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Black Coffee: Gold and the Fed’s Monetary Roach Motel

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.

And away we go …

Gold is money. Everything else is credit.

— JP Morgan

Because gold is honest money, it is disliked by dishonest men.

— Ron Paul

Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves.

— Norm Franz

Credits and Debits

Debit: Did you see this? Apparently, the number of $100 bills in global circulation has been steadily increasing since the Great Financial Crisis (GFC) in 2008. In fact, there are now more $100 bills in circulation than $1 bills. CNBC suggests a panoply of potential reasons, including “global corruption.” I agree — assuming a decade of currency debauchery via QE and low interest rates is considered “global corruption.”

Debit: Then again, maybe there are so many $100 bills in circulation today because the average monthly payment for a new car has climbed to an eye-watering $545. Or is that confusing cause and effect? You know … like this:

Credit: By the way, anyone who believes the Federal Reserve’s repeated claims that inflation is running at 2% needs to have their head examined. As Mish Shedlock observes, “The amount of sheer nonsense written about inflation expectations is staggering.” Agreed. It’s almost as if nobody at the Fed buys groceries. Or writes rent checks. Or pays for car fuel. Or has health insurance. Or kids in college. Or …

Credit: But Bill Fleckenstein points out a bigger problem: “The fact that central banks have decided 2% inflation (is desirable), and it’s accepted universally by financial publications, is yet another example of when something stupid is repeated often enough, it passes for fact; 2% doesn’t sound like much, but it means prices double over 30 years. Think about that when you’re planning your retirement.” Oh, I do, Bill. I do.

Credit: Meanwhile, the stock market continues its miraculous recovery from its December lows. But as Lance Roberts observes, “The recent rally may not be justified, (making) further deterioration in forward earnings more problematic. This is particularly the case as valuations have reverted back to 30x earnings.” Historically, fair value for stocks has been roughly 14x earnings. But I’m sure this time is different. No, really.

Credit: Of course, as MN Gordon notes, “Someone with even a dim perception of the world around them can see that something grotesque has occurred. Stocks, bonds, and real estate have ballooned well beyond incomes. Moreover, those who deal in financial assets have gotten filthy rich because of it. This lopsided state of affairs would’ve never (happened) without the Fed.” True — but this, too, will pass. Eventually. Just ask Ernie Els:

Debit: In other news, this week S&P warned that, with governments around the world planning to borrow $8 trillion in 2019 — including $1 trillion by just the US — global sovereign debt could top $50 trillion; that’s 6% more than last year. What? You thought global debt should be declining? Heh. That’s impossible; if debt stopped accumulating, our debt-based fiat monetary system would implode. It’s simple math — and a losing game.

Credit: The system is now visibly cracking because we’re on the exponential part of the debt curve, which is why economist Luke Groman is warning that “the dollar end game has begun. The decline will continue until the US nominally defaults on its entitlements or US Treasuries, the US dollar is massively devalued, or the Fed implements ‘helicopter money.’” So when is “game over?” Groman says within the next 24 months. Uh oh.

Credit: In reality, the Fed is trapped in a monetary roach motel of its own making. As Stefan Gleason points out, this is because, “It may not be possible to withdraw much more stimulus from mortgage and equity markets without collapsing them, (or) unload US Treasury securities without causing a funding crisis for the government.” Which is a problem, because ever-increasing debt is not an option for the system — it’s a feature.

Debit: Yes, yes. I know what a lot of you are thinking: Why can’t we just make the wealthiest segment of society pay more taxes? You certainly could. Unfortunately, even if you did tax 100% of the wealth of the top 1%, it would only finance the US deficit for approximately five months. Aww, now there’s that inconvenient math bugaboo again.

Credit: The world’s central banks intentionally strive for inflation because they’ve got no choice. But as the late great investor Richard Russell observed, those central banks will eventually be forced to inflate, die, or devalue the dollar by increasing the dollar price of gold. That day is fast approaching — and gold is clearly the best way to short-circuit the ticking time bomb that is our debt-based fiat monetary system.

By the Numbers

With the average new car payment now well over $500, you might be interested to know the top ten selling cars last year in the US, presented in reverse order:

10 Chevrolet Malibu

9 Chevrolet Cruze

8 Ford Fusion

7 Hyundai Elantra

6 Nissan Altima

5 Nissan Sentra

4 Honda Accord

3 Toyota Corolla

2 Honda Civic

1 Toyota Camry

Source: Motley Fool

The Question of the Week

Note: There is a poll embedded within this post, please visit the site to participate in this post's poll.

Last Week’s Poll Results

How would you characterize your home’s location?

  • Suburban (55%)
  • Rural (33%)
  • Urban (12%)

More than 1200 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 3 say they live in a rural area, away from the hustle and bustle of the cities and suburbs. As for me, I’m here in suburban Southern California. Twas a time I thought I would retire to someplace a bit less populated and quieter — but I’m no longer sure that is in the cards for me. We’ll see.

This week’s question was submitted by Frank. Thank you, sir! And if you have a question you’d like to ask the readers here at Len Penzo dot Com, please send it to me at [email protected] — and be sure to put “Question of the Week” in the subject line.

Insider Notes: More on Revaluing The Dollar Price of Gold

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Useless News: Forgive and Forget

The preacher’s Sunday sermon was ‘Forgive Your Enemies.’.

Toward the end of the service he asked his congregation, “How many of you have forgiven your enemies?” Only about half held up their hands.

Not satisfied with the response, the preacher repeated his question. As it was past lunchtime, this time about 80% of the congregation held up their hands.

Still disappointed at the response from his congregation, the preacher then repeated his question yet again. This time, everybody responded — except one small elderly lady.

“Mrs. Jones,” inquired the preacher, “are you not willing to forgive your enemies?”

“I don’t have any enemies.” she replied, smiling sweetly.

“Mrs. Jones, that’s very unusual. How old are you?”

“Ninety-three.” she replied.

“Oh, Mrs. Jones, what a blessing and a lesson to us all you are!” said the preacher. “Would you please come down in front of this congregation and tell us all how a person can live ninety-three years and not have an enemy in the world?’

And so the little sweetheart of a lady tottered down the aisle. When she got to the front of the congregation, she turned to face them and said: “I outlived them all.”

(h/t: Mikey)

Other Useless News

Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.

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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: [email protected]

After reading my article highlighting 36 amazing uses for plastic grocery bags, Anke decided to drop this note in the Len Penzo dot Com complaint box:

This is a disgusting post. Plastic bags are an environmental plaque [sic]!

Uh huh. But would you change your mind if I told you plastic bags are also considered a suffocation hazard?

If you enjoyed what you read here, please forward this to your friends and family. I’m Len Penzo and I approved this message.

Photo Credit: brendan-c

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