Silver Fever

Three weeks ago an idea dawned in the minds of the world's silver speculators. Last week it burst full upon them with the brightness of a newly risen sun. The New Deal--besides its large home schemes --has an even bigger scheme afoot: to make silver once more a world money metal. Beholding this sun, the silver world went wild and the New Deal had an international problem in its lap.

When Franklin Roosevelt upped the price which the Treasury pays U. S. silver producers from 64-c- to 71-c- an oz. (TIME, April 22), the world had its cue. For the price to U. S. producers was boosted to keep it ahead of the mounting world price. But the world price was mounting because of U. S. buying in the world market. When a player shows that he is willing to raise his own ante, there is no limit to the betting.

Confronted with this fact, silver speculators suddenly realized another: in less than a year the U. S. had bought some 400,000,000 oz.--a drop in the bucket compared to 12,000,000,000 oz. which are supposed to exist, but more than twice the world's recent (1931-34) annual output. For practical purposes the U. S. had already cornered most of the floating supply. Eager to profit from the corner, speculators helped the U. S. boost the world price to the U. S. price, 71-c-. Last week when it reached that level, Franklin Roosevelt raised the ante for a second time, put the U. S. price at 77-c-.

Then no longer did the U. S. have to boost the world price: in Montreal, in London, in Shanghai and Bombay every-one wanted to own, no one to sell silver. In two days the world price passed the U. S. price, went right on up to 81-c-. Mining stocks boomed the world over. Fortunes poured into speculators' pockets.

Suddenly the U. S. Treasury had more than it had bargained for. Chinese tore their queues, for China is a silver money country. In March 1933 the U. S. knew what it was like to have all men suddenly want gold above all else. Last week silver standard China had a taste of the same, though silver instead of gold was the metal wanted. Ever since the U. S. began to boost the price of silver, China has had deflation. In vain the Chinese Government imposed a silver export duty. Silver was smuggled out. When silver prices last week sailed toward Heaven, China grew desperate. Finance Minister Kung appealed to all patriotic Chinese to keep their silver at home. Chinese Ambassador Sze wrung his hands on the steps of the State Department in Washington: the U. S. was ruining its one friend in the Orient.

China was not the only sufferer. Mexico had not felt deflation caused by the rising silver price, for she has a managed currency. But unfortunately her coins are silver. When silver touched 81-c- her coins were worth more as silver bullion than as money. Almost overnight they went out of circulation. Her smallest paper money was the five-peso note (worth about $1.52.) When coins went out of circulation Mexicans could not pay cash for anything worth less than $1.50. Business was at a virtual standstill. Hastily the Government closed every bank in Mexico, all silver coins were ordered turned in to the Government, the printing presses were set busy printing one-peso notes (27.78-c-), the mints began to stamp out new fractional copper coins. Mexico, like Europe after the War, was going to have to do business with shinplasters. President Cardenas rushed back to the capital from a tour of his realm. Roberto Lopez, Assistant Secretary of the Treasury, flew to Washington to beg for mercy or at least for time to go into the shinplaster business.

Secretary Morgenthau had to reconsider his immediate plans for reintroducing silver to the world. He called the silver bloc (Senators Pittman, Borah, Wheeler, Adams, King) to the Treasury for a conference. Although the world price for silver stood above the U. S. price, it was decided that for the moment the U. S. would not raise its ante a third time. Promptly the world price flopped back below the U.S. level to wait for the next move by the U. S.

If speculators do not let the U. S. raise its ante peacefully by easy stages, the U. S. may stop raising--or may raise to the limit--$1.29 an oz., the "legal" silver price set years ago by Congress. In the confusion that would follow this latter move, stabilization of world exchange might be postponed indefinitely. Or confusion might be so great that England and other nations would have to join the U. S. in a stabilization conference.

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