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.
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:
Click to enlarge.
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.
Hey! You need to be an Insider to view the rest of this section! If you’d like to join, please click “Insider Membership” at the top of my blog page.
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
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Other Useless News
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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
Been telling my wife for 25-30 years “the national checkbook is going to be balanced one day”. So far, they have made a fool of me…..and may continue to do so out past my lifetime.
But studying history, one sees that all empires get arrogant, debase their money, develop a ‘have cake and eat it too’ attitude, lose their moral compass, and so on. Seems to be a common theme among empires….you can almost chart the rise and decline.
I’ve tried to live my life along the Boy Scout motto “Be Prepared” (Eagle Scout, 1965). To me, that means moving in the direction of living the most self reliant lifestyle possible, with as little dependence as possible on institutions that may or may not exist down the road.
Kinda funny, yesterday I had the electric hoist apart that we use to lift the dumb waiter type car with firewood from the basement level to the living room level for our wood stove. It had burned out few days before and I’d gotten parts to repair it. Had it exploded all over the top of the freezer in the basement with her holding a light so I could see good, and helping me keep up with all the little parts.
When done, she asks “OK…you’re gone…who do I call to do stuff like this (and all the other stuff I fix and keep this place running) ?”
I looked at her and said: “No idea…I suspect they don’t exist.”
That’s the real shame of where we are today….everybody depends on somebody else to be able to just live. Bit of a rant Len….modify or delete as you see fit.
Who can maintain my stuff: No ideaI suspect they dont exist.
My son may have to discount my homestead when, as executor of my estate, he sells it.
Major “renovations” will be “required”, to comply with conventional wisdom re how to construct and run a household.
Yeah, RD, ours would require some modifications as well.
While I do have a couple of mini-split heat pumps I’ve put in over the years (mainly for the air conditioning), our primary heat is wood….didn’t put in any kind of central heat/air when I built the house. Got 65ac of woods, seemed silly to not take advantage of fuel growing out the back door.
I rather doubt that would be acceptable in most folks minds today….but on the other hand, since we have no heirs, it really ain’t my problem….ahahahaaa
I love your rants, Andy! Keep ’em coming.
As for the death of empires, I’ve seen the following many times, which I believe for the most part to be true:
The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:
1. From bondage to spiritual faith;
2. From spiritual faith to great courage;
3. From courage to liberty;
4. From liberty to abundance;
5. From abundance to complacency;
6. From complacency to apathy;
7. From apathy to dependence;
8. From dependence back into bondage.
It is clear to me that the USA is deep into Step 7 and all signs suggest that, if we aren’t vigilant, Step 8 may be right around the corner.
Ran the movie titles through DukDuckGo (the browser that doesn’t track you) and I’d guess you saw “Logan”, Len.
Why? Terrible reason really – it’s the one I’d have gone to, if I had gone to any.
I wasn’t sure what Logan was either, Dave, so I looked it up. Obviously, that’s not what I saw — but after reading a couple of reviews, I am now!
Isn’t it interesting that even with the facts about Obamacare staring them in the face the mainstream media STILL insists people love it? And then they wonder why Pres. Trump keeps calling them fake news.
Yes, it is infuriating to me, Kathy. I also get mad when people say our healthcare system was just as bad before Obamacare was the law of the land. No … it wasn’t — not by a longshot.
The only people who love Obamacare today are those who are being subsidized.
As I tell the Honeybee, the rest of us are now paying for not only our family’s healthcare, but at least one of those subsidized family’s healthcare too.
Len, more proof that an economic collapse is imminent; we just paid off our mortgage and are finally debt free… ;o) But seriously, I love your “Black Coffee” even though it usually makes me angry or at least frustrated. Re: the ACA, we opened an HSA this yr. to get tax benefits. A $6550 deductible EACH means we just shop around and pay cash; the cost differences for things like xrays & shots at various places are amazing!
Congrats on the mortgage payoff, Lauren!!!!!!!
For those who aren’t familiar with health savings accounts (HSAs), they can be a smart move for those with high medical deductibles. And any money left in the health savings account not used for medical expenses earns interest and is yours to keep.
And as you attest, doctors and dentists really do give substantial discounts to their cash-paying patients!
I see what you did there. Clever.
I don’t. What did I miss?
Connect the title with the last debit.
Thank you, James. I try.
Len, I love it when you serve up an extra big cup of Joe! Can’t understand why anyone would have a problem with ‘old wives tale’ though. Some people really need to lighten up!
Have a great weekend!
Sara
It really is lame, Sara.
I blame a combination of the mainstream media and our education system (at all levels) for this ridiculous scourge of political correctness that now grips our nation.
PS – Len, I’m guessing the one movie on that list that you saw was Star Wars.
Nope.
When it comes to putting things on the credit card and then not paying it off at the end of the month, people need to accept responsibility for their own actions. If you’re in debt, it’s because YOU got yourself there. Thus it’s YOUR responsibility to get out again.
Couldn’t agree more, Susan.
I always pay off my credit cards at the end of the month. The thought of paying one penny of interest to the CC companies makes me ill.
Good for you, Kenny. Me too!
The Chinese have developed their own alternative to the SWIFT system called CIPS (China Interbank Payment System). Right now it is not being used as replacement for SWIFT because it only handles payment orders (as opposed to actual fund transfers), but it probably won’t take much to change that, and so it is a crucial step towards breaking the dollar’s virtual monopoly on transnational payments by allowing other nations to totally bypass the US.
Yes, the Chinese have done a good job building up a “shadow” financial infrastructure since the Great Financial Crisis that mirrors the US-built system.
Unlike the West, the Chinese are content to be patient and focus on the long game.
Len, you seem like someone who prefers a thriller. I say “It.”
Come to think of it, Len’s already said he loves science fiction.
” It” ‘s possible.
I’ve already had my guess (wrong!), so I’ll wait for someone else to exploit the “science fiction” clue, if “It” is wrong.
Good guess, Nancy … but no. Although I do enjoy a good thriller. I saw one last night called mother! that was underwhelming.
Len, I interpret your question which offers as an optional answer “more time”, to mean “time” in the most basic sense, i.e., longer life.
To me, that has to come before the other three options can mean anything.
Fair enough, Dave. Although you remember how it was when you were young … “invincibility” tends to be a common trait.
If white privilege exists than why did Senator Warren claim to be an American Indian ??
That’s a reasonable question, Mik. (Even if it is rhetorical.)
Trump cracks me up every time he calls her “Pocahontas”.
An “AHA” moment, Len! I’m guessing that you saw, “Despicable Me 3”, since you’re pretty good at keeping up with the minions in this world. :oD
Thanks, Lauren … but no!
Did you see Thor?
No. Thanks for the guess. If nobody guesses the right answer (I think there are only five possibilities left), for those who are interested I will reveal the answer in next week’s Black Coffee.
Good catch James! Lol
Len, I’ll guess wonder woman… Since you’re clearly a very female PC kinda guy!
Aaaaand, we have winner! Good job, Brian.
(Wonder Woman was good too.)
I was pleased to see so many of your readers select “more wisdom”. Although, at first thought, more time might be an inviting idea, there is great justice in that, no matter what, the richest and the poorest person both have the same allotment. We get only 24 hours each day. Wisdom will direct how we choose to spend those hours and be a good indicator of what the individual feels is truly important. Although I find myself a bit further to the left than you, I respect and value the great job you do, especially in “Black Coffee”.
Thank you for the kind words, Steve. And believe me, I don’t expect anyone to agree with me on everything. (Although i wish everyone would! LOL)
By the way, put me in the “more wisdom” crowd too. As I get older, though, I can see the day coming when I will be in the “more time” camp.