One enormous difference between now and the 1980 $50 silver price is interest rates.
In 1980, interest rates were very high....the average 30 year fixed mortgage rate was between 12-16%. Those high interest rates suppressed housing prices. Now, the Fed, Volcker, etal knew that they could cut interest rates dramatically and fuel a boom in Real estate and Stock prices....they did and we all know what happened. Gold and Silver were forgotten as an asset class....or worse.
Today, they do not have that option. Imagine what would happen if they started to raise interest rates. We are already on very thin ice. Interest rate hikes would cause the Stock Market and Real Estate to sell off sharply....greatly increasing the odds of a deflationary collapse. Bernanke and Paulson got a quick glimpse of this on July of 2008 when they almost crashed everything.
The choices are not pretty....hyperperinflation or deflationary depression. It will not be easy to avoid one of those two outcomes.
Think what would happen to the local governments in our country if Bernanke raised interest rates and housing values plummeted. Many local governments are already virtually bankrupt. Local governments are highly dependent on property valuations for their revenue.
Let's pretend the average borrower can afford a $1,000 a month mortgage payment. At today's average 30 year fixed interest rate of 4.72%, assuming he puts 20% down, he can afford approximately a $240,500 house.
If the 30 year fixed rate rose to 8%, the same buyer can only afford approximately a $170,325 house.
Local Governments will likely implode if real estate falls more than it already has.
The situation is ugly....to say the least.
