Twilight Zone Economies – Part 2

News from the financial world becomes more bizarre every day.  We are slipping over the edge into Twilight Zone Economies.

Consider a few examples:

  • Some European sovereign debt “pays” NEGATIVE interest rates out to ten years (Switzerland) or eight years (Denmark) in depreciating currencies that are being “printed” from nothing by compliant central banks. How is such debt an “investment?”  It looks more like “hope and prayer” in our current Twilight Zone economy.
  • Mexico just sold 100 year bonds denominated in euros. This makes good sense to investors in the Twilight Zone.  Slightly deeper into the Zone we may eventually find 500 year bonds, perpetual bonds, and debts repayable in subsequent lifetimes.
  • Central Banks and bankers have a consistent record of creating currency from nothing and thereby assuring the devaluation of their unbacked paper currencies. Yet we trust them, listen to them, read their blogs, buy their self-serving books, feature their faces on magazines, Knight them, and spend hours worrying about whether the word “patient” will be used in the next propaganda piece from these central bankers.  The western world has definitely fallen into the Twilight Zone along with these central bankers and their apologists.
  • US Treasury bills pay a tiny fraction of a percent interest in a depreciating currency. Why has a cup of coffee risen in price from $0.05 to several bucks today?  Deficit spending, rapidly increasing currency in circulation, and devalued currencies… for starters!  Yet we accept effectively zero interest on debt “investments” and “savings accounts” even though we know that prices are rising and our paper currencies are devaluing.  Twilight Zone indeed!
  • We believe promises from “sincere” politicians as if they mean something. Call it willful self-delusion as we slide into the Twilight Zone.
  • Gold has been money for 5,000 years. Yet, central banks urge us to trust unbacked paper euros and yen as they “crank the printing presses.”  In the Twilight Zone we listen to central bankers, but in the real world we value gold.
  • Silver has been money for thousands of years. In the Twilight Zone we crave $17 bills.  In the real world we prefer Silver Eagles.
  • In the Twilight Zone the US National debt increases every year by 9% or more regardless of which “tax, borrow and spend” political party is in office. In the Twilight Zone the debt issued by an insolvent government that can never be reduced and must be “rolled over” is considered a “rock-solid” asset.  Regardless, it is worth little in the real world if it can only be repaid with additional loans.
  • Military spending increases every year, along with supplemental appropriations and demands for more military spending. (Heavy donations to congress may be a factor…)  Borrow and spend policies support military spending and create more unpayable debt, and yet this is applauded in the Twilight Zone.
  • In the real world physical gold bars are substantial, a store of wealth, managed, inventoried, counted, secured, and respected. In the Twilight Zone that surrounds Fort Knox the official inventory hasn’t changed in decades and there has been no audit since the 1950s.  Really?  The western world has exported a huge quantity of gold to Asia.  Only in the Twilight Zone has NONE of it come from Fort Knox! 

WHICH DO YOU TRUST?  

The Twilight Zone of paper promises, politicians, central bankers, and massive, unbelievable, unpayable debt where some investments “pay” negative interest;

or

GOLD  AND  SILVER?

 The “fair value” of gold for 2015 is approximately $1,527, based on my empirical model for the price of gold back to 1971.  The model is NOT a timing model, but is a valuation model that uses 3 macro-economic variables (not gold or silver) to calculate a “fair” value for gold.  The statistical correlation between the smoothed annual price of gold since 1971 and the model projection is 0.98.  It works, is logical, and projects much higher prices in the years ahead.  It is available from Amazon ($4.99 eBook) here and in paperback from my site.

 

Gary Christenson

The Deviant Investor

GEChristenson.com