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.
Let’s get right to it this week …
Credits and Debits
Debit: It’s baaaack: After a one year hiatus, US politicians have to consider raising the debt ceiling again. This is what happens when a nation spends $8 trillion it doesn’t have — in six years, no less.
Credit: Frankly, I’m over this debt ceiling kabuki theater and the Big Government statists who piously insist that the debt doesn’t matter because “we owe it to ourselves.” Heh. They’re wrong, of course. The debt doesn’t matter only because we’re now mathematically past the point of no return.
Credit: Anyone who insists that we can simply continue paying for real products and services by simply “printing currency” out of thin air without financial consequences is either being intellectually dishonest, or failed Macroeconomics 101 — and World History too.
Debit: It’s hard to reason with folks who essentially argue that they can’t be broke because they still have checks in their checkbook.
Debit: Oh, sure. The statists will tell you that it’s apples and oranges. After all, they say, law-abiding citizens can’t print money out of thin air like the Fed can. True. The trouble is, the dollar isn’t money — it’s an IOU.
Credit: The “I still have checks” brigade also forgets that the US has creditors too — just like the rest of us do. And when creditors see that there are too many of those IOUs floating around, they eventually lose confidence in their value.
Debit: Unfortunately, confidence is the only thing backing the US dollar today. Yes, the greenback used to be backed by the nation’s, um, impeccable credit too — but, in case you haven’t noticed, that’s up for debate with increasing frequency nowadays.
Credit: So … Can we just stop the charade? Since we all agree that the “debt doesn’t matter,” let’s permanently suspend the ceiling. Please. Because doing so will reduce the time it takes for economic law to finally reassert itself. And it will.
Debit: It’s sad, but true: When the currency bubble pops, the pain will be enormous — especially for 99% of the middle class, whose dollar-based savings will be decimated.
Debit: Most folks who are receiving government welfare benefits will feel the pain too because they’ll have to find work again in order to make ends meet.
Credit: The good news is, after the dollar goes belly up and a new — and hopefully smarter — monetary system is established, the US will regain the ability to competitively manufacture real products domestically. And that means, unlike today, more quality jobs will be available for Americans who want them.
Credit: As the US economy slowly rises from the ashes, low-paying entry-level jobs that were never supposed to support a family — think: fast-food fry cooks and grocery store baggers — will also be reclaimed by teenagers, as opposed to middle-aged adults and senior citizens. As they should be.
Credit: Best of all, interest rates will be restored to a level that reflect the true price of money relative to risk. That, in turn, will encourage saving and pragmatic investment in the capital goods and structures needed to benefit Main Street’s economy — as opposed to the cronyists on Wall Street and Capitol Hill.
Debit: You can argue that the debt doesn’t matter, but the math indicates that we’ve kicked the can about as far as we can. If we’re lucky, we can muddle along for several more years with this dying debt-based monetary system — albeit with little hope of ever growing ourselves out from under the massive debt overhang that the world has foolishly accumulated.
Credit: Then again, if the debt really doesn’t matter, then the powers-that-be should just write a $100-trillion check to themselves and be done with it.
By the Numbers
With the arrival St. Patrick’s Day this week, I thought I’d share a few facts with you related to the popular Irish holiday:
34,700,000 Irish-Americans who live in the United States.
4,595,000 The current population of Ireland.
1762 Year that New York City held its first St. Patrick Day’s parade.
100 Minimum number of St. Patrick’s Day parades held in American cities every year.
$245,000,000 Estimated amount to be spent on beer this St. Patrick’s Day.
385 Year that St. Patrick was born.
0 Amount of Irish blood in St. Patrick. He was born in Britain to parents who were Roman citizens.
0.01% Chance of finding a four-leaf clover on your first attempt.
Source: International Business Times
The Question of the Week
[poll id="52"]
Last Week’s Poll Result
Is better to buy or rent a home?
- Buy (76%)
- Rent (16%)
- I’m not sure. (8%)
More than 300 people answered last week’s question and more than three out of four respondents say that it’s better to buy than rent a home. Of course, that all depends on whether or not you’re the type that can handle the responsibility that comes with owning a home. It also depends on the market — for example, unless you are absolutely positive you’re going to be in the home for a long long time, it makes little sense to buy a home when prices are frothy. Calculating the price-to-rent ratio is one test that can help you decide which route is best for you.
Other Useless News
Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. Rhode Island (3.86 pages/visit)
2. Maine (2.21)
3. Idaho (2.15)
4. Utah (2.09)
5. Arkansas (2.07)
46. Texas (1.54)
47. Georgia (1.52)
48. Louisiana (1.51)
49. California (1.44)
50. Vermont (1.21)
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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
Last week I noted that, when it comes to our government servants, it’s hard to tell who works for whom today — so it’s probably not a coincidence that I received this two-word note from Jeanne last week (who, based upon her email address, works on the taxpayer’s dime at hrsa.gov):
You suck.
And you … well, just made my point.
I’m Len Penzo and I approved this message.
I’m sure most politicians feel the bubble won’t pop until they’re long gone, but it’s probably going to happen sooner than later.
Yes, Ben, that attitude is what has finally got us here. It started with FDR (actually, it started with Woodrow Wilson, but that’s another story) and then LBJ doubled down on it. Once Nixon unpegged the dollar from gold, it was only a matter of time.
Another way to look at it: Wilson provided the debt bomb components (he authorized the Fed); FDR built the debt bomb (Social Security); LBJ hooked up the timer and armed the debt bomb (expanding the welfare state beyond the nations’ means); and Nixon pushed the button that started the debt bomb’s timer (decoupled the dollar from gold). The timer is fast approaching 00:00:00. When it does, the dollar will go up in a supernova.
you never learn…. What a ridiculous article… The dollar is stronger… What about that? All that printed money should have debased the currency!
Debt celing is a political joke. They’ve spent the money already – then they try to blame someone else. They need to spend MORE – its called investing in the future! US infrastructure is a disaster – should have created jobs by INVESTING in America when interest rtaes were low and people needed jobs!!!
Irishmist: Your mistake is in equating dollar “strength” with its financial health. Nothing could be further from the truth.
You must understand how the dollar index works in order to grasp what I am telling you. It’s a trade-weighted index (similar to the Dow, or S&P for stocks) that measures dollar-relevance to key world currencies (except for China): the euro, yen, Canadian dollar, pound sterling, Swedish krona and Swiss franc.
The dollar’s latest sharp ascension is only because it is the cleanest dirty shirt in the laundry! The euro and yen are crumbling and will eventually implode — and as a result, people are dumping those currencies for the perceived “safe-haven” of the dollar. This causes the dollar to “strengthen.” Coincidentally, the same phenomenon happened before the dot Com bubble burst at the turn of the century, and ahead of the Crash of 2008.
But why are the euro and yen crumbling? Because Japan is in deeper debt and has debased its currency (i.e., “printed cash out of thin air” AKA quantitative easing) to an even greater degree than the US! And the euro is in such sorry shape that they finally caved and started their own QE this month — which has led to that currency falling more than 20% in a very short period of time. Meanwhile, as I mentioned a couple of weeks ago, the Swedish krona is now offering negative interest rates on its bonds … and in Switzerland, so many Swiss francs were printed to keep that currency pegged to the euro that the Swiss Central Bank finally saw the folly of that strategy, said “no mas,” and then abandoned it.
Irishmist: the writing is on the wall. The world has over-printed its currency and the system is failing. Every day, more and more people are realizing this. When enough people wake up and take their rose-colored glasses off, they’ll realize the dollar is a failed currency too. When that day comes, it is the end of the dollar — and the end of the current monetary system.
It will also result in the biggest transfer of wealth the world has ever seen. Sadly, when the day of reckoning finally comes, most Americans will never know what hit them. All they’ll know is that their savings were wiped out and their standard of living dropped.
(By the way … I’m no fool, Irishmist. I may be an engineer, but I fully understand macroeconomics and how our financial system works. I saw what was happening before the big crash in 2008 and pulled all of my cash out of the stock market before it happened. I was eight months early, but I saw it coming. I’m confident that I’m right this time too. I may be a year or two early, but considering the stakes are even greater this time, I can’t afford to be late. Good luck to you.)
(One last point: Think of “all that printed currency” as dry tinder doused in gasoline and waiting for a spark. When that spark comes, all of those printed dollars will finally do their part to help debase the currency — and it may happen in the blink of an eye! It would take another 500 words to explain why, but my typing fingers are not in the mood right now.)
I too am a financial conservative, and not surprisingly, about your age.
But I think there will be no ‘day of reckoning’. There will be no conflagration. We won’t suddenly wake up and find that the price of bananas has jumped to $20 a bunch. It may get there eventually, but gradually, very gradually. Wages will rise too. Maybe not as much…
What will happen is America will downsize. The rich will stay rich. The poor will always be. The middle class is difficult to define. Some who are not rich will be frugal and save and live frugal lives. No new cars, fewer children if any, smaller older houses. Some others, call them also middle class, will live their lives in debt of one type or another and get old and have to rely on family, the government, or will just live very hard existences. More will live hard existences. They’ll have no political clout; like today’s underclass. Otherwise normal suburbs will start to decay; services will not extend to them (i.e., no grocery stores, etc.), prices will fall, the poor will move in and anyone with any money will move out. There will be many areas like this and they won’t look like boarded up Detroit. They’ll look more like a ‘nice neighborhood’ but they won’t be anymore.
We’re in a gradual decline, but only for some. There will be no ‘boom’. I recommend you stop waiting for it. Eventually you’ll get tired of writing about it, and you’ll gradually stop too – that’s my bet.
Thanks for sharing your thoughts, BillyBob. I hope you’re wrong, though. For my kids’ sake, I’d prefer we take our medicine now, endure the pain we brought upon ourselves, and return to the sound economic principles that originally built this nation into an economic powerhouse.
I will be surprised if this drags on beyond the start of the next decade. Why? Two reasons:
1. As Earnest Hemmingway once astutely observed (paraphrasing): “How does one become bankrupt? Gradually … and then suddenly.” This is absolutely true.
2. The law of exponents is a real bitch after you travel far enough along the curve. We are very far along that path now, and there is no turning back. This is bad news for our debt-based monetary system, which is a Ponzi scheme — and that Ponzi scheme is fast approaching its (realistic) mathematical limit. The fact that we have negative interest rates which absurdly reward borrowers at the expense of savers is proof-positive that we are fast approaching this monetary system’s event horizon. Economic law has been turned upside down — but it can’t stay that way, anymore than the law of thermodynamics can be overturned.
‘Doom always around the corner’ is an irresistible and long-lived trick of the human mind in which you’ve become enmeshed. Just what is going to happen, all of a sudden? What can happen? We’ve already had a big market meltdown and we’ve already printed trillions of dollars. Recognize the comfort your mind enjoys in such a place — as the echo chamber that it is. Good luck and thanks for your blog.
LOL. Echo chamber, huh? You’re clearly confusing my message with the all-is-well Fed-has-everything-under-control nothing-to-see-here-move-along narrative that is delivered daily by 95% of television, radio and Internet media outlets.
Maybe you’re right, BB. What can possibly go wrong? After all, the Fed is only leveraged today at a little more than 75 to 1; before they started printing those harmless trillions, they were leveraged at only 3 to 1, give or take.
See … it’s that pesky math again — which most people choose to avoid. Simply put, when the Fed is levered at roughly 75 to 1, it only requires losses of about 1.33% on their assets to wipe out their capital. Some people much smarter than me argue that the Fed is already underwater! Regardless, and with that in mind, how is the Fed going to come to the rescue next time? They can’t! Unless you believe that the Fed really can print as many dollars as they wish without destroying confidence in the currency — and if that’s true, then I can’t help you.
Let’s face it: Denial is a place of comfort too; clearly, my “echo chamber” makes you very uncomfortable. You’re basically arguing from the perspective of a man who has jumped off the top of the Empire State building and, after falling eighty floors, says it’s been a great ride so far — so therefore there is nothing to worry about.
On the other hand, I think I’ve explained my reasoning fairly well and presented plenty of evidence as to why I believe the system is going to be reset, either voluntarily in a controlled fashion, or under the duress of collapse (and no, it won’t be the end of the world — life will go on for everyone, either way).
One of us is going to eventually be proven wrong, BB. Here’s the thing: If I’m wrong, I won’t lose much, if anything.
Have you ever considered what you stand to lose if you’re wrong and my warnings end up being on target? I hope so. And I also hope you’re as certain of your position as I am of mine.
Thanks for reading. Go in peace.
All I am saying is there will be no boom. There is no doom coming. Plenty will backslide into decrepitude and many are already there. In fact, my whole point can be summed up to say: 1) no doom/boom. 2) gradual decline for some, barely perceptible day by day.
I myself am 100% unaffected by anything that happens. I am lucky enough to be a spectator.
Only time will tell. We live in interesting times to be sure.
Len,
Excellent response to the reader’s comment! Your response could be a blog post all in itself. Unfortunately, I think there are too many people out there that hear “the dollar is strengthening” and doesn’t understand the underlying dangers. Keep up the great work!
Thank you, Bill.
Banks are now making sub-prime personal loans and the financial news outlets were speculating they are trying to cash in on the lucrative rewards that payday lenders are reaping. As said many times, banks are really not your friend and usually don’t have your best interest in mind, look at the fees they charge you just to maintain your account. Money market savings accounts are returning a paultry .114% this morning, and mortgages are just below 4% (3.938%). The mortgage lenders have lowered the bar for qualifying for a home loan from a standard 725 FICO to now as I’ve seen posted 660, they are making advertised 2% down loans rather than recommended 20%.
The auto industry is once again making dramatic sales of new and used cars and luxury cars are flying off the show room floor in numbers that has some questioning the reason. There is a over production of stored gas and the economists are pointing to the possibility that the economy is improving and more people are taking more trips, NO! it’s because gas was getting more affordable for the masses. Homes are selling at a faster pace and the size of the new homes are once again increasing.
I have reached a point now where I could qualify for an unsecured credit card again and question whether I’m missing out on something by not reaping the cash back rewards. Cards and issuers entice you with better cash back rates, zero fee transfers, more miles and enticements to use your card more freely. I then realize that I can’t handle them and the 20% extra you tend to spend when using them will offset any cash back I could receive.
The unemployment rate was 5.9% last week but when the numbers are broken down and you realize that they are not counting the multitude of unemployed workers who have given up looking for work and are now off the rolls the real number is closer to 11%. Average wages for the 99% is lower now than it was in 2000 and businesses are creating more jobs but they are tend to be the lower skilled and minimum wage jobs. Food, rent, utilities and normal living expenses are continuing to rise and there are more people on welfare rolls. Things are not that rosy but the power people need our support and unbridled spending to keep them in the manner they have become accustomed to. HISTORY REPEATS ITSELF!!!
It does and it will, Walt.
The lenders are relaxing their standards because in order for our debt-based monetary system Ponzi scheme to survive, it needs more and more debt on the books to keep from collapsing on itself. Since most credit worthy borrowers are either tapped out or unwilling to borrow, desperate times now call for desperate measures! That means giving loans to anyone who can fog a mirror — even if it means they are rotten credit risks. Shades of the housing bubble all over again — only this time, the Central Banks will not be able pick up the pieces when it all goes sour because they are essentially insolvent now too!
I prefer to buy a home, Lenpenzo. This is what I did after four months of renting. I realized that the money I was paying for rent should be used to pay for a home instead. I am glad that I made this decision earlier than expected because in eight months I will be done paying the house!
Congratulations, Jayson!
I wish I understood half of this stuff….. I’m 47 and have $500K in the Fed Gov’t employee version of 401K (TSP). Is the gov’t securities -‘G’ Fund safe if/when the meltdown occurs, or is no different from the stock/bond funds?
It looks like it depends on how your TSP is allocated, Ricky. There are multiple funds to choose from, but only the G fund looks like it offers guarantees on return of principal.
According to Investopedia: “The (TSP) G Fund invests in a special nonmarketable treasury security issued specifically for the TSP by the U.S. government. This fund is the only one in the TSP that guarantees the return of the investor’s principal.”
How is this possible, you ask? Well, Alan Greenspan once “assured” Americans (with a straight face, no less) that, “The United States can pay any debt it has because we can always print money to do that. So, there is zero probability of default.”
Of course.
But what Mr. Greenspan didn’t say was that if the US is ever forced into such a scenario, then the dollar will essentially become worthless. So I guess “safety” is in the eye of the beholder.
Oh My?
“I myself am 100% unaffected by anything that happens. I am lucky enough to be a spectator.”
Wow – I guess his wife does all the shopping then so he does not see that she spends twice as much to bring home smaller packages of everything from the store…. We are all overweight anyways so lets spin this as a positive.
Maybe he is a statue in a park that surfs the web? Unaffected. Creepy.
“Wages will rise too” – You mean all those people who lost decent high paying jobs that now have 1 or more low paying part time jobs to make ends meet? If they can find that even… Really where do all these blind cheerleaders come from?
Very elitist talk there. Nothing better IMO then someone who makes a fortune, finds some kind of confused sense of enlightenment after they are set for generations, then tells everyone else they will be fine living like paupers and not to follow their example. The ultra rich stealing from the middle class and semi rich, to give to the poor people (intentionally kept poor) to keep the cycle going.
If money is ur idol then worry about ur future. If Jesus is ur idol then live in peace knowing ur safe regardless of the economy !
I don’t believe the two are mutually exclusive, Mik.