Black Coffee: Central Bank Error NOT In Your Favor

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.

I hope everyone is enjoying their weekend! In the meantime, let’s get this show on the road so I can start mine …

The Bank never “goes broke.” If the Bank runs out of money, the Banker may issue as much more as may be necessary by merely writing on any ordinary paper.

From the Rules of Monopoly

The last duty of a central banker is to tell the public the truth.

Alan Blinder, former Fed Vice Chairman

Credits and Debits

Debit: Did you see this? Nearly 1 in 4 Americans say they’re constantly worried about not having enough money to cover their household expenses — and roughly the same number said they’re only just making ends meet. I wonder how many of those people are having sleepless nights because they’re actually living above their means.

Debit: In other news, the Global Manufacturing Purchasing Managers Index (PMI), which covers consumer-, investment- and intermediate-goods, contracted for the first time in seven years. Dave Kranzler notes that “it has been falling almost nonstop since mid-2017″ — the longest decline in its 20-year history. Yet, with the press constantly talking about a “booming economy,” that probably comes as a surprise to most people.

Credit: You can bet bond guru, Jeffrey Gundlach, isn’t surprised. He recently reminded us that nominal GDP growth over the past five years would have been “very” negative without US public debt. He also claims that analysts and financial journalists don’t seem to understand that although GDP growth looks good, in reality it’s “based exclusively on debt.” Imagine that.

Debit: For his part, this week Fed Chair Jerome Powell suggested more rate cuts are on the horizon. Powell also said that interest rates so close to zero “has become the preeminent monetary policy challenge of our time.” Ya think, Jay? He also said that during the next crisis, even more “‘unconventional’ … tools are likely to be needed.” Yes, because quantitative easingand negative real interest rates worked so well the last time.

Credit: Then again, as Alexander Trgiaux points out, Powell’s words were, “a remarkable moment of candor for any Fed Chair. Now, with his incredible admission that the Fed is trapped (by) its own past policy mistakes, we’re staring down the barrel of a new reality with few options.” Of course, Wall St. loves it; at Friday’s closing bell, the Dow had its biggest weekly point gain ever. As they say, when the cat’s away …

Credit: Meanwhile, Europe remains in an economic malaise despite years of negative nominal interest rates in many places. In fact, Italy is once again looking at a parallel currency proposal is being revived in Italy as a way for the highly-indebted government to pay its debts — and that has European central bankers worried that Italy may use the new currency to facilitate its departure from the euro. I guess misery truly does love company.

Debit: And there’s more bad news for Europe: The German Bundesbank has warned that it could face heavy losses if Italy or another major country leaves the euro and defaults on debts to the European Central Bank system. Even worse, the International Monetary Fund says it would be hard to prevent a sovereign debt crisis in Italy from engulfing Spain and Portugal too.

Debit: As you might expect, Russia and China aren’t waiting for either the Fed or the ECB to solve the world’s chronic financial woes, which is why they’re set to sign an agreement which would boost the use of their national currencies in bilateral and international trade in an attempt to move away from the rapidly failing dollar-denominated financial system.

Credit: Central bankers love to portray a steely confidence when in public, but behind the scenes it’s clearly a much different story. The world’s central banks are buying gold hand over fist: 146 tons of gold in just the first five months of 2019, which is more than they bought in the preceding six years. The spending spree is especially odd considering the central bankers want you to believe this:

Debit: In the real world, capitalism’s success was based on people producing more than they consume and then investing the difference — the “capital” in capitalism. But the central bankers’ growing reliance on negative interest rates to keep the debt-based monetary system alive goads people into consuming and going into debt instead of saving which, as Alex Moneton points out, “highlights how broken the financial system really is.”

Credit: Frankly, negative rates — as well as all the red ink, the wealth gap, and a growing hoard of zombie companies dotting the economic landscape — are only symptoms of a more sinister problem. I’ll let the always-astute MN Gordon point it out: “The capital defect of America’s contrived economy is the capital itself. Namely, it’s fake.” That’s right. The US dollar isn’t money at all — it’s debt!

Credit: Sven Henrich sees the writing on the wall: “Game over. The grand central bank experiment has ended in complete failure. We’re witnessing a historic unraveling. Every projection they made over the last 10 years has been wrong. Why place confidence in people who are staring at the ruins of the policies they unleashed on the world and are about to unleash again?” Why, indeed. Don’t do as the central banks say. Do as they do.

Last Week’s Poll Result

Should the US return to the gold standard?

• Yes (58%)
• I’m not sure (23%)
• No (18%)

More than 1600 Len Penzo dot Com readers responded to last week’s question and it turns out that nearly 3 in 5 of them believe it is time to go back to the gold standard. On the other hand, nearly 1 in 5 say the current debt-based monetary system is doing just fine, thank you very much. Clearly, I have more work to do here in this weekly column.

The Question of the Week

[poll id=”271″]

By the Numbers

The summer movie season has officially started. With that in mind, how many of the top movies of 2004 have you seen (based on US domestic gross)?

10 The Polar Express ($162 million)

9 National Treasure ($173 million)

8 The Bourne Supremacy ($176 million)

7 The Day After Tomorrow ($187 million)

6 Harry Potter and the Prisoner of Azkaban ($250 million)

5 The Incredibles ($261 million)

4 Meet the Fockers ($279 million)

3 The Passion of the Christ ($370 million)

2 Spiderman 2 ($374 million)

1 Shrek 2 ($441 million)

Source: Box Office Mojo

Useless News: God’s Best Friend

On the first day of creation, God created the dog.

On the second day, God created man to serve the dog.

On the third day, God created all the animals of the earth to serve as potential food for the dog.

On the fourth day, God created honest toil so that man could labor for the good of the dog.

On the fifth day, God created the tennis ball so that the dog might or might not retrieve it.

On the sixth day, God created veterinary science to keep the dog healthy and the man broke.

On the seventh day, God tried to rest, but He had to walk the dog.

(h/t: Salamander)

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. New Mexico (2.46 pages/visit)
2. South Carolina (2.33)
3. South Dakota (2.20)
4. Indiana (2.12)
5. Louisiana (2.07)

46. Utah (1.11)
47. Hawaii (1.09)
48. Alaska (1.08)
49. Vermont (1.05)
50. Montana (1.00)

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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 Len Penzo dot Com article highlighting the benefits of maintaining your vehicle, Jenna left this note:

My brother is having a lot of trouble with his VW bus. It would be really nice if he could get a professional to help him.

Well, I’m not a mechanic, Jenna, but that’s alright … My boss throws me under the bus so frequently he must think I’m a mechanic too.

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