Colorado's Death Blow
by
Dr. Steve Sjuggerud, from Aspen,
Colorado
Ashcroft, Colorado, is a Ghost Town. Ashcroft's
boom of the 1880s - and it's subsequent bust - is a
remarkable story.
S&A geologist Matt Badiali and I were in
Aspen last week. While there, we visited the remnants of
neighboring Ashcroft.
Ashcroft, like most of Colorado, boomed because
of silver. Ashcroft didn't exist in 1878, when the
Bland-Allison Act was passed, causing a silver
boom...
For the previous five years, silver was
"busting." You see, in 1873, the U.S. shifted to a "Gold
Standard" as its system of money. Before then, gold and
silver were money (in a fixed ratio to each
other).
As you might expect, since silver was no
longer money, the price of silver crashed... from
about $1.45 an ounce in 1873 to about $1.10 an
ounce by 1878.
Bland-Allison was a ridiculous piece of
legislation designed to help out the silver
miners. It allowed silver to be used in coins
again. The strange part was that the government
would buy silver at market prices and then issue
coins at a fixed ratio to gold (16 to 1),
regardless of the market price. |
|
Steve Sjuggerud & Matt Badiali
at
Maroon Bells outside Aspen on
Friday |
| |
Speculators saw the opportunity right away.
Miners holding the lower-priced metal (silver) would
immediately go to the U.S. Mint and exchange it for the
higher-valued metal (gold). President Hayes knew the
Bland-Allison Act was ridiculous and vetoed it. But
Congress overrode his veto. The gold-to-silver ratio at
the time of passage was about 18.25 to 1 - creating an
extraordinary profit opportunity.
The boom was on. By 1883, Ashcroft, Colorado, had
2,000 residents, two newspapers, 20 saloons... and the
mines produced an amazing 14,000 ounces of silver to the
ton.
Ashcroft's story was repeated all over Colorado.
Silver mining towns, such as Aspen and Telluride,
appeared on the map as well. Colorado supplied 60% of
America's silver production.
In 1890, the Sherman Silver Purchase Act replaced
the Bland-Allison Act. It was even more favorable to
silver producers... The U.S. government was now required to buy 4.5 million ounces of silver
per year - nearly the entire output of American silver
mines. The opportunity for free money was even
greater... Simply find silver, trade it in for gold, and
get rich.
The result was what you'd expect... the boom
turned into a mega-boom in silver... In 1891, Aspen
became the nation's largest silver producing district.
By 1893, Aspen's 12,000 residents had six newspapers,
four schools, three banks, electric lights, a modern
hospital, two theaters, an opera house, and a brothel
district.
President Grover Cleveland assessed the damage to
the nation's Treasury: "Between July 1, 1890 and
July 15, 1893, the gold in our Treasury decreased by more than $132 million,
while the silver in the Treasury increased more than $147
million."
1893 was Aspen's peak for a long
time...
That year, President Cleveland repealed the
Sherman Silver Act to prevent any further depletion of
U.S. gold reserves. The price of silver fell from 83
cents to 62 cents in four days. The national economy
busted immediately.
Colorado entered a severe depression. (Somewhat
ironically, one of the largest silver nuggets ever
discovered - at 2,200 pounds - was discovered in Aspen
in 1894.) Aspen's population fell to just 700 people by
1935. Telluride's population today is half of what it
was back then. And Ashcroft? It's gone...
Looking back, what caused the Panic of
1893? The same thing that caused the boom... Government
tinkering with money.
Today, the government still tinkers with money...
the Federal Reserve sets the "price" of money - by
setting short-term interest rates.
Government tinkering with money set off a silver
boom in the 1880s and a subsequent bust in 1893. More
recently, government tinkering with money (artificially
pushing interest rates down below 2%) set off a housing
boom starting in 2001. To me, there isn't much
difference in these two things - they were a result of
government tinkering with money.
Real-estate speculators today are getting
obliterated now, just as silver speculators did after
1893. The reason is simple: It's really hard to
have an artificial boom that doesn't have a subsequent
bust.
One thing we do here at DailyWealth is look for "free
money" opportunities like these... When a government
somewhere is creating a false boom, we ride it with one
eye on the exit. And when the government sees the error
of its ways and steps aside, we clear out
quickly.
The Sherman Act of 1893 was Colorado's death blow
for decades. The Fed raising rates from 1% to 5.25% was
the death blow for real-estate speculators. "Free money"
opportunities from governments tinkering with money are
some of the easiest and best profit opportunities you'll
ever get... We'll continue to point them out in the
pages of DailyWealth...
Good investing,
Steve
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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