It’s time to sit back, relax and enjoy a little joe …
Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.
As always, if you enjoy what you read here every weekend, I’d much appreciate it if you would share this column with your friends, relatives and even readers at other libertarian-themed websites. Thank you so much for your continued support!
Okay, off we go …
“If you have a gun you can rob a bank, but if you have a bank you can rob everyone.”
— Anonymous
“Money has no motherland. Financiers are without patriotism and without decency; their sole object is gain.”
— Napoleon Bonaparte
“The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”
— Lord John Dalberg-Acton
Credits and Debits
Credit: Did you see this? Hedge fund expert John Maudlin says that a generational reset is fast approaching that will result in a transfer of wealth from the top 40% to the bottom 60%. I guess that can be seen as good or bad news, depending on which percentile you sit in. Regardless, narrowing the gap between the wealthiest and poorest is ultimately beneficial for any economy.
Debit: I guess that’s great news for Millennials, since 24% of them still haven’t paid off credit card debt incurred during the 2016 holiday shopping season, compared to 16% of Gen-Xers and only 8% of Boomers. Wow. Yes, the older generations have fewer folks suffering from that predicament, but it’s certainly nothing to crow about.
Debit: Unfortunately, it looks like the new tax legislation being discussed in Congress won’t help people pay off their Christmas bills any faster. There are some reports that suggest the middle class won’t receive much tax relief at all, if any. We’ll see. Let’s hope that’s not the case.
Debit: In other news, the delinquency rate for subprime auto loan borrowers is now just under 10% — that’s nearing the peak delinquency rate for subprime auto debt during the Great Financial Crisis. But it’s not just subprime borrowers — the delinquency rate is rising for every credit profile, including those with excellent credit. Uh oh.
Debit: On a related note, according to Zero Hedge, “Students attending the nation’s predatory for-profit colleges, with their aggressive lending programs, are almost twice as likely to default on their student loans than those attending non-profit schools.” Hmmmm.
Debit: Speaking of big loans, most people would certainly need one to buy this particular home in Hong Kong that recently sold for $78 million for a property measuring 4579 square feet. For the math-challenged, that’s $17,000 per square foot. Now you know why it’s never been a better time to buy. At least, that’s what all the Hong Kong realtors keep saying.
Debit: In fact, Hong Kong has the dubious distinction of being the world’s most expensive place to live for the seventh consecutive year. Then again, that’s to be expected when the median home price is more than 18 times median pretax household income. Ouch.
Debit: Italy’s banks are on the verge of toppling. Again. As Wolf Richter notes, “The fragile Italian banking system continues to teeter on the edge despite the rescue last summer of Monte dei Paschi, Popolare di Vicenza and Veneto Banca.” That sentiment was reinforced by European Commission Vice-President Jyrki Katainen who warned last week that, “Italy’s accounts are not improving.” Well … that’s one way to put it.
Credit: Looking on the bright side, I’m sure the crumbling Italian banking system can easily be fixed with another round of taxpayer bail-outs. Or depositor bail-ins. Now … who wants a calzone?
Debit: Despite those teetering banks in Italy — and everywhere else in Europe — the ECB wants to end deposit insurance in favor of restricting daily withdrawals, to be paid within five days of any request! During the financial crises in Greece and Cyprus, the limit was about $50.
Debit: By the way, since the FDIC has just $25 billion backing $9 trillion of eligible deposits, you can bet this will be the policy during the next US banking crisis too.
Debit: These proposed policy revisions — along with historical precedence — strongly suggest that the bankers believe the cash you deposit with them is their money. On second thought, who am I kidding? That’s exactly what those scoundrels believe.
Debit: Meanwhile, yet another Swiss bank refused to return deposited gold this week. No, really. According to Egon Von Greyerz, a client of his was prevented from withdrawing his own gold from a major bank. So the customer asked for a bank letter he could give to police confirming the bank’s refusal to return his gold. The bank balked and, three hours later (!), the fortunate client finally got his gold back. This time.
Credit: Gold and silver are the ultimate wealth insurance against counterparty risk, which is why it makes no sense to give your precious metals to another counterparty for “safe keeping” — no matter how trustworthy they seem. Remember, despite what the bankers will tell you, if you can’t hold it, then you don’t own it. Please don’t be one of the victims who figure this out the hard way.
The Question of the Week
[poll id="190"]
Last Week’s Poll Results
Are you having Thanksgiving dinner at home this year?
- Yes (59%)
- No (41%)
More than 1100 people responded to last week’s question, with almost 3 in 5 saying they were staying home for Thanksgiving this year. Whether you stayed home, or traveled to share the holiday meal with family, I hope you all had a happy and joyful gathering!
(The Best of) By the Numbers
For all you Twinkie lovers out there:
150 Calories in a single Twinkie.
1930 Year the Twinkie was invented.
2012 Year that the Twinkie disappeared from store shelves, after Hostess filed for Chapter 11 bankruptcy. Hostess claimed they couldn’t compete against non-unionized bakeries.
15,000 Number of unionized workers who lost their jobs after they refused to accept lower compensation.
$410 million Price paid in 2013 by the new baker, Metropoulos & Co. and Apollo, for rights to produce Twinkies and other Hostess cakes.
10 Number of Twinkies in a box.
45 Days that the original Twinkie stayed fresh.
Source: Huffington Post; Cleveland.com; New York Post
Other Useless News
Here are the top five articles viewed by my 16,833 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):
- Why Thanksgiving Never Falls on November 29th or 30th
- This Week’s Money Horoscope
- 5 Must Read Personal Finance Books
- 3 Ways to Quickly Bulk Up Your Retirement Savings
- 6 Costly Mistakes People Make with Their 401(k) Plans
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Letters, I Get Letters
Every week I feature the most interesting question or comment — assuming I get one, that is. And folks who are lucky enough to have the only question in the mailbag get their letter highlighted here whether it’s interesting or not! You can reach out to me at: Len@LenPenzo.com
After reading my article explaining why smart people aren’t impressed by others who drive expensive cars, Bobisignorant left a detailed commentary that included this gem of an observation:
“Face it, there’s thousands of celebrities who make ten times what you make, yet their IQ is below 100.”
Oh … I came to terms with that a long time ago. I’ll take brains over beauty any day of the week.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
“Debit: Unfortunately, it doesnt look like the new tax legislation being discussed in Congress wont help people pay off their Christmas bills any faster.”
“desn’t look” should be “looks”…
Good catch, Dave! One of these days I am going to have to hire a competent editor.
Len, for you, I’ll work for the nominal dollar a year (as long as I last and remain undemented).
Re “good catch”: I used to be a fast-pitch softball player. Played left field for the Patent Office softball team in 1960 when we placed second in the District of Columbia softball tournament.
We nerds beat a bunch of roughneck towny teams, that year…
Oh, the days of my youth …
Woops! Some editor I’d be!
I misspelled doesn’t (“desn’t’) in a two-word edit!
Hey you’re right, Dave. You’re fired! LOL!
Counterparty risk goes way beyond handing over metal to a custodian like a bank in a safe deposit box or a vault custodian service. Gold ETFs, gold IRAs, gold banks, gold debit cards. It’s all bull$hit. As you said, if you can’t hold it, you don’t own it. It’s that simple.
Absolutely, Charles. Holding paper gold will not help anyone when the fiat system finally breaks. I’ve seen reports that there are gold IRAs that allow you to keep physical possession of your metal, but I’ve also seen other reports that the IRS doesn’t allow that.
Len,
Thanks for another great Black Coffee. I’m doing my part to let me family know about you.
Those FDIC numbers are crazy! I wonder what people would say if they knew there was almost no money to cover them if something REALLY went wrong!
Sara
Good question, Sara. I hope it would wake at least some of them up to the amount of risk they face depositing lots of cash with a bank.
The Fed would just print whatever was needed to cover the difference.
Yep … and that would go a long way toward killing the currency.
Italy’s economy is collapsing because the euro was designed to benefit Germany at the expense of France and the Mediterranean countries. The euro allowed countries like Italy, Spain, Greece, and Portugal to borrow at German interest rates. But it was a scam because it also implied every euro country’s credit was as good as Germany’s. The resulting cheap credit led to plenty of cash for an expanding housing market, ill conceived business ventures, fancy new cars, and lots of social handouts. Germany loved this because they are a giant exporting nation. Now it’s endgame. People are waking up to see that this fake euro boom was built on a mountain of bad debt. Since the banks can’t cover the debts, the politicians are doing whatever it takes, including lying, to keep the scam moving forward.
Yes, you nailed this, WA. As usual.
“… the bankers believe the cash you deposit with them is their money. …”
Well they have reason TO believe that. They got laws passed, and tucked away in the fine print you sign-but-never-read(and probably couldn’t understand if you did read them) when you open an account that says you are LENDING the bank your deposit and AGREE to be an unsecured creditor.
The Dodd-Frank “Consumer” protection act of 2010 cemented the final language for ‘bail-in” using deposits. Remember, the title of nearly any federal law now is the exact opposite of what the bill actually contains.
So, yeah….while the banks smile and talk about ‘your’ money, they grin inward, knowing full well it actually IS theirs, to speculate with as they wish. And if it goes sour, well, tough for you.
I full believe the banking crisis in Cyprus was the test balloon for what is to come to all the banking world down the road. If you don’t hold it in your hands, you don’t own it. And in the case of paper fiat money, even that isn’t a lot of protection against theft by decree.
Fractional reserve banking has always been immoral, but things really went sideways when they repealed the Glass-Segall law back in the late 1990s. Since then they have been utterly reckless with their — oops! I mean our — deposits.
Regarding those sub-prime auto loans, we’ve seen this movie before. Offer loans to any deadbeat borrower who can fog a mirror. Then force the lenders to forgive debt. After that causes too much pain, make the taxpayers take the hit. The wheels on the bus go round and round.
Don’t forget 90% of the dollars in all of those loans were created using cash that was conjured out of thin air thanks to the magic of fractional reserve banking. Even so, those who default end up having to turn over their home, or car, or other collateral to the banks.
Does anyone else see just how immoral that scam is?
When a calamity occurs where thousands of people are starving within walking distance of each other (assuming life in a populous area), how will the starving act and what will the response be of those who have provided for their own survival?
Here in the country we have natural mutual support associations.
Would we be overrun? Who knows.
Dave: Read “When Money Dies” by Adam Fergusson. It is a chronicle of the Weimar hyperinflation event in the 1920s and he describes one chilling scenario where a family farm was completely overrun by a desperate and very hungry mob, which ended up taking almost everything. They even slaughtered the livestock.
The saving grace was that the family was away when the mob struck and they only discovered what happened on their way home, when they passed the marauding hoard. At that point they knew what had happened. Who knows what would have happened if the family was home at the time. Perhaps a few shots fired into the crowd would have dissuaded them — then again, maybe not.
I’m not surprised so many people are still paying off last year’s Christmas debt. There are 46 million people on food stamps and the real unemployment rate is closer to 20% than the accepted 4% narrative being passed around. High unemployment means lower wages due to supply/demand. That translates to less purchasing power, which means more debt is needed to maintain lifestyle. Near zero interest rates just accelerate debt accrual until it becomes impossible to service or take on additional debt. This will not go on much longer.
John: I pray that the powers-that-be recognize that fact and convene a monetary conference at some fancy hotel — like they did at Bretton Woods in 1944 — so they can hammer out a new monetary system before the current one implodes. The new system would be hard on Americans — but waiting for the current system to die before a new one is in place would result in even more problems.