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.
And away we go …
“The fact that countries accept dollars just as they would gold pushes Americans toward borrowing from foreigners for free, because what they owe them they can pay with dollars they can print at will. Given the consequences that a crisis in this domain could bring, we think we should, before it’s too late, take the means to avoid it.”
— Charles DeGaulle
“Reckless fiscal policy threatens the dollar’s status as a reliable international store of value and the exorbitant privilege that it confers on American consumers.”
— William L. Silber
Credits and Debits
Debit: Traditional technical analysis suggests that the US dollar index, currently at 92.04, is resting on a precipice of critical support. If that support fails and the dollar falls below 92, you should expect a significant decline in the dollar that should result in sharply higher prices — especially for oil and many other commodities. See for yourself:
Credit: Stop me if you’ve heard this before. On Thursday, the Dow hit another all-time high, as it crossed the 25,000 mark for the very first time. If I didn’t know any better I’d say stocks appear to have reached a permanently high plateau.
Credit: Then again, with the stock market continuing to make new all-time highs on an almost daily basis, a “roaring economy,” and “full employment” — if not “better than full” — then why are interest rates still near the zero-bound instead of 6%?
Debit: And while the cumulative return of the S&P since 2015 has been an impressive 34%, equity flows over the same period have been consistently negative. Of course, that begs the question: How is that even possible? On second thought, since central banks now routinely conjure “money” out of thin air, I guess anything is possible. At least it is until reality rears its ugly head.
Credit: As DeGaulle famously noted, having the premier reserve currency bestows an “exorbitant privilege” to the US that other nations lack — namely, the ability for unfettered currency printing with little risk of domestic price inflation. But Paul Craig Roberts warns that, “The price for (that) unwarranted creation of money is yet to be paid.” Sadly, that day is coming — and it’s closer than most Americans realize.
Credit: The large sum of US dollars currently floating within the international monetary system is a big reason why China is on the verge of opening a domestic market to trade oil futures contracts; Bloomberg reports that the market is expected to start on January 18th. And yet crickets from the mainstream media. Considering the potential ramifications for US dollar hegemony, you’d think someone would be reporting on this.
Debit: In the eyes of many, America’s abuse of its exorbitant privilege extends beyond excessive currency printing — the US also uses the dollar-based financial system as a hammer to compel certain nations to accede to its wishes. That hammer hasn’t always worked — but it has encouraged other nations to push for alternatives to the dollar-based international monetary system.
Debit: Current Russian sanctions prevent their banks from raising debt in western markets with a maturity of more than 14 days. And now the US is considering even tougher sanctions. However, a leading Russian banker says those proposed new sanctions, including Russia’s exclusion from the SWIFT payment system, would ultimately “make the cold war look like child’s play.” That’s not hyperbole, folks.
Debit: In other news, it looks like most consumers are not as flush as the mainstream media wants you to believe: In December, the personal savings rate hit its lowest point since November 2007, while credit card debt surged 18%. That wouldn’t be so alarming if those credit card charges were going to be retired immediately, but they’re not; 65% of all Americans don’t pay off their cards in full at the end of the month.
Debit: Could it be that the US savings rate is so low because Obamacare has completely destroyed America’s healthcare system? After all, in 1960 each American spent an average of $146 per year on healthcare; today that number is $9990. Take your time answering the question; I’m happy to wait while you ponder the evidence.
Debit: In case you’re still on the fence about Obamacare’s culpability, consider Exhibit A: Premiums for the benchmark silver Obamacare plan are 37% higher than last year — with the average young healthy 27-year old forced to cough up $5000. Yes, $5000. Remember, before Obamacare made them illegal, that same 27-year old could have bought a catastrophic plan for under $100 per month. Those days are gone.
Debit: Still undecided? Here’s Exhibit B: The Washington Post highlighted a family of four in Virginia whose Obamacare premiums are currently more than $3000 per month, which is more than three times what they paid in 2017 — and that’s for Obamacare’s second-cheapest option, with a $9200 deductible. Frankly, they’d be better off stuffing those monthly premiums in their mattress until they really need healthcare.
Debit: I know what you’re thinking: But, Len … didn’t the politicians who pushed this snake oil on an unsuspecting public tell everyone that Obamacare was going to save the average family up to $2500 per year? Hmm. Good question … let’s check the tape:
Credit: Well … the good news is, when the Republicans win the Presidency and take full control of Congress, Obamacare will finally be repealed and the self-inflicted national health insurance nightmare that currently plagues hard-working middle class Americans everywhere will be over. Oh, wait …
Debit: Speaking of healthcare, I can see why so many people get upset when they learn that the US military spends $8.5 million annually on transgender services. No, really. And I’m sure those same folks are absolutely apoplectic that the DoD also spends $84 million on erectile dysfunction meds such as Viagra and Cialis. Yep. Yet another “benefit” made possible by America’s exorbitant privilege.
By the Numbers
Believe it or not, I only saw one of the 10 biggest movies of 2017, listed here for the curious. Can you guess which one?
1. Star Wars: The Last Jedi (US domestic gross: $540 million)
2. Beauty and the Beast ($504 million)
3. Wonder Woman ($413 million)
4. Guardians of the Galaxy: Vol. 2 ($390 million)
5. Spiderman: Homecoming ($334 million)
6. It ($327 million)
7. Thor: Ragnarok ($312 million)
8. Dispicible Me 3 ($265 million)
9. Logan ($226.3 million)
10. Justice League ($226.1 million)
Source: Box Office Mojo
Insider Notes: The Dying Petrodollar System
I’ll be posting my annual State of the Household report soon. In the meantime, I wanted to share a few comments about the weak link in the petrodollar system, which will begin unraveling even faster than it already is once China’s yuan-denominated oil futures market starts up later this month.
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Last Week’s Poll Results
Do you expect the economy in 2018 to be better or worse than 2017?
- About the same (50%)
- Worse (32%)
- Better (18%)
More than 1400 Len Penzo dot Com readers responded to last week’s question and half of them think this year will be about the same, economically speaking, as it was in 2017. Another one in three people expect the economy to do worse. We’ll see. I’m going to go out on a limb and admit that I believe this is the year the financial system begins to implode — followed by a total collapse and the birth of a new system in 2019. I just don’t see how the world’s central banks can continue to keep the charade going. Then again, the Fed and its henchmen have been pulling rabbits out of their hat since the Great Financial Crisis of 2008 — so who knows? The only certainty is the game is going to end; and sooner rather than later.
The Question of the Week
Other Useless News
Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.
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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
In case you missed it last week, my article highlighting the folly of financial rules of thumb, ignited the passion of several impassioned social justice warriors to comment on my “insensitivity” for using the term “old wives’ tale.” Heh. No, really. Here’s one from SMH:
It’s probably dumb to assume older wives tell more fallacious tales than other kinds of people do.
True … and it’s even dumber to believe that a term such as “old wives’ tale” is supposed to be taken in the literal sense.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c