June 24, 2021
* Currencies couldn’t hold their Tuesday gains on Wednesday
* Silver is kept from closing over $26 once again…
Good Day… And a Tub Thumpin’ Thursday to one and all! Well, my beloved Cardinals come home from a 6 game road trip having only won 1 game… They have to be the worst Cardinals team in 30 years! But the season isn’t 1/2 over yet, so there’s still time to turn things around… That’s me being the ever optimist here, in spite of what I see on the field each night… Oh, poor me, right? For once Chuck has to suffer through a losing season… HA! Another beautiful day here, warm, lots of sunshine, but that appears to be the last one for a few days that is… The weather app says rain the next 7 days.. UGH! I don’t believe it will be days full of rain, just thunder showers off an on, so there will be plenty of time to get outside, with or without sunshine! Red Rider greets me this morning with their song: Lunatic Fringe… This is a song about the 70’s uprising against Jews…
Well, no beating around the bush today, I tell you straight up that I have a long explanation for you this morning about debt… I have a kind of long explanation of Basel 111, and some optimistic thoughts from me… So, with no more ado…
The currencies couldn’t hold their gains from Tuesday during Wednesday’s trading, and they slipped a little, with the euro coming back to 1.1925, from 1.1950 in the morning, and the BBDXY closing at 1,138.73, up from 1,138.40 in the morning. The movement wasn’t big… but it was a move in the dollar’s favor on the day… Gold which traded most of the day up, and at one point was up to $1,796.00, before ending the day down 50-cents at $1,779.30… Silver traded much the same way moving higher at one point in the day to $26.39, before settling on a 10-cent gain to close at $25.96, and thus Ed Steer was correct again, when he said that the price manipulators wouldn’t allow Silver to close above $26.00….
In the overnight markets…. There was just a tad bit of dollar selling overnight, the BBDXY dropped to 1,137.05, from its close yesterday of 1,138.74… The euro is well into the 1.19 handle, and the Petrol Currencies are looking perky as I write, the price of Oil is near $73 at $72.97, which is helping the Petrol Currencies with their perkiness… Gold is up $6 in the early trading, and Silver is up 19-cents, so it will interesting once again to see if these two metals can close above their recent lines drawn in the sand of $1,800 and $26…
The U.S. Data Cupboard this morning finally has some market moving data, in the form of May Durable Goods and Capital Goods Orders… The usual fare of Weekly Initial Jobless Claims will also print this morning… This data surprised the markets last week with an uptick of Claims for the previous week… You may recall that the April prints of Durable & Capital Goods Orders were very disappointing, and negative… I would expect the boys & girls that do the reports have gotten the memo that says, these reports must be positive this month… And so they will be…
OK… I’ve got a long winded explanation of debt for you taken from my perusal of the Debt Clock…
Well… Long ago, and oh so far away… I fell in love with you, before the second show… No Wait! Come on Chuck, this is serious stuff you’re going to talk about! OK… got your head on straight now? I guess so… I really don’t want to talk about this stuff, but I will…
I made a trip to the Debt Clock yesterday just for grins…
The Debt Clock shows us that Total Tax Revenues taken in by the U.S. this fiscal year has been $3.5 Trillion (rounded off)… And that the Federal Spending this fiscal year has been $6.8 Trillion (rounded off)… We are 3/4’s of the way through the fiscal year now… And so far we have amassed a deficit of $3.3 Trillion just this year! When all the beans are counted our current deficit will be greater than $30 Trillion…
So, where does the U.S. obtain the difference of $3.3 Trillion? Well, they sell U.S. Treasuries, which right now the 10-year Treasury has an interest rate of 1.45%… So, that’s bond servicing costs, or interest cost, whichever you prefer to call it.
Currently our debt is $28 Trillion…
About $7 Trillion is what is called interagency debt that the U.S. owes to itself…
About $8 Trillion is owed to foreign governments…
The remainder is owned by investors around the world, including the U.S.
So doing the math… the U.S. currently pays interest on about $21 Trillion in issued U.S. Treasuries…($28 Trillion minus $7 Trillion)
(Now not all of the Treasuries are 10 year notes, some are longer dated bonds with higher interest rates, so for our calculations we’ll use 2% as the interest rate)
On $21 Trillion the interest costs per year are: $420 Billion …
So… while the markets got all giddy last week and bought dollars, because the Fed turned somewhat hawkish, let’s review what that means… So, let’s say inflation begins to soar, and the Fed has no other choice but to raise rates, and let’s also say that interest rates return to normal at 5%… That would mean the interest cost on their debt servicing would be $1 Trillion per year…
Now, how in the world would that work? Well, unless you as a Gov’t want to default on your debt, you have no choice but to pay the interest costs… And if you pay the interest costs, you don’t have money for other boondoggles, like welfare, and the war on drugs, and the war on poverty, and oh, even social security might be in the path of the cuts…
I’m sorry to have gone so long in this discussion, but it needed to be said, and every citizen in this country should understand these numbers, then maybe they wouldn’t be so demanding about receiving stimmy checks, and what have you… So, I’m leaving it up to you dear reader to get this out to anyone you know…. Otherwise there will be 10’s of Millions of people that don’t understand what happened when the fit hits the shan…. I’m just saying…
OK, one down… now for the next explanation… Basel 3 is an interesting regulation for Banks and this will include the Bullion Banks who happen to also be the price manipulators. These banks are going to have to reserve more money to hold unallocated Gold… Here’s quick explanation from the folks at Basel 3…
“So, whilst Basel III does not materially change the treatment of allocated gold, it does increase the costs of holding unallocated gold. But does this mean the unallocated gold market will disappear? No it won’t, but the costs of holding unallocated gold will go up. Unallocated gold is an essential source of market liquidity. The clearing and settlement regime depends on it, and without an unallocated gold market it will be very difficult to finance (and facilitate) the upstream activities of gold producers and refiners, and the downstream users of gold such as jewellers and fabricators. The real economy demand for gold relies on the unallocated gold market. So whilst the funding cost of unallocated gold will increase, we are unlikely to see a major distortion in favour of allocated metal due to the imposition of the NSFR.”
Chuck again… Gold is a safe harbor asset. Its lack of credit risk, and its highly liquid nature means it can act as a financial system stabilizer. Anything that discourages banks from holding gold may increase the vulnerabilities of the financial system during liquidity crises. There are some analysts that believe Basel 3 will be a non event for banks, and other analysts that believe it will be a God send for Gold… I’m on the fence here, and not sure which mast I want to pin my colors to!
OK… I know that at times I sound doom and gloomy, and I’m really not that kind of person… I’m an optimistic kind of guy, always looking for good, but most of the time finding bad… And so when I was going through Twitter yesterday, I came across this tweet from Jon Gordon, and thought… This is more me… check it out:
“7 Ways to Make Today a Better Day:
- Look for the good.
- Appreciate the little things.
- Be a helper.
- Tell someone they matter.
- Give more than you take.
- Speak words of encouragement and hope (to yourself and others).
- Believe the best is yet to come.”
To recap… The currencies couldn’t hold their gains from Tuesday on Wednesday and begin today trying to regain their advantage over the dollar bulls… Gold traded down, then up, then back down on the day and closed 50-cents down. And Silver did the same closing up 10-cents but remaining below $26 once again… Chuck gives a long explanation about debt, he talks a bit about Basel 3, and tries to cover up all his gloom and doom talk with some things to make today better…
For What It’s Worth… Ok… I’ve followed James Rickards for years, met him in Florida many years ago, and have read all his books. The guy knows what he’s talking about folks… He predictions and forecasts may not come to fruition, but the thought process behind it was good, and therefore warranted being aware… Well, Rickards has a new article about the Great Reset, and I think it behooves us to listen to what he has to say about it. The article can be found here: The “Great Reset” Is Here – The Daily Reckoning
Or, here’s your snippet: “or years, currency analysts (myself included) have looked for signs of an international monetary “reset” that would diminish the dollar’s role as the leading reserve currency and replace it with a substitute, which would be agreed upon at some Bretton Woods-style monetary conference.
Now, it looks like the move towards the long-expected Great Reset is accelerating.
At the recent G7 summit in the UK, G7 leaders gave their blessings to a $100 billion allocation of IMF special drawing rights (SDRs) to help lower-income countries address the COVID-19 crisis.
President Biden fully supports the idea. The White House issued the following statement:
The United States and our G7 partners are actively considering a global effort to multiply the impact of the proposed Special Drawing Rights (SDR) allocation to the countries most in need…
At potentially up to $100 billion in size, the proposed effort would further support health needs – including vaccinations…
A separate press release from the same day continued the same sentiment, stating, “We strongly support the effort to recycle SDRs to further support health needs.”
In another development, IMF Managing Director Kristalina Georgieva said last Wednesday that she expected the fund’s governors to approve a $650 billion allocation of SDRs in mid-August.
The basic idea behind the SDR is that the global monetary system centered around the dollar is inherently unstable and needs to be reformed.
Part of the problem is due to a process called Triffin’s Dilemma, named after economist Robert Triffin. Triffin said that the issuer of a dominant reserve currency had to run trade deficits so that the rest of the world could have enough of the currency to buy goods from the issuer and expand world trade.
But, if you run deficits long enough, you would eventually go broke. This was said about the dollar in the early 1960s. The SDR would solve Triffin’s Dilemma.”
Chuck again… Russia and China have already begun their dedollarization, and now the IMF is ready to replace dollars with SDR’s around the world? Uh-0h speghetti-0’s…
Market prices 6/24/2021: American Style: A$ .7575, kiwi .7057, C$ .8130, euro 1.1940, sterling 1.3910, Swiss $1.0888, European Style: rand 14.2140, krone 8.5135, SEK 8.4661, forint 293.45, zloty 3.7903, koruna 21.2797, RUB 72.68, yen 110.82, sing 1.3435, HKD 7.7642, INR 74.05, China 6.4761, peso 20.11, BRL 4.9590, BBDXY 1,137.05, Dollar Index 91.78, Oil $72.97, 10-year 1.49%, Silver $26.15, Platinum $1,091.00, Palladium $2,692.00, Copper $4.21, and Gold… $1,785.70
That’s it for today… Thanks for sticking with me today as I did some wordy explanations… On Monday next week, I won’t be writing as I will be at the hospital to visit my oncologist… I DO have the date right this time! And since I won’t be writing on Monday, I need to wish my youngest son, Alex , a Happy Birthday today for his birthday on Monday… Very Longtime readers will recall when Alex was 3 and would sit on my lap and help me write the Pfennig, with comments like: $#@*&T%$A HA! Alex will be 26 on Monday… He a practicing Physical Therapist these days, owns a house, a car, a dog, and has grown up to be quite the responsible adult… I’m proud of him! As a family, we will probably celebrate his birthday on Sunday, hopefully the weather will be nice, and I can cook some good stuff on the Big Green Egg! I know he loves the way I cook Turkey breasts, so I’m figuring that’s on the agenda for Sunday! I have a picture of Me, Andrew, and Alex at the All-Star Game here in 2009… one of my fave pictures… Oh, and last night Rachel was here and was walking to her car with little Evie, and I came to do the door and said, “hey Evie!”, she turned and ran to me across the front yard, and gave me a big hug… I was so excited that she did that! Made my day, week, year! Ok, I hope you have a Tub Thumpin’ Thursday, and a Fantastico Friday tomorrow, and a we’ll talk again next Tuesday! The Beatles take us to the finish line today with their song: When I’m 64… (will you still need me, will you still feed me, when I’m 64?) And Please Be Good To Yourself!
Chuck Butler