Hard Data That Confidence In The Dollar Is Cracking

Hard Data That Confidence In The Dollar Is Cracking

April 25, 2023  By Simon Black – Sovereign Man.com

It is becoming increasingly clear that the world is losing faith in the United States dollar... and rapidly turning to alternatives. And that’s a huge deal for the United States.

For nearly eight decades, the US economy and US government have enjoyed the unparalleled benefits of the dollar being the world’s reserve currency.

This means that nearly every government, central bank, commercial bank, and large corporation in the world holds at least some US dollars. Foreign companies use the dollar to trade with one another. Foreign governments and corporations often issue bonds in US dollars.

And most of the world’s major commodities, including oil, are priced and traded in US dollars.

The dollar’s dominance is so ridiculous that even when Airbus— a European aircraft manufacturer— sells jets to Air France, that transaction is settled in US dollars.

This has been an enormous benefit to the United States; every other country in the world that engages in international trade and commerce HAS to hold US dollars... which means that foreign institutions end up parking vast sums of money in the US financial system.

And that money creates additional capital that gets put to work to grow the US economy.

Think about that again: rather than invest their own money to grow their own economies, foreign governments and institutions are essentially forced to invest a big part of their savings for the exclusive benefit of the US economy... simply because they need access to the world’s reserve currency.

A lot of that money ends up in the hands of the US federal government; in fact, foreigners own roughly $7.5 trillion of US government bonds... which has been an absurdly good benefit for the Treasury Department.

Whenever the federal government has come up with some stupid, expensive idea... like paying people to stay home and NOT work... foreigners have always helped pay for it by buying more US government bonds— again, simply because they need to own US dollars.

But as I wrote to subscribers as far back as August of 2015, the dollar’s reserve currency dominance “is by no means written in stone. The US dollar is not the first global reserve currency, and it won’t be the last.”

Throughout history there have been many reserve currencies, from the ancient Greek drachma to the gold solidus of the Byzantine empire, the Venetian gold ducat, the Spanish real de ocho, to the British pound. No reserve currency lasts forever.

History shows that a reserve currency is displaced whenever the rest of the world loses confidence; this typically happens when the government’s finances deteriorate severely.

Back in 2015 I warned that America’s finances were also deteriorating, which posed a risk to the dollar’s dominance: “The US government is insolvent. Its major institutions and pension funds are insolvent. The central bank is borderline insolvent.”

That assertion is even more true today. In fact I would remove the qualifier “borderline” when describing the central bank; the Federal Reserve is, according to its own calculations, totally insolvent.

And the rest of the world is really starting to take notice. The French in particular have been complaining for years about the US dollar, and just recently the French President has been urging Europeans to seek financial independence from the United States.

Leaders from countries including Saudi Arabia, the UAE, Malaysia, Brazil, and India have all recently expressed openness, or even desire, to move beyond the US dollar in international trade.

Saudi Arabia is flirting with the idea of selling oil in Chinese yuan, and just a few weeks ago the first Liquified Natural Gas (LNG) contract in Chinese yuan was transacted.

These are just anecdotes, of course. But there’s a lot of hard data showing that the dollar’s reserve status is waning.

According to the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, the U.S. dollar is currently used to settle about 40% of international trade.

That’s still a lot. But even as recently as 2014, SWIFT reported the dollar was used for 52% of global trade.

Dollar reserves held by foreign governments are also declining.

According to the International Monetary Fund, the US dollar now accounts for 58.4% of foreign reserves held by central banks around the world, compared to roughly 70% in the late 90s.

Foreign central banks also seem to dump their US dollars in exchange for a more traditional store of value; that’s why central banks around the world bought more gold in 2022 than they have since 1950.

This is all hard data showing that the world’s discontent with the US dollar has finally translated into action. And it suggests that the US dollar’s loss of global reserve status is only a question of when, not if.

Again, this is a huge deal for America.

The only reason the US government has been able to get away with a $31.5 trillion national debt, multi-trillion dollar deficits “that cost nothing”, and all the other insane government dysfunction, is because the dollar is the world’s reserve currency.

What do you think would happen if the government of Bulgaria ran a massive deficit every single year... or if the President of South Korea shook hands with thin air?

Their currencies would probably plummet and their bond markets collapse.

Just last year, in fact, we saw the British pound go into freefall, the bond market plummet, and the Prime Minister forced to resign, simply because investors did not like her economic plan.

But the US government has been able to do whatever it wants... for decades... simply because they have the reserve currency.

You’d think that the federal government would do everything in its power to protect such an extraordinary privilege.

But instead they seem to be going out of their way to destroy it. It’s pure insanity.

Even now, with the country weeks away from defaulting on the national debt, the President of the United States still refuses to negotiate a single penny in spending cuts in order to raise the debt ceiling.

Foreigners are watching this mess... and they’re not impressed. And this is yet another reason why they’re moving so quickly to reduce their dependency on the dollar.

Frankly this might be a good thing. The US government is like a spoiled, hard partying rich kid who has squandered the fortune that his great grandfather worked so hard to build.

Maybe the kid needs to go broke and have his fancy cars repossessed in order to (hopefully) relearn the value of money, responsibility, and conservative financial management.

It’s important to remember, in fact, that the United States became the most powerful economy in the world BEFORE the dollar became the global reserve currency. Same with the UK and British pound before.

So it’s possible that losing some of the dollar’s reserve status might just be the spark that the US government needs to get its act together. Only time will tell.

To your freedom, Simon Black, Founder  Sovereign Man

https://www.sovereignman.com/trends/hard-data-that-confidence-in-the-dollar-is-cracking-147023/

We’re Done With “Gradually”. We’ve Now Reached The “Suddenly” Part

We’re Done With “Gradually”. We’ve Now Reached The “Suddenly” Part

April 24, 2023  By Simon Black – Sovereign Man.com

By the summer of 1563, all of Britain had plunged into chaos over religion and the Reformation. King Henry VIII broke away from the Catholic church back in the 1530s, sparking a near civil war within the kingdom. Protestants killed Catholics, Catholics killed protestants, and extreme social tensions lasted for decades.

Universities were at the heart of this conflict; rather than focus on real subjects like science and mathematics, students and professors became radical social activists and turned their schools into ideological echo chambers. Sound familiar?

One of the few students who actually wanted to learn was a Scottish teenager named John Napier; Napier had been enrolled at the University of St. Andrews at the time, but he quickly realized that he would never learn a damn thing in that environment. So he dropped out… and started traveling in search of a real education.

No one quite knows exactly where he went or what he did. But when he returned to Scotland eight years later as a young man, Napier had become an intellectual giant.

You might not have ever heard of him, but John Napier was truly one of the great minds of his era. And modern science owes a tremendous debt to his work… in particular his development of logarithms.

If it’s been a few years since you studied math (or ‘maths’ for my British friends), logarithms are the inverse of exponential functions.

Simple example: we know that 102 (or 10 squared) = 10 x 10 = 100. So, the number 10 raised to the power of 2 equals 100.

The inverse of that is to say that the ‘base 10’ logarithm of 100 = 2. Or in mathematical terms, 100 log10 = 2

Napier devised an entire system of logarithms. And this was actually a tremendous leap forward in mathematics, because logarithms made it so much easier for scientists and researchers to calculate solutions to complex problems.

One of the many important applications to come out of Napier’s work is the concept of ‘logarithmic decay,’ which models many real world phenomena.

The idea behind logarithmic decay is that something declines very, very slowly at first.

But, over a long period of time, the rate of decline becomes faster… and faster… and faster.

If you look at it on a graph, logarithmic decay basically looks like a horizontal line that almost imperceptibly arcs gently downwards. But eventually the arc downward becomes steeper and steeper until it’s practically a vertical line down.

Image     https://cdn.sovereignman.com/wp-content/uploads/2023/04/Screenshot-from-2023-04-24-11-33-13-1024x336.png

Logarithmic decay is like how Hemingway famously described going bankrupt in The Sun Also Rises-- “Gradually, then suddenly.”

In fact logarithmic decay is a great way to describe social and financial decline. Even the rise and fall of superpowers are often logarithmic in scale. The Kingdom of France in the 1700s infamously fell gradually… then suddenly.

We can see the same logarithmic decay in the West today, and specifically the United States.

The deterioration of government finances has been gradual, then sudden. Social conflict, censorship, and the decline in basic civility has been gradual, then sudden. Even the loss of confidence in the US dollar has been gradual… and is poised to be sudden.

Back in 2009 when I started Sovereign Man, I spoke a lot about ideas that were highly controversial at the time.

I suggested that Social Security’s trust funds would run out of money. That the US government would eventually be buried by its gargantuan national debt. That the US dollar would eventually lose its international reserve dominance. That inflation and social conflict would rise.

The main thesis, quite simply, was that the US was in decline. And whenever I spoke at events, I used to talk about logarithmic decay, saying:

“As a civilization in decline, you never really know quite where you are on the curve. You could be way over here on the horizontal line, at the very beginning of the decline… or you could be standing on the precipice about to hit the vertical slide down.”

Well, now we have a much better idea of where we are on that logarithmic decay curve. Because these ideas about the national debt, inflation, social security, social conflict, etc. are no longer theories. Nor are they even remotely controversial.

Just last week, US Speaker of the House Kevin McCarthy said in a speech that “America’s debt is a ticking time bomb”. Social Security’s looming insolvency is now openly discussed in Washington and regularly reported in the Wall Street Journal.

We’ve all seen with our own eyes (and even experienced) inflation, social divisions, and censorship.

And as for the dollar, we continue to see a multitude of cracks in its dominance. Most notably, Saudi Arabia is considering a plan to sell oil not just in US dollars, but also in Chinese yuan.

Plus the international development bank of the BRICS nations (Brazil, Russia, India, China, and South Africa) announced earlier this month that they will start moving away from the dollar.

Is it any surprise? The US government is weeks away from defaulting on its national debt over the latest debt ceiling debacle. And yet the guy who shakes hands with thin air refuses to negotiate a single penny in spending cuts to help reduce trillions of dollars in future deficit spending.

The whole world is watching in utter disbelief at the astonishing level of incompetence that has infected the highest levels of America’s once hallowed institutions, including news media, big business, and the government itself.

America-- and the West by extension-- really are on the precipice of that logarithmic decay curve… the part where the horizontal line becomes a vertical line down.

It has taken years… even decades to reach this point, gradually. We’re now at the “suddenly” part.

Now, it’s important to note that the outcome is far from inevitable. Plenty of declining superpowers in the past have pulled themselves out of a tailspin, at least temporarily.

Aurelian’s reforms helped re-establish Rome’s dominance in the late 200s after nearly a century of chaos. The declining Ottoman Empire recovered substantially during the Tanzimat period in the 1800s. King Charles III of Spain made many successful reforms to revive his crumbling empire in the 1700s.

There are many historical precedents for recovery, so all is not lost. But at the moment there is little evidence to suggest any major change on the horizon.

I’m not saying this to be alarmist. Quite the contrary, in fact. Because one of the key pillars of our thinking here at Sovereign Man is that, despite the ineptitude of our governments, we as individuals have the tools, power, and freedom to solve these problems for ourselves… and even prosper doing so.

Simple example: Social Security’s trust funds will run out of money within a decade, and this will be a huge problem for literally tens of millions of people who depend on the progam.

However there are numerous tools available to solve this problem; a more robust and powerful retirement structure like a self-directed, solo 401(k) plan, for example, allows you to set aside up to $73,500 per year for your retirement.

Similarly, if you expect a government with deteriorating finances to raise taxes (which they almost always do), you can take completely legal steps to reduce what you owe.

If you anticipate inflation continuing, you can arrange your investments to capitalize on the surge in real assets, like minerals, energy, and productive technology.

You can also take steps to diversify geographically, even internationally, to reduce risks to your family’s freedom.

These solutions barely scratch the surface of the plentiful options at your disposal. All it takes is a sensible understanding of the problem… plus the willingness to take action.

And rational, informed action is always a better option than despair.

To your freedom,  Simon Black, Founder   Sovereign Man

https://www.sovereignman.com/trends/were-done-with-gradually-weve-now-reached-the-suddenly-part-146899/

We’ve Waited Nearly 15 Years For This

We’ve Waited Nearly 15 Years For This

April 19, 2023  Simon Black, Founder    Sovereign Man

Thousands of years ago on the 27th of July, 54 BC, the famed Roman senator Cicero wrote a letter to his friend Atticus complaining about all the corruption and bribery that was destroying Rome’s political system.  There was an important election taking place that year for Roman consul, which had once been considered among the highest political offices in the republic.

But by 54 BC, the consuls were just political stooges… because the real power was held behind the scenes by none other than Julius Caesar, and his rival Pompey the Great.

Caesar and Pompey both spent enormous amounts of money to make sure their people won the elections; it was very similar to how today’s biggest political donors spend millions of dollars to push their hand-picked candidates into office. The politicians are just puppets; the real power is the money behind them.

Caesar and Pompey were certainly wealthy guys at the time. But the election of 54 BC set off a financial arms race between the two, with each one trying to out-spend the other to manipulate the election.

One of Pompey’s candidates-- a man named Scaurus the Younger-- was actually charged with extortion.

Two other candidates allegedly attempted to bribe a large voting bloc known as the centuria praerogativa for a whopping 10 million sesterces; this would be the equivalent of hundreds of millions of dollars today.

Another candidate alleged that the two outgoing consuls had been bribed with four million sesterces. The bribery allegations went on and on.

The election of 54 BC was so corrupt and cost so much money that Caesar, Pompey, and their candidates had to borrow heavily from investors to finance all the bribery.

And this is what led Cicero to remark to his friend Atticus, “Bribery is raging. And I will show you a sign of it: the interest rate has gone up from 4% on the 15th of July to 8% [on the 27th of July].”

In other words, the politicians and their financial backers spent so much money to rig the election that they had borrowed nearly all of the capital in Rome’s financial system… causing a spike in interest rates.

This makes sense when you think about it: the election of 54BC created a sudden, overwhelming demand for loans; Caesar and Pompey borrowed heavily in a very short period of time. Just like the basic law of supply and demand, that surge in demand for capital caused an increase in the “price of money”, i.e. interest rates.

Now, imagine being an ancient Roman businessman in the summer of 54 BC looking for a small business loan, perhaps to finance expansion or fund the season’s agricultural harvest.

But then you find that there’s no more money… or only very expensive, high-interest loans available... because the politicians had already borrowed all the money in the financial system.

Economists call this the ‘Crowding Out’ effect, i.e. what happens when someone borrows so much money that there’s very little capital left over for everyone else.

In modern times that ‘someone’ is typically the government, i.e. government borrowing is so extreme that they monopolize all the liquidity in the financial system, thus causing interest rates to rise and ‘crowding out’ the private sector from accessing capital.

And we’re starting to see the Crowding Out effect in our daily lives.

For most of the past 15 years, the Federal Reserve kept interest rates in the US at nearly zero. Capital was infinite. And if the government wanted to borrow more (which they did every year), the Fed simply created more money.

Between 2008 and 2022, in fact, the size of the Federal Reserve’s balance sheet soared from $850 billion to $9 trillion… a more than 10x monetary expansion.

One obvious effect of such reckless monetary policy has been historically high inflation… which ultimately prompted the Fed to reverse course and hike interest rates.

What few people talk about, though, is that the Fed has also begun the lengthy process to reduce the size of its gargantuan balance sheet… essentially draining liquidity from the financial system.

Right now the Fed’s balance sheet stands at around $8.6 trillion, down from a peak of $9 trillion a year ago. So there’s still a looooooong way to go before they get back to the 2008 level of $850 billion, or even the pre-pandemic $4 trillion.

And this takes me back to the Crowding Out effect.

We all know the federal government is addicted to unsustainable spending. Just look at the debt ceiling fiasco-- the Treasury is weeks away from default, and yet the guy who shakes hands with thin air refuses to make any spending cuts.

The Congressional Budget Office currently projects an average $2 trillion annual budget deficit, EVERY YEAR, for the next 10 years. And this estimate is probably quite optimistic; it doesn’t take into consideration any exigent funding requirements like war, natural disasters, or pandemics.

Nor does it take into consideration the multi-trillion dollar bailout required to save Social Security in only a few years’ time.

But even if we go with the government’s own projection of $2 trillion per year, that’s STILL a lot of money to borrow.

For most of the past 15 years, the government never had to worry about borrowing; the Federal Reserve was always standing by to create more money and lend it to the Treasury Department at record low rates.

But now the Fed has reversed course. They’re not loaning any more money to the federal government… meaning Uncle Sam has lost its #1 lender.

One of the government’s other top lenders-- Social Security-- is also out of the picture. Social Security has loaned trillions of dollars to the federal government over the years. But now the government is going to have to pay back those loans in order to keep the program funded, PLUS provide an additional bailout on top of that.

Another major lender-- China-- is also off the table. In fact China has SUBSTANTIALLY cut its holdings of US government debt, from a peak of $1.3 trillion, down to $848 billion today… a reduction of more than 34%.

You’re probably starting to see this ‘Crowding Out’ effect; with nearly all of its top lenders gone, yet absolutely no plans to restrain spending, the federal government is already starting to monopolize debt markets.

The amount of available capital in the financial system is falling due to the Fed’s new monetary policy. And the government is sucking up every available penny for themselves.

That leaves very little capital (compared to the last several years) available for businesses… which is actually fantastic news for investors.

Over the past decade when the money supply was expanding and capital was abundant, businesses could easily raise money from investors or borrow from banks.

And the investment terms were usually very one-sided in favor of the business; companies with no hope of ever turning a profit commanded valuations going into the tens of billions of dollars. And some businesses even sold bonds with negative yields.

But today’s conditions are totally different: businesses have to compete with the government for scarce capital. And as a result, many deals are now outrageously good for investors.

Just because the economy has slowed doesn’t mean there aren’t great investments out there. Quite the contrary. There are incredibly productive and innovative businesses all over the world that can achieve enormous success, regardless of economic conditions.

In fact the most successful company in the world today-- Apple-- is a great example. Even during peak stagflation of the 1970s, Apple earned sensational profits after releasing its highly innovative Apple II.

There will most certainly be similar examples from today’s businesses. And yet, because of this Crowding Out effect, they’re all having to roll out the red carpet to investors in order to raise money.

Well it’s about time. Investors have spent the last several years overpaying for stocks, bonds, real estate, NFTs, and just about every asset under the sun.

But right now, finally, investors can get fantastic deals on great businesses. We just don’t know how long these generous conditions are going to last.

Personally I think the Federal Reserve is going to chicken out-- and we’ve talked about this before.

Their rapid interest rate hikes have already caused so much financial destruction, including multiple bank failures. Next up we’ll probably see defaults in commercial real estate, corporate bonds, municipal bonds, and even a sovereign government or two overseas.

Most importantly, though, the Fed’s higher interest rates will eventually bankrupt the US government. The national debt is already $31.4 trillion, and it increases by $2 to $4 trillion per year. They simply cannot afford to pay 5% interest.

The Fed knows this… which is why I expect them to chicken out and start slashing rates again. The survival of the government depends on it.

And when they do, financial conditions will reverse again. Companies will easily be able to raise capital, and the deals that we see now will no longer exist.

To your freedom,  Simon Black, Founder    Sovereign Man

https://www.sovereignman.com/trends/weve-waited-nearly-15-years-for-this-146858/

Humanity Is On The Cusp Of A Giant (6x) Leap Forward

Humanity Is On The Cusp Of A Giant (6x) Leap Forward

April 11, 2023  Simon Black Sovereign Man.Com

On March 11, 2011, an earthquake in the Pacific Ocean caused a tsunami to strike Japan.  You probably remember seeing this in the news, because, directly in the path of the tsunami sat the Fukushima nuclear power plant.

As the waves crashed into the reactors, the plant’s cooling systems lost power and the nuclear reactors overheated. Pressure built until explosions spewed radioactive materials into the environment.

Now, Japan realized that the Fukishma nuclear accident was a major anomaly... and that the historical data clearly show that nuclear power is safe. So they moved on and continued investing in nuclear.

Yet half a world away, Germany decided to shut down its own nuclear power plants because of what happened in Fukishima... even though Germany is obviously not prone to tsunamis and rarely experiences severe earthquakes.

It was a knee jerk reaction— not at all based on “science”. And instead of investing in nuclear, Germany spent tens of billions of euros on far less efficient renewable power.

One key problem, of course, is that Germany didn’t plan on having a fully renewable energy grid unil more than 25 years later in 2038.

So in the meantime while they would be building wind and solar energy plants across Germany, they planned on filling their energy void by importing natural gas... from Russia.

You can obviously see where this is going.

Germany made an emotional decision to shut off its nuclear plants and instead opted to import natural gas from a known adversary.

And now that the Russian gas is no longer flowing, today Germany relies on burning coal to generate enough electricity.

Rather than admit they were completely wrong to phase out nuclear power, Germany has turned the clock back to the early 1900s when the skies were clouded with thick black smoke from coal-fuel power plants.

But in reality the German government is trying to take its people back into the Dark Ages.

Let me explain.

I’ve talked about the importance of energy for a society’s economic prosperity. Lack of abundant “cheap” energy is one of the major forces of civilization decline.

And when I say “cheap” energy, I’m talking about the “Energy Returned on Energy Invested”, or EROEI.

Prior to the Industrial Revolution, when wood was the world’s primary energy source, the EROEI was 5:1.

In other words, the amount of energy generated from burning wood was FIVE times as much as the energy required to gather the wood in the first place, i.e. to chop down trees, cut them up into logs, transport the wood, etc.

But eventually people discovered that coal was a far more efficient source of energy, with an EROEI of at least 10:1. So the same amount of effort to mine coal, transport it, burn it, etc. produced twice as much energy as wood.

Obviously being able to obtain twice as much energy from the same amount of effort creates a LOT of social benefit; it means that there are a lot of excess resources available to invest in growth and development.

It’s no accident that the discovery of more energy efficient fuel sources, coupled with the invention of machines that relied on those efficient fuel sources, launched a steady, upward trajectory in human prosperity.

And with the discovery of oil as a source of energy (with an EROEI of 30:1 or more), growth and development really started to take off.

But now governments want to take us backward, to less efficient energy sources.

When they talk about renewable and “clean” energy, they often forget that solar panels and windmills don’t just appear out of thin air. Massive amounts of resources go into mining and processing the rare metals and minerals required to build solar panels, windmills, and batteries.

And in the end, renewable sources of energy typically have an EROEI of 5:1 – about the same as burning wood.

So in a mathematical sense, the climate fanatics’ “solution” is to take us back to a Medieval-era level of energy efficiency.

This is a pretty big deal if you understand the clear link between energy efficiency and human prosperity. Inefficient energy means that a society has to use up the preponderance of its resources simply to sustain itself. There’s very little surplus or growth. And that’s largely the way human civilization subsisted for thousands of years.

Don’t get me wrong, I have nothing against clean energy. I am, however, against going back to the Dark Ages... which is essentially the “solution” that Germany and other advanced nations are proposing.

The obvious solution is nuclear power, which has a whopping 180:1 Energy Return on Energy Invested.

If the 2X increase in efficiency from transitioning from wood to coal set in motion the greatest growth of prosperity in human history, what do you think the 6X jump from fossil fuels to nuclear power would do?

And yet, because Greta Thunberg scowls at nuclear, governments want to cast society back to the stone age.

It’s crazy. Last November, the United Nations hosted a Climate Change Conference known as COP27. They talked about gender identity and taxing meat consumption. But they barely mentioned nuclear, which has lower carbon emissions than wind and solar, while delivering 36X more energy return

And this is why I call climate change the new ‘human sacrifice’.. Their policies are guaranteed to decrease efficiency, cost more money, stunt productivity, and trap more people in poverty...

... unless leaders finally get on board with nuclear.

The good news is that nuclear is inevitable. And we’re starting to see a shifting tide towards this obvious solution.

For example, when acclaimed Hollywood director Oliver Stone (who is a hard core leftist) was interviewed at the World Economic Forum last year, he slammed the climate elites for ignoring nuclear.

Stone is releasing a documentary called Nuclear Now arguing that nuclear energy is the best way to promote a cleaner environment without sacrificing productivity and quality of life.

Again, it’s obvious. There aren't enough resources to fully switch the world to inconsistent energy like wind and solar, to create the necessary batteries for storage.

Eventually people are going to wake up to that reality. And when they do, there is going to be a mad rush into nuclear energy.

That creates some very fertile ground for investing in the resources required for nuclear, such as uranium mining and refining.

Right now, the uranium industry is not receiving a ton of capital because of exaggerated fears of its dangers. When that changes, early investors in productive uranium companies with good leadership should do quite well.

I’m an optimist. I don’t think the future is going to be cold and dark with humans cast back into the Dark Ages.

I think when the world confronts the economic realities of energy scarcity, it will usher in a new renaissance in energy. We’ll all benefit. And the people who saw it coming will make a killing.

To your freedom,  Simon Black, Founder  Sovereign Man

https://www.sovereignman.com/trends/humanity-is-on-the-cusp-of-a-giant-6x-leap-forward-146739/

About That “No One Is Above The Law” Nonsense...

About That “No One Is Above The Law” Nonsense...

April 5, 2023  Simon Black  Sovereign Man

In late 1999, I was speeding along Interstate 88 in upstate New York, in a big hurry to go see my girlfriend at the time, when I saw flashing red-and-blue lights in my rearview mirror. My heart sank as I pulled over, knowing that the speeding ticket I was about to receive would be financially devastating.

But I was extremely lucky.

The New York State Trooper who pulled me over noticed my short hair, my youth, and military ID, and he asked me if I was a West Point cadet. I was. And then, for some reason I still don't understand to this day, he let me off with just a warning.

I couldn't believe it; I was driving way too fast, so he absolutely should have written me a ticket. But he didn't.

I hadn't thought about that encounter in years... right up until yesterday afternoon when I saw a number of deranged lunatics and progressive media outlets gleefully cheering the indictment of a former President, under the guise that "no one is above the law."

This made me reflect on my experience as a speedy young cadet being let off with a warning. Did that mean I was "above the law" back in 1999?

It made me realize that, in a sense, EVERYONE is “above the law” to a certain degree. Think about it: in the Land of the Free, the 'Code of Federal Regulations' runs nearly 200,000 pages. And that doesn't even include the mountain of state and local rules that exist.

This means that most people are almost certainly in violation of a whole host of laws and regulations, most of which we've never heard of.

For example, because of poorly worded language contained in section 1030 of Title 18 of the US Code, even connecting to an open WiFi network can be a violation of federal law and carry a sentence of up to 10 years in prison. I'll come back to this.

But let's be honest-- there are other laws that we know about yet choose to ignore. Inviting your friends over to the house to play poker is technically illegal in many states (if you play for money). But people still do it. People drive while texting every single day, even though this is illegal in almost every state.

Naturally, most people get away with such activities. Doesn't that mean that virtually everyone is above the law in some capacity?

Even district attorneys now selectively ignore the law when deciding whether to bring charges against criminal suspects. San Francisco famously decided to stop prosecuting shoplifters. And there are alarming cases across the country where violent criminals, whose charges have been dropped by progressive prosecutors, go out and kill innocent people.

One tragedy that stands out took place on November 21, 2021 in Waukesha, Wisconsin, a suburb of Milwaukee.

On that day, a crazy-eyed psychopath drove his SUV into a local Christmas parade, killing six people and injuring 62. The perpetrator was a known, violent criminal, plus a registered sex offender. And only days before, he had been arrested for attempting to run a woman over with his car... but released on an insignificant bail.

That's because the local prosecutor, District Attorney John Chisolm, intentionally set a policy of releasing violent criminals onto the streets in the name of 'social justice'.

In a 2007 interview with the local press, in fact, Chisolm even predicted tragedy by saying "Is there going to be an individual I divert, or I put into treatment program, who's going to go out and kill somebody? You bet. Guaranteed. It's guaranteed to happen."

So apparently these violent criminals who benefit from the generous clemency of District Attorney John Chisolm (and countless other progressive prosecutors just like him) are also "above the law".

To continue reading, please go to the original article here:

https://www.sovereignman.com/trends/about-that-no-one-is-above-the-law-nonsense-146698/

The Gold Awakening

The Gold Awakening

April 4 2023  Simon Black  Sovereign Man

Letter from the Editor:

If you do any investing, especially in commodities, then you’ve likely heard the name Marin Katusa.

Several of our subscribers, in fact, have spoken very highly of his research, having made money the last time we shared a few of his findings.  That’s why I’m doing the same this week. Marin has a knack for timing. And right now, gold is at $2,020/oz.  This letter came across our desk this morning, so I’m passing it along to you in case this is the kind of opportunity you’d like to consider. It’s long, but I’d encourage you to read all the way through.  Caveat – as with any kind of investing, there is risk involved. But part of our job is to share opportunities we find with you.

Read on and see if you agree with his assessment of where the puck is going…

In freedom,  Simon Black  Founder, Sovereign Man

****

Friends,   I’m asking you to spend a few minutes of your time reading until the very end.

What's about to unfold in the global financial markets could be referred to as "the golden bull market of the century."

You'll likely be bombarded with headlines about how economic instability and soaring inflation are propelling the price of gold to unprecedented heights.

We predict that investors will flock to precious metals in search of a safe haven, driving the price of gold to levels never seen before.

Central banks will scramble to increase their gold reserves, while ordinary citizens will turn to the yellow metal as a hedge against the eroding value of their hard-earned money.

But you'll be ahead of the game.

As you'll discover, there is nothing surprising at all about the coming gold boom. In fact, it's been years in the making.

The stage has been set for a massive shift in global wealth, and those who recognize the signs early will stand to profit immensely.

Not the mainstream media. Not your financial advisors. And not the governments.

No one is going to tell you what you need to know to protect yourself, to grow your wealth, and to seize this once-in-a-lifetime opportunity.

That's why I urge you to take a moment and breathe before the golden bull market that's about to take the world by storm.

While the rest of the world scrambles to catch up, you'll already be reaping the rewards…

These same forces are at work across the globe, putting everyone's financial future at risk…

They point to a major shift in the way we invest, save, and provide for the safety of our families.

There's a very real chance that we'll witness a global financial revolution…

Forcing investors to rethink their strategies and flee to the safety of gold and other precious metals.

It's important for you to know what's going to happen. So first and foremost, you can prepare.

But, it's also important to remember that a massive bull market like this is going to make a lot of money for a lot of people.

Some of the world's most successful investors and financial experts have already begun positioning themselves for this historic event – and you can join them.

In the wealthiest nations in the world, markets don't experience historic bull runs by accident…

INFLATION: THE SILENT WEALTH KILLER

Let me just start with this, so you'll know how serious I am about these predictions…

As you may know, inflation has been steadily rising for years now, eroding the purchasing power of currencies across the globe. Central banks have continued to print money at unprecedented rates, leading to a dangerous devaluation of fiat currencies.

But what most people don't realize is that this is just the tip of the iceberg.

Behind the scenes, there's a much more sinister force at work – one that has the potential to trigger a worldwide financial restructuring. And when that day comes, there will be only one safe haven left standing: GOLD.

There’s also surging demand from emerging markets. And the decline of traditional currencies is just the beginning.

The world is in for an economic storm, and many investors will be caught off-guard.

The Most Important Chart Right Now

Pay attention. This is the single most important chart in the world right now:

IF this is the beginning of a VIOLENT move upwards, commodities are about to get very expensive...

You’ll see that, relatively speaking, commodities are the cheapest they have ever been compared to the S&P 500. There’s nowhere to go but UP.

You might be thinking, “Yeah, but it feels like gold is already pretty high at $2020+/oz.” But by all metrics, the gold bull market remains at historic lows.

Gold Could Go Vertical, Fast

If you’ve been following precious metals for a long time, one thing’s for sure, the gold market has always moved in cycles. Going from dramatic boom to overnight bust, and eventually back again.

So far in this “boom,” gold has barely risen 20 percent from its floor. That’s not even close to the minimum required to qualify for a true “bull market” over the past century.

The smallest gold run-up in the past 90 years was 45 percent — more than twice the current gain. Every other rally was far, far bigger:

From 1972–1974, the rally yielded a 100 percent gain.

From 1978–1980, another 100 percent gain.

Then from 2007–2010, a 67 percent increase in the price of gold.

As you can see from the chart, when gold is ready to rise, it takes off.

Every single one of the years in the date ranges above saw an increase of more than 20%. That’s how you know the gold rally has barely just begun.

2023 is Inflation Versus the World

Central banks will do everything they can to fight it… and get their economies back on the growth track. And you just saw the Fed raise rates 25bps, a move that stunned the markets and sent the Dow Jones dropping 500 points.

Meanwhile…

According to MarketWatch: “Goldman Sachs says it’s the beginning of a structural bull market in commodities.”

And the Wells Fargo Investment Institute wrote, “After a decade of poor performance… commodities look poised to outperform other assets (possibly for a decade or more)… a new bull supercycle.”

My take? I rarely, if ever, agree with mainstream finance. But in this case, I called it three years ago: We are still very, very early in this gold and resource “supercycle” market, the likes of which the world has never seen before.

With gold prices spiking in short order the past 2 weeks, it has more than just regular precious metals investors paying attention.

The Crowd is Paying Attention

The number of mining companies in the S&P 500 will increase, which means an increase in the flow of capital into the sector.

At the end of the Cold War, there were 20 mining companies in the S&P 500. Today there are only 2.

Sure, you could buy gold bullion…

It’s independent of government-controlled financial systems. Your money will be relatively protected from currency wars.

Sure, you could buy gold-backed ETFs, they offer a little more leverage, and can give you some quick profit when gold starts to rise. But when gold starts going up, gold stocks tend to go up a lot.

Tomorrow, you’ll find out why I love this corner of the resource market and show you examples of the high-risk, high-reward nature of gold stocks.

Tomorrow, I’m releasing a brand-new report – called PROJECT GOLD RUSH.

Where I’ll reveal details about one of the most exciting gold projects I’ve ever seen in my life.

I’m going for the bulls-eye.

Regards,  Marin Katusa   Chairman, Katusa Research

P.S. (From Marin) Mark your calendars for tomorrow to see my special report on PROJECT GOLD RUSH. You don’t want to miss this.

https://www.sovereignman.com/blog/

New Government Report Says Social Security Will Be Broke In 10 Years

New Government Report Says Social Security Will Be Broke In 10 Years

April 3, 2023  Simon Black  Sovereign Man

Paris. Such a romantic city.  Sip coffee at a sidewalk bistro, while you take in the wafting smell of burning rubber from the street fires.  Take a picture with the Eiffel Tower, as you dodge incoming tear-gas canisters.  Enjoy the ambiance as you stroll the alleys between 5,600 metric tons of garbage currently rotting on the sidewalks.

See, the sanitation workers’ union is one of several currently on strike in Paris.

They and over a million protesters have lit fires in the streets, destroyed property, and sparred with riot police over the past weeks.

All in an effort to stop the government from raising the retirement age from 62 to 64 by 2030. (Or from 57 to 59 for professions considered dangerous, such as garbage collectors.)

Like essentially all Western countries, France’s population is aging. And the retirement system depends on more workers paying into the system than retirees collecting.

In 1950, four French workers were paying for just one retired French pensioner.

Today, the ratio is less than two workers for each retiree— and by 2040 it could be about 1:1.

Now, it’s understandable that people are angry over broken promises.

But the public refuses to understand or accept basic financial realities.

They exist in a world where all this stuff is free, and they simply shouldn’t have to worry about things like saving for retirement.

And of course, France is far from unique. It is simply a mild preview of the social chaos that is coming to the US...

Three days ago (last Friday March 31st) the Board of Trustees for Social Security released its annual report.

According to the report, Social Security has been paying out more than it takes in since 2021, and “Social Security’s total cost is projected to be higher than its total income in 2023 and all later years.”

And at that rate, “reserves become depleted in 2033, one year earlier than projected in last year’s report.”

So the situation is actually getting worse.

Keep in mind these aren’t some random fringe economists writing this. The Board of Trustees of Social Security include, for example, US Treasury Secretary Janet Yellen.

So what happens when Social Security’s trust funds run out of money?

Well, the program won’t disappear entirely; there will still be incoming payroll tax revenue to partially fund the program (FICA taxes that are paid by workers).

But just like the situation in France, there simply aren’t enough workers in the system to keep paying full benefits to the program’s 51+ million retirees

This means that, even factoring in payroll tax revenue, Social Security recipients are going to have to take an enormous cut in their monthly benefit of around 25%.

And that might be wildly optimistic; in their annual report the Social Security lists the key assumptions of their projections... and those assumptions look like they could be grossly incorrect.

For example, the agency assumes that inflation in the US will return to 2%-3%, and basically stay there forever. Fat chance.

They also assume that the US fertility rate (which is a critical indication of the number of future taxpayers) will be 2.0; this is another outrageously bad assumption, given that the US fertility rate hasn’t consistently been above 2.0 since the late 1960s!

The trustees are clearly making bad assumptions... so even when they say the trust fund will run dry in 2033, but that they’ll still be able to make roughly 3/4 of the payments, the reality is likely much, much worse.

But right now, with all these obvious problems rapidly approaching, politicians are promising voters that they WON’T touch Social Security.

Even the ones talking about balancing the budget vow not to touch Social Security...

(To balance the budget without touching the sacred cows of Social Security, Medicare, and Defense would require cutting 85% of ALL other federal spending.)

Of course, reality is reality, and places like France show us the inevitable outcome:

*The retirement age will go up

*Benefits will be cut substantially

*Payroll taxes will increase

We might also expect the same, or worse, reaction as in France— massive protests, strikes, riots, property destruction, and social chaos.

And all that will do nothing.

Because there are really two institutions which Americans could realistically expect to solve this problem:

One, the US government, currently saddled with $31.5 trillion of debt and rapidly increasing, with a total net worth (assets versus liabilities) of NEGATIVE $34 trillion.

Two, the Federal Reserve, which last year reported ‘unrealized losses’ of more than $330 billion against just $42 billion in capital, making it completely and totally insolvent.

So there are really only two plays left to make...

The US government could raise taxes to cover the gap.

The Federal Reserve could print money to cover the gap, creating massive inflation.

Without responsible leadership willing to make tough decisions, this is their default option.

There are a few takeaways here.

1. Prepare to fund a portion of your own retirement.

Between inflation and benefit cuts, you simply cannot rely on the promises the government has made to you about your retirement.

It’s probably not going away entirely, but you should consider Social Security as a supplement to your retirement, and not the primary source. You certainly won’t be any worse off if by some miracle Social Security manages to pay the full benefits.

2. Prepare for a future with higher taxes.

And take every legal step at your disposal to reduce what you owe.

3. Prepare for a future with higher inflation.

Again, the government’s inevitable solution is to go deeper into debt, and print the money to fund it. As we’ve already seen, more money printing means more inflation.

That doesn’t necessarily mean inflation will be at 10-15% levels for years to come. But it probably won’t be the 2% average we’ve gotten used to over the past two decades.

The good news is you can control your own fate by having your own retirement funds, which puts you in the driver's seat.

And at the same time, you can lower your taxable income significantly by, for example, contributing to a Traditional 401(k) retirement account.

As of 2023, you can contribute up to $22,500 per year, or $30,000 per year if you're over 50.

For those who are self employed, earn money through a side businesses, or own a business without any employes, using a Solo 401(k) is even more beneficial.

In 2023, the tax-free limit for contributions rises to $66,000 (or $73,500 for those age 50 and older) because you can make both the employer and employee contributions.

A self-directed Solo 401(k) also provides a wider range of investment options such as real estate, foreign investments, private equity, and more.

And this barely even scratches the surface of the options you have available to shore up your retirement, beat inflation, and legally reduce your tax rate.

You don’t have to protest, or vote harder. You simply have to understand the magnitude of the problem, and use the tools at your disposal to fix it.

To your freedom,  Simon Black, Founder  Sovereign Man

After SVB, are you worried about that your bank could be the next one to collapse suddenly?

Download our new FREE 28-page report entitled "How To Tell If YOUR Bank Is Safe". Packed with eight steps you can take to ensure your money is safe today, it's essential reading for these uncertain times.

https://www.sovereignman.com/trends/new-government-report-says-social-security-will-be-broke-in-10-years-146647/

Why A Desperate America May Soon Annex Its 51st State

Why A Desperate America May Soon Annex Its 51st State

March 31, 2023  Simon Black  Sovereign Man

At the center of Sovereign Man’s core ethos is the indisputable view that the United States is in decline.

I take absolutely zero pleasure in writing that statement. But it’s incredibly difficult, if not impossible, to objectively appraise the bountiful evidence at hand and not reach the same conclusion.

Consider the following:

US government finances are appallingly bad. The national debt exceeds 100% of GDP, annual deficits run into the trillions of dollars with no end in sight, and major trust funds for Social Security and Medicare will soon run out of money.

Political incompetence is mind-blowing; politicians fail to be able to even identify problems, let alone understand them, let alone reach compromises to solve them.

Ditto for central bank incompetence. These people simply cannot understand how, by keeping interest rates at zero for nearly a decade and conjuring trillions of dollars out of thin air, they engineered record high inflation. And they also fail to understand how their actions to ‘fix’ inflation are causing widespread havoc in the economy and financial system.

Social divisions across the country are extreme. Censorship and cancel culture prevail, and corporations now wag their fingers at their own customers to “be better”.

The education system is in pitiful shape, with many politicians and school board officials turning classrooms into activist training camps.

The population is terribly unhealthy. Obesity and drug addiction are epidemics. Plus there’s an obvious mental health crisis that drives far too many people to commit horrific acts of violence on innocent people, including children.

National security is in decline. Military readiness is down, yet top officials seem more concerned about diversity and inclusion rather than the ability to prevail in war.

The rule of law has been perverted, including for political purposes and self-aggrandizement. We just saw another example of this yesterday.

Even the national fertility rate continues plummeting-- an indication of the rising cost of living and social apathy.

The Wall Street Journal recently published a series of polls indicating that most Americans doubt their children will have a better future; pessimism is strong.

They also found that certain values which once defined American culture, including a sense of community, hard work, and civility, are no longer important to the majority of people.

This is all happening at a time when adversaries are circling. And that includes China.

Now, usually whenever I bring up China, there are always people who are quick to assert that China cannot possibly replace the US as the dominant superpower because they have just as many problems.

And it’s true that China has a ton of problems. They have their own debt issues, financial system chaos, and economic problems. They have social challenges, a major demographic crisis, and even a serious issue with childhood obesity.

But no civilization or empire throughout history has ever been problem-free.

Ancient Rome, even during its early republic days, had enormous problems. They had to deal with constant revolts, civil war, the genocidal dictatorship of Sulla, famine, war, plague, and more.

Yet there’s an enormous difference between taking on challenges while you’re on the rise… versus succumbing to them while on the way down.

Rome was able to deal with its challenges and continue its rise to become the dominant superpower. China may be able to do the same.

The US finds itself in a precarious position where they have a mountain of compounding problems… and no ability to even slow them down, let alone solve them.

I’ve written before about what I call the “Four Forces of Decline”, which I define as

1) Forces of History-- the inevitable, cyclical nature in the rise and fall of Empire. No empire, no civilization in human history has ever retained the top spot forever, and most tend to experience similar challenges on the way down.

2) Forces of Society-- the vicious way in which a society eats itself from within, vanquishing the ability and inclination to solve complex problems.

3) Forces of Economy-- the debilitating toll that enormous debts, deficits, and currency inflation take on a nation and its people.

4) Forces of Energy-- when energy is cheap and abundant, prosperity reigns. When energy is expensive, prosperity wanes. The relationship couldn’t be more clear.

Today’s podcast puts all of these together, with a particular focus on #4, Forces of Energy.

Part of being the dominant superpower in our modern world means having access to abundant energy. Yet the US government has spent the last few years trying to destroy its energy (oil and gas) industry.

They’ve been pretty successful. The President of the United States hardly misses an opportunity to bash oil companies. Politicians pass new rules and taxes to punish them. The media beats up on them. Investors have pulled funding for them.

So it shouldn’t be a surprise that US oil production, while not in terminal decline, is failing to keep up with growing demand.

Shale oil is especially problematic given that most of the highest quality “tier 1” sites have already been drilled. Many are already in decline.

This is a big deal. Shale oil is the reason why the US achieved near energy independence. With shale in decline, the US will be forced to import a LOT more energy (which, again, is critical for prosperity) from places where they have an increasingly adversarial relationship.

Russian oil is obviously off the table. So is Iranian oil. Saudi Arabia is rapidly becoming cozy with China; in fact the Saudis are now publicly considering to sell their oil in Chinese currency, the renminbi.

This is an enormous threat to the US. Saudi Arabia has been selling oil in dollars for decades; they’ve even had their currency, the riyal, pegged to the US dollar since 1986.

This concept of selling oil in US dollars is known as the petrodollar, and it’s one of the key reasons why the US dollar is the global reserve currency.

Anyone who wants to buy oil needs to own US dollars. And that pretty much includes every country on the planet. So foreigners are forced to stockpile dollars, and by extension, US government bonds… simply because they need dollars to buy oil.

As a result the US government is able to get away with the fiscal equivalent of murder. They can run multi-trillion dollar deficits every year. They can wage expensive wars in foreign lands. They can go into debt to pay people to stay home and NOT work…

… and they’ve always had a bunch of suckers overseas-- foreigners who have no choice but to buy US government bonds, simply because oil is priced in US dollars.

But what if Saudi Arabia started selling oil in renminbi?

Most likely a LOT of foreigners would dump at least some of their dollars and start holding renminbi as part of their official reserves.

America’s biggest privilege and benefit-- its reserve currency-- would vanish, practically overnight.

Suddenly the US government wouldn’t be able to run multi-trillion dollar deficits. It wouldn’t be able to go into debt to pay people to stay home and NOT work.

They’d have to be like almost every other country-- act with some fiscal responsibility.

Think about it-- if the President of Mexico shook hands with thin air, investors would be rightfully terrified and panic-sell Mexican government bonds. If South Korea ran a multi-trillion dollar deficit, its currency would probably plummet.

Back in September we saw the British pound and UK government bonds practically collapse… and the Prime Minister of one of the world’s largest democratically elected sovereign governments was forced to resign... simply because investors didn’t like her economic revival plan.

These issues are all linked. If the US continues to demonstrate incompetence and weakness… if they continue to subvert and destroy the energy industry… and if Saudi Arabia starts selling oil in renminbi…

… the consequences will be life-changing.

This is one of the biggest stories of our lives. It’s easy to miss because it’s playing out over a period of years. It gets lost in the day-to-day noise and the crisis du jour.

But rest assured this is happening in front of our very eyes; it’s a slow motion crash that’s already started.

The outcome isn’t inevitable yet. But nothing about these people’s actions demonstrate that they have the slightest clue what’s going on.

Join me in today’s podcast as we dive further into this… and I outline my “51st state” theory-- a ‘solution’ that I wouldn’t be surprised to see in the near future.

To your freedom,   Simon Black, Founder  Sovereign Man

https://www.sovereignman.com/podcast/why-a-desperate-america-may-soon-annex-its-51st-state-146633/

I Love How Everyone Pretends The Bank Crisis Is Over...

I Love How Everyone Pretends The Bank Crisis Is Over...

March 29, 2023  Simon Black  Sovereign Man

Practically on cue, politicians began their public hearings yesterday about the recent banking crisis.

This was so predictable; every time there’s a major crisis, Congressmen book a committee meeting to express their shock and outrage. They pass new laws to prevent a future crisis. Then their new laws fail to work properly, so they hold another public hearing to express more outrage.

This is the cycle of political problem solving, and yesterday was no exception.

The Senate Banking Committee summoned key officials from the Federal Reserve, FDIC, and US Treasury Department. And the tone was quite angry.

Senators were flummoxed that their thousands of pages of banking legislation had once again failed to provide adequate protection to the US financial system. And they were looking for someone to blame.

This, too, quite predictably, fell along partisan lines. The people on the left somehow found reason to blame everything on Orange Man, while describing bank regulators as “gutsy” and “courageous”. It was bewildering.

Most absurd was how the officials in the hot seat (who, again, represent the primary bank supervisors in the United States) managed to avoid any culpability whatsoever.

The Fed’s Vice-Chairman for Banking Supervision admitted that his agency’s supervisors had rated SVB as a poorly managed bank. And the Fed was further aware of several material weaknesses in SVB’s risk compliance.

They acknowledged that they had advanced knowledge of the banks’ problems.

They acknowledged they should have done something about it. They acknowledged they had the tools and authority to do something about it.

Yet they did absolutely nothing… and somehow ended up being praised as gutsy and courageous.

It’s natural to blame the bank executives for making such idiotic decisions with their customers’ money. But culpability is not mutually exclusive. It’s not either/or. And the regulators had a major role to play in this crisis.

Not only did they escape culpability at yesterday’s hearing, but the regulators even managed to pat themselves on the back for their swift and decisive response to the crisis.

After SVB’s failure a few weeks ago, government officials invoked what’s known as the “systemic risk exception”. This exception essentially gives them sweeping power to deal with a crisis by whatever means necessary.

And all the key officials unanimously agreed that SVB, First Republic Bank, etc. posed systemic risk, and that justifies the massive bailout response.

Isn’t it interesting, though, that “systemic risk” only seems to apply to banks?

You never heard these officials say that baby formula shortages pose systemic risk. Or that inflation itself is a systemic risk. Or that dwindling US oil production is a system risk.

Yet whenever the banks and their somnambulant regulators fail, they call it “systemic risk” and pull out all the stops to save them.

Energy companies, on the other hand, which produce the very thing that all economic activity requires, are tossed out in the cold and demonized at every available opportunity by the President of the United States. It’s bizarre logic.

The biggest falsehood of yesterday’s hearing, however, was the continued insistence by all that “our banking system is strong and resilient”. Coincidentally they presented zero evidence to support that assertion.

In fact most evidence would support the opposite conclusion-- that there are still a number of major problems in the banking system.

The FDIC itself reported that banks across the US have a total of $620 billion in unrealized losses; this is due primarily to the steep decline in bond prices, which are a result of the Federal Reserve’s aggressive interest rate increases.

And bear in mind that the FDIC’s estimate was before the most recent rate hikes. So the updated estimate on unrealized losses right now is most likely higher than $620 billion.

But risks in the banking system go way beyond these unrealized bond losses.

Commercial real estate is an obvious one; Fed data show that banks across the US have loaned out nearly $3 trillion of their customers’ money against commercial property, including office space. Other estimates go up to $5.5 trillion including commercial mortgage-backed securities.

But thanks to new, pandemic-related remote work policies, companies across the US are using less space.

Moody’s Analytics recently reported office utilization rates at roughly 50% of pre-pandemic levels based on security-badge swipe data at office buildings.

Workers simply aren’t showing up to the office like in the past, and office occupancy rates have been steadily deteriorating as a result.

Office vacancy now stands at 12.5% nationwide according to the National Association of Realtors. That’s about a third worse than in 2019.

To make matters worse, the economy is slowing, which will likely trigger additional cuts in office space.

All of this is bad news for banks. They have trillions of dollars of exposure to a rapidly declining commercial real estate market, so even a small increase in loan defaults could spark another panic.

The Wall Street Journal recently reported that estimates of total unrealized bank losses right now, including commercial loans, is a whopping $1.7 TRILLION. That’s the vast majority of all bank capital in the United States… so this is still an enormous problem.

But everyone keeps playing the same chorus again and again: “the banking system is strong, the banking system is strong.”

Even sophisticated Wall Street investors have joined the sing-along, given that bank stocks are once again on the rise.

As of this morning, shares of financially uncertain banks with enormous unrealized losses are now trading at fairly rich, double-digit valuations as measured by Price/Earnings and Price/Free Cash Flow metrics.

(Meanwhile, valuations of high quality, well-managed real asset businesses in the energy, mining, agriculture, and productive technology sectors are tiny by comparison.)

Everyone seems happy to close their eyes and pretend that the crisis is over despite so much evidence to the contrary.

To your freedom, Simon Black, Founder  Sovereign Man

https://www.sovereignman.com/trends/i-love-how-everyone-pretends-the-bank-crisis-is-over-146615/

New IRS Report Provides Fascinating Glimpse Into Your “Fair Share”

New IRS Report Provides Fascinating Glimpse Into Your “Fair Share”

March 28, 2023  Simon Black, Founder  Sovereign Man

Every year the IRS publishes a detailed report on the taxes it collects. And the statistics are REALLY interesting.  A few weeks ago the agency released its most recent report. So this is the most objective, up-to-date information that exists about taxes in America..

This is important, because, these days, it’s common to hear progressive politicians and woke mobsters calling for higher income earners and wealthier Americans to pay their “fair share” of taxes. But this report, directly from the US agency whose job it is to tax Americans, shows the truth:

The top 1% of US taxpayers paid 48% of total US income taxes.

And that’s just at the federal level, not even counting how much of the the local and state taxes the wealthy paid.

Further, the top 10% paid nearly 72% of total income taxes.

Meanwhile, the bottom 40% of US income tax filers paid no net income tax at all. And the next group, those making between $30-$50,000 per year, paid an effective rate of just 1.9%.

(Again, this is not some wild conspiracy theory; these numbers are directly from IRS data.)

But the fact that 10% of the taxpayers foot nearly three-fourths of the tax bill still isn’t enough for the progressive mob. They want even more.

The guy who shakes hands with thin air, for example, recently announced that he wants to introduce a new law that would create a minimum tax of 25% on the highest income earners.

But the government’s own statistics show that the highest income earners in America— those earning more than $10 million annually— paid an average tax rate of 25.5%. That’s higher than Mr. Biden’s 25% minimum.

So he is essentially proposing an unnecessary solution in search of a problem.

I bring this up because whenever you hear the leftist Bolsheviks in government and media talking about “fair share”, they always leave out what exactly the “fair share” is.

The top 1% already pay nearly half the taxes. Exactly how much more will be enough?

Should the top 1% pay 60% of all taxes? 80%? At what point will it be enough?

They never say. They’ll never commit to a number. They just keep expanding their scope.

Elizabeth Warren, for example, quite famously stopped talking about the “top 1%” and started whining about the “top 5%”. And then the “top 10%”.

She has already decided that the top 5% of wealthy households should not be eligible for student loan forgiveness or Medicare.

And when she talks about “accountable capitalism” on her website, Warren calls out the top 10% for having too much wealth, compared to the rest of households.

Soon enough it will be the “top 25%” who are the real problem...

Honestly this whole way of thinking reminds me of Anthony “the Science” Fauci’s pandemic logic on lockdowns and mask mandates.

You probably remember how reporters always asked “the Science” when life could go back to normal... and he always replied that it was a function of vaccine uptake, i.e. whenever enough Americans were vaccinated.

But then he kept moving the goal posts. 50%. 60%. 70%. It was never enough. And there was never a concrete answer.

This same logic applies to what the “experts” believe is the “fair share” of taxes which the top whatever percent should pay.

They’ll never actually say what the fair share is. But my guess is that they won’t stop until 100% of taxes are paid by the top 10% ... and the other 100% of taxes are paid by the other 90%.

To your freedom,   Simon Black, Founder  Sovereign Man

https://www.sovereignman.com/tax/new-irs-report-provides-fascinating-glimpse-into-your-fair-share-146597/

Get Ready for the Distressed Equity Bonanza

Get Ready for the Distressed Equity Bonanza

March 20, 2023  Simon Black, Founder  Sovereign Research & Advisory

This isn’t over yet.  Last week after Silicon Valley Bank went poof in a matter of hours, I wrote that this financial catastrophe is just getting started:

“Like Lehman Brothers in 2008, SVB is just the tip of the iceberg. . .”

Within days, several other banks were on the verge of collapse. And now today, of course, major banks in the United States (including JP Morgan) are rallying to save the troubled First Republic Bank. 

The amazing thing about this rescue plan is that JP Morgan, Bank of America, etc. have pledged to deposit $30 billion of their customers’ funds at First Republic.

In other words, the big Wall Street banks have promised to transfer their customers’ money to another bank that everyone acknowledges is insolvent.

This is not only extremely unethical, it’s a major violation of the big banks’ fiduciary obligations to safeguard their customers’ savings.

It also strikes me as borderline illegal; JP Morgan can do what it likes with its own money. But it shouldn’t bail out a failed bank using its customers’ money.

This bank panic has also spread beyond the US.

Over the weekend in Switzerland, banking giant Credit Suisse had to be taken over. And I can only imagine the calamity that will ensue if depositors start to scrutinize the weak, under-capitalized banks in Italy.

(Perhaps that’s why Italy’s Economy Minister, Giancarlo Giorgetti, said last week that he hopes European authorities will intervene if there are more bank runs.)

Anyhow, let’s pretend for a moment that the bank runs are over for now. There are still a lot of risks lurking in the financial system, and it’s easy to understand why.

Last week I explained that Silicon Valley Bank had been insolvent for months. And they didn’t keep it a secret. SVB provided the Federal Reserve and FDIC with regular financial reports on their solvency and capital.

And they published their annual financial report back in mid-January, announcing their insolvency to the world.

For two months, nobody seemed to care about SVB’s massive unrealized losses. Then, practically overnight, a worldwide banking crisis began.

This sudden, dramatic change in market behavior is the critical issue here; in the field of ‘chaos’ mathematics this is known as bifurcation-- the point at which a small change causes an entire system to shift from stable to unstable.

That’s what happened with SVB; the global financial system was perfectly stable until about 10 days ago, when SVB made a minor announcement that they had sold some bonds at a loss.

Then suddenly everything fell into chaos. It was a minor change that led to major instability.

But bifurcation isn’t limited to commercial banks-- there are plenty of other potential bifurcation events lurking out there.

Think about it-- if investors and market participants can suddenly shift from CONFIDENT to PANICKED about commercial banks, why can’t they react the same way about sovereign governments, central banks, or even businesses?

With hundreds of billions of dollars in its own unrealized losses, even the Federal Reserve is insolvent.

(I’ve written numerous times about this, stating that the Fed “will eventually engineer its own insolvency.” Well, mission accomplished.)

At the moment, however, the market doesn’t seem to care that the Fed is insolvent… just like no one cared about Silicon Valley Bank’s insolvency back in January.

But who can guarantee that investors won’t suddenly care about the Federal Reserve’s horrific balance sheet? Just imagine the consequences that would trigger.

The same goes for US government finances. After all, the Treasury Department’s own annual report shows a NET financial position of MINUS $34 trillion. Sure, today, nobody really cares. Can we be so sure they won’t care next month? Or next year?

The larger point is that these potential bifurcation events are everywhere, and the system can shift from stable to unstable very quickly.

There are also key issues beyond these bifurcation points.

One obvious consequence of the SVB fallout is that banks are going to have to slash their loan and bond portfolios… starting now. This is normal practice when banks are in trouble.

Remember that, according to the FDIC, banks across the US have already suffered more than $600 billion in unrealized losses on their bond portfolios. And now that this has turned into a mini-crisis, banks will likely respond by slashing their lending and investing activities in order to conserve cash.

That’s bad news for most companies; even healthy, successful businesses often rely on loans, credit lines, and bond issues to fund their operations or major investments.

Businesses are already having to deal with the negative impact of significantly higher rates. But if banks suddenly reduce lending, that’s going to leave countless businesses in a really tough spot.

That means canceled projects, job cuts, and possibly financial distress, forcing many businesses to raise capital by issuing new shares at fire sale prices.

Objectively speaking these distressed equity opportunities can be incredibly lucrative for investors who are willing to pounce-- the chance to load up on high quality assets at deeply discounted prices.

But this distressed equity bonanza might not last.

I’ve argued before that the Federal Reserve will soon find itself between a rock and a hard place, i.e. they’ll have to choose between inflation versus financial catastrophe. And we’ve just witnessed the opening measures to financial catastrophe.

It will probably take them time to figure out; after all, it took the Fed more than a year before they finally realized inflation was a problem. And it’s probably going to take them time to realize that their rapid interest rate hikes are creating financial catastrophes.

But once they figure it out, the Fed is likely going to start cutting interest rates again (and allowing higher rates of inflation) in order to prevent full blown economic catastrophe. And that will put an end to the distressed equity bonanza.

So keep an eye out for this one, because it might not last long.

To your freedom, Simon Black, Founder  Sovereign Research & Advisory

https://www.sovereignman.com/trends/get-ready-for-the-distressed-equity-bonanza-146467/