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, shall we?
“Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.”
— Frederic Bastiat
“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
–– Winston Churchill
Credits and Debits
Debit: This week the Supreme Court said states can require online retailers to charge sales tax, even if the business has no physical presence in your state. I know. As a result, consumers could end up paying more, but the impact isn’t as big as many think; after all, as many big online retailers already charge sales tax on items they sell directly.
Credit: Still … mandatory state online-sales taxes were inevitable; the ever-growing government beast is very real and must be fed at all costs. Believe it or not, they actually made a docudrama warning about this a long long time ago — although most people just laughed:
Credit: As Egon Von Greyerz reminds us, the government’s relentless pursuit of revenue is driven by the fact that, “The US hasn’t had a real budget surplus for almost 60 years, running deficits every year since 1975. A country that lives above its means for over half a century is economically bankrupt; its debt and currency should have zero value.” It should. But it won’t — at least until the dollar loses its reserve currency status.
Credit: Meanwhile, the financial charades continue. This week, after more than 100 years as a Dow component, General Electric was replaced by Walgreens. As one observer recently noted, this is simply par for the course. Replacing any company from the index that doesn’t help the Dow keep its upward momentum is no different than the government removing any product from the CPI that pushes prices higher.
Debit: Speaking of the stock market, bank shares recorded their longest losing streak ever this week. On Thursday the S&P 500 Financials Index mercifully ended a run of 13 consecutive down days. Despite Thursday’s “recovery,” shares of the big banks are down an average of 9.3% this year — compare that to a gain of nearly 1% for the S&P 500. Is this is the financial-system coal-mine canary? Time will tell.
Debit: Bank shares aren’t the only thing that’s down; Social Security benefits have lost more than one-third of their buying power since 2000 — and the decline is accelerating. In fact, Social Security bennies lost 4% of their purchasing power in just the last year alone. (Psst. If you’re under 60, I hope you’re paying attention — especially if you’re expecting Social Security to cover all of your retirement expenses.)
Debit: You can bet the withering sustenance supplied by Social Security is one reason why a Fed survey this week found that inflation fears are at a 30-year high. Apparently, people are now more worried about inflation in the next six months than at any time since 1988. Imagine that.
Debit: It’s probably not a coincidence that inflation fears are peaking at the same time that US oil prices are at their highest level in four years. The spike is primarily due to sharply-falling crude supplies which, in turn, have translated to higher prices at the gas pump. The US national average price for gasoline is $2.90. Then again, here in California, my local gas station is charging $3.79. Thanks, tax man.
Debit: It’s not just gasoline prices that are climbing. By one estimate, asset markets are 40% higher than they should be; you can blame the central banks’ quantitative easing policy, which has artificially boosted profits and consumer demand. Now, asset prices are at extreme levels relative to the actual economy — just as they were in 2008 — thereby setting the stage for another major financial crisis.
Debit: Prices are so out of whack right now that San Francisco, Marin, and San Mateo county households making $117,000 actually qualify to live in low-income housing projects. Heh. No, I didn’t add an extra zero to that figure. Oh … and if that wasn’t bad enough, the Bay Area’s “poverty” line is 10% higher than last year. Yes, it’s really quite absurd — but not as absurd as this:
Debit: With economic reality so thoroughly twisted, it’s almost no wonder that a recent poll found that 58% of Australian millennials prefer socialism or communism to capitalism. The trouble is, it isn’t capitalism that has failed society — it’s crony capitalism, led by Big Government politicians, Wall Street and the rest of the financial industry who, in turn, are aided and abetted by the world’s central banks.
Credit: Maybe all of those millennial revolutionaries got excited when they heard that minimum-wage workers in Venezuela earn 5 million bolivars per month. What they apparently don’t know is 5 million bolivars is enough cash to buy five cups of coffee in that South American workers’ paradise — or two cups of joe and one Che Guevara t-shirt (hurry! there’s only one left!) — but nothing else. Forward, amigos!
Credit: Of course, every good socialist believes in “free” water too. It’s subsidized in Venezuela, costing pennies a month. Unfortunately, despite what Che said, there are no free lunches. So the pipes have been badly neglected — which is why the military now distributes the nation’s scarce water supply; mainly to its cronies. I can only imagine how much a cup of coffee in Caracas will cost when the water supply dries up.
The Question of the Week
[poll id="221"]
Last Week’s Poll Results
When was the last time you drank a glass of tap water?
- Within the last week (67%)
- More than a year ago (17%)
- Within the last year (11%)
- Within the last month (5%)
More than 1300 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 6 of them have gone more than a year without a glass of tap water. Wow!!! I guess that’s to be expected now since so many people have been conditioned to drink bottled water. Maybe I should have asked for the last time folks took a drink from a garden hose.
By the Numbers
Most people think hyperinflation is a rare event, but that’s not historically true:
55 The number of hyperinflation events worldwide during the 20th century.
3 The average number of years between hyperinflation events since the 1921 hyperinflation event in Weimar Germany.
617 The number of fiat currencies that became completely worthless since 1500.
25% Percentage of fiat currencies since 1500 that became worthless as a direct result of hyperinflation.
50% The minimum monthly inflation rate economists say is required for a currency to be officially in a state of hyperinflation.
41 The approximate number of days it takes prices to double when the monthly inflation rate is 50%.
Source: GoldSilver
Useless News: Guys and Gals
A woman comes home one morning about 9 a.m. after having been gone all night. Her husband wants to know why she did not come home the night before and she responds, “Some of us girls were playing bridge last night and it got so late that I did not want to come in and awaken you.” The husband gets on the phone and calls her 10 best friends asking them if she had spent the night there after playing bridge the night before. Each of them said, “No, I haven’t seen her.”
A man comes home one morning about 9 a.m. after having been gone all night. His wife wants to know why he did n0t come home the night before and he responds, “Some of us guys were playing poker last night and it got so late that I did not want to come in and awaken you.” The wife gets on the phone and calls his 10 best friends asking them if he had spent the night there after playing poker the night before. Eight of them said, “Yes, he stayed here last night.” The other two said, “Yes, and he’s still sleeping upstairs.”
(h/t: Ozymandias)
More Useless News
In case you missed it, I published a sponsored post on how to save extra money on every item you buy at Amazon with a simple Chrome extension. Please check it out if you like to save money! I use the extension and I can honestly say it has already saved me a significant amount of cash.
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
After reading this week’s featured article explaining why I run my household like a business, Eric Bowlin left this comment:
“This is a really interesting take. I often look at my household in military terms.”
Eric, if I did that I’d be the private on KP.
I’m Len Penzo and I approved this message.
Photo Credit:Teresa Whitaker
Can I just drop out of SS all together since there is basically no way I will get a dime of it?
I’m guessing I have contributed more than $150,000 to SS in my lifetime. I’d be happy if I could just claw that back before it’s all gone. But it ain’t gonna happen cuz I still have 20 years to go.
I feel the same way, Mike … but to parrot Expects Nothing, it’s not going to happen.
Peter Schiff says if the economy implodes before the next presidential election, Trump will be replaced with a socialist in 2020. I fully agree with that. What do you think, Len?
I wouldn’t be surprised. Looking at the current results of this week’s Question of the Week, it would make sense. The trouble is, capitalism can only thrive in the absence of socialist policies. Like it or not, the US has had a “blended socialist/crony capitalist” system since FDR came to power; it then really took root with LBJ’s guns and butter program. Nixon was forced to close the gold window shortly thereafter and the dollar — and our living standard — has been in a free fall ever since.
I think it basically started with the inception of the Fed in 1913, the policies the Fed use are basically socialist. Your right, Roosevelt was so cozy with Stalin I think the Soviet influences rubbed off on him and its been down hill ever since. I fear our collapse will be eerily similar to that of the Soviets in 1990.
Getting prepared!
Jared
The Fed is certainly the mechanism that has allowed the welfare state/MIC to be born, and continue on for as long as it has. The Fed, along with the creation of the petrodollar, also allowed Nixon to break the dollar’s final tie to gold in 1971 and keep the financial charades going to this day; shenanigans that could never continue with a gold- and silver-based monetary system.
Inflation has been running roughshod for years. The $50 bill is the new $20 bill.
For older folks like me, the $100 bill is the new $10 bill. When I graduated from college with a technical degree, I figured $8,000 would be a very comfortable salary. Today, that number is probably in the $80k neighborhood. This is why I tend to divide the value by 10 when trying to relate old vs new prices today.
Until we return to a gold/silver backed monetary system, incomes will never recover for most of the middle-class US (and world for that matter). An army of salesmen, factory and office workers,and retail clerks are now obsolete. The writing is on the wall for fast food workers too. To have any chance at making money in the future you better have above average intelligence and be physically fit, or have above average intelligence. That means be a tradesman or work in tech.
Earn more and you will have no need to relate anything. Good luck!
And yet we’re told inflation is low! Blame that on “hedonic adjustments.” The changes in measuring CPI using hedonic adjustments is bogus and dishonest. It’s no different than a corporation using non-GAAP accounting because if they used GAAP then they would be revealed as bankrupt.
Yep. What’s funny is the Fed continues to say 2% inflation is what they are aiming for (even though it is clearly already running hotter than that). At 2%, inflation halves the value of your savings in roughly 35 years. If it is running at 6%, then the purchasing power of your savings is halved in about 12 years — so it’s no wonder they try to hide the real inflation rate.
The really sad part of this, Len, is that the Fed practically shouts from the rooftops, REPEATEDLY, their goal of 2% inflation. What is it about inflation that the public doesn’t understand? Inflation is state sponsored theft, pure and simple. Nobody says anything. Talk about a nation of SHEEP!!!!! SAD.
It’s interesting because things that are almost essential, like education and healthcare have grown by more than 2% annually.
Whereas the price of TVs and many less essential things have stayed flat or even shrunk.
John: It’s not a coincidence that the price of those things you mention began rapidly outpacing the inflation rate of other living expenses at the same time the government got involved; that is, with the sharp increase in government-backed student aid in the mid 1980s, and medicare in 1965. With the government involved, colleges and medical providers could raise prices with impunity because the government had pockets deep enough to cover the increases.
John Williams’ work is definitely much more accurate then any of the manure our government puts out!
Agree, Jared. John’s excellent Stadowstats site simply recalculates the data based on the original government criteria/formulas used to measure inflation and unemployment in the late 1970s/early 1980s — before they began changing them to mask falling living standards.
Hi Len,
As you know I’m not counting on SS for my retirement. I have much more faith in silver being there for me when I get old.
Have a nice weekend!
Sara
Oh, I know, Sara.
And I’m not counting on SS either. Anything I get will be gravy.
Anybody know how many of the original Dow components are still in the Dow?
Zero.
Thanks, Len!
“This week, after more than 100 years as a Dow component, General Electric was replaced by Walgreens. ”
…and Walgreensmay have the shortest time on the Dow ever:
https://wolfstreet.com/2018/06/28/on-day-3-in-the-dow-walgreens-gets-hit-by-dropping-same-store-sales-offers-10-billion-in-financial-engineering-shares-plunge-10/
Now that’s funny!
It really is sad to see how the Dow transitioned from an index dominated by manufacturing companies to one dominated by retail.
Loved the Blob trailer. Didn’t know Steve McQueen was in that movie. I may have to watch it now.
I didn’t know that either, Chris. I guess this was before he became really famous.