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Just as I envisioned three years ago, derivatives are now in thes spotlight: Treasury Seeks More Financial Regulations in Shadowy Markets. (Thanks to Danny S. and KAF, for the link.)

From the Appenzell Daily Bell: Beginning of the end? Fed cannot account for $9 trillion

KAF sent us this: David Frum: Quick fix today, crisis tomorrow in Obama’s White House

Redaer GG flagged this: Strong appetite for silver boosts coin production “Mints around the world almost doubled their silver coin production in the first quarter in response to a surge of investor interest in the metal.”

Items from The Economatrix:

Chrysler Moves to Eliminate 789 of 3,200 Dealership

Celente: The Bailout Bubble: The Bubble to End All Bubbles

Stock Optmists Need to Read a History of the Great Depression

EU Plans Bank Stress Tests in Europe

Asian Stock Markets Edge Up as Spring Ralley Loses Fizz

Hardship Bites in Toyota City

Luxembourg: Angry Steelworkers Storm ArcelorMittal (World Biggest Steelmaker)

Obama: Credit Card Bill Critical to Fix Ailing Economy

US “Sham” Bank Bailouts Enrich Speculators

GM Plans to Export [Chinese-Built] Cars to the US “General Motors is planning to build cars in China and import them into the United States, a strategy that could trigger further job losses and union anger in the US.”

“Green Shoots” Wither on Poor US Retail Sales Figures

Dear Sir,
During a discussion with a friend today, we chatted about which format of silver would be most viable as a form of a tangible asset. We discussed the recognized value of Silver American Eagle coins versus”silver rounds”, and found ourselves asking more questions than being able to provide reasonable answers. The conversation was based on my recent decision to convert US currency into silver rounds at a price of $0.90 over spot price (at the time $11.91 per ounce). This was a much lower price than the $3.59 over spot price for Silver American Eagles, so it seemed a logical choice for me at the time but my friend pointed out that the silver round may be questioned by others in TEOTWAWKI times.

To that end, I’m turning to your expertise for input. Can you please provide your comments on the following questions (or other matters as you see fit):

1. Best form of silver [for] investments?
2. Silver bullion versus junk silver–why one versus the other?
3. How can a common person test silver (or even gold) for purity/legitimacy?

God Bless, – Craig from Wisconsin

JWR Replies: As I’ve mentioned before in the blog, I recommend using maintaining two distinct hoards of silver, and that your do not co-mingle them:

A.) The first is your designated “barter” silver stockpile. The barter portion of your silver stockpile should be in small divisible units, ideally pre-1965 circulated “junk” 90% U.S. silver dimes. (Or the country specific equivalent, for our foreign readers.) This “barter” silver should be considered a core holding, and never sold for the sheer sake of profit. If you don’t ever have to use it for barter, then count you blessings and just pass it along to your children or grandchildren so that they will will have something to use for the same purpose. As previously mentioned, if you can afford it, I recommend buying one $1,000 face value bag for each member of your family.

B.) The second is your designated “investment” silver stockpile. The best way to buy this–with the lowest dealer premium per ounce–is serial number-stamped 100 ounce bars, from a well-known maker such as Engelhard, A-Mark, or Johnson-Matthey. This stockpile is designed as a time machine to protect your wealth from one side of an currency crisis to the other. You buy it in current day dollars. After a currency collapse has come and gone, when a new stable currency (hopefully backed by something other than hot air) is issued, then you can convert part or all of your investment silver stockpile into the new currency. Odds are that most if not all of your original purchasing power will be preserved by this method.

The chances of a one-ounce silver round being counterfeited are fairly low, but the chances of 100 ounce bar being faked are statistically significant. So…

• Buy only from a reputable dealer.
• Buy only bars minted by a well-known maker such as Engelhard, A-Mark, or Johnson-Matthey
• Buy only serialized bars.
• If in doubt, have an assay conducted. This is the norm for 1000-ounce industrial silver bars, but can also be done with serialized 100 ounce bars if they are being offered by a dubious seller. (A local bonded assay company can be located with a web search.) The traditional method is to drill a small diameter hole into one of the bars to insure that you aren’t buying a lead bar that has been silver plated. Then, those drillings are tested using nitric acid and silver chloride.
• In the unlikely event you don’t have access to an assay company, then at least weigh the bar on a very accurate scale and compare its dimensions (using calipers) with a “known good” bar from the same maker. (There will be minor variations, especially with cast bars, but it is difficult to create a counterfeit bar that will have both the correct weight and dimensions. You can also do an Archimedean water displacement test.

The chance of gold coins being faked is substantially higher than silver coins. Anyone that plans to buy gold coins should get a set of the precision coin calipers made by Fisch Instruments of South Africa. It is also wise to invest in an acid test kit that includes a touchstone.

Greg C. mentioned some commentary by Howard Rich: The United Fiefdoms of America. “For the first time ever, federal aid – not property, sales or income tax – is the top revenue source for state budgets, the paper reported.”

GG flagged this by Karl Denninger: Nothing Suggests We’re Anywhere Near the Bottom

CJB suggested this article: Social security to run out of money…

And, in a disturbing echo, GG suggested this: Medicare already in the red

Items from The Economatrix:

Social Security and Medicare Worsens (since yesterday’s article) “The trust funds — which exist in paper form in a filing cabinet in Parkersburg, West Virginia — are bonds that are backed by the government’s “full faith and credit” but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.”

Oil Hits $60 on Global Recovery Hopes

April Foreclosures Rise 32% More than 342,000 people received at least one foreclosure notice.

Gasoline Prices Jump in California and US

Breathing Easier After Bank Stress Tests? You Shouldn’t Here are a couple of quotes from the article: “Largely unnoticed in last week’s government report on the condition of the nation’s biggest banks was the disclosure that five of them, topped by Bank of America, could lose $99 billion from the kinds of exotic bets that sank the global economy.” and, “The banks’ financial reports to regulators for the quarter ending March 31 also tell a potentially ominous story about their holdings of derivatives, instruments whose value is tied to an underlying asset, such as a pool of subprime mortgages. Seventeen of the 19 largest banks reported that, in the event of an economic catastrophe, they face combined derivatives losses exceeding $568 billion.”

Is Anyone Minding the Store at the Fed

Treasury Wants More Oversight of Derivatives

UBS Suggests Gold Could Go to $2,500

Credit Card Companies Piling on Fees, Raising Rates Ahead of New Federal Rules

Dollar Rally Will End, Rogers Says; May Short Stocks

Stocks Drop More than 2% on Economy Worries

Home Prices Drop Most on Record Per Quarter Dropped 14%

Soda Tax Weighed to Pay for Healthcare

Trade Deficit Widens in March to $27.6 Billion

Citi: $45 Billion Goes to Loans