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.
Okay, away we go …
“The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else’s goose. The investment bankers and their associates now enjoy that privilege.”
— Louis D. Brandeis
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Deficit spending is simply a scheme for the ‘hidden’ confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.”
— Alan Greenspan
Credits and Debits
Credit: Stocks may have recovered a good chunk of what they lost since their early February meltdown but, financial analyst Dave Kranzler says there are signs that “The professional money is leaving the stock market at a rate that has only been equaled (twice) in the last 20 years, in 2000 and 2008.” Who knows? Maybe the third time is a charm.
Debit: Hey … Remember when a single bitcoin commanded more than $19,000 — the equivalent of almost 15 troy ounces of gold — with “experts” calling for the soaring cryptocurrency to reach $50,000, $100,000 and even $1 million? Yeah, it seems like that was such a long time ago — but it was only last December. Imagine that.
Debit: Alas, bitcoin never did hit the million-dollar mark — or $50,000 for that matter. In fact, since the last greater fool bought a bitcoin for $19,783.06 on December 17th of last year, bitcoin has shed more than $13,000 and is now struggling to stay above $6000, which means those who bought the cryptocurrency near its parabolic top have lost 70% of their investment — in six short months. Ouch. See for yourself:
(if you’re not a hodler, click to enlarge)
Credit: If you think that’s bad, just wait until the US dollar finally implodes; then bitcoin’s true value will be revealed. For those of you still wondering what that final number is, well … here’s a hint:
Debit: In other news, I see that Venezuela’s economic death spiral has picked up speed — if that’s even possible. In November 2016 it took 1500 bolivars to buy a single dollar. Today, it takes a stunning 2.3 million bolivars to buy a single buck. Less than a month ago, that same greenback would have fetched only 800,000 bolivars. Surprised? You shouldn’t be. That’s what happens, folks, when inflation is 37,076%.
Debit: On a related note, US inflation accelerated in May to the fastest pace in more than six years. The consumer price index rose 2.8% from a year earlier, matching estimates, a Labor Department report showed Tuesday. That was the biggest gain since February 2012 and follows a 2.5% increase in April. Then again, that’s still 37,073% lower than Venezuela’s inflation rate, so don’t worry. Be happy!
Debit: After last week’s G7 meeting, John Bolton, complained that “other countries still expect America will always be their bank” — then warned that would be changing. Apparently, Bolton is yet another American politician who fails to recognize the one-sided benefits that America derives from having the world’s premier reserve currency.
Just another #G7 where other countries expect America will always be their bank. The President made it clear today. No more. (photo by @RegSprecher) pic.twitter.com/emAVNqRqhc
John Bolton (@AmbJohnBolton) June 9, 2018
Credit: After reading the National Security Advisor’s comment, Ian Bremmer astutely pointed out that, what Bolton is unwittingly arguing for is an end to the US dollar’s reserve currency status — and the ensuing reduction in most Americans’ standard of living that such a move would entail. Apparently, Mr. Bolton never heard of Triffin’s dilemma.
Credit: Meanwhile, the US is using tariffs to help reduce the trade deficit — and threatening more. The trouble is, the US trade deficit is inextricably linked to the American economy because the world’s central banks need US dollars for their reserves. As long as the US dollar remains the world’s reserve currency, the US will always have annual trade deficits. Just as Robert Triffin recognized many decades ago.
Debit: The bottom line is this: Like it or not, the US dollar is going to implode because it’s the only remaining alternative. As MN Gordon notes, “Faith in the government’s ability to cure all of society’s ailments is what got us into this mess. For those who experience the insidious injustice of having their life savings vaporized through state sponsored currency debasement, that misplaced faith will never return.” Let’s hope so.
Credit: Of course, the real solution is waiting in the wings. As Hugo Salinas Price correctly states, “There’s only one way to (eliminate) US trade deficits and renew productivity: abandon the present international monetary system and return to the gold standard.” Yes, it will result in a temporary reduction in American living standards — but we’ll all be better off in the long run. Besides, it’s the right thing to do.
By the Numbers
Here’s a quick look at some data on Father’s Day:
$119.84 The average amount a person will spend for Father’s Day this year, according to The National Retail Federation.
24,400,000 The number of married American fathers with children younger than 18, according to the US Census Bureau.
16 The percentage of single-parent American fathers, according to the US Census Bureau.
7 The average hours spent on child care per week by fathers, according to the Pew Research Center.
2.5 The average hours spent on child care per week by fathers in 1965.
Source: Forbes
The Question of the Week
[poll id="219"]
Last Week’s Poll Result
How many times per week on average do you eat fast-food?
- Less than 1 (55%)
- 1 (19%)
- 2 (10%)
- 3 (8%)
- More than 3 (8%)
More than 1200 Len Penzo dot Com readers answered this week’s survey question and it turns out that slightly more than 1 in 4 of them grab a fast-food meal at least twice per week. When I was younger I was a fast-food junkie; I typically ate the stuff six or seven times per week. If I tried that now I’d be fatter than I already am!
This particular poll question was suggested by Kenny. If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.
Useless News: Tight Skirt
In a crowded city at a crowded bus stop, a beautiful blonde was waiting for the bus. She was decked out in a tight leather mini skirt with matching tight leather boots and jacket.
As the bus rolled up and it became her turn to get on, she became aware that her skirt was too tight to allow her leg to come up to the height of the first step on the bus.
Slightly embarrassed and with a quick smile to the bus driver she reached behind her and unzipped her skirt a little thinking that this would give her enough slack to raise her leg. Again she tried to make the step onto the bus only to discover she still couldn’t!
So, a little more embarrassed she once again reached behind her and unzipped her skirt a little more and for a second time attempted the step and once again, much to her chagrin she could not raise her leg because of the tight skirt. So, with a coy little smile to the driver she again unzipped the offending skirt to give a little more slack and again was unable to make the step.
About this time the big Texan that was behind her in the line picked her up easily from the waist and placed her lightly on the step of the bus. Well, she went ballistic and turned on the would-be hero screeching at him “How dare you touch my body!! I don’t even know who you are!”
Upon hearing this, the Texan drawled, “Well ma’am, normally I would agree with you but after you unzipped my fly three times, I kinda figured that we was friends.”
(h/t: billhilly)
Programming Note
If you recently read RD Blakeslee’s latest Grandfather Says entry on moving to a new neighborhood, you may want to stop on by and take another look. He has provided some additional photos of his house-moving project you don’t want to miss!
Other Useless News
Here are the top — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Ontario (1.59 pages/visit)
2. British Columbia (1.56)
3. Alberta (1.49)
4. Quebec (1.46)
5. Manitoba (1.32)
9. Newfoundland and Labrador (1.20)
10. New Brunswick (1.16)
11. Prince Edward Island (1.13)
12. Yukon Territory (1.12)
13. Northwest Territories (1.00)
Whether you happen to enjoy what you’re reading (like those crazy canucks in Ontario, eh) — or not (ahem, you hosers living on the frozen Northwest Territories tundra) — please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
2. Make sure you follow me on Twitter!
3. Subscribe via email too!
And last, but not least …
4. Consider becoming a Len Penzo dot Com Insider! Thank you.
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 me at: Len@LenPenzo.com
This week, Gary left the following pitch for an article he wrote in my inbox:
“Did you know that potato bugs hide under tree bark or other cover to protect them from freezing during the winter? The article might make a nice addition to your blog. What do you think?”
Umm … no. Now I have a question for you: What do you get when you step on a potato bug? A mashed potato bug!
I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
Len,
That sure was a beat down on the precious metals yesterday with really No reasonable explanation except blatant manipulation! The Dollar was actually down a tad, although the day before it seemed like the only currency on earth the way it exploded upward. Could something sinister in the markets this way come?! Stay tuned!
Jared
Yeah, the metals took a pretty big tumble, which was only surprising to me because the day before silver had popped up above a key moving average and looked to be set up for an even bigger move higher. All commodities were crushed yesterday along with gold and silver. Hard to say what caused the big drop.
It may be that “State’s Rights” are being reasserted in an unexpected way: The states are beginning to establish commerce using precious metals, which they are allowed to do under Article 1 Section 10 of the Constitution.
https://www.zerohedge.com/news/2018-06-15/texas-bullion-depository-officially-opened-business-week
Look for the swamp to try and shut this down.
It’s nice to see, Dave. The swamp can’t have a monetary system based on precious metals because the fiscal discipline it imposes would force them out of business.
I’ve never seen a goose lay an egg before. I always thought they came out the underside of the goose like they show in cartoons. LOL!
Have a great weekend Len!
Sara
Well … I’m glad you learned something new here this week, Sara! ha ha
I like your weekly posts, but your view on cryptocurrency is just myopic.
Hi, David. I appreciate your comment.
I do not know how long you’ve been following me, so perhaps you are unaware of why I believe bitcoin will eventually go to zero. There are a couple of reasons, but the biggest one is that, unlike gold and silver, bitcoin’s value must be measured in terms of a currency (be it fiat “money”, gold, silver, or even seashells). When the fiat money system goes belly-up, bitcoin’s actual value will almost certainly have to be measured in terms of gold. The big question is: will there actually be gold holders out there who will be willing to exchange real physical gold (or silver) for ethereal bitcoins — and if so, at what level? It is my opinion that when the rubber hits the road, we’ll see that in an honest monetary system bitcoin will, at best, command only a very very small fraction of gold (if any) in the market place.
Bitcoin’s value does not require comparison to a fiat currency. It just is. Same with gold. Your entire view here is predicated on the assumption that gold is the only true inherent value. I can certainly understand that since there’s a lot of history to it. But, value is only based on demand. It is a perception. When there is a demand as well as a limited supply, price goes up. That is the only reason gold has any value. And the same goes for Bitcoin. The only way Bitcoin or any other crypto goes to zero is if demand for it completely goes away. Will it? Very unlikely. If anything, we’ve seen multiple instances (including in Venezuela) of people fleeing to cryptocurrency in a fiat collapse.
Money is nothing but an idea backed by agreement and confidence. What makes fiat flawed is because the agreement is enforced and the rules can change. With Bitcoin, that is not true.
So, again, I do think your viewpoint is myopic. And the flaw in what you said is that it relies on the assumption that Bitcoin inherently requires a comparison to a fiat currency. That isn’t true any more than it is for gold. That’s market value.
Mind you, I’m not saying Bitcoin will be the new de facto money. I think it’s future is as a digital gold. I think other cryptos will serve more daily functions. And I also think governments will come up with fiat cryptos. It is inevitable.
True, bitcoin doesn’t have to be measured in terms of fiat currency — as I already stated, it can also be measured in terms of gold or seashells. So we agree there. However … Unlike bitcoin, gold (and silver) are real tangible objects that can be measured in terms of itself; think troy ounces. Real items are self-referential; this is basic physics. This is a key point you seem to miss — and that upends your entire argument.
And, yes, I know what money is … but not all money is created equal. It is certainly not as simple as “an idea backed by agreement and confidence.” That actually is a better description of currency. Gold (and silver) are both money and currency. Ideal money is:
1. A medium of exchange
2. A unit of account
3. Portable
4. Divisible
5. Durable
6. Fungible
7. An excellent store of value
Currency can have many of the above traits, but only true money has all seven (the most important being the last item on my list, which currency is not).
Gold (and silver) have proven themselves during 5000 years of history to be unassailable forms of money. Bitcoin has been around for less than a decade — so the jury is still out. No amount of wishin’ and hopin’ is going to change that.
You are right, the jury is still out. However, I think the future of cryptocurrency is much brighter than you think it is. That isn’t hope. I’ve done quite a lot of homework on it myself. I personally do not think the world economy i going to revert to a gold standard again. SOME currencies may, and in fact I think I recall there’s already one cryptocurrency which is gold-backed. But, crypto meets the 7 criteria you stated and I think that’s where we’re heading. It solves too many problems to be ignored. And, BTW, none of this means gold becomes meaningless. I think gold will remain a store of value as well.
I agree with Dave that cryptocurrencies have a bright future but it’s a future I don’t think people will like. Ken Rogoff inferred that the government will eventually co-opt it. What started out as a good idea will turn into a nightmare. Every transaction will be monitored. Freedom will be out the window. You won’t even be able to buy something from a garage sale anonymously. I hope I’m wrong but I think that is what’s coming.
Well, that’s the thing. Cryptocurrency isn’t an “it”. It cannot be co-opted by the government any more than they could co-opt the entire internet. You can have pockets of it and they can make things complicated, but de-centralized means it cannot be co-opted. You will have individual currencies that could be, and I fully expect you’ll have cryptos issued by the governments. But, cryptocurrency, as a whole, cannot be co-opted.
Also, cryptocurrency is anonymous unless tied to an identifying database. Some blockchains are open, and if tied to an exchange with KYC regulations, then yes things are trackable. But, there are many privacy coins (Monero, Zencash, etc.) that are as anonymous as cash.
Sorry Mr. Risley, but crypto only offers to replace a fiat currency conjured up by the government with a fiat currency conjured up by someone else.
Cryptos have NO intrinsic value and have proven over the short term to be very poor stores of value. They are NOT portable since they are not actually held by the “owner”. This illustrates the massive counterparty risk that is built in to the entire scheme.
Much like the government and central bankers, I’m guessing that you paid crypto evangelists are very busy behind the scenes converting your crypto and dollars to real money as we speak considering the financial disaster that is very near.
“The consumer price index rose 2.8% from a year earlier”
The CPI number is BS. The government uses that to keep cost of living raises small and fool people into thinking the dollar is not being debased so the money printing and crazy politician spending programs can continue.
Yeah, Pete … I always feel kind of slimy when I use the CPI figure as an “inflation rate” rate.
So, someone out in LenPenzoland, please correct me if Im wrong. By being the issuer of a generally held reserve currency, a nation enjoys lower borrowing costs and lower commodity costs, but this often causes ballooning government spending and asset bubbles, as well as a necessary trade deficit. Thats why we dont make stuff here anymore. But it is also the reason that Len, and many others, say that when the USD is no longer the reserve currency, most Americans standard of living will be reduced. Is this accurate?
Jason, as the holder of the premier global reserve currency, the US enjoys lower import prices and the ability to “export” the inflation that results from excess money printing (as a result, the US can run large budget deficits “funded” by the printing press with few consequences as long as our creditors continue accepting our green confetti). When the rest of the world finally rejects the US dollar, those US dollars currently sitting in central banks around the world will finally come back home to the US, resulting in high inflation. That will cause American living standards to drop. Imports will also become extremely expensive — which isn’t necessarily a bad thing if you have a domestic manufacturing base to fill the gap, but the US right now depends on those cheap imports for a lot of things. Eventually, a domestic market will rise from the ashes to fill that gap, and American living standards will rise as a result from the positive economic activity. If we have an honest money system (based on precious metals) we will actually return to the glory days when a household could expect to cover the cost of a home and even send the kids to college on a single blue collar income.
Thank you, Len!
Len, saw your back and forths with David. You forgot the most important requirement for “ideal money”.
It is trust.
Your entire argument for gold (or even David’s crypto for that matter) being a “genuine and real” currency is again based on a similarly “arbitrary” belief by enough number of people. “arbitrary” in the sense that enough people need to coalesce around a notion of exchangeable medium.
If they don’t believe it, gold and crypto both will have zero value. Gold cannot buy wheat if the wheat seller does not think he can use the gold to get water or fruit or anything else he needs ….
Gold may have value in a very limited situation of currency collapse without a productivity collapse. But in today’s interconnected world and confused world where everything is built on trust, they will go hand in hand.
Then, the only thing that matters is the food you can grow, the water you can control, the power you can generate, the houses you can build ….. We’d be back to 8000BC and we would have work our way back up along the trust path, along the productivity path, along the barter path, along the specialization path, etc …. and hopefully we would come back to a new definition of money …. cocoa beans …. cowrie shells …. gold ….. crypto …. bottle caps (shout out to Fallout!) ….
Humans have accepted gold and silver in exchange for goods and services without interruption for 5000 years. With that track record, I can assure you that they will always be accepted as money.
As for your assertion that nobody will accept gold for wheat during a currency and productivity collapse, well … that is a bad assumption. One only has to look at the recent Zimbabwe hyperinflation event from less than a decade ago. The desperate Zimbabweans there were panning and digging for flakes of gold so they could exchange it for bread in town.
That’s right; despite one of the worst economic collapses of the past 100 years, it was still possible to exchange gold for bread, salt, cooking oil, and other goods in Zimbabwe.
The lesson there is life goes on — and, when push comes to shove, all humans innately understand that precious metals are money.
LOL!
1. Clearly, there was wheat there to be exchanged. That gold exchange would be meaningless and would never happen if you are down to 26 loaves of bread (i.e. productivity collapse).
2. And you see, that is exactly my point.
Is it easier to go looking and digging for gold? Or is it easier to grow a small vegetable and potato garden? Which skill is more useful in a crash?
If the situation is so bad that you need “0.1g of gold for a loaf of bread” …. how much gold will keep you fed? and how long? And if conditions are so bad, how do you know 0.1g of gold is really 0.1g of gold? (i.e. trust collapse)
Government outlawing private gold reserves and/or confiscating gold (like after 1929) is also way more likely before complete dollar collapse and gold replacing current currency. (and 1929 was during the days of the gold standard).
Current currency collapse, government collapse but not a trust collapse or a productivity collapse ….. sure …. gold is a good medium of exchange. But my point is that it is a very narrow tight-rope to walk on. A lot more things will happen that are more likely.
I am not sure what is so funny.
First off, a currency collapse is, by definition, a collapse in trust. If people had confidence in the currency, then it would still hold value.
Secondly, if there is a Mad Max “productivity collapse” then the most precious metal will be lead — not gold. I’m not so foolish as to try and prepare for — and survive — something so dire. Just curious: in a Mad Max world, how many calories will you secure for you and your family by “growing a small vegetable and potato garden”? Enough to feed yourself throughout the summer and carry you through the winter? Never mind the side issues with defending said garden from critters and hungry marauders.
But let’s try to stay on point. You originally asserted that people would not trade gold for bread in a currency collapse and I gave you unassailable proof that your assertion was flat out wrong — as you saw from the film clip I provided, people in Zimbabwe were actually willing to pan for gold because there were indeed bakers and farmers willing to exchange their bread and wheat for gold even in the complete absence of a functioning paper currency! Then again, that shouldn’t be a surprise to anyone. Gold and silver have been accepted in exchange for goods and services for 5000 years — and never more so than during all of the world’s countless monetary collapses.
I have always said that I believe a dollar collapse will not result in the end of the civilized world as we know it. There may be some supply chain disruptions, but they would be temporary. And while trying to survive Mad Max is not worth the effort, in my opinion, preparing for potential temporary supply chain disruptions of a month or three is prudent. The world is not going to end if/when the dollar collapses. It may get uncomfortable for awhile, but humanity will carry on — it always does — and gold (and food/water and other preps) will help fill the gap until a new monetary system is put in place. That’s when the true value of gold will really show itself — as a bridge that allows its holders to carry their wealth from the dead monetary system to the new one.
But good luck with your small vegetable and potato garden!
Oh … as for gold confiscation — since gold is no longer part of the money supply, there is no reason for the government to confiscate it; not enough Americans hold it today to make much of a difference, and the expense and risks of going door to door looking for it wouldn’t be worth the effort. Besides … even if the government was stupid enough to try and confiscate it, most gold holders would never willingly turn their metal in anyway — assuming they even had it stored on the premises where it could be easily found.
0. Laughed because you saw that video and decided 0.1g of gold was the important piece of the story that required the action of saving up some shiny gold … versus what it was being exchanged for.
1. I assume from your questions that you probably have never grown anything . The answer is: At worst, a lot more calories than 0.1g of gold. In reality, it will be never ending productivity and calories.
2. security risk of protecting your own food is the same as protecting your gold reserves. Except the food will grow back. Gold won’t.
3. You say you need gold to buy things in a currency collapse so I assume gold needs to be next to you ….. you say govt won’t outlaw gold when US actually did …. you say you won’t keep gold on hand so government can’t take it from you, …. hope you are clear about how you will use gold.
4. And finally, you actually admitted it. Gold helps you best in the 3 months of draw down before a new system comes up to exchange your gold for goods/services in the 3mo and the new currency afterward. Which is such a limited scenario out of so many possibilities. Sorry, that is not a convincing value proposition. You might as well keep 2yrs of food supplies on hand. That’d be way cheaper than 1lb of gold. And no amount of gold will bridge a longer uncertainty but being productive on your own will certainly bridge it.
We only see what we want to see, Kyron.
0. The only reason I chose that video was to refute your claim that gold was of no value in a currency collapse. Yet, you’re still making excuses for that and moving the goalposts.
1. One ounce of gold is enough purchasing power to feed one person for an entire year. I hear ya: But what if we enter a Mad Max scenario? The odds of that are slim and none.
2. No it isn’t it. Gold can be hidden. Your vegetable garden can’t.
3. Do you read what I write, or only pick out the stuff you agree with? I explained why gold most likely won’t be confiscated again — and if it is, why nobody will voluntarily turn it in. As for how it will be used … there is something out there called the black market. Or do you believe that doesn’t exist either?
4. No; go back and read my comment again. Preps and food stores are best for temporary supply chain disruptions. Gold’s true value is as a bridge that allows its holders to carry their wealth from the dead monetary system to the new one. Well … unless your wealth is limited to how many fruits and vegetables you own. Mine isn’t … but if yours is, then I can see why you see no need to hold the yellow metal.