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):
Source: Visual Capitalist
The Question of the Week
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)
Whether you happen to enjoy what you’re reading (like my good friends in Wyoming) — or not (ahem, Oklahoma) please don’t forget to:
1. Subscribe to my weekly Len Penzo dot Com Newsletter! (It’s easy! See the big green box in the sidebar at the top of the page.)
2. Make sure you follow me on my new favorite quick-chat site, Gab! Of course, you can always follow me on Twitter. Just be careful what you say there.
3. Become a fan of Len Penzo dot Com on Facebook too!
And last, but not least …
4. Please support this website by patronizing my sponsors!
Thank you!!!! 😊
(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
Great round up. One thing I notices about gold and silver prices. They seem to stay in a narrow range for years and then make big leaps over a few month time. Then they go back to being quiet again. Reminds me of Kilauea on Hawaii. If central banks revalue as you say, that would be the ultimate price explosion.
Len Penzo says
Stan, sometimes those leaps take a year or two to play out, but I agree with you otherwise.
One other point to make is that once those leaps play out, there is also usually a fairly significant pullback (that takes time to resolve itself).
Lauren P. says
Len, you’re an early bird this a.m; you loaded your Black Coffee before MY coffee was ready!
Re: the E.U’s. so-called ‘green’ policies, it looks like OUR Gov’t. is following them right over the cliff with their war on fossil fuels and their new “Climate Gender Equity Fund”. What a world…
Len Penzo says
Good observation, Lauren! I set the publication time an hour earlier than normal.
As for our energy policy, I’m afraid it sure seems like they are intent on following the EU’s lead, despite the results over there.
RD Blakeslee says
“Apparently, 63% of Americans also failed basic high school economics.”
They never get a chance to fail it, these days. It’s no longer taught.
Sam I Am says
Sad but true, RD.
Len Penzo says
Probably right, Dave. Public schools have other priorities these days.
That’s a big beautiful dog, Len! 🙂
I’ll second that. Handsome pup!
Len Penzo says
Thank you both! I agree (but I’m biased).
Sara King says
As usual, you served up another tasty cup. Any idea what will happen to silver price wise if/when gold price resets?
Have a great weekend everybody!
Len Penzo says
Thank you, Sara.
If we assume the gold-silver ratio falls to 30 – which would be a conservative value – then $10,000 gold would translate to $333 silver. If there is a paradigm shift in silver’s historic value and the ratio only fell to 50 (it’s about 80 now), then silver would still be $200.
Rocks….made me think of the pictures on Zimbabwe Trillion “dollar”currency. Wondering what logo will be on future gold coins. Interesting the new anti Methane proposals out of Egypt. I think it is time for gasoline prices to lift off. Stay warm Len. Enjoying my Cuppa.
Len Penzo says
Thank you, CO2. These energy proposals coming out of that Egyptian conference are pure insanity with no basis in reality or pragmatism.
I think a reset or attempted reset to SDR or digital currency will come before a gold revaluation. But that will only last a short period until people realize it’s still just a Ponzi. That’s when people will take back power by rejecting the elites currency system.
Len Penzo says
I used to think the powers that be would try and transition over to SDRs too, Robert. Not any more. SDRs are simply another form of fiat derived from a basket of current failing fiat. I don’t believe the major nations already trying to get away from the current monetary system know the SDR is simply another deceptive round of “hide the pea” and will ever agree to SDRs.
To all the naysayers – this has been done before. In the 1930’s under FDR. Gold revalued overnight from $20 to $35. Instant 75% gain for gold holders.
Special Ed says
The evil part of this is that FDR confiscated the gold first. Executive Order # 6102 required all citizens to turn in gold holdings to the federal reserve for $20 in fiat. After the turn in gold was revalued. This was the first bailout of the fed.
Len Penzo says
It is generally accepted that 2 in 3 Americans never turned in their gold.
I don’t think the government will try another gold confiscation. The biggest reason is that, unlike today, there was freely-circulating gold specie (in the form of $10 gold eagle and $20 double eagle legal tender) that had to be withdrawn from the economy.
There are other reasons which would not make it worth the government’s effort.
Sam I Am says
While we wait, everything just keeps getting stranger.
Len Penzo says
You can say that again.
Just found your site. I enjoy your work.
Len Penzo says
Thank you, Martin. Welcome aboard!