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
Credit: According to official statistics, the United States is in the middle of an economic boom. Some say that data is buttressed by the improving crane market, which typically signals an expanding economy.
Credit: The growing number of cranes being ordered to support new construction isn’t the only indicator. The US Department of Labor claims that America’s unemployment rate is the lowest it’s been in seven years. Hooray!
Credit: Then there is consumer spending, which we were told ran at a blistering 4.3% pace in the fourth quarter of 2014 — that’s the fastest in more than eight years. Wow.
Debit: Here’s the thing: As David Stockman explains, the unemployment stats have to be taken with a heaping grain of salt because they don’t even follow proper statistical protocols.
Debit: Clearly, something ain’t right. It’s hard to believe only 5.5% of the population is unemployed when more than 93 million Americans age 16 or older aren’t in the labor force, while the labor participation rate is at its lowest level since 1978 — a time when far fewer women were working.
Debit: I know what you’re thinking: No, the lower labor participation rate is not because of all the retiring Baby Boomers. Since the last recession, the only demographic group to show an increase in employment have been people 55 and older.
Debit: As for that glowing consumer spending figure I mentioned earlier, it’s at odds with data that shows retail sales collapsing during the same period. Hmmm.
Credit: Needless to say, the conflicting data has an ever-increasing number of people questioning the credibility of the official US government statistics. In fact, some are going a step further and calling them “utter garbage” — if not outright absurd.
Credit: Speaking of absurd, a Houston man had his personalized “370H55V” license plate revoked by the Texas DMV because of a hidden “offensive” message. Are you as stumped as I was? Well … officials say the plate is offensive if it’s read upside down. Who drives upside down?
Debit: The absurdity isn’t limited to the Lone Star State. Switzerland became the first country to offer 10-year bonds at negative interest rates. That would be really funny if the implications weren’t so serious.
Debit: If that ain’t bad enough, Mexico issued a 100-year bond denominated in euros. Unbelievable. I guess nobody in Mexico believes normal interest rates will ever return again — or at least not until 2115. What a Bizarro financial world.
Debit: Meanwhile, a statement from the US Treasury last week showed that the National Debt had been frozen at $18,112,975,000,000 for 21 straight days — that’s just $25 million below the current legal debt limit. Yeah, right. Just more accounting hocus pocus designed to obfuscate the financial truth.
Credit: Ironically, the only financial honesty last week came from Janet Yellen, who actually admitted that cash is “not a convenient store of value.” Yes, that Janet Yellen. By the way, the devil called — there are snowballs in hell now. Really big ones.
Debit: If I didn’t know any better, I’d say Ms. Yellen sees the writing on the wall: that is, a currency crisis is all but inevitable now. And if the US dollar’s days are numbered — so is Americans’ standard of living.
Credit: Of course, it didn’t have to be this way, but the US’s inability to live within its means caused our creditors to lose faith in the dollar — as evidenced by China’s aggressive gold buying since 2011. In case you can’t tell, I’ve lost faith too.
Credit: As Bill Holter points out, with the recent establishment of the Asian Infrastructure Investment Bank, the new BRICS bank, the Shanghai Gold Exchange, and an alternative clearing system designed to compete with America’s SWIFT model, a large part of the world is now prepared to weather the financial storm that will hit everyone when the dollar dies. Are you?
The Question of the Week
[poll id="56"]
Last Week’s Poll Result
What should be the maximum legal interest rate for credit cards?
- There shouldn’t be a limit. (37%)
- 10% (31%)
- 15% (16%)
- 20% (7%)
- 5% or less (7%)
- 25% or more (2%)
More than 500 people chimed in to answer last week’s question and a strong plurality believe the credit card companies should be free to set their own rates. I agree; let the free market decide. Yes, doing so ensures there will always be predatory lenders out there — but that’s not a problem for those who understand the best protection from excessive interest rate charges is always personal responsibility and accountability.
By the Numbers
We all have different definitions of happiness. Here is how scientists see it:
40 Approximate percentage of happiness controlled by your thoughts, actions and behaviors.
10 Average percentage of happiness determined by personal circumstances.
50 Percentage of happiness that’s genetically determined.
85 Percentage of parents who believe their children bring them the most happiness of any relationship.
1 Rwanda’s rank among the unhappiest nations in 2013. (Burundi was runner-up.)
17 America’s rank among the happiest nations in 2013. (Denmark was number one.)
Source: Time
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. North Dakota (2.18 pages/visit)
2. Idaho (2.04)
3. Utah (2.04)
4. Kansas (1.96)
5. Arkansas (1.95)
46. Mississippi (1.43)
47. California (1.42)
48. Alaska (1.40)
49. Louisiana (1.34)
50. Vermont (1.04)
Whether you happen to enjoy what you’re reading (like all of my friends in North Dakota) — or not (ahem, Ben & Jerry … for the second month in a row!) — please don’t forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
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And last, but not least …
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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 an article on my blog that described one key situation where an English degree may be a sound investment (no, really), Diane Roberts Powell had this to say:
Well, I do have an English Degree, but I’m a poet, not an engineer. I’d say the major of your undergraduate degree isn’t all that important.
Maybe not for poets, Diane, but trust me: it is if you want to be an engineer.
I’m Len Penzo and I approved this message.
Here’s one visitor from North Dakota, Len.
Thanks, Jayson! North Dakota is one of only five states I’ve never set foot in — I intend to soon though!
Who drives upside down? Good question. I suspect our elected leaders can read upside down since they seem to have their heads planted somewhere where that ability is manifest.
Dang, Where is my caffeine???
We also have to look in the mirror, David; the lack of an informed electorate (over many many years) has a lot to do with it too.
A big part of the problem is that kids need to be taught not only personal finance in high school, but also macroeconomics (at a minimum, monetary theory) — but they aren’t. My kids know the difference between currency and money, and they know that inflation is legalized theft, but 99% of high schoolers don’t. Heck, 95% of adults don’t. If they did, they’d be up in arms. However, a large government is much better off if its citizens remain ignorant; they want everyone to believe that paper currency is money (especially fiat currency).
Sometimes I feel like I should quit my job and become a high school teacher.
Len, I’ve been reading you for 6 months now and have the feeling you’ll end up being hailed as a fiscal prophet…. Time to break out the ash and sackcloth brother!
Right now, I am considered a crack pot by most people. It’s message that’s only for the brave — no matter if your a preacher or a believer. 🙂
Len, I’ve seen the idea of gold being proposed as the currency remedy many times over and Im not convinced.
How is a gold standard any better?
Govt has, say, 10000 units of gold to back its currency.
Say, economy improves over 20yrs and current appreciates (make a big assumption: no additional money printing).
What if somebody finds another 10units of gold? They just became as rich as 0.1% of the American money supply without doing anything … You just created money without any economic activity (certainly not making food or iphones).
How is that any better? Not having any control over currency supply?
What is needed is not a gold standard …
It looks to me that what is need is the discipline to not print money …. and gold standard does not give you that discipline. You either have that discipline or you don’t ….
You could still print as much money as you want to pay off debtors with cheap currency … no?
And if gold IS the currency, then my question still remains … if anybody finds gold, they just created wealth out of thin air without any productive addition to the economy …. how is that any better?
q
Kyron, thanks for the comments. I appreciate your reducto ad absurdum, but it falls short. Let me go straight to your last question, since it is answers the rest of your arguments:
The problem with your logic is that you’re assuming that it’s just as easy to increase the monetary base with gold (or silver) as it is paper. Preposterous! The gold supply increases between 1% and 2% per year via mining. It has done this every year for centuries now — despite continued technological advancements. The bottom line is: There are only so many ounces of gold (and silver) that come out of the ground annually. On the other hand, paper can be increased with very little effort and in unlimited quantities, since paper can be denominated in any unit you wish. To put it another way: It is impossible to increase the gold supply beyond what can be mined in a single year. The same can not be said for paper — given enough time, greed and the big-government socialist/statists among us will eventually demand that lots of additional paper be printed so we can live beyond our means.
For that reason, your reducto ad absurdum doesn’t work — although I appreciate the attempt! And THAT’s why gold is better!
P.S. – The truth is, a gold-backed currency is more stable than a fiat currency. We don’t necessarily have to go to a gold standard — but we do need to allow the price of gold to float freely at all times to keep the abuse of paper currency in check. I prefer the freegold paradigm where gold would be kept as a reserve by central banks. They wouldn’t back their currencies with the metal — but they would keep it as an asset, and if the currency needed to be defended, gold could then be sold (at whatever price was required) to buy the currency in question.
P.P.S. – The only true money is gold. Paper currency and everything else is are derivatives. And if somebody stumbles upon a gold nugget (without any economic activity) — bully for them! It’s no different than somebody winning a PowerBall jackpot. Although most people will have to work (via mining or panning) for their gold.
You are answering an offshoot question I posed at the end by saying it is really hard to mine gold and missing my point completely.
Say, we put a gold backed currency system in place since you asked for it. We’ll say 17000 units of gold for 17T$ (or whatever is the money supply metric … M1, M2, M3 … M42 …).
Day 1, I lend 10000$ to somebody.
Day 2, you become a big government statist and you print another 17T$ to spend on ….. i don’t know …. useless wars and tax cuts for corporations and the rich and/or the trickle down hasn’t kicked in yet.
Somebody still owes me only 10000$ (in Day 2’s dollars) but that is only worth 5000$ in Day 1’s dollars.
My question remains: Who stops you, the big government statist, from printing the money?
It is not like my loan or any other loan is made in gold. It is still made in dollars. And ultimately, whatever the peg is, the peg is still RANDOM …. calling 17000 units of gold = 34T$ versus 17T$ is no different than simply printing 17T$.
And just in case you don’t get the point, I don’t question the difficulty of mining gold … I question 2 other things: (1) my actual question: the random nature of the peg between gold and dollars and what enforces the discipline of not changing the peg (completely identical to printing money if no correlation to underlying economic acticity.) (2) if you did mine some gold, you randomly change the peg again. Yeah, it may be 1-2% (sure, difficult …. sure, steady production for many years) every year but it is still random as it has no correlation to economic activity for that year.
I think I hit the nail on the head, Kyron! But, okay … four points:
1. A gold standard does not require a peg.
2. Yes, you can debase your currency on a gold standard just as quickly as on a fiat currency system — the difference is: A) with gold backing, currency is at least partially-backed by real money, unlike fiat; B) with gold-backing, it becomes more obvious to the citizenry when their currency is being debased (since there may not be enough gold to meet redemption demands at the local banks) — conversely, it’s also harder/riskier for government to spend beyond its means.
3. With freegold (my preference), the amount of gold in the central bank depository is, technically, irrelevant. Central banks could simply offer gold at whatever price was required to soak up the excess currency in question (without significantly depleting their store of metal).
4. Unlike paper, gold is ideal for preserving long-term purchasing power. In a perfect world, people would save in gold and use currency to pay the bills, buy things, and invest. Saving in currency and cash-based instruments is fraught with peril — physical gold has no counterparty risk. People who aren’t saving in gold (and/or silver) today are going to find this out the hard way if the currency crisis I expect is coming becomes reality.
Hmm … Gold standard needs no peg but central banks could simply offer gold at whatever price was required to soak up the excess currency …. and I wonder what you would call this “whatever price”…..
And how long after such a transaction would it dawn on intelligent citizens that the currency is being debased and/or going thru violent swings in perceived value (versus gold) ….. after being told that it is really hard to debase gold backed currency and/or keeping a stable currency?
You are partially right about one thing. Some nail has hit some head.
Freegold –> can you point to some simple resources?
Google isn’t helpful …. Wikipedia entry deleted and talk page mentions article deleted for terrible writing and unreliable sources.
Another stupid website has a video slideshow with “In The Air Tonight” soundtrack that I have no patience … especially since I went 1min into it without learning one new thing.
And another terrible website that has a FAQ that has nothing in it.
Not one respectable and/or clearly written source explaining it … just feels like a strong dose of voodoo economics.
The “whatever price” is not a peg, if that is what you are inferring, Kyron — it’s simply the measurement of the currency’s true value relative to gold at the time of the transaction.
I already gave you the most concise explanation I can for freegold in my previous reply. If you’ve got 20 minutes — check out this entertaining video by the guy who introduced me several years ago to the freegold paradigm, FOFOA:
http://fofoa.blogspot.com/2013/05/what-is-freegold.html
If you are interested, check out all of his posts, and those of Another and Friend of Another (FOA) — links provided on FOFOA’s website. You will need many many months to take in and absorb all of the information there — but it will open your eyes.