It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
Another glorious week comes to an end. Off we go …
“When the President signs this Act, the invisible government by the Money Power, proven to exist by the Money Trust Investigation, will be legalized. The money power overawes the legislative and executive forces of the Nation and of the States.”
— Rep. Charles A. Lindbergh, on the bill which established the Fed.
When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.
— Napoleon Bonaparte
Credits and Debits
Credit: Don’t be alarmed, but the number of Americans filing unemployment benefits dropped to the lowest level in 48 years last week. Oh, I know what you’re thinking: With the “official” unemployment rate threatening to fall below 4%, it won’t be long before there won’t be enough workers to mow our lawns, wash our cars, and take our orders at the local McDonald’s. Talk about doom and gloom.
Debit: With such a hot job market, it’s hard to understand how nearly 25% of fully-employed millennials still require help from their parents to pay the bills because wages should be skyrocketing. And since we all know US government economic data is beyond reproach, I think it’s safe to say that one in four “fully-employed” millennials are actually pulling a fast one on Mom and Dad. Obviously.
Debit: The truth is, wages are definitely not skyrocketing; in fact, they’re only growing at a very modest annual clip of 2.7%. Unfortunately, 18 of 20 US metropolitan areas saw home prices grow at an even higher pace — and 16 of those saw home price growth of 5.4% or higher. Yes, that’s double the average wage growth. Does anyone else see a problem here? Okay … then how about here:
Debit: In other news, the World Economic Forum says in 2015, the combined retirement savings gap was more than $70 trillion, spread across eight nations. In fact, that deficit is increasing by $28 billion per day and, at that pace, will reach $400 trillion by 2050 — that’s five times the size of the current global economy. But I’m sure that’s just a minor detail. Or not.
Debit: Heck, even Bloomberg noted this week that an American pension fund collapse is on the horizon, suggesting that, “The next phase of public pension reform likely (to) be touched off by a stock market decline creates the real possibility of at least one state fund running out of cash within a couple of years.” Um … Ya think?
Credit: Then again, Bloomberg’s pension crisis assessment may be just a wee bit too optimistic. That’s right; according to financial analyst Dave Kranzler, “If the stock market were to sustain an extended decline of more than 10% (for) several months, then every public pension in the US would collapse.” The good news is … well, I can’t really think of any.
Credit: It’s not just the public pension system that is knocking on death’s door. The great Bill Holter notes that, “The world has changed, and the financial system is on its death bed — and yet few can see it.” You’re absolutely right, Bill. But you can bet eye do. Ahem.
Debit: For his part, economist Thorsten Polleit believes that, “The risk of a currency crisis is growing by the day. The concern that it might be a crisis that could eventually bring down the fiat money system is by no means an exaggeration.” No it’s not. Besides, I don’t tolerate exaggeration here. And I’ve warned about the risk of a looming currency crisis in this column at least a quadrillion times before.
Debit: Of course, the ultimate insurance against currency collapse is gold. And at the current liquidation rate, Venezuela will effectively sell the last of their yellow metal by next summer which, as Zero Hedge notes, will result in the final stage of Venezuela’s social collapse. Forward, amigos!
Credit: Finally … This week West Virginia Congressman Alex X. Mooney sent a letter to Treasury Secretary Steve Mnuchin and Fed Chairman Jerome Powell regarding concerns over the US government’s surreptitious involvement in the gold market, asking the Treasury and Fed to come clean about government policy toward gold. Hooray! Obviously, the “X” stands for “exemplary.”
Credit: By the way, Congressman Mooney is the same guy who introduced a bill last month that would return America to the gold standard. No, really. Under Mr. Mooney’s legislation the Fed would still exist, but it would administer the money supply rather than dictate it. It’s a great start — but eventually, the Fed must be abolished. Otherwise nothing really changes. And you can take that to the bank.
By the Numbers
Last week was the 100th running of the The Boston Marathon. Here are some numbers on the world’s oldest annual marathon:
26.2 The course distance for any Olympic-standard marathon, in miles.
1972 Year women were first officially allowed to enter the Boston Marathon.
2:39:54 This year’s blue-ribbon time for Desiree Linden, who was the first American woman to win the event in 33 years.
2:19:59 Course record for the women’s division, set by Ethiopia’s Bizunesh Deba in 2014.
2:03:02 Course record for the men’s division, set by Kenyan Geoffrey Mutai in 2011
$185 The 2018 registration fee for American entrants.
29,978 Runners who registered for the 2018 race.
28,200 The number of bananas that were available for runners on the course.
19 The number of registrations this year from runners 80 or older.
$150,000 Prize money for both the men’s and women’s winners of the 2018 Boston Marathon.
Source: Forbes
The Question of the Week
[poll id="212"]
Last Week’s Poll Results
Which would you rather find?
- True love. (57%)
- $10 million (43%)
Of the more than 1400 Len Penzo dot Com readers who responded to last week’s question, almost 3 in 5 are hopeless romantics. As for the rest, well … they probably figure with $10 million in their bank account, the quest for “true love” will eventually take care of itself.
Useless News: Near Death Experience
A 65 year old woman had a heart attack and was taken to the hospital. While on the operating table she had a near death experience. Seeing God, she asked, “Is my time up?”
God said, “No, you have another 33 years to live.”
While the woman was recovering in her hospital bed she figured that, since she had so much more time to live, she may as well make the most of it. So she decided to stay in the hospital and have a face-lift, liposuction, breast implants and a tummy tuck. She even had someone come in and change her hair color and brighten her teeth!
After her last operation, she was finally released from the hospital — but while crossing the street on her way home, she was killed by an ambulance.
Arriving in front of God, the woman demanded, “I thought you said I had another 33 years! Why didn’t you save me from the ambulance?”
God replied: “Because I didn’t recognize you!”
(h/t: RD Blakeslee)
Other Useless News
Here are the top five articles viewed by my 19,565 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- 4 Things Everyone Should Know About the Cost of Growing Old
- How I Live on Less Than $40,000 Annually: Emily from Illinois
- 9 Things We Routinely Overpay For
- Powerful It Is: How Compound Interest Is Like the Force
- 3 Ways You Can Save Money by Spending It
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Letters, I Get Letters
Every week I feature the most interesting question or comment assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
Last week I got this note from Carroll:
“Len, I think your blog deserves more attention than it’s getting. I’ll probably be back to read more.”
Thank you, Carroll! Hey, wait a minute … What do you mean, “probably”?
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
I read the bill to “put us back on the gold standard”. It is not exactly a comprehensive plan. Looks to be more symbolic than anything. The Fed must be abolished for any real plan to work.
Ed, before the US will ever return to a monetary system backed by gold — and abolish the private banking cartel known as “the Federal Reserve” — the US dollar and our debt-based monetary system will have to implode first. It is the only way. Almost everyone in Congress is completely dependent on the current system to stay in power.
The “good” news is, the math — and even the markets — suggest the implosion isn’t that far away.
There is no need for a law. The Constitution defines the dollar in terms of grains of silver and gold in a ratio to be determined periodically by Congress.
Trouble is, our courts have allowed the perfectly clear, original meaning of many constitutional directives to be lawyered away.
Example (I’m familiar with this case because I’m a retired patent examine) – The inventor of variable automobile window wipers won a suit for infringement of his patent against the big three U.S. automakers of that day and asked the court to enjoin the infringers so he could manufacture the device himself.
Article 1, section 8 of the Constitution says the patent grant is an “exclusive right”, but the court held that the patentee could not exclude the infringers but must accept royalties and the infringers were allowed to continue the infringement.
Actually, the Constitution does NOT define a dollar in terms of gold or silver or anything else. You have that confused with the coinage Act of 1792, (as amended from time to time).
What the Constitution DOES say in Art1 Sec8:
Congress shall have the power to COIN money (not print paper) and regulate the value thereof.
The use of the word “coin” is very precise….not “issue” or “print”, because the country had just won the Revolutionary War and nearly bankrupt us from the start by the printing of Continental Dollars backed by little but faith. They weren’t about to repeat that mistake, so the word COIN meant COIN…..as in make money out of metal discs. Those coins could be gold, silver, copper, brass, tin, etc….the material was not defined in that power….but paper was definitely cut out of the deal with the word COIN.
The only other mention of gold or silver in the Constitution is Art 1 Sec 10: (specific restrictions on States)
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;
That last phrase: make any Thing but gold and silver Coin a Tender in Payment of Debts means States can not Constitutionally pay ANY State debt with ANYTHING but gold/silver Coin. There is not one single State today in compliance with that restriction. It would seem to me to be a very simple lawsuit for someone that is paid by a State for any goods or services furnished to the State, or any person paid a pension, or paycheck, to bring that before a federal court and ask to be paid in gold coin…..not a check….not an electronic deposit…..not a paper “Federal Reserve Note”….none of that…..JUST what the the State agreed to do when they became a State…..follow the rules….Art1 Sec10. SHOW ME THE MONEY !
Great idea, Andy. But you and I both know the Supreme Court would find some way to misinterpret the Constitution — as they usually do.
Len, if we apply Occam’s Razor, then the simplest explanation as to why the US can’t return to the gold standard or a gold exchange standard right now is that it no longer has the 8000 tons of gold it says it does in Ft. Knox. Politicians today will NEVER agree to a gold standard because that would force them to stick to fiscal discipline! The Fed continues to aid and abet the politicians’ free spending ways with QE and ZIRP to the detriment of everyone except the Fed’s shareholders and the rest of the corrupt banking system.
I pretty much agree with everything you said, Phil. The amount of gold in Ft. Knox would be irrelevant if the US maintained a balanced trade level with the rest of the world (or consistently exported more than it imported), and ensured its currency expansion did not exceed the economy’s growth rate (as long as they didn’t include the “Government” component in the GDP equation … but the flaw in the at’s another topic for another day).
The dollar will soon be worthless. That’s why I buy silver on a regular basis.
Have a great weekend Len!
Sara
You too, Sara. Thanks for being a loyal reader all these years! And please spread the word about this column to all of your friends too.
There’s a fixed supply of gold in the world. Which means you have a fixed supply of currency on a gold standard. This would put you in the strange situation of having a money shortage. So why would people invest? A gold standard is not workable.
There is a fixed amount of virtually all minerals in the world. In the case of gold, on a long-term basis, the amount that is pulled out of the ground each year has been expanding on par with the population rate for thousands of years — so you don’t have to worry about a money shortage. Besides, even if there were no more gold to be mined, there will always be enough yellow metal available because prices would adjust as required to “draw it out of hiding” and ensure enough gold remained in circulation.
Between the end of the US Civil War and the inception of the Federal Reserve in 1913, the US got along just fine with the gold standard. In fact, it was one of the greatest periods of real economic growth in US history. And, get this, prices remained stable or fell slightly during that time. Why did it work? Because the size of the Federal government — which is parasitic to the real economy — was very small and stayed true to the responsibilities given to it by the Constitution. Unfortunately, for the most part they don’t teach this stuff in the US public school system any more.
The VALUE of gold or silver can be determined as needed. The Coinage Act of 1792 set the value of a dollar in terms of so much weight of gold or silver. It was later amended a couple of times changing that weight. Today, the “official” value of a legal tender US Gold one ounce eagle is $50. Clearly this is completely out of whack with reality, since the market demands well over 1300 paper “Federal Reserve Note Dollars” to buy one. Ironic the very same US Treasury that mints one ounce eagles with a $50 face value will not let one out the door of the mint for less than the market price of 1300+ paper dollars …Paper dollars the Treasury also prints !!
To go back to a gold standard and have plenty of currency merely requires we accept reality and price an ounce of gold for it’s real value. That may be 1300 paper bucks (one really shouldn’t call them dollars, because they aren’t), or it may be 5,000 paper bucks or more. The price of gold has long been suppressed by govt intervention (the West because it shows how lousy paper really is, the East because they love buying it cheap) and we have no real price discovery.
THIS is exactly what is going to happen one day when the Chinese finally finish stacking all the gold in their plan. They are buying it cheap today from the idiots in the West that don’t value it….then when they have the economic and military might to enforce a new gold standard (Bretton Woods v. 2.0), they will let the price rise with more zeros attached than anyone would currently believe. IF you’ve saved your long term money in gold (and silver), you’ll be able to eat. IF you’ve saved in paper dollar denominated promises, you probably won’t. Simple as that.
Ideally, gold and silver coins should be denominated only by weight with no currency value imprinted on them. That way their value in dollars — or ameros or whatever the currency du jour may be — could fluctuate to account for increases or declines in the currency strength.
One thing that doesn’t work well is pegging the currency price of gold to a set number (e.g., when gold was $20.67 an ounce in the early 20th century, or when FDR reset the price to $35 per ounce in the mid-1930s. Of course, that is not a flaw in the gold standard; rather, it doesn’t work well because governments have trouble resisting the temptation to over-print their currency.
I’ve read that argument put forth by Hugo Salinas Price….that gold/silver coin should only contain the weight, not a fixed face value, but I’m not sure I buy into that….especially as long as governments are allowed to monkey with the price of metals in the market place like they do now. Stop all future and short selling of gold/silver, allow true, unimpeded price discovery, and it might work to have two different, competing forms of money.
FDR did devalue paper about 75% overnight by increasing the price of gold from 20 to 35. But that was an abomination that should not have been accepted by anyone holding paper dollars. They should have immediately returned them for gold (not that US folks were allowed to) before the next round of paper devaluation hit. If you look at US history for the previous century, a fixed face value worked well, except for the period around the War of Northern Aggression where the North needed to fund a war, and did so by paper.
What the world should do is hang nearly every banker and we’d be better off.
Andy, I agree that until the current manipulation (the biggest culprit being the naked short selling of paper precious metals on COMEX) is ended once and for all — which is a tall order since the complicit US government regulators refuse to stop the manipulation of the gold and silver markets in the face of overwhelming evidence, for obvious reasons — it matters not what honest money system is ultimately put in place.
How many of those 80 y.o. registrants in the Boston marathon actually ran the race?
Don’t know, Carl — but if it was even one octogenarian, then I think that is pretty impressive!
Good point!
Note that congressman Mooney is a West Virginian. We in WV recently completely overturned the “liberal” control of our state legislature and moved back closer to our state motto: “Mountaineers are Always Free”.
Hope that not too many refugees from other states reevaluate our “backwardness” and overpopulate us … *chuckle* …
Then maybe there’s hope for California too, Dave!
Ah, who am I kidding? I’m afraid we’re too far gone out here to ever return to some semblance of sanity.
I think Len may have explained this to me directly or to the blog readers before. But Im still confused regarding the crux of Lil Nemo’s question.
If we have a gold standard with stable prices (or even deflating prices because of gold shortage … which may not be a bad thing … Id get more for my gold ….),
(1) why would i not want to forever hoard gold? I already save a lot of our paper dollar income anyway. So, what is to stop a saver like me from forever getting richer and richer?
(2) Doesn’t a fixed amount of gold in the world make it a zero sum game? Me having gold means you will not have gold ….? … so as long as my contribution to the economy returns me more gold in profit than I spend, I am forever getting richer …. ?
(3) What is the incentive for anybody to invest and take risks and potentially lose gold if we had stable prices or deflating prices? Doesn’t that mess up economy in general if everybody were to hoard?
Kryon, let me try to answer your questions:
1. Gold’s proven ability to maintain purchasing power over thousands of years makes it perfect for long-term savings (a.k.a. “hoarding,” for those who choose to buy in to fiat-money-crowd propaganda. For some reason it is impossible to “hoard” Treasury bills, or stocks, or cash). In a world unencumbered by government currency-debauchery, gold owners’ purchasing power would be stable at worst, or even increase gradually over time as productivity gains became realized.
2. Your zero-sum game premise is flawed because the economy is most certainly not a zero-sum game. Please refer back to my original reply to Lil Nemo; there is not a fixed supply of gold in the world. Also, even if there were a fixed amount of gold in the world, productivity gains would still ensure it is not a zero-sum game.
3. The fact that you asked this question tells me that you are stuck in a mode of thought tied to the current fiat-based system paradigm. Gold is not an investment tool — it is money. Period. As such, its primary uses are for earning/spending (used as currency) or saving. I explained the benefits of using it as a long-term savings vehicle in point 1 above. In a gold-backed monetary system, the only purchasing power gains you will receive by holding gold will be due to productivity gains resulting from more efficient work methods and/or technological advances. If you want to invest with the aim of making large returns, then you have to take on risk (and that requires you to do things like buy stocks, or invest in a start-up).