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The REAL Reason the South Lost the Civil War

As the cannons roared at the outset of the Civil War, and the Union and Confederacy armies marched for battle – an equally fierce economic battle raged behind the scenes.

To fund the war effort, both the Union and the Confederacy introduced their own currency in a financial arms race. In this edition of GoldSilver Nuggets, we delve 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 week’s gold news.

Iran Strikes Against Israel and Investors Flock to Gold  Gold touched an all-time high of $2,431.29 last Friday in anticipation of Iran’s retaliatory attack against Israel. “The market is in pause mode and waiting for the other shoe to drop on this Israeli-Iran confrontation. You will see another rally in gold if the situation escalates,” said Jim Wyckoff, senior analyst at Kitco Metals.

While Gold Sets Records, Silver Hits Three-Year Peak  Silver prices have surged, reaching their highest price in three years. While gold often dominates the financial headlines, so far in 2024, silver has outperformed gold. As of this writing, silver is up roughly 20.2%, while gold is up 15.8% year-to-date.

At a Brooklyn Pawnshop, Customers Are Rushing to Sell Gold  With prices passing $2,400 an ounce, Brooklyn’s King Gold & Pawn has been inundated with customers eager to sell their gold. Gene Furman, the shop owner, notes an unprecedented tripling in transaction volume since late February. The motivations vary: some are capitalizing on the high prices, while others, pressed by financial needs, are selling to afford essentials like rent and groceries.

Consumer Spending Defies Inflation Fears, Jumps 0.7% in March  In March, U.S. retail sales rose by 0.7%, surpassing expectations of a 0.3% increase, according to the Commerce Department. The biggest growth area for the month was online sales, up 2.7%, while miscellaneous retailers saw an increase of 2.1%.

Citi Analysts Eye $3,000 Mark for Gold  Gold prices have continued to climb past record highs, bolstered by increased safe-haven demand amidst escalating tensions in the Middle East.  Analysts from Citi predict gold could potentially reach $3,000 this year if the geopolitical situation worsens.

Which 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 answer…

We’re kicking off next week with something special at GoldSilver — a 48-hour flash sale on 10 oz Silver Bars! On Monday next week, GoldSilver readers can enjoy a massive 55% discount on the premium of 10 oz silver bars (.999+ purity) from the finest mints around the world.

GS Flash Sale Stay Tuned

Silver’s 44-Year Cup and Handle

Silver could be the most undervalued asset in the world today. Think about it. Can you think of ANYTHING that is selling for less today than in 1980?

In his latest video, Mike explores this idea with a unique thought experiment. If silver went into the same type of bubble, relative to the growth factor in currency supply and other assets since 1980, how high could silver go? The projections he reveals are nothing short of shocking.

We’re not talking $50, $100, or even $200 per ounce of silver… According to Mike’s calculations, silver could theoretically reach $921 an ounce.

Now there’s a lot more to it than that, which Mike explains in the video. But that’s a big reason 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 has clearly struck a chord. But before you dismiss these projections as preposterous, you should take a closer look at his research.

Watch Mike’s video here and see for yourself.

44 Year Slingshot for Silver

The Greenback and Confederate Dollars

Civil War

Soon after the Civil War began in 1861, both the Union and the Confederacy took drastic economic measures. They levied taxes, raised tariffs, borrowed heavily by issuing all sorts of bonds, and suspended redemption of bank notes into specie (another word for gold and silver coin). Within two months the Confederacy started printing its own currency.

Greenback

As the Union’s treasury began to run low, President Lincoln needed a way to pay the troops. He appealed to Treasury Secretary Salmon P. Chase (remember that name) to design and issue a new currency called the Greenback.

Greenbacks

Disparities Between North and South

Both currencies were purely fiat credit notes, backed by nothing.

The South, with a population of 9 million (of whom 3.5 million were slaves) was an agrarian economy riding on the backs of slave labor… whereas the North was an industrial economy of 22 million people with 70% of the country’s railways, 75% of its specie, and 80% of its manufacturing.

With the injection of the new currency into the money supply by both governments to pay for the war, the differences between the two economies became monetarily clear. 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 larger bond issues. In the South, taxes were stoutly resisted, and there was far less specie available for the government to borrow with the issuance of its bonds.

This plus a successful naval blockade by the North, cutting off the South from trade with Europe, meant that the North was able to limit the amount of new currency it printed while the South was forced to run the printing presses full throttle.

By the end of the war there had been serious inflation in the North:

CPI Chart

Prices had more than doubled and the Greenback had lost 66% of its value against specie. It now took 3 Greenbacks to buy 1 Silver Dollar. But the Greenback wasn’t the only reason the money supply had exploded.

“The impress of the Civil War was even sharper on currency than on deposits: the three largest items in the list (national bank notes, U.S. notes, and other U.S. currency) and one of the smaller items (fractional currency) were all creations of the Civil War. Taken together, these four items account for over 90 per cent of the total currency in the hands of the public and in banks in 1867. If we apply the same percentage to the public’s holdings alone, nearly three­ quarters of the total money stock – these items plus national bank deposits – was of Civil War origin, types of money that had not existed only six or seven years earlier.” – Milton Friedman & Anna Jacobson Schwartz

Meanwhile, the South had fared much worse. It had gone through a massive hyperinflation, and the Confederate currency had fallen to zero.

Civil War Prices

Who knows what would have been the outcome of the war, had the South’s currency, and thus their economy, fared better? In fact, things were going so poorly for the North early in the war, it looked like President Lincoln may 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 move to a barter economy for civilians.

It wasn’t until the fall of Atlanta in 1864 that the tide turned for the North, the Confederacy was doomed, and Lincoln’s re-election was assured.

Aftermath and the End of Greenbacks

The Greenbacks of the North were only supposed to be a temporary wartime currency. So, when the war ended, Congress passed the Contraction Act of 1865 to pull $10 million worth of Greenbacks per month out of circulation. But the economy was horrible after the war and the contraction of the money supply only made matters worse. By 1868, after pulling about 25% of the currency base, the economy got so bad the government decided to stop further contraction.

Greenbacks as a fiat currency were on the way out. They were finally ruled unconstitutional by Chief Justice Salmon P. Chase.

Yes, the same guy who ushered them in as Treasury Secretary at the beginning of the war… and they were made fully redeemable in gold with the Resumption Act of 1875. After a decade of deflation, the economy leveled off.

Washington insiders, knowing that the Greenbacks were to be made redeemable at full face value, bought them up while they were still selling at 3 Greenbacks to 1 Silver Dollar, and then when the Act 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 nor be depreciated through governmental policies. The Confederate South experienced catastrophic hyperinflation, rendering their currency worthless and propelling the populace back to bartering.

As the Greenbacks fluctuated and ultimately faded, gold and silver remained steadfast, their value unmoved by government interference or the uncertainties of paper currency. It is another example from history showing us that for those seeking a hedge against inflation and economic uncertainty, gold and silver offer dependability and safety when paper currencies do not.

That will wrap up another of GoldSilver Nuggets. We’ll be back with more news and updates next week!

Best,

Brandon S.  GoldSilver

Gold Quote

Nuggets Trivia of the Week

Which metal is most often used to counterfeit gold bars?

A. Lead

B. Copper

C. Tungsten

D. Nickel

Answer – C. Tungsten

Gold and tungsten have nearly identical densities, which makes tungsten the perfect candidate for counterfeiting gold bars. While gold has a density of 19.3 grams per cubic centimeter, tungsten’s density is very close at 19.25 grams per cubic centimeter. This similarity allows counterfeiters to manufacture gold-plated tungsten bars that feel as heavy as pure gold bars, making it easy to deceive basic tests such as weight and size measurements.


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