Black Coffee: Rock vs. Paper

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.

I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …

A democracy is always temporary in nature. Once voters discover that they can vote themselves generous gifts from the public treasury, a majority will continue to choose candidates who promise the most benefits until the government becomes bankrupt.

— Alexander Fraser Tytler

Whenever destroyers appear among men, they … seize gold and leave to its owners a counterfeit pile of paper. Paper is a mortgage on wealth that does not exist … a check drawn by legal looters upon an account which is not theirs – upon the virtue of the victims. Watch for the day when it becomes marked: ‘Account overdrawn.’

— Ayn Rand

Credits and Debits

Debit: Did you see this? With relentless rising prices leading to a decline in real wages for the 19th consecutive month, Main Street is clearly desperate for relief. How desperate? Well … the latest Newsweek poll found that 63% of Americans want new government stimulus checks to “combat inflation.” No, really. Apparently, 63% of Americans also failed basic high school economics.

Debit: On a related note, the European Union’s (EU) “green” environmental policies have backfired so badly that a frightening deindustrialization of the continent is now underway. How scary is it? Well … as a direct result of the EU’s self-inflicted energy shortage and sky-high prices, fully 10% of Europe’s crude steel production capacity is now idle, while all of Europe’s zinc smelters have either curbed production or shut down entirely. Meanwhile, half of its aluminum producers have been idled and 70% of its fertilizer factories have been closed. Heck …. it’s almost as if Europe is being run by insane nihilists.

Debit: As central banks continue to raise rates, national banks within the European system and around the world are having to pay banks an increasing amount of interest over their excess reserves – and those expenditures are leading to losses on their balance sheets. Now here’s the rub: At some point, these losses will put these central banks into a negative equity position – and that will eventually destroy confidence in their respective currencies.

Credit: The “good” news for the Fed – as well as every other central bank out there – is that they’re holding a “Get Out of Debt Free” card that allows them to instantly regain solvency at any time by simply revaluing the gold on their balance sheet to a price that’s high enough to offset its losses. That effectively transfers the Fed’s losses to those holding both US dollars and dollar-denominated assets without having to print additional currency. Yes; it’s devious. And I know exactly what you’re thinking: Is that really true? Can global central banks really get off the hook that easily? Well … in the words of a famous US Army private:

Credit: Of course, central banks won’t make such a politically incorrect move unless they’re hopelessly backed into a corner. But that day may be getting close, as the Netherlands’ central bank chief publicly admitted last week that they’re prepared to use a gold revaluation account (GRA) to remain solvent. According to gold analyst Jan Nieuwenhuijs, “this means that if any European central bank covers its losses with its GRA, then the ECB has to put a floor under the gold price. And if more losses need to be covered than the current GRAs of European national banks allow, then the ECB will need to revalue gold.” So there ya go.

Credit: By the way, last month Nieuwenhuijs also reported that the national banks of Europe have successfully worked together since the Great Financial Crisis of 2008 to equalize their gold reserves in proportion to each nation’s GDP. This is so each nation will see the same relative gain in their GRAs when a gold revaluation is finally forced upon them by our dying debt-based monetary system.

Credit: If European central banks do implement a gold revaluation, sovereign debt would be cancelled, the gold price stabilized, and the eurozone would effectively move towards a new version of a gold standard. As for those laser-eyed shills on Twitter who keep insisting “bitcoin fixes this,” the recent implosion of the massive illiquid, undercapitalized FTX crypto exchange – which Zero Hedge says also “illegally used client funds to fund its own terrible investments” – should definitely make you think again. And if you don’t believe me, just ask this power couple …



Credit: It’s not a coincidence that global central banks have been buying gold in 2022 as if their very existence depended on it. In fact, they’re buying at the fastest pace since 1967, which was just before the collapse of the London Gold Pool price fixing scheme. Imagine that.

Debit: In the meantime, those who are wondering how a gold revaluation would affect the average American, the short answer is: quite harshly. At least for the middle class, whose standard of living – unlike the truly wealthy – will see a sharp decline until the US can successfully transition from an import-dependent nation to one that manufactures most everything it needs on American soil. As for the poor, they’ll be relatively unaffected too, as they have little, if anything, to lose.

Credit: Keep in mind that any eventual reset in the dollar price of gold will have to be high enough to compensate for the Fed’s massive balance sheet liabilities. That price is conservatively estimated to be somewhere between $10,000 and $40,000. Of course, any such revaluation will come as a bolt from the blue; likely during a random weekend. Then, with that new official floor price for gold, central banks will begin buying the yellow metal instead of bonds. And that’s when everyone who prudently chose to insure their wealth against a long-shot currency failure with even a small amount of physical precious metals will be feeling, well … kind of like this:

Debit: On the other hand, the day the central banks’ finally revalue gold will also be the day that precious metal speculators with shares in exchange traded funds (ETFs) such as GLD or SLV will learn the difference between paper and physical gold.  That’s because that’s the moment when the precious metals ETFs will close, and its shareholders will receive the fiat value of their positions – but at the vastly lower closing market price of the previous Friday. So when the smoke finally clears, it will be paper gold and fiat currency owners who will be left holding the bag, while the central banks and their respective governments are made whole.

Credit: With all that in mind, can we sniff out any clues as to the exact day when this potential dark horse gold revaluation might arrive, if ever? Well … if you ask macroeconomist Alasdair Macleod, he suggests that it may be close. How close?  Macleod puts it this way: “Central banks are now ceding control of interest rates to market forces as currency purchasing power continues to collapse. (And although) it took nearly four decades to get to this point, the ‘Great Unwind’ might take only as many months.” Is he right? Who knows. The more important question is: Are you willing to risk your nest egg while hoping that he’s not?

By the Numbers

The world produced 2.8 billion tons of metal last year – and 2,600,000,000 tons of that was iron ore. Contrast that to just 24,000 tons of silver and just 3000 tons of gold mined in the same year. After iron ore, here were the next ten most-mined metals in 2021 (in mere millions of tons):

68 Aluminum

41 Chromium

21 Copper

20 Manganese

13 Zinc

9.0 Titanium

4.3 Lead

2.7 Nickel

1.2 Zirconium

0.95 Magnesium

Source: Visual Capitalist

The Question of the Week

[poll id=”448″]

Last Week’s Poll Result

How many pets do you own?

• None (44%)
• 1 (28%)
• 2 (18%)
• 3 (7%)
• I operate a zoo (3%)

More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that 5 in 9 of you own at least one pet. That’s pretty close to the US numbers, where 6 in 10 Americans own some type of pet. Among all Americans, 44% own a dog and 29% own a cat. And among American pet owners only, 73% own a dog and 49% own a cat. As for my house, we share it with our 9-year-old Rhodesian Ridgeback, Jack.

This week’s question was brought to you by reader Frank. If you have a question you’d like me to ask the readers here, send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.

Useless News: The Bargain in the Garden

Adam was hanging around the Garden of Eden feeling very lonely.

So, God asked him, “What’s wrong with you?”

Adam said he didn’t have anyone to talk to.

God said that He was going to make Adam a companion and that it would be a woman. He said, “She will gather food for you, she will cook for you, and when you discover clothing, she will wash it for you.

“She will always agree with every decision you make and she will not nag you, and will always be the first to admit she was wrong when you’ve had a disagreement.

“She will praise you!

“She will bear your children, and never ask you to get up in the middle of the night to take care of them.

“And she will never have a headache.”

So Adam asked God, “What will a woman like this cost?”

God replied, “An arm and a leg.”

Then Adam asked, “What can I get for just a rib?”

Of course the rest is history!!!!

(h/t: Charlie J.)

More Useless News

Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:

1. Wyoming (2.42 pages/visit)
2. New Hampshire (2.18)
3. Rhode Island (2.11)
4. Kentucky (2.01)
5. Arkansas (2.00)

46. Maine (1.67)
47. Hawaii (1.66)
48. South Carolina (1.56)
49. West Virginia (1.47)
50. Oklahoma (1.23)

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(The Best of) 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

After reading about the most important things every homeowner should look for in a pest control company, Jane in Detroit shared something she recently encountered in her home:

The other day, I found a dead cockroach in a box of Lucky Charms that I keep in the pantry.

Hey! They’re magically delicious! Er … the Lucky Charms — not the roaches.

If you enjoyed this edition of Black Coffee and found it to be informative, please forward it to your friends and family. Thank you! 😀

Photo Credit: public domain