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.
Well … another glorious week comes to an end, so let’s get this party started, shall we?
It is what it is, but it’s not what it seems.
— Paul Hewson
There are some ideas so absurd that only an intellectual could believe them.
— George Orwell
There are three roads to ruin; women, gambling and technicians. The most pleasant is with women, the quickest is with gambling, but the surest is with technicians.
— George Pompidou
Credits and Debits
Debit: Despite being unable to repair and maintain the existing network of roads and highways, US states are continuing to build more of them anyway, which is creating new financial liabilities. As it stands now, the US would have to spend roughly $250 billion annually to keep its existing infrastructure properly maintained and restore the current six-year backlog of roads in a poor condition. Yeah … I hear ya, folks: Only six?
Credit: Perhaps all of the new roads being built is why Americans’ confidence in the US economy is at its highest point in 20 years. It’s possible. But here’s the problem: Living standards have been slowly declining ever since the dollar’s anchor to gold was broken in 1971. Huh. Who says Boiling Frog Syndrome isn’t real?
Debit: Ironically, Americans’ growing consumer confidence also suggests they’re blissfully unaware that a middle class lifestyle is now 30% more expensive than it was 20 years ago. Well … not all Americans; at least not the 23% who say that paying for basic necessities such as rent, utilities and food is the biggest contributor to their credit card debt.
Debit: It’s scary to think that nearly a quarter of all Americans are going into debt paying for basic necessities 10 years into an economic recovery. But anyone who is paying attention to rapidly-falling bond yields can see they’re signaling that both the US and global economies are in a heap of trouble. Then again, bond yields have been anemic since the Great Financial Crisis, which means there never really was a true recovery anyway.
Debit: So … How low have bond yields fallen? Incredibly, in many cases, less than 0%. There are currently trillions of dollars of bonds in the world with negative yields. And until recently, negative yields were limited to relatively-safe bonds issued by governments and large corporations. This week, however, much riskier mortgage-backed bonds joined the party. At least, they did in the Netherlands. No, really.
Credit: But wait … it gets even crazier. Thanks to those mortgage-backed bonds, bankers in the Netherlands are now offering mortgages with negative rates. That’s right; instead of collecting interest, the lenders are effectively issuing a monthly rebate to their mortgage holders. This begs the question: What’s the true value of fiat currency today if bankers are paying people to borrow it? (Psst. Voltaire knows.)
Debit: Meanwhile, the slowdown in global trade is putting pressure on the creation of US dollars — which is a big problem because the greenback is the lubricant for the economic engine better known as the global financial system. Without an ever-increasing supply of dollars, that engine is bound to seize up, leaving the global economy and financial system vulnerable to tighter financial conditions. Hey … this guy gets it:
Credit: Jim Rickards, author of The Road to Ruin, certainly sees the dollar-lubricant “idiot light” flashing red on the world’s economic dashboard. He says, “Given the trillions in dollar-denominated emerging-market debt, a full-scale foreign sovereign debt crisis could be in the making if they can’t earn dollars from exports to pay their debts.” In other words, we need even more IOUs to “settle” existing IOUs — stat! Yes … welcome to Crazy Town.
Credit: Of course, as MN Gordon wisely observes, “The gripes of all workers of the world should be united not against capitalism, as promoted by Marx, but against the curse of fake money and the governments that perpetuate it.” Fake money is a poor store of value because it’s debt; it’s also mathematically impossible to sustain because the international monetary system that supports it is a Ponzi scheme, otherwise known as this:
Credit: Unlike a precious metals-based monetary system, our debt-based system requires debt to grow exponentially, ad infinitum. Unfortunately, we’ve reached the point on the curve where the current system begins to self-destruct. Perhaps that’s why the President is nominating Judy Shelton, a gold standard advocate, as a Fed governor. Can Shelton save the current system? No; but unlike the current batch of Fed intellectuals, she actually knows how to fix the problem.
Insider Notes: More on the Folly of a Debt-Based Monetary System
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The Question of the Week
[poll id="270"]
Last Week’s Poll Results
Will you be taking a summer road trip of 500 miles or more this year?
- No (57%)
- Yes (29%)
- Maybe (14%)
More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that 3 in 10 of you plan to take a road trip this summer of 500 miles or more; another 1 in 7 are thinking about it. Here’s hoping gasoline prices continue to stay relatively inexpensive through the Labor Day weekend!
If you have a question you’d like me to ask the readers here, send it to me at Len@LenPenzo.com — and be sure to put “Question of the Week” in the subject line.
By the Numbers
Current Jeopardy! Champion, James Holzhauer, 34, is not only amassing millions of dollars in Jeopardy! winnings, but he’s doing it at a blistering pace. Here’s a breakdown on about Holzhauser’s incredible run through his first 28 games, courtesy of freelance writer Bill Rice, Jr.:
0 Number of Daily Double clues answered incorrectly by James in the game’s “Double Jeopardy.”
5 Games where James won more than $100,000.
10 “Perfect games” with no incorrect responses recorded by James.
10 Games where James had only one incorrect response.
120 Consecutive correct responses by James in Games 22 through 24.
15 Games where James won more than $80,000.
21 Times that James went “all in” on the first-round Daily Doubles.
15 Number of spots James holds in Top 15 all-time winnings on show
13 Number of years James tried to get on Jeopardy! before finally being selected as a contestant.
Source: Zero Hedge
Useless News: The Nail
One morning, on his way out to check the cows, a rancher said to his daughter, “The insemination man is coming over to impregnate one of our cows, so I drove a nail into the 2×4 just above where the cow’s stall is in the barn. Please show him where the cow is when he gets here.”
And with that, the rancher departed. After a while, the artificial insemination man arrived and knocked on the front door. “I came to inseminate the cow,” he said.
So the daughter took him to the barn, and they walked along the long row of cows until she finally spotted the nail her father told her about. “This is the one, right here,” the rancher’s daughter said.
The man, who assumed he was dealing with an airhead said, “Tell me, lady, ’cause Im dying to know: How would YOU know that this is the right cow to be bred?”
“That’s simple!” she said with confidence, “By the nail that’s over its stall.”
Laughing rudely at her, the man then asked, “And what, pray tell, is the nail for?”
As the daughter turned to walk away, she said sweetly over her shoulder, “I guess it’s to hang your pants on.”
(h/t: RD Blakeslee)
More 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 a recent Len Penzo dot Com post that shared some clever How to eliminate your financial problems without more money, Frank had this to say:
I think some people have financial problems because they spend too much.
Frank, I this most people have financial problems because they spend too much.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: brendan-c
Interesting distribution of answers to this week’s question re the gold standard.
Simple fact: if we were on the gold standard and I had a gold coin in my pocket, it’s value would not be changeable by any political entity.
But having a paper dollar in my pocket, it changes according to the latest Federal Reserve change in the money supply.
Would changes occur in the prices of everything when gold denominated? Of course they would – inflation and deflation would occur – “Booms” and Busts”. But they would be self-correcting as boomers and busters were let loose or restrained buy the underlying immovability of the gold. In other words, your financial welfare and mine would be up to you and me, unaffected by manipulation of the currency.
Dave, I like Hugo Salinas Price’s proposal that nations should issue gold and silver coins denominated by weight, rather than in dollars (or pesos, euros, etc.).
Per Salinas, the coins’ value would fluctuate, based on the free-market price of those precious metals, and the central banks would be entrusted with setting and assuring those gold and silver coins value always maintain a monetary value superior or equal to their intrinsic value. Their announced prices would always be adjustable for increases in the prices of gold and silver, but leave intact the higher monetary quotes for each in the case of, what should be, rare declines in the price of gold and/or silver.
Doing so would, of course, result in an ironclad money that would be a powerful store of value and immune from loss of purchasing power. As a result, more people would save their money — and this would greatly reduce the our dependence on credit.
In other words, capitalism would once again be able to rely on the creation of “capital” rather than debt-based IOUs — as it was always intended.
R.D., the problem is that “they” are manipulating the price of P.M.’s as well. How long they can continue this is anybody’s guess. I am working towards having at least 20% in P.M.’s. I currently have 12.5%.
This thing is unsustainable, as we can all here agree, but like the Man said, it can remain irrational for longer than most Folks can remain solvent.
Hi Len,
Thanks for another great cuppa. The Fed has ruined the dollar and we’re all paying for it! If we go back to the gold std. will the Fed still be around?
Sara
Yes, there would still be a role for them, Sara — see my comment above for one example.
Whoa! I forgot all about that Fram oil filter commercial. Talk about a blast from the past. They don’t make them like they used to.
Yeah, looks like we’re all going to “pay later” when the dollar finally blows its engine!
Glad you enjoyed it, David. Maybe I’ll start posting a few more of them. The trick is finding ones that are apropos to what I am writing about!
The data is all there. After more than 150 years of steady increases, U.S. living standards began dropping as soon Nixon closed the gold window. This is irrefutable.
Yes it is. Most people seem to forget that it generally takes two incomes today to have what a single blue-collar worker could earn prior to 1971.
Negative rates are only good for encouraging malinvestment.
The central banks need to go. Bring back the classical gold standard!
I think they will eventually have no choice, Cowpoke. However, I think they are going to only get there with a lot of kicking and screaming. I suspect they will at first try some half-assed solution that will fail miserably before finally throwing in the towel.
Remember, governments hate tying their currencies to precious metals because gold and silver force politicians to be fiscally disciplined — and that makes it hard to buy votes from the general public.
If you think about it, we’ve had negative interest rates for a long long time. If your savings account pays 1% interest, and inflation is 10% (just look at the Chapwood index or monitor your grocery bill), then you’re actually earning MINUS 9% real interest.
Yes, Sam … and think about this too: At negative 9% interest the purchasing power of your dollar-based savings is being halved roughly every eight years!
Here is something to think about.
The central banks’ old Basel I agreement declared gold among the least desirable assets. It was categorized a tier 5 reserve asset (out of 5 categories).
The updated Basel II agreement reduced the number of categories to only 3 and gold was once again put in the least desirable reserve asset tier (tier 3 out of 3).
Now we have the Basel III agreement and there are only 2 tiers. Gold was a tier 2 asset under the original Basel III agreement, but since April 1st of this year, gold became a tier 1 reserve asset, which means it is considered as good as cash or sovereign bonds. (Which is stupid because everybody with half a brain knows that gold is SAFER than either of those.)
Why do you think that is?
Thanks for sharing that, Josh. I assume your question is a rhetorical one.
Just found your website, Len. Great stuff.
Thanks, Frank. Welcome aboard!
I think the rise of debt in households has also to do with benefits getting worse as the years go by.
The total medical bill for my 1st child in 2009 was $7500; out of which insurance covered all but $500 which we paid out of pocket. My last child in 2016, the total cost was $8700 of which we owe $4000 after insurance.
Companies no longer offer excellent health insurance. Same goes with pensions. Companies no longer offer a pension so you’re stuck maxing out the 401k and also investing in an IRA to have a nice retirement. My parents never had to worry about their 401k.
How much after all that and taxes are you left with to raise a family and live your life?
Yep, Don … all forms of declining living standards — which all trace back to the dollar’s break with gold.