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 …
“Whenever destroyers appear among men, they start by destroying money, for money is man’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.”
— from Francisco’s “Money Speech,” in Ayn Rand’s Atlas Shrugged
“The dollar is our currency — but it’s your problem.”
— US Treasury Secretary John Connolly to the G-10 in 1971
Credits and Debits
Debit: Did you see this? With bitcoin down more than 60% from last December’s all-time high of $19,783 — and many other cryptocurrencies off more than that this year — some officials are beginning to worry about potential suicides by late investors who were caught holding the bag.
Credit: Then again, not everyone is depressed. The latest Conference Board survey found that economic confidence rose in August to its highest level since October 2000. I guess they forgot to poll the cryptocurrency holders.
Debit: US household confidence belies the fact that one-third of all Americans have $5000 — or less — saved for their golden years. The good news is some Americans are more prepared: 25% have $200,000 or more stashed away, while 16% have between $75,000 and $199,999, with an average total of $84,821. The bad news is that still won’t get it done for most people.
Credit: In other news, it’s becoming increasingly obvious that the world is finally fed up with the dying debt-based international monetary system anchored by the US dollar. Part of that is being driven by the declining value of those dollars, which are being debauched at an ever-increasing pace. However the main catalyst appears to be the United States’ insistence on weaponizing the system for political leverage.
Debit: The failing monetary system is one reason why China took steps to challenge the US dollar’s dominance with the March launch of an oil futures contract backed by the petro-yuan. Unbridled dollar hegemony is why China and Iran have also agreed to stop using the greenback in global trade. And if that wasn’t enough, China is ignoring US sanctions by increasing purchases of Iranian oil. Imagine that.
Credit: As Craig Hemke points out, it’s not a stretch to conclude that America is trying to impede the rise of the so-called China-led “One Belt, One Road” economic bloc, based upon some of the major nations currently being targeted with US financial sanctions. Take a look:
(Click to enlarge) Source: SprottMoney
Debit: After the US doubled down last week by unveiling a new set of sanctions against Russia, Moscow promised to retaliate by accelerating its own efforts to abandon the US dollar in future trade transactions. In other words, when it comes to the dollar, Russians are intending to just say “nyet!” (I know … but it’s the only quip I had in the bag.)
Debit: By the way, it’s not just traditional American adversaries who are pushing back on the US dollar; her allies are too. This week Germany’s finance minister said, “Europe shouldn’t allow the US to act over our heads and at our expense. For that reason its essential that we establish payment channels that are independent of the US, (including) an independent SWIFT system.” Uh oh.
Debit: Meanwhile, France said they’re also working on alternative financing solutions to sidestep American sanctions against countries such as Iran, including a possible role for other central banks. Of course, nobody in America should be surprised; that happens when you stop being a team player. Oh … and so does this:
Credit: In reality, as Robert Triffin’s dilemma suggests, a monetary system based on a reserve currency is unsustainable, because any increase in global dollar reserves by other nations requires the US to exchange those dollars from the net exports of the rest of the world. As a result, the US is forced to carry a permanent and growing international payments-deficit to keep the system going. Well … until it can’t.
Credit: I hear ya: What happens in the near-term if trade seizes up and we have to rely on American-made goods? The short answer: shortages and higher prices. Consider Levi’s iconic denim jeans. Believe it or not, Levi’s are currently made at just one (!) US-based plant — probably because American-made Levi’s 501 jeans cost $70 or more. Compare that to imported 501’s, which are more than 40% cheaper.
Credit: Although the world’s push to end the dollar’s dominance is extremely important news for America and its artificially-high standard of living, an even bigger revelation is that the mainstream media is actually reporting it. After all, it wasn’t too long ago that anybody who dared to suggest the demise of “the Almighty Dollar” was even possible would have been called a nut-case. Lord knows I’ve been.
Credit: The fact that the mainstream financial media is finally broaching this topic should certainly make everyone wonder just how close we truly are to the end of the US dollar’s reign as the world’s premier reserve currency – – especially considering the stakes involved for those of us who have benefitted from it for so many years.
Insider Notes: The Dollar’s Dirty Secret
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By the Numbers
All those long faces on kid’s everywhere can only mean one thing: school is back in session! With that in mind, here’s a snapshot of our schools and colleges for the 2018-19 year:
50,700,000 The number of US students expected to attend public elementary and secondary schools this year.
16 The expected number of US public school students per teacher in fall 2018.
12 The expected number of US private school students per teacher in fall 2018.
$12,910 The projected per-student expenditure in public elementary and secondary schools in 2018-19.
3,600,000 The number of American students expected to graduate from high school this academic year.
19,900,000 The number of students expected to attend American colleges and universities this fall.
56.5% The projected percentage of female post-secondary students in fall 2018.
Source: HomeRoom
The Question of the Week
[poll id="230"]
Last Week’s Poll Results
Can you competently drive a car with a stick shift?
- Yes (67%)
- No (33%)
More than 1500 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 3 of them are unable to drive a stick shift. Frankly, I thought that number would be a lot higher. I learned to drive with a car that had a manual transmission — but that was many years ago when they were far more common.
Useless News: The Louisiana Farmer
An elderly man in Louisiana had owned a farm for several years. He had a large pond in the back, and it was suitable for swimming, so he fixed it up nicely with picnic tables and some apple and peach trees.
One evening the old farmer decided to go down to the pond, as he hadn’t been there for a while. So he grabbed a bucket to bring back some fruit.
On the way, he heard voices shouting and laughing. As he came closer, he saw it was a bunch of young women skinny-dipping in his pond — so he made the women aware of his presence and they all went to the deep end. Then one of the women shouted to him, “We’re not coming out until you leave!”
The old man replied, “I didn’t come down here to watch you ladies swim naked or make you get out of the pond naked …”
Then, holding the bucket up he added, “… I’m here to feed the alligator.”
Some old men sure can think fast.
(h/t: RD Blakeslee)
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
This week Karen sent me a nice message explaining how my blog inspired her to get her personal finances under control — and it included this observation:
“… and the best part is you don’t have to be a math genius to work a budget!”
You know … if I had nickel for every person who has told me that, I’d have $1.83 right now.
I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Way back at the start of the Republic, the Congress defined the US DOLLAR as 371.25 grains (0.7734375 troy ounces) of pure silver. There was a time when silver was money and money was a dollar. But over the course of two centuries, that slowly changed and now money is a dollar, but a dollar is not silver.
You can call it a dollar, but a dollar really hasn’t been a dollar since 1964 or 1971, depending on what is being used as the yardstick (close of gold window or elimination of silver from coins).
In 1994 I was picking up fiat currency off a street in Rio de Janeiro. My taxi driver told me it wasn’t good enough to light Cuban cigars with.
Johnny: If you think about it, the median age in the US is now close to 40 — that means slightly more than half of all Americans have never lived when, as you cleverly put it: “silver was money and money was a dollar.”
It’s no wonder most Americans have no concept of real money — or the difference between currency and money. They will though. Eventually. When the system goes down, it will become abundantly clear to almost everyone.
Hi Len! The dollar is going to do what it is going to do. In the meantime I will continue my monthly silver buys.
Happy Labor Day!
Sara
Keep stackin’, Sara!
The USS Dollar hit the iceberg and it’s listing hard to starboard. But some folks keep singing and dancing like the ship will never sink. If you got kids they’re in for a world of hurt if mom and dad don’t have a barbarous relic collection for them.
I was going to quip about “rearranging the deck chairs” then I thought better of it. In reality, Stan, most people are still unaware the USS Dollar even hit an iceberg.
Awhile ago I remember a speech by a Chinese General, about how the US milks the world. He said the US lowers interest rates, and floods a country or region with cheap money. At some point down the road the US raises interest rates and sells down the currency of the target nation. As the country collapses economically and starts defaulting on its dollar denominated debt, the US moves in and buys up all the infrastructure at bargain basement prices. He said this stunt is based on a 10 year cycle, and if you look at the recessions they do seem to occur roughly every 10 years.
I think that is a great observation, Sinbad. However, I do not think the cycle is going to play out in the same way this time around. When the current cycle ends, it is going to end with a monetary system reset.
” …money is mans protection and the base of a moral existence.” – Ayn Rand
“For the love of money is the root of all evil” – 1 TIMOTHY 6:10 KJV
Philosophy really spans the spectrum of ideas, doesn’t it?
It does span a large spectrum, Dave. As I see it, the difference between Ayn Rand and scripture is that the latter is speaking about the love of money (both avarice and greed); while the former is about the importance of real money, as opposed to fiat.
“What happens in the near-term if trade seizes up and we have to rely on American-made goods? The short answer: shortages and higher prices.”
What happens in the long term Len? Can I assume in the long term prices will drop and the shortages will go away?
If the trade disruption continues over a long enough time period, the shortages and resulting higher prices would signal to domestic entrepreneurs that a large profit opportunity exists in the affected markets, eventually satisfying demand and lowering prices as new domestic suppliers come online. Before you know it, those products that were being supplied mainly via imports will once again be filled by domestic companies.
Len, I’m not surprised that less than a third of Americans have less than $5k saved for retirement. It’s hard to save when housing costs 50% of your take home pay plus groceries, utilities, gas, kids, etc. All while wages have been stagnant for the past 20 years.
Actually, real wages (i.e., wage purchasing power after adjusting for inflation) have been stagnant since 1971. It’s no coincidence that was the same year the dollar’s last link to gold was broken.
The dollar has been in a free fall for decades, but the fake news media oddly didn’t cover it until now. Beware of fascists disguised as journalists !!
Good point, Mik. I’ve gotten used to 98% of today’s mainstream media lying by omission, but the financial journalists have been doing the same thing too for even longer than their non-financial news colleagues..