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 …
“Modern banking manufactures currency out of nothing. The process is perhaps the most astounding sleight of hand that was ever invented. If you want to be slaves of the bankers, and pay the cost of your own slavery, then let the banks create currency.”
— Lord Josiah Stemp
“Before bitcoin, I was just waiting around for the singularity.”
— Roger Ver
Credits and Debits
Credit: This week the CEO of JPMorgan, Jamie Dimon, turned more than a few heads when he said that nobody should be surprised if the 10-year Treasury hits 5%. Wow. If he’s correct, you can expect significantly higher mortgage rates and auto loans. You can also bet those ubiquitous home flippers won’t be happy.
Debit: Higher interest rates would be welcomed by retirees who, after a decade of paltry Fed-engineered returns, are looking to earn some income from their dwindling nest eggs. Then again, it may be too little too late, as the New York Times just published a piece that discussed the fact that the bankruptcy rate among retirees is three times higher than it was in 1991.
Debit: Speaking of retirement nest eggs, this week a former Fed economist suggested that Japan’s Government Pension Investment Fund — the world’s largest — should step out of its comfort zone and buy more high-yield bonds and alternative assets such as real estate. Unbelievable. In case you’re wondering, “high-yield bonds” are more accurately known as “junk” bonds. There’s a reason for that.
Debit: On a related note, last quarter the Swiss National Bank (SNB) bought 4.9 million shares of AT&T, 673,000 shares of Microsoft, 305,000 shares of Apple, 272,000 shares of Facebook, 46,000 shares of Amazon, and 423,000 shares of Exxon-Mobile. As a result, its portfolio now generates $1 billion worth of dividends — or as @SheepleAnalytics notes, “They print money and we ship them our profits.”
Debit: For those keeping track at home, with the latest purchases, the Swiss central bank boosted its total holdings of US stocks to almost $88 billion. Those equities join more than $20 billion of European stocks in the SNB portfolio — and all of it was bought with “money” created out of thin air. I know … I should have been a banker. You should have been one too.
Credit: I guess somebody has to buy these artificially-inflated stocks, since the general public has clearly been losing interest in the market since the Great Financial Crisis, as Steve Henrich neatly sums up here:
The dying US stock market.
August average daily trading volumes for $SPY
2010: 242M
2011: 452M
2012: 118M
2013: 114M
2014: 94M
2015: 188M
2016: 68M
2017: 68M
2018 so far: 48MSven Henrich (@NorthmanTrader) August 9, 2018
Debit: In other news, bitcoin’s use as a medium of exchange has cratered, falling 85% in the past year across the top 17 crypto merchant-processing services. In May, just $60 million worth of transactions were conducted worldwide. Yikes.
Debit: For those who bought bitcoin at $19,783 last December, the cryptocurrency — which is currently in the low $6000 range — hasn’t been a reliable store of value either. And if you think that’s bad, then just wait until the dollar goes belly-up; bitcoin’s Achille’s heel is that its value is not self-referential because it’s physically ethereal — unlike gold and silver, which can always be valued in tangible weight.
Debit: Meanwhile, prices in Venezuela are doubling every 18 days; in fact, the IMF now projects inflation will hit 1,000,000% (!) this year — which is why Venezuela has been the world’s largest seller of gold during the past two years. Hey … I wonder if Ben Bernanke knows this; it certainly would be a teachable moment for him, if only because he isn’t sure why central banks hold the yellow metal in the first place:
Debit: By the way, Venezuela’s bolivar and bitcoin aren’t the only crashing currencies out there. The Turkish lira’s purchasing power fell more than 20% on Friday, and Iran’s currency is imploding too, which has prompted desperate citizens to grab as much gold as they can to stave off total ruin. Well … assuming they can find any. (Psst. There’s a reason why gold and silver are called precious metals.)
Credit: Folks … write this down: The time to buy wealth insurance is before a currency crisis — not after it starts.
Debit: Anyway … with Iran’s economy in shambles, nobody should be surprised that a past President, Mahmoud Ahmadinejad, is complaining about US dollar hegemony. Again. Yeah … it’s good to be the King (Dollar). Until your subjects say you’re not.
Debit: According to recently released data, the US will fork out a stunning half-trillion dollars just to service its debt in 2018. Unfortunately, as US interest rates rise, along with ever-expanding public debt, the cost to service the debt will continue to increase. In fact, US interest payments on the debt now exceeds the GDP of 167 nations. Meh. I’m sure that’s nothing a little creative accounting can’t fix:
Debit: If, as Jamie Dimon predicts, 10-year Treasuries revert to their multi-century mean rate of 5%, then the annual interest payment on the National Debt — which is currently at $21.3 trillion, and climbing quickly — will be more than $1 trillion (and growing quickly too), which is problematic considering annual US tax revenue is “only” $3 trillion and change. Or less, if the US slips into a recession.
Credit: Of course, most people believe the game can go on forever, but it can’t — because our debt-based monetary system is subject to exponentiation laws that guarantee its demise. It’s no coincidence that central bank hocus pocus and economic financialization have been increasing since at least 1980 to keep the system stable. But we’re clearly on the wrong end of the curve now — and time is growing short.
By the Numbers
If you’re less-educated with fewer skills in demand, you’re more likely to be out of a job. Here are the latest unemployment rates by education:
5.5% Less than a high school diploma
4.2% High school diploma, no college
3.3% Some college or an associate degree
2.3% Bachelor’s degree or higher
Source: Forbes
The Question of the Week
[poll id=”227″]
Last Week’s Poll Result
Universal basic income: good idea or bad?
- Bad (66%)
- Good (18%)
- I’m not sure. (17%)
More than 1300 people responded to last week’s question and I’m happy to see that 2 in 3 Len Penzo dot Com readers believe that the ultimate handout — otherwise known as “universal basic income” — is a bad idea. Sadly, almost 1 in 5 readers disagree. I suppose they believe in the magic of perpetual motion machines and the tooth fairy too.
Useless News: Traffic Stop
An Amish lady driving her horse and buggy on the local thoroughfare got pulled over by a traffic cop.
“I’m not going to cite you,” said the officer. “I just wanted to warn you that the reflector on the back of your buggy is broken and it could be dangerous.”
“I thank thee,” replied the Amish lady. “I shall have my husband repair it as soon as I return home.”
“Also,” said the officer, “I noticed that one of the reins to your horse is wrapped around his testicles. Some people might consider this cruelty to animals so you should have your husband check that too.”
“Again I thank thee. I shall have my husband check this when I get home.”
True to her word, when the Amish lady got home, she told her husband about the broken reflector; he said he would put a new one on immediately.
“Also,” said the Amish woman, “the policeman said there was something wrong with the emergency brake.”
(h/t: Dr. Jerome)
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. South Dakota (2.07 pages/visit)
2. Minnesota (1.79)
3. Arkansas (1.71)
4. West Virginia (1.69)
5. Idaho (1.67)
46. Nebraska (1.25)
47. South Carolina (1.24)
48. Wyoming (1.22)
49. Vermont (1.16)
50. Oregon (1.13)
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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 my 10th annual sandwich cost survey, Willow dropped this complaint:
“I like lettuce and tomato on my baloney sandwich, so this doesn’t help me.”
Well … duh. The article is good, Willow — but when it comes to making a tasty sandwich, it can’t compete with fresh lettuce and tomatoes.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Len,
You can really see all the fiat currencies falling like dominoes now, it’s beginning to speed up! King Dollar will probably be the last, but who knows how long that will take? Oh, there is plenty of Gold and Silver paper out there for everyone, but the physical variety might become scarce very soon!
Keep Stacking and Packing!
Jared
Since all other fiat is referenced to the US dollar, it makes sense that it could be the last currency standing, as all other fiat currencies implode around it. However, that dollar high-point will be a dubious one — similar to how the Titanic’s stern supposedly soared high above the sea prior sinking towards its final resting place in Davy Jones’ Locker.
I can’t imagine how frustrating it must be to see prices double every 18 days like they are in Venezuela. Things seem to be utterly hopeless there with no way out.
Sara
They can temporarily end their suffering by abandoning the bolivar in favor of the dollar — or permanently fix things by issuing a new currency convertible on demand to precious metals . But the socialist government there could not execute its policies under such a system, so that ain’t happening. Being unarmed, the citizens there will probably have to pray for a military coup that runs the socialists out of town.
Len, could you offer some explanation, or a citation for laymen, explaining these: “exponentiation laws”?
Most of us aren’t very familiar with mathematics, I think, but this is one bit which we really need to know, to understand financial realities which directly affect us all.
I think this curve says it all, Dave:
Putting the chart into words, an exponential increase goes faster and faster – it eventually approaches infinity.
As a mathematical concept, an ever-accelerating number toward infinity is valid, but no physical process, including creation of fiat money, can continue to exist very far into an exponential rise.
I would be interested to see an economist analyze several historic hyper-inflations and calculate how far along the curve each went, before the denouement.
That “creative accounting” isn’t too far off how it’s done today.
Yep … mark-to-market was replaced by mark-to-fantasy after the Great Financial Crisis of 2008.
I just created 1 million DarkKnightCoins on my computer. The number will never be increased and I’m selling them for $10 each. Hurry up and buy some before the market increases the price!!!!
Tulips … get yer tulips!
lol. You mean the same “market” that believes bitcoin is worth 5 oz. of gold? THAT market?
Yea, that one! As Len alludes to, the Bitcoin singularity will occur at the same time the dollar reaches its singularity.
The powers that be are doing whatever it takes to keep this global economy from going supernova. You name it. Whatever it takes. It’s so bad they’re not even trying to hide the lies and blatant market manipulation anymore. This has been going on since 2008, but it’s getting worse by the day. It seems to me they are almost out of tricks. The best cards have been played. Short of some really draconian bail-in moves, a final printing spree that will see the dollar and other currencies go out in a blaze of glory, and war, there aren’t many options to stop what’s coming. And what’s coming is rapidly gaining momentum.
It sure feels like there has been a surge in momentum lately, WA.
Draconian measures will be the name of the game when things really fall apart. From massive bailouts for the rich to monetary haircuts for the deplorables, we can expect a great deal of pain to be directed our way. This monetary pain will come with the outright crushing of what civil rights we have left. The 1st and 2nd amendment will not survive the “national emergency”, and without those particular rights we will have no way to speak up and/or defend ourselves. Ask the citizens of Venezuela about this scenario.
the president of Iran is Rouhani, not Ahmadinejad… but if Iran can have Ahmadinejad back, can we get Obama back???
Yes, good catch, Jason … Thank you. I got two other emails telling me of my error yesterday.
As usual, my readers are on the ball!
I’m not an economist and I understand the concern over the national debt. However, inflation has certainly not been “out-of-control” and short-term US treasury bills are still perceived to be the safest investment out there, correct? The US government is not like a typical household- they can make money. This creates inflation, devalues the dollar, but if we are doing it less than the rest of the developed world then, relatively speaking, the dollar should maintain it’s strength and the US treasury bill should continue to be the safest investment, right? It just seems to me that a bigger concern for America is the ever widening wealth gap… I am not a proponent of “hand outs” but I do think that if we continue on this path our society will ultimately fall. We cannot have so much of the wealth concentrated in so few hands, at some point the mass populace will revolt and create an entirely new “system” (government, currency, etc.).
Jason, inflation is not “out of control” here in the US, but the government data certainly understates it, with its “hedonic adjustments” and changes in the way it measures inflation. As long as the US dollar remains the world’s premier reserve currency, then the dollar will continue to limp along and play the role of the one-eyed king in the land of the blind.
The fact is, US debt-to-GDP is more than 100% which used to define a nation as a banana republic. For some reason that yard stick has changed too. (I wonder why!)
You are correct, the dollar is losing purchasing power at a slower rate than other nations’ currencies, but that doesn’t mean the game can go on forever. The current currency situation is akin to a squadron of airplanes — each one represented by a different currency — that have run out of fuel over the middle of the Pacific ocean and are plunging toward the sea. Yes, the “US dollar” plane will be the last one to crash, but crash it will.
Hyperinflation is a psychological event — not a monetary one. So the US dollar will implode when the world loses confidence in the greenback (due to too many of them being in existence) and other nations finally decide to stop accepting those US dollars for real goods and services.
As for America’s wealth gap, that is very real and it is caused by the growing financialization of the economy. That growth in financialization is a symptom of the dollar becoming a fiat currency. Prior to the US closing the gold window in 1971, financialization comprised just 5% of the economy. Today it comprises 20% — that is not a coincidence. The wealth gap is a symptom of our flawed debt-based monetary system. Fix the corrupt debt-based monetary system and all of the other problems that it has wrought will disappear too (after a few years of pain that will be required to “pay the piper” for the past excess).
Oh, one last thing: the US dollar has lost a little more than 97% of its purchasing power since 1913. Thanks to the law of exponentiation, that final 3% — which represents a 100% drop from here — will come extremely quickly. Normalcy bias prevents most people from seeing that 100% drop coming. That famous quote from Hemingway’s “The Sun Also Rises” applies here:
“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”
I am humbled to get such a lengthy reply for the great Len Penzo!!! I’ve listened to you for years on SB, you and Greg McFarland were my favs (what happened to Greg anyhow?).
Everything you say makes sense, inflation is very real and if one had all their assets in dollar bills they’d be foolish. Fortunately, most people’s wealth is tied up in real estate/stock market/bonds which, historically, have outpaced inflation. At some point, maybe 30-40 years from now, I will be trading all my stocks and potentially my house in for either a stack of dollar bills, a bag of gold, or maybe a bunch of yuan? doesn’t really matter, as long as my investments and my house have outpaced or at least kept up with inflation. Maybe we shouldn’t be so concerned about the value of the dollar as much as what our investments will do relative to inflation? anyhow love the site and look forward to your Friday shows — jason
Hi Len,
Another well worth reading post from you! Great going!
Now I agree that Bitcoin is not doing well at all and the whole crypto market is in the dumps but I wouldnt exclude it from my portfolio. Heres my thinking: I would invest around 5% of my monthly income, buy 20 or more different altcoins and some Bitcoins, and wait it out for 5 years or so. I would only invest money I afford to lose because you never know and I would also not waste my time looking at the daily happenings in the market as that would drive me insane. What do you think?
Thanks, Paul. Unfortunately, I think cryptocurrencies aren’t worth the risk and their true value will be revealed when the debt-based international monetary system finally implodes for good.