Yikes. The Federal Reserve Lost $4.1 Billion Last Month
.Yikes. The Federal Reserve Lost $4.1 Billion Last Month
Notes From the Field By Simon Black November 1, 2022
In the early spring of the year 1492, Lorenzo de’ Medici had just arrived to his family’s opulent villa in the hills nearby Florence when he began to experience severe stomach pains. His pain quickly grew worse, and the finest physicians were summoned to heal him; Lorenzo was reportedly given a number of potions and treatments. But nothing worked.
Within a matter of days, the 43-year old Lorenzo had passed away. And all of Florence panicked at what might happen next. They called him Lorenzo the Magnificent for a reason. Under his leadership, the Republic of Florence had cemented its position as one of the biggest powers of Europe.
Yikes. The Federal Reserve Lost $4.1 Billion Last Month
Notes From the Field By Simon Black November 1, 2022
In the early spring of the year 1492, Lorenzo de’ Medici had just arrived to his family’s opulent villa in the hills nearby Florence when he began to experience severe stomach pains. His pain quickly grew worse, and the finest physicians were summoned to heal him; Lorenzo was reportedly given a number of potions and treatments. But nothing worked.
Within a matter of days, the 43-year old Lorenzo had passed away. And all of Florence panicked at what might happen next. They called him Lorenzo the Magnificent for a reason. Under his leadership, the Republic of Florence had cemented its position as one of the biggest powers of Europe.
The Florentine economy was exceptionally strong. So strong, in fact, that Florence’s 3.5 gram gold florin had become the dominant reserve currency in Europe. And Florence’s highly advanced banking system made it Europe’s leading financial center.
Taxes were low. Crime was low. Peace was maintained. Trade flourished. Science and technology advanced. And art experienced an unprecedented boom.
During Lorenzo’s rule, Florence was graced by many of history’s most celebrated artists, including Leonardo da Vinci, Botticelli, and Michelangelo.
When Lorenzo died, Florence went downhill very quickly. His son Piero de’ Medici succeeded him as the Lord of Florence. But Piero (known as Piero the Unfortunate) did not have his father’s skill.
Piero’s mismanagement resulted in a severe economic downturn, plus diplomatic humiliation at the hands of one of Florence’s geopolitical rivals, the French.
Piero even managed to abandon some of Florence’s most important military fortresses to his sworn enemy, French king Charles VIII.
Naturally people were horrified by his incompetence. And after just two years, the people of Florence forced Piero into exile. Yet the decline of Florence was only getting started.
The next ruler was an ultranationalist, puritanical fanatic named Savonarola who claimed a divine mandate to make Florence (according to 16th century poet Girolamo Benivieni) “more glorious, more powerful, and richer than ever.”
It didn’t work; within a few years, Savonarola was executed. He was replaced by a French puppet, who was then ousted when the Medici family invaded Florence (with the help of the Spanish) and once again seized control.
It was around this time that a new book about political theory began circulating in Florence; it was written by a fairly obscure bureaucrat turned diplomat named Niccolo Machiavelli. And his book was called The Prince or Il Principe.
In his writings, Machiavelli attempts to justify the actions of pernicious, despotic rulers, claiming that cruelty, deceit, violence, and immorality were all acceptable traits of a ruler trying to maintain power.
Quite ironically, Machiavelli himself was a victim of his own logic; he was exiled, then imprisoned, then brutally tortured by the ruling Medici who suspected Machiavelli of conspiracy and sedition.
Most people would probably agree that a violent dictatorship isn’t a great political system. And yet the book eventually became incredibly popular among European nobility.
Henry VIII of England, Charles V of the Holy Roman Empire, and many more leading monarchs of the era were heavily influenced by Machiavelli’s terrible ideas.
This has happened many times throughout history — a writer comes along and publishes a work that becomes highly influential in political circles.
Hundreds of years after Machiavelli, the works of Voltaire, Rosseau, Adam Smith, de Toqueville, etc. had a profound impact on prevailing political and economic trends. And in the 20th century, the works of John Maynard Keynes were central in establishing the modern system of economics and central banking.
Some of these ideas (Rousseau) were great. Many of them (Keynes) were terrible. But they’ve all had a lasting impact on the world.
Today we have a mountain of idiotic works that have become required reading among the political elite, from Klaus Schwab’s The Great Reset, to whatever self-aggrandizing nonsense Anthony Fauci will publish in a few months.
But perhaps none has been more destructive than The Deficit Myth, i.e. the holy book of Modern Monetary Theory (MMT).
This is the completely idiotic idea that governments can go into debt and print as much money as they want, forever and ever until the end of time, without any consequences whatsoever.
MMT has made its rounds all over the world, and it’s astonishing how many policymakers have bought into it.
MMT is the sort of thing that makes politicians say things like “We can pay for it with deficit spending” (AOC). Or that their multi-trillion dollar spending bill will “cost nothing” (Pelosi). Or that inflation is purely the result of “corporate greed” (Biden).
According to MMT, “Congress doesn’t need to ‘find the money’ to spend it. It needs to find the votes! Once it has the votes, it can authorize the spending. The rest is just accounting.”
That’s it! It’s just accounting! Trillions upon trillions of dollars conjured out of thin air is just accounting… with no consequences whatsoever. It’s genius!
Except we all know there are consequences. Inflation has been an obvious one. But there are so many more.
One of them has come up quite recently and it’s worth mentioning; in its efforts to fight inflation, the Federal Reserve has been steadily increasing interest rates over the past eight months. In fact they’re expected to hike rates by an another 0.75% tomorrow.
But the Fed has a huge problem now.
According to its latest balance sheet, the Fed owns $8.3 TRILLION worth of bonds. That’s a pretty big portfolio.
Remember, though, that bond prices fall as interest rates go up. So as the Fed has been aggressively raising rates lately, they’ve managed to create enormous losses of their own bond portfolio.
In fact the Fed lost $3.2 billion just last week alone. And in the month of October, they lost $4.1 billion.
$4.1 billion constitutes roughly 10% of the Fed’s entire capital base, so it’s a LOT of money for them to lose, especially in a single month. And these losses are mostly the result of their interest rate hikes that have caused their bond portfolio to lose value.
At this pace the Fed will be completely insolvent by next spring, at which point they’ll require a bailout from the federal government. I’m sure America’s adversaries will be terrified by such a display of financial strength.
Of course, MMT suggests that the Fed will first have to print the money for its own government bailout. Truly bizarre.
What’s notable here, though, is that the Fed typically earns a very healthy profit each year… and those profits ultimately flow into the Treasury Department and become a funding source for the US government.
But now the Fed doesn’t have profits. It has losses. So the government is about to lose a source of revenue…
Coincidentally, another source of government revenue used to be interest payments received on student debt. But with the stroke of a pen, the President recently canceled student debt, eliminating another important source of government revenue.
Yet simultaneously while policymakers deliberately torpedo government funding sources, they continue to engage in completely reckless deficit spending (insisting it will “cost nothing”) and taking on larger amounts of debt at higher rates of interest.
This is literally the opposite of what any sensible person would do.
To your freedom,
Simon Black, Founder Sovereign Research & Advisory
https://www.sovereignman.com/trends/yikes-the-federal-reserve-lost-4-1-billion-last-month-143954/
Who Said There Needed To Be an Alternative?
Who Said There Needed To Be an Alternative?
Notes From the Field By Simon Black October 24, 2022
In the early 6th century BC, roughly 2,600 years ago during the Zhou Dynasty of ancient China, a young scholar named Li Er was hired to work as a government scribe in the imperial capital of Chengzhou. Though Li had no formal schooling, he quickly became renowned for his keen intellect. And in time he began to attract a large number of disciples and students who wanted to learn from him. According to one legend, even a young Confucius came to seek his wisdom.
The more time Li spent in government, though, the more disillusioned he became with the entire institution. He witnessed corruption, financial waste, and abuse of power first hand, and he could see that his kingdom was in decline.
Who Said There Needed To Be an Alternative?
Notes From the Field By Simon Black October 24, 2022
In the early 6th century BC, roughly 2,600 years ago during the Zhou Dynasty of ancient China, a young scholar named Li Er was hired to work as a government scribe in the imperial capital of Chengzhou. Though Li had no formal schooling, he quickly became renowned for his keen intellect. And in time he began to attract a large number of disciples and students who wanted to learn from him. According to one legend, even a young Confucius came to seek his wisdom.
The more time Li spent in government, though, the more disillusioned he became with the entire institution. He witnessed corruption, financial waste, and abuse of power first hand, and he could see that his kingdom was in decline.
So after several decades of devoting himself to government bureaucracy, Li finally decided that he’d had enough, and he set out for a quiet retirement in the countryside, far away from the moral decay and madness of the imperial city.
Li was quite a famous teacher and philosopher at that point. And on his way outside of the main city gate, a guard named Yinxi recognized him, and was saddened to learn that Li was leaving the city forever.
The guard asked Li to please write down his wisdom, so that the whole world could learn of his philosophy.
Li agreed, and kept his promise; the text he wrote is called Tao Te Ching, and Li himself became known to history as Laozi (commonly written as Lao-Tzu), or ‘Old Master’.
Tao Te Ching is a really important work in that it was one of the first ancient texts in human history to argue in favor of limited government and personal freedom.
Li (or whoever wrote Tao Te Ching) obviously didn’t care for government; he writes, for example, that “regulations increase the poverty of the people”, and “the more display there is of legislation, the more thieves and robbers there are.”
It reminds me of the sign that Ron Paul used to keep on his desk while he was a Congressman: “Don’t steal. The government doesn’t like competition.”
It’s quite ironic that, to this day, Laozi is still revered as an intellectual giant in China. And yet if he were alive today, he would most likely have been arrested long ago and living out his days in a concentration camp.
Chinese President Xi Jinping clearly has no regard for the Tao’s ideas.
This past weekend Xi formally secured his third term as the General Secretary of the Chinese Communist Party, cementing his autocratic power for at least the next 5 years.
Let’s not mince words: Xi is dangerous. He has taken China backwards in so many ways, including and especially with respect to personal freedom.
His desire to control the day-to-day activities of people’s lives is so extreme, for example, that he even imposed strict limitations on how much time young people were allowed to play video games.
Personally I’m not opposed to kids having limits on screen time. But last time I checked, Xi Jinping isn’t everyone’s dad.
Yet that barely scratches the surface of Xi’s fetish for absolute power. COVID is another great example; Xi’s love of COVID lockdowns is rivaled only by Anthony Fauci. And the resulting economic destruction his policies have caused makes Joe Biden and Nancy Pelosi look like a couple of amateurs.
But Xi doesn’t seem to care. He acts as if the sole purpose of the Chinese economy is to support the party, not the other way around.
Xi routinely harasses private businesses and forces them to submit to the state. He has ousted corporate leaders, stolen their assets, and put many in prison.
China’s tech sector has suffered an economic and intellectual drain as a result. And under his leadership, foreign investors are even less trusting of China than they were before.
Under Xi’s predecessor, Hu Juntao, Chinese wages and GDP doubled. China became a major world power. China and Taiwan held historic talks, and trade increased significantly between the two countries.
Xi doesn’t seem to have interest in peace and prosperity. And perhaps to underscore the supremacy of his new direction for China, Xi had his predecessor physically removed from the room during this weekend’s Party Congress in Beijing.
Xi is often compared to Hitler across Internet chat rooms, usually due to the internment and murder of China’s Uyghur minority.
To be frank, however, the parallels between Xi and Hitler go far beyond the Uyghur genocide.
After Hitler rose to power, he also cared very little about the German economy. He wanted it to be healthy, of course. But he viewed the economy as an extension of the state.
Hitler’s top priority was in developing a strong military. And he believed that, as long as the military was strong, that the German economy would be strong as well simply because foreign nations would not oppose him.
This seems to be Xi’s approach. He’s investing heavily in China’s military and weapons technology, and he demands that private industry subordinate itself to these ends.
This all leads me back to a key theme: the US dollar.
I’ve long argued that the US dollar’s dominance as the global reserve currency is coming to an end. This is inevitable; no currency and no superpower has held the top spot forever.
Yet this view is very difficult for people to digest. It’s hard to accept that there’s a shelf life for America’s global dominance. And often people assume that the US will continue to reign supreme simply because “there is no alternative”.
And that’s true.
No one trusts China. Very few people (outside of China) want the renminbi as the world’s reserve currency.
And to be fair, China has a mountain of its own problems. Its demographic challenges (due to decades of the One Child Policy) are unfixable in my opinion.
Plus China also has serious defects in its financial system, debt levels, and more. Not to mention its currency is plagued by capital controls.
This doesn’t seem like an obvious alternative to take over the global financial system.
But who ever said there needed to be an alternative?
The US dollar was formalized as the dominant reserve currency at the Bretton Woods conference in 1944. Dozens of representatives from multiple sovereign nations literally gathered in a room and agreed that the dollar would be king.
No one is going to be doing that any time soon with China or its currency, the renminbi.
But that doesn’t mean the dollar is going to keep its status forever.
Losing its reserve status doesn’t require a replica of the US dollar in a different country. No one is going to flip a switch and suddenly cause all global trade to go through the Chinese financial system.
Losing reserve status means gradually losing market share.
It means, for example, that European aircraft manufacturer Airbus will start selling its jets in euros, instead of dollars (especially to European airlines).
It means some sovereign nations whose currencies are currently pegged to the US dollar abandon their pegs and allow their currencies to float freely.
It means foreign institutions gradually cut their holdings of US government debt.
And yes, it also means that some Chinese companies will conduct cross-border trade in their own currency. In fact this is already happening. And it’s accelerating.
It’s true few people trust Xi. Nobody trusted Hitler either. And yet Nazi Germany did booming trade with the rest of the world, and much of it was denominated in his reichsmark. In fact there was an entire trade bloc in Europe with the reichsmark as its unofficial reserve currency.
None of these trends will cause the US dollar to disappear, and certainly not overnight. But they do constitute a gradual chipping-away of the dollar’s dominance.
And that has major long-term implications for the US economy.
To your freedom and prosperity,
Simon Black, Founder Sovereign Research & Advisory
https://www.sovereignman.com/trends/who-said-there-needed-to-be-an-alternative-143846/
The People Who Engineered Record Inflation Want To Control Cryptocurrency
The People Who Engineered Record Inflation Want To Control Cryptocurrency
Notes From the Field By Simon Black October 3, 2022
On the First of May in the year 1716, a swashbuckling Scottish entrepreneur was making this pitch of his lifetime to the head of the French government in Paris. The entrepreneur’s name was John Law. By all accounts he was incredibly charismatic and had a flamboyant, larger than life personality. He was something like Adam Neumann, formerly of WeWork… the kind of person who could talk anyone into anything. And John Law’s pitch that day was to launch an entirely new financial system.
The People Who Engineered Record Inflation Want To Control Cryptocurrency
Notes From the Field By Simon Black October 3, 2022
On the First of May in the year 1716, a swashbuckling Scottish entrepreneur was making this pitch of his lifetime to the head of the French government in Paris. The entrepreneur’s name was John Law. By all accounts he was incredibly charismatic and had a flamboyant, larger than life personality. He was something like Adam Neumann, formerly of WeWork… the kind of person who could talk anyone into anything. And John Law’s pitch that day was to launch an entirely new financial system.
King Louis XIV had just died eight months before, leaving France in terrible financial ruin. Decades of endless wars, palaces, and profligate spending had bankrupted the French government.
The situation was so dire, in fact, that there was hardly any gold left in the French treasury. So the new head regent of the government, Duke Philippe II of Orleans, was desperate for a solution.
Law made him a bold proposal: the Duke would provide Law with a special banking license. And in exchange, Law would create a new system of paper money that would bring more gold into France and help pay off the crippling national debt.
Philippe agreed. And, only a few weeks later, John Law’s new Banque Generale Privee was in business.
It turned out that people loved the idea of paper money. And within a year, his paper bank notes were circulating widely throughout the French economy, and the government even accepted them for tax payments.
Law made his paper money even more valuable in late 1717, after he had taken control of the Mississippi Company.
The French Mississippi Company was something like the Dutch East India Company; it was a private enterprise that had received a royal monopoly over all the land and resources in France’s American colonies.
Almost immediately after securing rights to the monopoly, Law offered shares of the Mississippi Company to the public; it was like a giant IPO.
But Law sweetened the deal by allowing people to pay up to 75% of the share price using his bank’s paper money.
The Mississippi Company IPO was a smashing success. It was so popular that Law was offered bribes, sex, and political favors from French nobles in exchange for the opportunity to buy a few extra shares.
The famous philosopher Voltaire was eye witness to this, and wrote, “I myself saw him pass through the galleries of the Palais-Royal followed by dukes and peers, Marshalls of France, bishops of the Church.”
And at first the share price soared. Bear in mind the Mississippi Company had zero activity. Hardly anyone was living in France’s southern colonies in America, and there was virtually no trade or commerce going on.
The government even tried deporting criminals to America, trying to increase the population of the colonies. They offered hundreds of acres of land for free to anyone who would go. Yet economic activity still failed to transpire.
Eventually the French public realized the truth; there would be no gold, no gems, and no riches coming from the Mississippi Company. And the stock price began to quickly collapse.
Law tried to prop up the stock price by creating more paper money (backed by absolutely nothing), and using that new money to buy shares of the Mississippi Company.
But all he ended up doing was creating inflation; with so much new paper money circulating in the economy, prices everywhere rose.
By May 1720, retail prices in France had doubled. It was full-blown hyperinflation, and people panicked. They feverishly began selling off their Mississippi Company shares and trading their paper money, for any real asset they could get their hands on.
One nobleman, Duke Henri-Jacques de Caumont, dumped all of his paper in exchange for a warehouse full of candles. A Parisian merchant sold his in exchange for crates of chocolate and coffee.
(This is one of many examples of history showing that real assets tend to do well in times of inflation.)
Shortly after, Law officially suspended the conversion of his bank notes into gold and silver, and the paper money instantly became worthless.
At the peak of all this insanity, if you can even believe it, the French government made John Law its Comptroller-General.
In other words, the guy who created the biggest financial bubble in French history was put in charge of government finances.
I couldn’t help but think of this story when I watched a group of central bankers talking about cryptocurrency at a conference in Paris last week.
Among others, the heads of the US Federal Reserve and the European Central Bank participated in a panel discussion that, for anyone who actually understands crypto, can only be described as hilarious.
Naturally they started with the old anti-crypto tropes, talking about “the lack of transparency” and how criminals use crypto.
These are completely laughable points. Criminals use iPhones, American Express, and JP Morgan Chase as well. Should we cancel those too?
And as for crypto’s lack of transparency, the opposite is true. Every Bitcoin transaction is traceable on the blockchain for the entire world to see.
Yet with every passing sentence, these bankers demonstrated that they know absolutely nothing about crypto… and quite possibly banking too.
At one point they slammed stablecoins that didn’t have a 1:1 backing; stablecoins are specialized tokens that represent, for example, 1 US dollar per token. So there is supposed to be at least one US dollar in reserve for every token in circulation.
Lately there have been a handful of high profile stable coins that didn’t have sufficient reserves. So their criticism is fair.
But this leads to an obvious question: if a 1 to 1 reserve standard for stable coins is so critical, why don’t we demand the same of our banking system?
Central Banks are among the most prominent regulators in banking. And they have completely condoned a fractional reserve system whereby commercial banks are only required to keep 10% (or less) in reserve.
In other words, these people are perfectly fine that commercial banks gamble most of their customers’ money on the latest investment fad of the day.
It’s fine to be outraged when a few stablecoins aren’t 100% reserved. But they should be equally outraged that commercial banks aren’t even 10% reserved.
The biggest laughs, though, took place when these central bankers started talking about rolling out their own digital currencies.
The Fed wants to create a DollarCoin. And the European Central Bank wants a EuroToken.
This is truly rolling on the floor, laugh out loud funny given that these people have no clue about technology.
The Federal Reserve’s most important payment system, FedACH, which processes over 50 million transactions per day, still takes 2-3 days for payments to clear. It’s so outdated, it’s as if they’re still sending satchels full of cash via Pony Express.
It’s also ridiculous that the people who have failed in every possible aspect of their responsibility think that they’re qualified to administer a brand new financial system.
These Central Banks failed to anticipate inflation. They failed to recognize it. They failed to do anything about it for more than a year. And now they’re hellbent on causing a recession.
They’ve pretty much been a complete disaster. Yet now they want to be in charge of crypto too. Are these people serious??
To me this is really one of the great benefits of crypto, and of real assets. Holding paper money is ultimately a vote in favor of central bankers, an expression of confidence that they know what they’re doing.
Personally I have little confidence in these people. And that’s why I think it makes sense to hold other types of assets that they don’t control, including real assets (real estate, commodities, productive businesses, etc.) and decentralized crypto assets.
To your freedom, Simon Black, Founder, SovereignMan.com
The people who engineered record inflation want to control cryptocurrency | Sovereign Research
A Masterclass In ‘How To Shoot Yourself In The Foot’
A Masterclass In ‘How To Shoot Yourself In The Foot’
Notes From the Field By Simon Black October 7, 2022
In the mid 1400s, the head of the Byzantine Empire was a career politician with decades of experience who most people thought would be a capable leader. Instead, through a series of hilariously terrible decisions, he managed to take his already weak empire off the cliff, and into the dustbin of history, in just a few short years.
And one of the ways he did that was by deliberately giving up the most strategic resource his empire possessed.
A Masterclass In ‘How To Shoot Yourself In The Foot’
Notes From the Field By Simon Black October 7, 2022
In the mid 1400s, the head of the Byzantine Empire was a career politician with decades of experience who most people thought would be a capable leader. Instead, through a series of hilariously terrible decisions, he managed to take his already weak empire off the cliff, and into the dustbin of history, in just a few short years.
And one of the ways he did that was by deliberately giving up the most strategic resource his empire possessed.
We’re seeing a similar story play out today-- the people with decades and decades of experience are doing all the wrong things to vanquish one of the most strategic resources in our modern world: energy.
Think about it-- the people in charge have demonized an entire industry. They punish oil companies with creative taxes and insane regulations. They refuse to follow the law and lease federal lands to oil and gas companies. They drag their feet in the permitting process.
They constantly antagonize energy companies and blame high fuel prices on the industry’s “greed”.
In short they do everything they can to destroy a critical resource that the nation depends on for growth and prosperity.
This is our topic for today’s podcast. We start off walking through the comical incompetence of Emperor Constantine XI from the Byzantine Empire… and then go through some key issues to know about in the oil and gas sector.
In short, supply is tight… and probably not getting better. Demand is increasing. It’s a really important trend to understand.
But we leave with some good news. This is fixable, both long-term and short-term. But the short-term fix is going to rely on a few surprising characters from our past that may become some of the most exciting economies in the world.
To your freedom, Simon Black, Founder, SovereignMan.com
https://www.sovereignman.com/podcast/a-masterclass-in-how-to-shoot-yourself-in-the-foot-37789/
15.7 Trillion New Reasons To Be Concerned About The National Debt
.15.7 Trillion New Reasons To Be Concerned About The National Debt
Notes From the Field By Simon Black October 4, 2022
Last Friday, September 30th 2022 was the close of the Fiscal Year for the US federal government. If you’re not familiar with the term, the ‘Fiscal Year’ refers to the government’s official accounting period. It starts on October 1st and ends the following September 30th. And everything from the federal budget to the Supreme Court’s case schedule is based around the Fiscal Year.
So are calculations for the national debt. And based on the figures just released, the US national debt has now reached nearly $31 trillion as of the close of the Fiscal Year last Friday.
(If you want to see the number down to the penny, it’s $30,928,911,613,306.73)
15.7 Trillion New Reasons To Be Concerned About The National Debt
Notes From the Field By Simon Black October 4, 2022
Last Friday, September 30th 2022 was the close of the Fiscal Year for the US federal government. If you’re not familiar with the term, the ‘Fiscal Year’ refers to the government’s official accounting period. It starts on October 1st and ends the following September 30th. And everything from the federal budget to the Supreme Court’s case schedule is based around the Fiscal Year.
So are calculations for the national debt. And based on the figures just released, the US national debt has now reached nearly $31 trillion as of the close of the Fiscal Year last Friday.
(If you want to see the number down to the penny, it’s $30,928,911,613,306.73)
At the start of the Fiscal Year back on October 1, 2021, the national debt was $28.4 trillion. So over the course of the past twelve months, the debt increased by a whopping $2.5 trillion.
That’s the second highest annual increase in the US national debt EVER, after the $4.2 trillion increase in the 2019-2020 Fiscal Year during the pandemic.
Now, a $2.5 trillion increase in the national debt is terrible, and alarm bells should be sounding from coast to coast. But there’s actually something more worrisome going on with the debt.
Remember that whenever governments borrow money, they do so by issuing some form of government bond. A bond, just like a loan, is a type of IOU. One of the key differences, however, is that a bond is a financial security that, just like stocks, can be easily bought and sold by investors around the world.
US government bonds are referred to as Treasury securities; so when we say that the national debt is $31 trillion, this means that the US government has $31 trillion in various Treasury securities outstanding.
Treasury securities are issued with specific maturities; similar to how a bank could issue a mortgage with a 30-year, 20-year, or 15-year term, the government issues bonds with varying maturities, ranging from 4 weeks all the way up to 30 years.
And once the bond matures, whether that be after 4 weeks or 30 years, it needs to be repaid.
This is the worrisome part. Because out of all the bonds that the US government has issued, the weighted average maturity is about FIVE years.
This is a REALLY short average maturity for government bonds.
To put this in context, the average maturity for Japanese government bonds is more than 9 years. For German government bonds it’s more than 13 years. In the UK it’s about 15 years.
But, again, in the US, it’s just 5 years. And this means that, every year, approximately 20% (one-fifth) of US government bonds will mature and need to be repaid.
It’s actually worse than that; due to various complexities in Treasury issuance, the actual amount of bonds that need to be repaid is much higher.
Based on data that was just released yesterday, in fact, the US federal government repaid $15.7 trillion worth of bonds in the most recent Fiscal Year.
You might be wondering– how on earth did they come up with that much money? Easy. They just issued more debt.
In a way it’s like the government is paying off its credit card by transferring the balance to another credit card. So whenever a bunch of bonds mature and need to be repaid, the Treasury Department simply issues more bonds (i.e. debt).
By doing this, the “net” debt hasn’t changed; they pay off X amount of debt by issuing X amount of new debt.
This worked just fine as long as interest rates remained at record lows. But now rates are rising rapidly.
Here’s a startling example: on October 27, 2020, the Treasury department issued around $50 billion worth of 2-year Treasury Notes at a yield of just 0.12%.
Well, now it’s two years later, and those 2-year Treasury Notes are about to mature. So the government is going to have to issue a new $50 billion batch of bonds to pay off the maturing debt.
The problem is that interest rates have risen a LOT since 2020. The 2-year Treasury yield is now 4.2%, and rising. In other words, the new $50 billion issuance will cost the government an additional $2 billion per year in interest ($50 billion x 4%).
Now imagine this problem for the ENTIRE $31 trillion national debt.
Rates are already, on average, around 3-4% higher than they were a few years ago. And if the average interest rate on the national debt increases by just 3%, that means the government will owe an EXTRA $1 trillion per year, just in INTEREST.
In case you’re wondering, total interest in the Fiscal Year that just ended last Friday is an unbelievable $706 BILLION. If rates keep rising, annual interest payments could increase to nearly $2 trillion.
This is an inconceivable figure that would bankrupt the federal government.
Now, there are some people who dismiss this concern because a portion of the interest is paid to other departments of government. They claim the debt, and interest expense, are no big deal because “we owe it to ourselves.”
This is partially true; the Defense Department buys some Treasury securities to earn a bit of interest on their excess cash. The Social Security and Medicare Trust Funds own nearly $3 trillion of US government bonds and receive interest payments.
But this shouldn’t be relevant. Interest is interest. Money owed is money owed. Regardless of to whom it is paid.
It’s ludicrous to pretend like we shouldn’t count certain interest simply because it’s being paid to Social Security beneficiaries.
Bottom line, this is an EXTREMELY precarious situation. The US national debt is so high… and the average debt maturity is so short… that significant rate increases risk pushing the federal government towards default.
You’d think that the Treasury Department would be doing everything it can to extend their average bond maturity, and increase it from five years to, say, ten years. That would at least make a dent in the problem.
Or that Congress and the White House would get their fiscal house in order and start balancing the budget.
But no. Not these people. In fact the Treasury Secretary has specifically stated that she does not want to extend maturities. And the White House is too busy forgiving student debt to even think about balancing the budget.
This is a real crisis brewing. And the people in charge are deliberately ignoring it.
To your freedom, Simon Black, Founder, SovereignMan.com
“The Most Impressive Failure Of His Time”
.“The Most Impressive Failure Of His Time”
Notes From the Field By Simon Black September 30, 2022
Lately we’ve been led astray over and over again by supposed ‘experts’ with decades of experience who can’t seem to stop making colossal mistakes. But I’m not just talking about individuals. I’m talking about institutions too.
And one institution in particular that’s been an abject failure lately has been the central bank. That includes the Federal Reserve in the United States, the Bank of England in the UK, and more.
“The Most Impressive Failure Of His Time”
Notes From the Field By Simon Black September 30, 2022
Lately we’ve been led astray over and over again by supposed ‘experts’ with decades of experience who can’t seem to stop making colossal mistakes. But I’m not just talking about individuals. I’m talking about institutions too.
And one institution in particular that’s been an abject failure lately has been the central bank. That includes the Federal Reserve in the United States, the Bank of England in the UK, and more.
The Federal Reserve, for example, despite its leaders’ decades of experience, completely failed to predict that their policies over the past few years would have any consequences. It’s extraordinary.
These people honestly thought that they could print trillions of dollars, keep interest rates at 0%, and that there would never be any consequences until the end of time.
And then, when inflation began to take hold last year, they failed to recognize it. They chastised people who pointed it out.
Later, when they finally did acknowledge inflation, they insisted it was transitory. And then when they ‘retired’ the term transitory, they promised to do something about the growing inflation problem… eventually.
Finally, in March 2022, they made a very ceremonial 0.25% interest rate increase. File that away under “too little, too late”.
But now their tune has changed. Now their policies smack of panic and desperation, and they sound like they’re running around with their hair on fire with no clue what to do next.
It hardly inspires confidence.
Earlier this week we saw another example.
The Bank of England made a stunning announcement that they would step in to prop up their rapidly-declining bond market. Investors around the world cheered the news, and global financial markets surged.
The euphoria lasted about 24 hours.
The next day, markets tanked again as investors realized, “Hang on… I don’t believe these people.”
Central banks have enjoyed unparalleled respect and gravitas for the past 30 years; going back to Alan Greenspan in the 1990s, central bankers have been viewed as infallible superheroes who always know what to do.
Now they just look like a bunch of amateurs.
In today’s podcast, I walk through my analysis about what might happen next. Specifically, I argue why I think there’s NO WAY they’ll follow through on their interest rate increases. Simply put, continuing to do so will bankrupt their governments.
Ultimately this means that inflation, at least some inflation, is here to stay. And I also discuss a couple of key asset classes, plus one surprising country, that can do well in this mess.
To your freedom, Simon Black, Founder, SovereignMan.com
https://www.sovereignman.com/podcast/the-most-impressive-failure-of-his-time-37685/
The Best Way Americans Can Legally Reduce Taxes... Without Moving
.The Best Way Americans Can Legally Reduce Taxes... Without Moving
Notes From the Field By Simon Black September 26, 2022
Legally reducing your tax bill is the best risk-free return on investment you can make. Investing in a completely legal tax strategy means keeping 10, 20, even 30% more of your own income. And in many cases the solutions aren’t especially exotic. For example, if you live in California, you can slash you taxes simply by moving next door to Nevada. Doing so eliminates California state income tax, which kicks in at 9.3% for income over $61,215.
Moving even further, from Nevada to Puerto Rico, means eliminating not only state income tax, but also US federal income tax.
The Best Way Americans Can Legally Reduce Taxes... Without Moving
Notes From the Field By Simon Black September 26, 2022
Legally reducing your tax bill is the best risk-free return on investment you can make. Investing in a completely legal tax strategy means keeping 10, 20, even 30% more of your own income. And in many cases the solutions aren’t especially exotic. For example, if you live in California, you can slash you taxes simply by moving next door to Nevada. Doing so eliminates California state income tax, which kicks in at 9.3% for income over $61,215.
Moving even further, from Nevada to Puerto Rico, means eliminating not only state income tax, but also US federal income tax.
Puerto Rico’s tax incentives allow you to pay absolutely zero US federal tax. Instead you’ll pay a low 4% tax rate on qualifying business income, and 0% capital gains tax on qualifying investment income.
Or you could move overseas and take advantage of the Foreign Earned Income Exclusion, which, in 2022, allows Americans living abroad to earn up to $224,000 (if you’re married) without being taxed by the federal government.
But for many people, moving is simply not possible— due to family, work, or other factors.
Luckily, there is another powerful tax reduction strategy that does not require a change of location: tax advantaged retirement accounts.
First, you can reduce your taxable income significantly by making pre-tax contributions to a Traditional 401(k) retirement account.
In 2022, you can reduce your taxable income up to $20,500 by contributing that amount to your 401(k). And if you’re 50 or older, you can contribute $6,500 more as a “catch up” contribution – for a total of $27,000 per year.
This means that your taxable income decreases by $27,000, potentially saving you thousands of dollars in taxes.
It’s worth noting that setting up a 401(k) is pretty inexpensive. So this strategy yields an extremely high return on investment, with the added benefit that you’re saving more for retirement.
People who are self-employed, or earn income from a side business, can increase that tax-free contribution even more by using a Solo 401(k).
This option applies to business owners without any employees, anyone who is self-employed, and even those who just earn a bit of income on the side— consulting, selling on eBay, driving for a rideshare service, or renting rooms on Airbnb for example.
In this case, your total tax-free contribution limit for 2022 rises to $61,000 (or $67,500 for those 50 or older).
And there are other benefits to using a self-directed Solo 401(k).
Most typical, employer-sponsored retirement accounts offer you a very limited range of investment options.
But with a self-directed Solo 401(k), you are able to invest in a much wider range of assets, including real estate, foreign investments, private equity, and more.
Eventually, you still have to pay taxes on the money you put into retirement accounts. Generally, this happens when you take money out of the 401(k) once you’re retired.
But since most people’s smaller retirement income puts them in a lower tax bracket, the overall tax burden is low.
I cannot overstate how beneficial it is to take steps to reduce your taxes. And here’s a simple example.
Let’s assume you have $50,000 of income each year to invest. If you did not set up a tax-advantaged retirement account, and simply invest that money through your personal brokerage account, you would owe, say, 20% tax on it first.
So realistically you’d be left with $40,000 per year to invest.
Assuming you average 12% per year, after 25 years, that original $40,000 would be worth about $680,000. That’s a pretty great return.
But now let’s imagine, instead, you put the money in your Solo 401(k). In that case, the money is tax-deferred, so there is no up-front tax. You can invest the ENTIRE $50,000.
Assuming the same return— 12% per year, after 25 years, the original $50,000 invested would be worth $850,000.
In short, you saved $10,000 in up-front taxes because you invested through a Solo 401(k). And that $10,000 tax deferral resulted in an extra $170,000 investment return.
So you can see how powerful this strategy can be.
Remember, this isn’t some exotic tax loophole that’s only available to the rich and powerful. This is a completely legitimate retirement structure that has been enshrined into law for more than 50 years.
The government wants you to save for retirement. Hell, the government needs you to save for retirement. They know Social Security is running out of money, so they’ve made it as lucrative and compelling as possible for you to set aside your own money for retirement.
There are so many options available, and these types of structures are definitely worth considering and learning more about.
To your freedom, Simon Black, Founder, SovereignMan.com
Align Yourself With The Trajectory Of The World
.Align Yourself With The Trajectory Of The World
Notes From the Field By Simon Black September 23, 2022
John Adams famous wrote to his wife Abigail in the year 1780: “I must study politics and war, that my sons may have the liberty to study mathematics and philosophy. . . in order to give their children a right to study painting, poetry, and music. . .”
So that their children can major in gender studies and waste their lives on Tik Tok.
OK so I added that last part myself. But I believe the quote most accurately sums up the natural decline of empire.
Align Yourself With The Trajectory Of The World
Notes From the Field By Simon Black September 23, 2022
John Adams famous wrote to his wife Abigail in the year 1780: “I must study politics and war, that my sons may have the liberty to study mathematics and philosophy. . . in order to give their children a right to study painting, poetry, and music. . .”
So that their children can major in gender studies and waste their lives on Tik Tok.
OK so I added that last part myself. But I believe the quote most accurately sums up the natural decline of empire.
When enough time passes, a dominant superpower begins to lose the cultural traits that made it great to begin with. Instead of being energetic, ambitious, and hungry, the population becomes complacent.
Meanwhile, hard-working rivals become wealthier by the day… rising, ascending, and eventually eclipsing the declining superpower.
History has been witness to this natural cycle over and over again, from the ancient Greek conflicts between Athens and Sparta, to the decline of France and rise of Great Britain in the 1700s.
The United States is the modern superpower that is now in obvious decline; we write about this all the time at Sovereign Man, so this should hardly be a controversial statement. As former US Treasury Secretary Larry Summers once said, “There is surely something odd about the world’s greatest power being the world’s greatest debtor.”
And he’s right. The economic and financial data are clear: the US has enormous debts, huge deficits, awful inflation, and insolvent pension funds (like Social Security). The social divisions are palpable. Trust levels in institutions, government, and corporations are at historic lows.
It’s true that the US has been divided before. And the US has also seen its share of financial crises.
But simply put, America has never been battered simultaneously by so many debilitating trends. This is truly new territory for the world’s dominant power.
Now, it’s important to not get emotional about US decline. We’re talking about facts and doing our best to make a rational analysis.
And one of my conclusions is that we may be experiencing the end of an era.
For the past several decades, the US was the undisputed global superpower. And there was a great deal of peace and prosperity in the world.
After all, so many countries-- China, India, Russia, etc. were getting rich selling their products and resources to the United States. Who would possibly want to screw up that balance?
We’ve seen this same cycle over and over again throughout history: peace and prosperity go hand and hand.
But things are different now. Other countries are stronger than they used to be. The US is much weaker. The power dynamics have been disrupted… and the cycle of peace and prosperity is being displaced by chaos and conflict.
This is our topic for today’s podcast.
We start in ancient Rome and discuss how the unparalleled dominance of the Roman Empire in the early 1st Century brought an unprecedented period of stability, peace, and prosperity to the western world.
Frankly it’s quite similar to what we enjoyed for the past 30 years.
But the Pax Romana, as this period is known, did not last. Neither is the Pax Americana.
We see chaos and conflict all over the world now… much of it due to the decline of the US, much of it due to bonehead incompetence from the supposed ‘experts’ who run the show.
And this new era of chaos and conflict has some pretty serious implications.
Don’t worry-- it’s not the end of the world. In fact, there are some really interesting opportunities for anyone with the independence of mind to look at these facts and trends rationally.
And we discuss some of these in today’s podcast, including things like real assets, and investing in neutrality.
I explain, for example, what today would be the equivalent of having a Swiss passport in 1935. Or which specific asset classes are extremely relevant in a world where resource nationalism is a real possibility. And how cryptocurrency fits in to a cycle of chaos and conflict.
These big picture trends are all very clear-- it’s the obvious trajectory of the world right now. And it makes a lot of sense to align yourself with that trajectory of the world.
You can listen in to the podcast here.
To your freedom, Simon Black, Founder, SovereignMan.com
https://www.sovereignman.com/podcast/align-yourself-with-the-trajectory-of-the-world-37621/
I Finished My Residency Process: What A Great Experience
.I Finished My Residency Process: What A Great Experience
Notes From the Fied By Simon Black September 12, 2022
[Editor’s note: This letter was written by Sovereign Man team member Joe Jarvis]
Three months ago I went to Raleigh, North Carolina to complete the first step of applying for Mexican residency. The process was relatively painless. And I walked out of the Mexican Consulate in Raleigh a few hours later with my application approved.
Now, since I had to travel to Raleigh to go to the consulate there, I decided to stick around for a few days and check it out. It was during that trip when I realized just how expensive American cities have become.
I Finished My Residency Process: What A Great Experience
Notes From the Fied By Simon Black September 12, 2022
[Editor’s note: This letter was written by Sovereign Man team member Joe Jarvis]
Three months ago I went to Raleigh, North Carolina to complete the first step of applying for Mexican residency. The process was relatively painless. And I walked out of the Mexican Consulate in Raleigh a few hours later with my application approved.
Now, since I had to travel to Raleigh to go to the consulate there, I decided to stick around for a few days and check it out. It was during that trip when I realized just how expensive American cities have become.
Raleigh is a nice city. But it’s not a major Tier-1 US city like New York, Chicago, or San Francisco. By comparison it’s a medium-sized city. And yet I consistently paid what I would have considered New York City prices for food and drinks; $11 beers, $14 glasses of wine, $16 cocktails, and entrees regularly over $25. I looked into rents and real estate prices too, which were going bonkers and seemed incredibly expensive.
Fast forward three months, and I’ve now traveled to Mexico City to complete the final part of my residency application.
The first step is to apply at a consulate in your home country, which I did in Raleigh back in June; and, once approved, you travel to Mexico to finish the process.
Unsurprisingly, my immigration experience here was fairly painless and straight forward. Although I did opt to hire professional help (a contact our Sovereign Man: Confidential members also have access to) for only a few hundred dollars.
It was great. The lady stood in line to get me the appointment, since their online appointment tool was down at the time. She also filled out the paperwork for me— with blue ink, which is apparently very important since they have begun to turn everyone with black ink away.
And, just like my consulate experience in Raleigh a few months before, I walked out of the immigration office a few hours later with my Mexican residency complete, and my ID card in hand.
But similarly, since I had never been to Mexico City, I decided to stay for a while and check out the city.
Keep in mind that Mexico City has a population of 20+ million people. For an equal comparison, you’d be looking at places like Shanghai or New York.
But what I found in Mexico City were prices significantly lower than in Raleigh, North Carolina. Food. Drinks. Entertainment. Real estate. Transportation. Medical care. And yet the quality and service were both consistently high.
I was generally going out in the city’s wealthier neighborhoods, like Polanco, Condesa, Roma, Santa Fe, Lomas, etc. And these are arguably the most expensive locations in the country... so I wasn’t expecting ultra-cheap, rock-bottom ‘Mexico prices’.
And yet I was still pleasantly surprised at how affordable Mexico City is— how much value you get for your money. In other words, you don’t pay very much. But you get a lot for it.
A luxurious, local brand hotel suite (with a living room and small kitchen) was less than $90.
When a friend of ours got sick, we paid about $70 for an English-speaking doctor to come over and make a house call, including tests, medicine, etc. I don’t remember paying more than a few bucks for an Uber ride anywhere in the city, even going 40 minutes to the airport.
And then there’s the food... which is absolutely divine.
Mexico City really does have some of the nicest restaurants in the world. The food is exquisite. The design and decor are among the most eclectic and creative I’ve ever seen. And the service is second to none.
Even at grocery stores, the quality of the food is really great. Mexico is a major year-round agricultural producer, so many of the fruits, vegetables, and meats they sell are fresh and locally sourced. It was all cheap, too.
The grocery store I frequented in Polanco also had multiple specialty departments with imported cheeses, meats, wines, etc.
Most of all, there didn’t seem to be any shortages of anything. Everywhere I went, shelves were full. People were working. The economy was functioning. By comparison, we held a Total Access event (Sovereign Man’s highest tier membership) in Austin, Texas a few months ago.
Austin is a cool city. But the historic downtown hotel (which charged $400+ per night) would only clean your room every three days due to staff shortages.
Simon brought his infant daughter with him and had to routinely sneak around the hotel at night looking for a place to dispose of poopie diapers because there was no housekeeping available.
Nearby drug store shelves were half empty and missing basic staples. Food delivery fees from Uber Eats and Door Dash eclipsed the price of the food itself.
And then there was the growing homeless problem in Austin— which has also become a major issue in many cities across the US.
Mexico City, quite ironically, is a breath of fresh air. Everything worked.
And while there were occasionally some people asking for change, I never saw a ‘tent city’ of homeless people that has become so pervasive in the US.
Mexico City itself is really pretty; it has, by far, the most greenery I have ever seen in any city in the world. There are parks everywhere.
And then there’s the city’s main park, called Bosque de Chapultepec. It’s larger than New York’s Central Park and London’s Hyde Park combined.
Bosque de Chapultepec is acre upon acre of greenery, paths and ponds, with the historic Chapultepec Castle in the center. Nestled in the park is also a Zoo, monuments, fountains, and multiple museums.
Of course Mexico City is not all rainbows and buttercups. Like any city, there are bad areas too. The traffic can be terrible. And yes, you shouldn’t drink the water.
The part I dislike the most is that many people in Mexico City are still obsessed with wearing masks.
In general, no one cares if you wear a mask or not. But I did have to put one on when I went to the immigration office.
There does seem to be some lingering Covid paranoia in Mexico City that will take time to subside.
Overall, though, I was very happy with the trip and could absolutely see myself living in Mexico City at some point.
And this means that having Mexican residency is a great part of my own Plan B.
Now, in case I ever need to leave my home country, I now have a place to go where (a) I actually like, and (b) I’m legally entitled to live.
Obviously I certainly hope I never need to use my Plan B. But in case I do, it feels really good to have such a great option.
To your freedom, Simon Black, Founder, SovereignMan.com
This New Renaissance Can Fuel Human Prosperity For Decades To Come
.This New Renaissance Can Fuel Human Prosperity For Decades To Come
Notes From the Field By Simon Black September 2, 2022
The year 1776 is legendary for precisely one thing: the Declaration of Independence. But 1776 was actually a REALLY big year. Because in addition to the formation of the United States (which undoubtedly had an extraordinary impact on the course of the world), 1776 also saw two other historic trends take shape.
The first was the birth of capitalism.
1776 was the year that Scottish economist Adam Smith published his famous work An Inquiry into the Nature and Causes of the Wealth of Nations, which was the first book ever to outline the case for free markets and laissez-faire governments.
This New Renaissance Can Fuel Human Prosperity For Decades To Come
Notes From the Field By Simon Black September 2, 2022
The year 1776 is legendary for precisely one thing: the Declaration of Independence. But 1776 was actually a REALLY big year. Because in addition to the formation of the United States (which undoubtedly had an extraordinary impact on the course of the world), 1776 also saw two other historic trends take shape.
The first was the birth of capitalism.
1776 was the year that Scottish economist Adam Smith published his famous work An Inquiry into the Nature and Causes of the Wealth of Nations, which was the first book ever to outline the case for free markets and laissez-faire governments.
Not to take anything away from the impact that US independence had on the world, but you could easily make an argument that the idea of capitalism has been just as profound to human history.
Capitalism is responsible for more wealth creation and more prosperity in the past 246 years than every economic system combined over the previous 5,000. That’s a pretty significant impact.
But we’re not even finished yet with the big events from 1776. Because that year saw something else take place that was truly profound… again, potentially outweighing the impact of both US independence AND capitalism.
It was the invention of the steam engine… which at the time may have been the most disruptive technology in human history up to that point.
For thousands of years prior, nearly all work done on the planet was powered by muscle, i.e. human beings and animals toiling away in fields and factories. Just about everything required physical labor.
The steam engine changed all of that. For the first time on a mass scale, an inanimate fuel source (like coal or wood) could power machinery, which could do the work of dozens, even hundreds of people.
It was the steam engine that really kicked off the Industrial Revolution and brought about an extraordinary period of growth to the world, where wealth and standards of living increased like never before.
Over time, human beings figured out better, faster, cheaper ways to produce energy to fuel their machines. And there is an inextricable link between prosperity… and cheap energy.
When energy is cheap and abundant, societies are able to invest heavily in growth; they have more resources (i.e. more energy) available to grow, to produce goods and services, to invest in the future.
When energy is expensive and scarce, the opposite happens. A society has to spend most of its energy just to sustain itself, and there is limited surplus left over for growth and investment.
After generations of enjoying cheap energy and declining costs that fueled unparalleled prosperity, we are now facing steeply rising energy costs.
And I don’t even mean in dollar terms. Sure, the cost of a barrel of oil has more than doubled in the last year. Gasoline prices and electricity prices are high too.
But what I’m really talking about is the cost, in energy, of producing energy.
Oil wells, for example, require electricity or diesel fuel to power their pumpjacks. So oil wells essentially consume oil in order to pump oil.
In the past, this ratio of oil produced vs. oil used was quite attractive. For every barrel of oil it burned in fuel, an oil well would produce 30-40 barrels of output. And that was a great cost/benefit ratio.
But this ratio is falling rapidly, making energy a lot more expensive. And that’s a terrible trend. Again, cheap and abundant energy is a critical factor in driving prosperity. More expensive energy has the opposite effect.
Europe is already in a full-blown energy crisis, and many developing countries aren’t able to get their hands on enough energy to sustain themselves agriculturally. So this is already becoming a major issue, and it could potentially become much worse.
Obviously the war doesn’t help. But there has also been a deliberate political agenda to drive investment and enthusiasm away from fossil fuels towards more expensive, inefficient forms of energy production… like installing solar panels across cloudy Germany.
Again, I cannot overstate how important cheap energy is to human prosperity. So these incompetent, spineless politicians and climate fanatics are dragging the world down a terrible path.
Fortunately there is a real solution to this problem that already exists: nuclear.
It’s controversial (even though it shouldn’t be). But momentum is really starting to build for a new energy renaissance driven by nuclear power.
And this is a major trend you ought to be aware of, because it could drive human prosperity for generations to come. (Plus there are a LOT of ways to invest in it now.)
I invite you to explore this topic with me today in today’s podcast, in which we discuss:
- the intriguing history of energy, and why there was very little growth for 5,000 years
- how everything changed in 1776
- basic energy terminology you should know, like EROEI, specific energy, and more
- why cheap energy is so important to prosperity
- why energy is becoming more expensive… in energy terms
- why nuclear is the obvious answer, and how it can drive future growth.
To your freedom, Simon Black, Founder, SovereignMan.com
It’s A Crazy World When Zimbabwe Has The Most Stable Currency
.It’s A Crazy World When Zimbabwe Has The Most Stable Currency
Notes From the Field By Simon Black August 30, 2022
Robert Mugabe could have gone down in history with the same esteem and grandeur as Nelson Mandela.
Like Mandela, Mugabe was imprisoned for several years for being a prominent anti-colonialist leader in Zimbabwe— then called Rhodesia.
Upon release from prison, and with a little help from the international community, Mugabe became Prime Minister of Zimbabwe in 1980. And the first few years of his leadership were quite reasonable. But that all changed in 1987 when the constitution was amended and Mugabe gained dictatorial powers.
It’s A Crazy World When Zimbabwe Has The Most Stable Currency
Notes From the Field By Simon Black August 30, 2022
Robert Mugabe could have gone down in history with the same esteem and grandeur as Nelson Mandela.
Like Mandela, Mugabe was imprisoned for several years for being a prominent anti-colonialist leader in Zimbabwe— then called Rhodesia.
Upon release from prison, and with a little help from the international community, Mugabe became Prime Minister of Zimbabwe in 1980. And the first few years of his leadership were quite reasonable. But that all changed in 1987 when the constitution was amended and Mugabe gained dictatorial powers.
Mugabe destroyed the economy with insane regulations, fought expensive wars, and indebted the nation.
He also confiscated private land from established (mostly white) farmers, which he redistributed to his supporters, most of whom had no experience in farming.
Unsurprisingly, Zimbabwe’s once-booming agriculture exports collapsed almost overnight.
This authoritarian control pervaded across nearly all industries, and by the early 2000s, Zimbabwe’s economy was in shambles.
About half the country was unemployed and inflation skyrocketed.
In 2001 alone, retail prices doubled. But that was just the beginning. By 2003, inflation was nearly 600%. By 2006, more than 1,200%.
At its peak in 2008, Zimbabwe’s inflation was estimated by various economists to be somewhere between 500 billion and 89 SEXTILLIAN percent, which looks like this: 89,000,000,000,000,000,000,000%.
In 2009, the government finally capitulated and chose to abandon its currency altogether. And for the next several years, Zimbabwe had no official currency.
People transacted in dollars, euros, South African rand, Chinese renminbi… any foreign currency they could get their hands on.
I’ve been to Zimbabwe a few times; the people are intelligent, resourceful, and good-natured. And they have amazing stories to tell about living through hyperinflation.
By 2016, Zimbabwe’s government decided to give a national currency another chance. They started by issuing “bond notes”. And a couple years later they reestablished a new Zimbabwe dollar.
But this time, they promised to use restraint in printing money.
Now, I’m sure you will be shocked to learn that the central bank of Zimbabwe did not exercise restraint...
The new currency was introduced at parity with the US dollar, allegedly worth 1:1. And Zimbabwe’s government threatened to imprison anyone who ignored the official exchange rate.
Naturally, though, the government’s excessive spending and money printing caused the currency to lose value almost immediately. And soon they had to establish price controls based on an exchange rate of 25:1 to USD.
By the start of 2022, the Zimbabwean dollar was worth about 108:1 USD. And it’s now trading around 520:1.
But hey, that’s way better than the 35 quadrillion to 1 ratio of 2009...
There has been an interesting development, however. Instead of continuing with its failed policies, the central bank of Zimbabwe has begun issuing gold coins.
And the 91.67% pure, one ounce Zimbabwean gold coins are currently going for about $1,830 USD.
As of early August, about 4,500 had been sold to be used for local trade, which means they’re circulating as a legal currency in the Zimbabwean economy. That makes these gold coins the most stable currency in the world.
Now, personally I’m a bit skeptical and would love to see a full chemical assay to make sure the coins are actually as pure as the government claims.
Also, crypto would be a MUCH better medium of exchange for day-to-day transactions than gold coins.
But (assuming everything is legitimate) Zimbabwe is at least taking a step in the right direction, which is more than most western governments can say for themselves.
Sure, the US, UK, and Europe don’t have anywhere close to Zimbabwe’s level of inflation, which was more than 200% in the last 12 months.
But since 1971, when the US dollar was decoupled from gold, the value of the US dollar has fallen by nearly 87%.
Even worse is that interest rates in the US (when adjusted for inflation) have been negative for most of the past twenty years. Anyone who responsibly saved their money in, say, a savings account, LOST money after accounting for inflation and taxes.
Given that governments and central banks are key drivers of inflation and interest rates, this is tantamount to official theft.
And yet they keep doubling down on failed policies. They act like they can cure inflation, which in large part was caused by excessive government spending, with more government spending.
And they treat the absurdly-named Inflation Reduction Act as if it’s some sort of magical spell that can ward off the most destructive economic monsters.
If only that were true.
But in the real world, inflation will inevitably increase as they borrow another trillion dollars to pour into the IRS, triggering millions of new audits and causing American productivity to decline.
Forgiving student debt is another inflationary move. If nothing else, universities know that they can raise their tuition because all of the suckers taxpayers are footing the bill for an extra $10,000 to $20,000.
The US national debt now stands at $31 trillion, an increase of $2.4 trillion so far this fiscal year. And the Treasury Department is forecasting multi-trillion dollar deficits for years to come.
These deficits are extremely inflationary... because the government pays for them by having the central bank print more money.
At least Zimbabwe has figured it out. Western governments, on the other hand, still believe they can print and spend as much money as they like without consequence.
This is pure madness. But fortunately you don’t have to wait for the federal government to start acting responsibly.
You are perfectly free to store a portion of your savings in gold, silver, or any number of other real assets that hold value in times of inflation.
And with the way things are going, that might not be a bad idea to consider.
To your freedom, Simon Black, Founder, SovereignMan.com