

By sending the article in no way did we endorse its conclusions. Frankly, we have no way of knowing whether the silver market was in surplus or deficit in 2007 and certainly no way of knowing if silver will be in surplus or deficit in 2008. We rely on such annual surveys produced (and sold) by firms as CPM Group, New York, and Gold Fields Minerals Services (GFMS), London. VM Group is new to producing annual silver surveys, and this was only their second effort.

As a side thought, I find it curious that VM Group released their survey shortly after the close of 2007. CPM Group usually does not release its survey until about May, and GFMS usually a few weeks earlier. No doubt about it, the survey released the earliest eats into the sales of the later surveys and usually gets more publicity.

CPM Group, despite having the longest history of doing silver surveys, probably sees reduced sales of its report because the GFMS survey, the other established and anticipated survey, is released a few weeks early. Now, VM Group is publishing a silver survey only weeks after year end. CPM Group takes until May to release their report probably because it takes that long to do a thorough job.

Frankly, we suspect that the VM Group survey has less credibility because of its quick release. CPM Group takes months to compile, assimilate and publish its survey; VM Group does it in weeks. I think the VM Group survey will become less credible than the CPM survey if VM Group continues to publish so quickly after year end.

Still, we sent the article because we believe that our clients are entitled to as much information about the silver (and gold) market as possible, even if that information is negative. All year long, we send articles with positive spins on the silver and gold markets. So, despite our suspicions about the VM Group’s work, we sent the article. (If we had proof that the VM survey were faulty, we would not have sent it. The mineweb.com website, an important source for information about all metals, believed the survey worthy of an article, so we sent it.)

Is the silver market really in surplus?

Frankly, I could care less if the silver market is in surplus. I own gold and silver—and advocate investing in silver and investing in gold as the right moves for the times—because the dollar is in surplus and is never likely again to be in deficit. Practically, there are no limitations on how many dollars the Fed and the fedgov can get together and create.

As this is written, many market analysts are speculating that the Fed will lower its discount rate a half-point today. That, of course, would be on top of the ¾-point cut January 21. The Fed is in full printing mode; rising inflation and a sinking dollar are not today’s problems.

Admittedly, the silver market being in deficit is positive of the metal, but I haven’t stayed in this business for 34 years because of the developing shortage of silver but because I believed that the day would come in my life time that the federal government would attempt to solve all problems by printing more and more dollars. I think that we are there.

As this is written, gold is trading at about $924 and silver $16.60, posting decades-high prices. Meanwhile, the dollar is suffering on the FOREX markets. Much of the blame for the dollar’s woes, and the reason for the metals’ climbs, is laid at the feet of the subprime lenders, the subprime mess having been spread worldwide and affecting financial institutions across the globe. The Fed slashing its discount rate three quarters of a point Tuesday showed just how bad the world’s financial and economic “experts” think things are. Still, the subprime mess is not the sole cause of the dollar’s woes; lewrockwell.com has posted a commentary as to why.

How to Sink America combines Tom Engelhard’s and Chalmers Johnson’s analyses as to the stress put on America by the U.S. military. Now, I’m well aware that any suggestion that military spending be cut is a sensitive subject with many people. However, all the military spending is not desired by the Pentagon.

For example, Engelhard notes that the Pentagon wanted to cancel an order for Boeing’s C-17 cargo plane. But, canceling a project is not that simple because contracts and subcontracts for weapons systems are passed out to as many states as possible, which means jobs. So, Congress balked at the Pentagon’s plans to cancel its order for C-17s. The result of such politics is that the Pentagon ends up with material it does not want.

Chalmers Johnson’s part of the analysis is titled Going Bankrupt: Why the Debt Crisis Is Now the Greatest Threat to the American Republic. The title alone should cause one to want to read it, especially anyone interested in investing in silver and gold. Here are a few excerpts from Johnson’s analysis:

It is virtually impossible to overstate the profligacy of what our government spends on the military. The Department of Defense’s planned expenditures for fiscal year 2008 are larger than all other nations’ military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defense budget, is itself larger than the combined military budgets of Russia and China. Defense-related spending for fiscal 2008 will exceed $1 trillion for the first time in history.

Leaving out of account President Bush’s two on-going wars, defense spending has doubled since the mid-1990s. The defense budget for fiscal 2008 is the largest since World War II.

And:

In an attempt to disguise the true size of the American military empire, the government has long hidden major military-related expenditures in departments other than Defense. For example, $23.4 billion for the Department of Energy goes toward developing and maintaining nuclear warheads; and $25.3 billion in the Department of State budget is spent on foreign military assistance (primarily for Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, the United Arab Republic, Egypt, and Pakistan). Another $1.03 billion outside the official Department of Defense budget is now needed for recruitment and reenlistment incentives for the overstretched U.S. military itself, up from a mere $174 million in 2003, the year the war in Iraq began. The Department of Veterans Affairs currently gets at least $75.7 billion, 50% of which goes for the long-term care of the grievously injured among the at least 28,870 soldiers so far wounded in Iraq and another 1,708 in Afghanistan. The amount is universally derided as inadequate. Another $46.4 billion goes to the Department of Homeland Security.

In short, there simply is not enough money to sustain the U.S. military and the rest of the federal government’s spending. Raising taxes is not a solution because it usually results in politicians being voted out of office. Besides, presently Congress and the White House are compromising on a plan to send “tax rebates” in an effort to stimulate the economy. Deficit spending is on the horizon for as far as the eye can see. These are the times to invest in gold and silver.

In my December 12, 2007 article Only Ron Paul, I asserted that of the presidential candidates only Ron Paul had the economic understanding to deal with the subprime mess. Now, I present more evidence that Ron Paul is the man to deal with the impending recession. The medicine, however, would be bitter, but the results would be long-lasting. Ron Paul would call for a return to the gold standard.

In 1985, Ron Paul presented a paper to the Mises’ Institute conference on the gold standard: The Political and Economic Agenda for a Real Gold Standard. Nearly 23 years ago, Ron Paul exhibited his grasp of the Austrian Theory of Money and the need for a return to the gold standard. Since 1985, we have seen the devastating results of not being on the gold standard: inflation and the destruction of the dollar as the world’s sole reserve currency.

Because returning to the gold standard seems anachronistic to most Americans (because they do not understand the gold standard and the concept of money), implementing the ideas of Ludwig von Mises, which Paul discusses in his 1985 paper, would be next to impossible. However, Ron Paul discusses another tactic to return to the gold standard, a tactic which should be of interest to gold and silver investors.

Paul asserts that the popularity of gold coins “have shown us that it is possible to adopt another tactic, that of getting gold coins into circulation prior to setting a new par value for the dollar.” (Par value for the dollar meaning the dollar’s conversion rate into gold [and maybe silver.])

In other words, the people would lead the “leaders” in returning to the gold standard. As more and more people turn to gold as protection against inflation and its inevitable result, a declining dollar, they adopt gold as their standard investment. Eventually, our “leaders” will see the handwriting on the wall and return to gold. Returning to the gold standard would be much less painful for the nation if Ron Paul were president. The other candidates, steeped in statist economic theories, would fight returning to the gold standard.

Paul’s piece is an educating read. If you do not grasp all of it, don’t worry. Just by reading Paul’s paper you will inherently know that now is the time to invest in gold and silver.

Most gold and silver investors are drawn to the metals because of concerns about the dollar. But, do most gold and silver investors know just how bad the financial situation really is for the United States government? Probably not, says David Walker, the Comptroller General of the United States and head of the General Accountability Office, commonly called the GAO.

The GAO has the responsibility for auditing and investigating “all matters relating to the receipt, disbursement, and application of” federal funds. The GAO has the authority to audit any government agency and the responsibility to report those findings to Congress. Because the Comptroller General is appointed for fifteen years, he cannot be replaced by either incoming presidents or by Congress if it does not like his reports.

Despite the GAO’s awesome responsibility, few Americans even know that the agency exists. And, unfortunately, most that do know about the GAO probably treat it with the same disrespect that they hold for other government agencies. That would be a mistake for the GAO is the one creditable federal agency.

So, how bad is the fiscal state of affairs for the federal government? David Walker says that “the most serious threat to United States is not someone hiding in a cave in Afghanistan or Pakistan but is our own fiscal irresponsibility.”

Here is a link to a 10-minute 41-second YouTube video about David Walker’s efforts to inform the American people about the precarious financial state of affairs of the federal government. The last four minutes show Congressman Ron Paul lecturing Fed Head Ben Bernanke about the immorality of the Federal Reserve. (Ron Paul is probably the only member of Congress who recognizes that the Fed is truly an immoral institution.)

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