As the cannons roared at the start of the Civil War and the armies of the Union and Confederacy marched into battle, an equally fierce economic battle raged behind the scenes.
To finance the war effort, the Union and Confederacy introduced their own currencies in a financial arms race. In this edition of GoldSilver Nuggets, we delve deeper into the decisive role of these economic strategies and how the fate of these currencies ultimately helped turn the tide of the war.
But first, let's look at the gold news of the week.
Iran hits Israel and investors flock to gold
Gold hit an all-time high of $2,431.29 last Friday in anticipation of Iran's retaliation against Israel. “The market is in pause mode and waiting for the other shoe to drop in this Israeli-Iranian confrontation. You will see another rally in gold if the situation worsens,” said Jim Wyckoff, senior analyst at Kitco Metals .
As Gold Sets Records, Silver Hits 3-Year High
Silver prices surged, reaching a three-year high. Although gold often dominates the financial news, so far in 2024, silver has outperformed gold. As of this writing, silver is up about 20.2%, while gold is up 15.8% year to date.
At a Brooklyn pawn shop, customers rush to sell gold
With prices topping $2,400 an ounce, Brooklyn-based King Gold & Pawn was inundated with customers eager to sell their gold. Gene Furman, the store's owner, notes an unprecedented tripling of transaction volume since the end of February. Motivations vary: some take advantage of high prices, while others, pressed by financial needs, sell to be able to pay for basic necessities like rent and groceries.
Consumer spending defies inflation fears and jumps 0.7% in March
In March, U.S. retail sales rose 0.7%, beating expectations for a 0.3% increase, according to the Commerce Department. The main area of growth for the month was online sales, up 2.7%, while miscellaneous retailers saw a 2.1% increase.
Citi Analysts Eye $3,000 for Gold
Gold prices continued to climb past record highs, supported by increased demand for safe-haven assets amid escalating tensions in the Middle East. Citi analysts predict that gold could potentially hit $3,000 this year if the geopolitical situation deteriorates.
What metal is most often used to counterfeit gold bars?
A. Lead
B. Copper
C. Tungsten
D.Nickel
Scroll to the bottom of this email for the response…
We're starting next week with something special from GoldSilver: a 48-hour flash sale on 10 oz silver bars! Monday next week, GoldSilver readers can take advantage of a massive 55% off premium on 10 oz silver bars (.999+ purity) from the world's best mints.
Silver's 44 year old cup and handle
Silver may be the most undervalued asset in the world today. Think about it. Can you think of ANYTHING that sells for less today than in 1980?
In his latest video, Mike explores this idea with a unique thought experiment. If silver entered the same type of bubble, relative to the growth factor in the supply of currencies and other assets since 1980, how high could silver get? The projections he reveals are nothing short of shocking.
We're not talking about $50, $100, or even $200 per ounce of silver… According to Mike's calculations, silver could theoretically reach $921 per ounce.
Now there's a lot more to it than that, which Mike explains in the video. But this is one of the main reasons Mike has argued for many years that triple-digit silver prices are inevitable.
With over 50,000 views and 500 comments in the first 24 hours, Mike's video clearly struck a chord. But before you dismiss these projections as absurd, you should take a closer look at his research.
Watch Mike's video here and see for yourself.
The Greenback and Confederate Dollars
Shortly after the Civil War began in 1861, the Union and Confederacy took drastic economic measures. They levied taxes, raised tariffs, borrowed heavily by issuing all kinds of bonds, and suspended the redemption of bank notes for specie (another word for gold and silver coins). Within two months, the Confederacy began printing its own currency.
As the Union treasury began to run low, President Lincoln needed a way to pay the troops. He called on Treasury Secretary Salmon P. Chase (remember that name) to design and issue a new currency called the greenback.
Disparities between North and South
Both currencies were purely fiat credit notes, backed by nothing.
The South, with a population of 9 million inhabitants (including 3.5 million slaves), was an agrarian economy that relied on slave labor… while the North was an industrial economy of 22 million inhabitants with 70% of the country's railways, 75% of its species, and 80% of its manufacturing.
With the injection of the new currency into the money supply by both governments to finance the war, the differences between the two economies became clearly monetary. Both currencies initially traded at a 1:1 ratio with the silver dollar. But the Union's more robust manufacturing economy could support much heavier taxation and much greater bond issuance. In the South, taxes were fiercely resisted and the government had much less money available to borrow when issuing its bonds.
This, coupled with a successful naval blockade by the North cutting the South off from trade with Europe, meant that the North was able to limit the amount of new money it printed while the South was forced to run the printing money at full speed.
At the end of the war, there was severe inflation in the North:
Prices more than doubled and the greenback lost 66% of its value against cash. It now took 3 greenbacks to buy 1 silver dollar. But the greenback wasn't the only reason the money supply exploded.
“The imprint of the Civil War was even stronger on currency than on deposits: the three most important items on the list (domestic banknotes, US notes and other US currencies) and one of the most important items small (fractional currency) were all creations of the Civil War. Taken together, these four elements accounted for more than 90 percent of the total currency held by the public and in banks in 1867. If we apply the same percentage to public holdings alone, almost three-quarters of the total money supply – these plus the deposits of the national banks – originated in the Civil War, types of money that had not existed just six or seven years earlier. – Milton Friedman and Anna Jacobson Schwartz
Meanwhile, the South had fared much worse. The country had experienced massive hyperinflation and the Confederate currency had fallen to zero.
Who knows what the outcome of the war would have been if the South's currency, and therefore its economy, had fared better? In fact, things were so bad for the North at the start of the war that it looked like President Lincoln might not be re-elected.
But inflation was an insurmountable problem for the Southern states throughout the war, collapsing the South's financial infrastructure and forcing a shift to a barter economy for civilians.
It was not until the fall of Atlanta in 1864 that the tide turned in favor of the North, the Confederacy was doomed, and Lincoln's re-election was assured.
Consequences and end of greenbacks
Northern greenbacks were intended to be only a temporary wartime currency. So, at the end of the war, Congress passed the Contraction Act of 1865 to remove $10 million in greenbacks per month from circulation. But the economy was horrible after the war and the contraction in the money supply only made things worse. In 1868, after withdrawing about 25% of the monetary base, the economy deteriorated so much that the government decided to halt further contraction.
Greenbacks as a fiat currency were on their way out. They were ultimately declared unconstitutional by Chief Justice Salmon P. Chase.
Yes, the same guy who made them Secretary of the Treasury at the start of the war…and they were made entirely redeemable in gold with the Recovery Act of 1875. After a decade of deflation, the economy stabilized .
Washington insiders, knowing that greenbacks needed to be made redeemable at full face value, bought them while they were still selling for 3 greenbacks to 1 silver dollar, and then, when the law passed, they tripled their money overnight.
The timeless value of gold and silver
The history of the greenback illustrates the inherent risks and manipulations associated with fiat currencies. Unlike paper money, physical assets like gold and silver are impervious to inflation and economic manipulation.
They cannot be printed at will or depreciated by government policies. The Confederate South experienced catastrophic hyperinflation, rendering their currency worthless and driving the population back to barter.
While greenbacks fluctuated and eventually faded, gold and silver remained stable, their value unaffected by government intervention or the uncertainties of paper money. This is another historical example that shows us that for those seeking protection against inflation and economic uncertainty, gold and silver offer reliability and security, unlike paper currencies.
This will conclude another GoldSilver Nuggets. We'll be back with more news and updates next week!
Best,
Brandon S.
Gold Silver
What metal is most often used to counterfeit gold bars?
A. Lead
B. Copper
C. Tungsten
D.Nickel
Answer – C. Tungsten
Gold and tungsten have almost identical densities, making tungsten the ideal candidate for counterfeiting gold bars. While gold has a density of 19.3 grams per cubic centimeter, the density of tungsten is very close at 19.25 grams per cubic centimeter. This similarity allows counterfeiters to make gold-plated tungsten bars that appear as heavy as pure gold bars, making it easier to deceive on basic tests such as weight and height measurements.