{"id":76077,"date":"2022-12-10T01:15:12","date_gmt":"2022-12-10T09:15:12","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=76077"},"modified":"2022-12-12T19:05:31","modified_gmt":"2022-12-13T03:05:31","slug":"black-coffee-10-dec-2022","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id76077-black-coffee-10-dec-2022.html","title":{"rendered":"Black Coffee: A Gold Wrench in the Fiat Money Machine"},"content":{"rendered":"

\"\"It’s time to sit back, relax and enjoy a little joe …<\/em><\/p>\n

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.<\/p>\n

I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …<\/p>\n

Gold is an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that doesn’t exist, backed by a gun aimed at those who are expected to produce it.<\/em><\/p><\/blockquote>\n

– Ayn Rand<\/strong><\/p>\n

All civilized money is a creature of the market; the only serious threat it has ever faced is that of predation by the state.<\/em><\/p><\/blockquote>\n

– Kevin Dowd<\/strong><\/p>\n

Credits and Debits<\/strong><\/p>\n

Debit:<\/strong><\/span> Did you see this? The average loan term in the US for a new vehicle is now 69.7 months<\/a>. At the same time, the average amount financed last quarter for all new vehicles was $41,665 – that\u2019s up 20% over the last 24 months – at an average loan rate of 5.2%. Add it all up and that equates to an average monthly payment of $694 over a period of six years and ten months. Ouch. Well … I sure hope that new car smell is worth it. Then again, it’s not just new cars …<\/p>\n

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Credit:<\/strong><\/span> As financial commentator Charles Hugh Smith observes, “Central banks have perfected a financial perpetual motion machine<\/a>; a self-reinforcing feedback of expanding credit feeding expanding valuations feeding expanding collateral which feeds expanding credit has no apparent end. But there are limits and consequences. One is debt saturation.\u201d Wait … so he’s saying there’s no such thing as a free lunch after all? Unpossible!<\/p>\n

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Debit:<\/strong><\/span> Of course, the Fed’s perpetual motion machine is precisely why they currently own roughly 48% of the entire US Treasury bond market. And since bond prices fall in a rising interest rate environment, the Fed is now looking at a $1.125 trillion loss<\/a> on its balance sheet this year, which represents a 15% loss. Keep in mind that because the Fed now owns almost half of the bond market, if the price of bonds continue to drop, its losses will become significantly magnified. On a related note …<\/p>\n

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(h\/t: r\/WallStreetSilver u\/silvertomars)<\/p><\/div>\n

Debit:<\/strong><\/span> On the other hand, many economists insist that the Fed\u2019s balance sheet doesn\u2019t matter because it can print “money.\u201d However, there’s a problem with that assertion because the Fed can’t<\/strong> <\/em>print money; it can only print currency<\/strong><\/em> because only gold and silver are money. In other words: the Fed can only print a money substitute<\/a> in the form of the US dollar (USD). Hey … come to think of it, this guy knows a lot about money substitutes:<\/p>\n

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Credit:<\/strong><\/span> In reality, the Fed\u2019s balance sheet does<\/strong><\/em> matter<\/a> precisely because it can’t print physical gold and silver. In fact, as macro analyst Rafi Faber points out, the Fed is no different than any other bank. When the public realizes that a bank’s liabilities far exceed its assets, that bank is seen as insolvent and its liabilities quickly lose value, if not become completely valueless. For the Fed, its<\/strong><\/em> primary liability is the USD – and when it finally becomes obvious that its purchasing power is headed for the abyss, Faber says, \u201cthat\u2019s<\/strong><\/em> when gold and silver\u2019s value will shine.\u201d Uh huh. Unfortunately for US politicians, the Fed can’t print oil either …<\/p>\n

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Debit:<\/strong><\/span> Speaking of silver, although investment demand – or lack thereof – has historically had the biggest impact on price, there have been a couple of periods when supply shortages were the primary driver.\u00a0 And it just so happens that for the first time in many years, there is now a sudden and widening gap<\/a> between the available above-ground silver supply and demand. On a related note …<\/p>\n

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Credit:<\/strong><\/span> So how big is this widening gap between silver supply and demand? Well … as precious metals analyst Jeff Clark points out, the projected “gap between silver supply and demand will create the biggest deficit<\/a> in decades.\u201d In fact, Clark notes that, “Silver supply has gone from a 69-million-ounce surplus in 2020 to a 194-million-ounce deficit – for a total shift of 263 million ounces in just 24 months.\u201d Yikes.<\/p>\n

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(h\/t: r\/WallStreetSilver u\/Canadian-Hunter)<\/p><\/div>\n

Credit:<\/strong><\/span> Meanwhile, Russia is continuing to work on an alternative gold-based currency for global trade settlement. This led Credit Suisse\u2019s Chief Strategist, Zoltan Polzar, to note this week that, with Russia openly saying it may soon begin selling oil on the open market in exchange for gold, the yellow metal’s monetary role definitely seems to be changing<\/a>. This is good news for precious metal owners, as the move would almost certainly lead to a substantial price upside for gold. How substantial? Who knows. But it’s always nice to dream …<\/p>\n