I once watched a movie and an interesting thing happened. I wanted to be Steve Zahn more than anything in the world. It was an interesting experience but so is having Penelope Cruz and Salma Hayek fighting over you. I’m talking about a pleasant little film called Bandidas. Now you might think that is an inappropriate movie to be referencing in a macroeconomic blog, but au contraire. One lady is an innocent farmhand from Mexico, the other a rich brat educated in Europe and Steve Zahn is just the luckiest SOB to ever walk the earth.
Here is an excerpt from the dialogue in the movie where the ladies are bank robbers avenging an evil bank’s methods, Penelope Cruz’s farmhand character Maria, gets a lesson in central bank policy when she says ”So let him have the gold. We’ll have all the money.”
Salma’s educated character Sara responds “The money’s just paper. It represents the value of the gold. It’s what the entire monetary system is based on. Without the gold the paper has no value.”
Maria responds, “Then we should rob the gold.”
That’s it. Let’s not confuse ourselves thinking this is Oscar worthy potential here, but this scene in 20 seconds sums up what was happening in the world until Scott Bessent a gold bug got into the Treasury department. Bessent has said on Bloomberg interviews that gold is his biggest position. The massive repatriation of gold from the bank of London to the Comex markets in the US are a sign of what is happening right now. These are opening pawn advances in what will soon become a currency showdown.
Donald Trump has even tweeted,” he who hath the gold makes the rules.”
This scene should be shown in the opening class of Macroeconomics 101 for two reasons. One, it correctly identifies how the system used to work and second, kids wouldn’t fall asleep. If these two senoritas can explain this in 20 seconds why have all the world’s governments abandoned this system in favor of printing fiat dollars. The governments and in particular the government officials want to steal from the working class for the benefit of themselves. That’s it. The gold standard has been dead for the last 54 years and counting, so why is gold crossing oceans and making new highs seemingly every month?
The answer is simple, because it is money. In 2008, the highly indebted United States had themselves a borderline financial crisis. Their overleveraged system almost came tumbling down and it would have if the government didn’t step in and print money in amounts never before seen in the history of the world. In 2007, the US had $9 Trillion in debt and a 62% debt to gdp ratio, call it roughly $15 trillion in GDP. Now at the end of 2023 we had $34 trillion in debt and 122% debt to GDP of roughly $29 trillion. For simplicity sake, let’s call GDP $30T and we know we have $36T in debt and change today. So in 18 years we have watched the GDP double in this country but the debt has went up 4x. Ask yourself what would have happened to your stock portfolio if half of that debt went away. Remember, government debt is the private sector’s credit. That spigot has been flowing wide open since the GFC. The closer to that spigot you are the better you have done. Look at Google, Amazon, Microsoft, Oracle and their cloud computing contracts with the US government. Billions of dollars from public hands to private hands. Tesla and Elon Musk has been receiving tax credits for a decade, and his Space X company is dependent on government contracts. Money transferred from public hands to private hands. Lockheed Martin, RTX, General Dynamics and Boeing all received over $150 billion in 2023 alone from the federal government. I didn’t vote for a single missile that went to Ukraine that blew up and provided me zero return on my investment. However, that CEO made his bonus and bought his house in Aspen didn’t he? Meanwhile the debt grows and the productive capital spending in this country dwindles.
We are spending billions of dollars on AI right now. From all accounts if we are successful, we get to see unemployment rise to the level of the Great Depression, but some CEOs are going to be very wealthy. This is not a great plan. When I used to plan my ski trip I would go to a library and find an atlas. I would look at states where skiing was probable and then I would locate ski resorts. Then I was able to call AAA and they would give me some pamphlets and directions on how to get there if I wanted. But I was able to go skiing. Now I can use google, but the promise of the future is that I can have a machine that has never skied, sat in front of the fire at the lodge, or waited in a lift line tell me where to go. I think I will pass. I like figuring things out. I don’t need your products to make up my own mind. In short, I don’t outsource my thinking.
That’s why I want to talk about gold today. We are being bombarded by get rich schemes today. Buy high interest bond funds, buy the magnificent seven, buy Tesla, buy crypto to the moon, and even get 4% on your money on t-bills. First, we need to understand that the government is lying to us about inflation. We are not in a 2.4% inflation world. We are in a 2.4% headline CPI world. I subscribe to John Williams and his Shadow Stats information. He compiles data and calculates inflation the same way that the government did before they started cheating and making adjustments to it. His inflation rate for Feb 2020 to Feb 2025 is at around 12%. If you had put your money in a US treasury at 4%, you would have lost 8% on your money which means in 9 years you would have lost half the purchasing power of that money and guess what, we are more than halfway toward 9 years since then and there is no way you could have gotten 4% starting in Feb 2020 for a US treasury bill. The reason this silly conversation still comes up in parlance is in the last 10 years 4% wouldn’t have been so bad. We need to omit that from our discussions. We need to realize that the inflation number they are feeding us is bullshit and we need to start multiplying that number by 4 at least. All four job reports since Trump has been in office have continued the trend from Biden, overstating the job numbers and then restating them lower. I just multiply the job number by 2/3 and I have a good rule of thumb. If we base our knowledge on faulty assumptions, we are building our investing framework on a foundation of sand.
The Top 10% has managed to do ok since they were invested in the stock market as the stock market has returned 87% since Feb 2020. That is in comparison to 21% for tha t4% t-bill and 78% for inflation. The other 90% haven’t’ been as lucky. Do you know anyone lucky enough o get annual 4% raises at work? If so, they are only trailing true inflation by 60% in the last 5 years. Now do you understand why so many people are upset with the system?
Gold has been up 101% since that time, but it has been helped by the central banks buying gold by the tons. I think gold would have tracked inflation very closely, which means you aren’t getting rich but you are maintaining your purchasing power which is the first goal. We don’t need the penthouse but don’t want the outhouse.
If I have enough gold to buy a car let’s say and the price of gold doubles, I can probably buy a car. If the price of gold goes down 50% in a spectacular crash, I can still buy a car. It is what it is. This from Bloomberg, “Central banks have emerged as a driving force behind the record-breaking bull market for gold, and while the true scale of their buying is shrouded in mystery, nobody expects them to stop.
Globally, they are accumulating roughly 80 metric tons of gold a month, worth about $8.5 billion at current prices, analysts at Goldman Sachs estimate. Most of the buying is secret, although trade data indicates China accounts for a lot of the purchases, along with other unidentified buyers via Switzerland.
Taken together, central banks and sovereign wealth funds have been mopping up 1,000 tons a year, at least a quarter of annual mined production, according the World Gold Council. In an HSBC survey of 72 central banks in January, more than a third planned to buy more in 2025. None intended to sell.
“Gold is the safest reserve asset,” said Adam Glapinski, governor of the National Bank of Poland, which has been among the biggest buyers in recent years. “It is free from direct links to the economic policy of any country, resistant to crises and retains its real value in the long term.”
Central banks in Switzerland, Canada and famously the UK offloaded gold in the 1990s, leading to a decade-long bear market. It had become a relic, valued by the fearful rather than a financial world that preferred dollars.”
Trump has taken the popularity of dollars and poured hot cat piss all over them. You still want them, but it is only worth it in the larger denominations. What once cost $10 now cost $18, in 5 years. This is 100% due to Trump and Biden’s big beautiful bills of yesteryear giving money away to average folks who went out and bought stuff so that money all resides in the hands of Zuckerberg, Bezos, and Musk. It is flowing one way and one way only. If the common people want to reverse that trend then they need to think and act like it. Stop using credit cards to buy things. Do you think Visa’s 60% margins after paying you points are worth the local coffee house going out of business? How about Walmart devouring small business after small business as the money from your hometown goes into the pockets of Stan Kroenke who owns professional sports teams poorly.
Gold is at all time highs is what they news is saying, but I look at that and I hear the dollar is at all time lows. The dollar will not last, but gold will. Don’t believe the hype, diamonds aren’t forever, gold is.
Sincerely Yours,
C Thomas Printer
Also born on this date… former House Republican representative Jeannette Rankin.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.