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 everybody is having a nice relaxing weekend. I know I am! Okay, away we go …
It’s all bullshit. Ninety percent of the American people have little or no net worth. I create nothing I own. We make the rules, Buddy; the news, war, peace, famine, upheaval, the cost of a paper clip. We pull the rabbit out of the hat while everybody else sits around their whole life wondering how we did it.
— Gordon Gecko, Wall St. (1987)
Credits and Debits
Debit: Bankruptcy petitions for US consumers and businesses are climbing sharply; they’re up 5% from the previous month alone. In case you’re wondering, Alabama had the highest rate per capita with 5.6 filings per 1000 people, followed by Tennessee (5.4), Georgia (4.3), Mississippi (4.2) and Nevada (3.8). Then again, I’m sure that’s just a statistical blip. After all …
The Economy is the BEST IT HAS EVER BEEN! Even much of the Fake News is giving me credit for that!
Donald J. Trump (@realDonaldTrump) July 2, 2019
Debit: Stop me if you’ve heard this before: US mortgage debt hit an all-time high this week, eclipsing the previous peak reached during the Great Financial Crisis of 2008. One reason for the surge in mortgage debt is an increase in homeowner refinancings being used to tap significant home equity that has accrued during the current housing market bubble. I guess people have short memories.
Debit: I’ll bet excessive mortgage debt is why Rabobank’s recession probability model now says there’s an 81% chance of a US recession next year. That figure is higher than the recession odds the model spit out prior to the bursting of the dot-com bubble in 2000, and during the 2007 housing bubble. Oh, yes … the model also suggests that the next US downturn will be worse than the Global Financial Crisis. Uh oh.
Credit: Speaking of mortgage debt, I see a large bank in Denmark is now offering a 10-year negative 0.5% interest rate mortgage. In essence, they’re effectively paying their customers to borrow cash. Best of all, no mortgage payment is due until the payoff date; so the borrower only has to repay principal, with a small discount. In other words: the bank loses money on the loan. Abracadabra! It’s magic!
Debit: Hey … Denmark isn’t the only place with insane bankers; Chase Bank is forgiving all outstanding credit card debt from its Canadian customers. No, really. One 24 year-old deadbeat university student who hadn’t made a credit card payment in five years told YahooFinance that, “It’s kind of like I’m being rewarded for my irresponsibility.” Good God! Kind of? Kind of? No … it’s precisely like that!
Debit: In other news, Argentina’s stock market plunged 48% on Monday, after a socialist politician received a strong showing in the country’s presidential primary election the day before. Not surprisingly, that’s the second-biggest single-day stock exchange decline ever; surpassed only by a 60% tumble in the Sri Lankan bourse in 1989. Ouch. Of course, I don’t worry about devastating market losses because all of my investments are professionally managed:
Debit: As if Argentina didn’t have enough troubles, its currency fell 30% this week too — and Morgan Stanley expects the peso to fall another 20%. Can you imagine the US dollar losing half its purchasing power in short order? That had Franklin Sanders observing that, “The US, with its central bank, fiat currency, and debt, is no different than Argentina.” True … but that won’t become apparent until the buck loses its reserve currency status.
Credit: On a related note, this week another $1 trillion of negative-yielding global debt was issued worldwide — making it a cool $2 trillion in less than two weeks. That prompted financial analyst Luke Gromen to ask this intriguing question:
Have you ever seen people running into a burning building for safety?
You have now. pic.twitter.com/3W13b6u7O6
Luke Gromen (@LukeGromen) August 15, 2019
Credit: Bill Holter certainly sees the financial lunacy before him: “If $16 trillion in negative yielding bonds isn’t insane enough, hundreds of billions in (corporate) junk debt are also trading with negative yields. Think this through; if you’re offered a negative rate bond from a (dubious) issuer, and your other option is gold or silver, which do you choose?” Pro Tip: It’s probably best if you don’t ask a college student:
Debit: Oops. This just in …
SWEDEN’S 20-YEAR BOND YIELD FALLS BELOW 0% FOR FIRST TIME, ENTIRE SWEDISH YIELD CURVE NOW NEGATIVE
There was a record $16.7 trillion in negative debt. Make it $17+ trillion pic.twitter.com/CkM12EKNHs
zerohedge (@zerohedge) August 16, 2019
Credit: Sven Henrich is still marveling at the central banks’ recent spate of interest rate cuts: “Cuts this late in the cycle aren’t a sign of effective stimulus — they’re a sign of fear. The fact that the ECB, ten years after the financial crisis, can’t even raise rates to zero without risking a system collapse is beyond embarrassing and reflects how weak the financial system actually is. They’re barely keeping it together.” I’ll say!
Credit: By the way, with all the financial turmoil going on, Mr. Henrich had a question of his own this week:
Unemployment looks to be the last shoe to drop.
Once that changes direction everything else will fall apart.
The bond market is screaming.
Is anybody listening? pic.twitter.com/q8ojOc55oRSven Henrich (@NorthmanTrader) August 10, 2019
Debit: Meanwhile, the combined debt of the US, China, Japan and Germany increased ten times faster than their economies grew last year — and yet this excludes off-balance sheet entitlement programs such as Social Security. Unfortunately, our debt-based international monetary system will implode unless the debt increases exponentially — so the amount of red ink is only going to grow faster with each passing day.
Credit: As financial analyst David Robertson notes, “Much of what’s happened with monetary and fiscal policy the last 50 years has ultimately been an effort to cope with unaffordable entitlements. The rapid increase in debt are desperate attempts to forestall the inevitable reckoning.” A reckoning that the crazy negative-yielding bond markets seem to be suggesting may not be too far away.
By the Numbers
On August 14th, Social Security celebrated its 84th birthday. Here’s some additional data on the program:
1937 Year that the first Social Security taxes were collected.
4 Number of years that Social Security gave out one-time lump-sum payments to some beneficiaries. (1937 – 1940)
$58.06 The average Social Security lump sum payment made between 1937 and 1940.
$22.54 Amount of the first monthly payment ever made; it belonged to Ida May Fuller who retired in 1939 and lived to be 100.
25% Reduction in monthly benefits for those who begin collecting Social Security at age 62.
32% Additional monthly benefit increase for those who wait to collect until age 70.
$1461 The average monthly Social Security benefit in 2019 for all retired workers.
$2861 The maximum monthly Social Security benefit in 2019.
Source: FoxBusiness
The Question of the Week
[poll id="281"]
Last Week’s Poll Result
How much is your average monthly electricity bill during the summer?
- $100 – $199 (39%)
- Less than $100 (31%)
- $200 – $299 (22%)
- $300 or more (8%)
More than 1600 Len Penzo dot Com readers answered last week’s survey question and it turns out that 70% of them spend less than $200 a month for electricity during the summertime. On the other hand, 8% typically see bills of $300 or more. For them, it may be time for them to consider buying or leasing solar panels.
If you have a question you’d like to see featured here, please send it to me at Len@LenPenzo.com and be sure to put “Question of the Week” in the subject line.
Useless News: Fine Dining
The customer in the Italian restaurant was so pleased with his meal that he asked to speak to the chef. So the owner proudly led the happy diner into the kitchen and introduced him to the chef.
“Your veal parmigiana was superb,” the customer said. “I just spent a month in Italy, and yours is better than any I ever had over there.”
“Naturally,” the chef said. “Over there, they use domestic cheese. Ours is imported.”
(h/t: Cowpoke)
Other Useless News
Here are the top — and bottom — five Canadian provinces and territories in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:
1. New Brunswick (2.50 pages/visit) !
2. Newfoundland & Labrador (2.00)
3. Quebec (1.77)
4. Alberta (1.64)
5. Saskatchewan (1.59)
9. British Columbia (1.41)
10. Manitoba (1.35)
11. Northwest Territories (1.33)
12. Nova Scotia (1.10)
13. Prince Edward Island (1.08)
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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 me at: Len@LenPenzo.com
After reading my article discussing the ethics of found money, Cpc left the following comment on Wednesday:
The cops tell me my husband found $170,000. He says it wasn’t that much, but that after he realized what it was he was terrified that it was drug money and that the cartel would be looking for him.
Well … if the cartel isn’t looking for him, you can bet the IRS will be.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: (coffee) brendan-c
Hi Len,
To answer your question this week, I don’t think SS will be around in 2025, let alone 2035. If it is, the benefits won’t be worth very much. That’s why I save for retirement with silver.
Have a nice weekend!
Sara
Hasn’t the past decade taught you anything? Nothing will ever run out. To infinity and beyond!
“The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default” – Alan Greenspan
What is not mentioned there is that the purchasing power of the dollar (Greenspan knows it’s not “money,” it’s currency) in that scenario will be close to zero.
When the dollar finally goes down for good, the lifestyle of Americans will plummet. The thing is, every time it looks to be on the ropes, it comes back to life because the world flocks to it as safe haven.
Thats changing because the world is getting tired of being bullied! Thats why the BRICS have been hoarding Gold the past decade plus. Actually I think China actually started in the 70s and 80s after the Gold standard ended. They are very intelligent people and saw the writing on the wall. Oh, and dont believe their measly Gold tonnage reported because they definitely have upwards of 30,000 ton.
You’re right, John. It is an astute observation.
That is why I believe that the dollar’s value in relation to other currencies will, paradoxically, actual soar right before the entire system implodes.
Get ready everybody. The writing is on the wall. A massive debt default is coming to places like Chicago, N.Y.C. and other big cities near you. After that, helicopter money (a.k.a. universal basic income), then comes a complete reset that erases all the debt away – along with your bank savings, 401k, govt and union pensions, and Social Security. All this in 3 years or less.
“… coming to big cities near you.”
There aren’t any. That’s why I’m here.
I can see that possible scenario playing out too, DK. But only time will tell.
Negative yields, you pay me to take a loan? Let’s see. I borrow $100k and a little bit later I can pay off the loan with just $95k?
Sign me up!!!!!
Crazy, isn’t it?
No, what will happen is rates will go to zero or negative but the banks will still charge a percentage.
I wish I could find $170,000!
Me too! I’m hoping Cpc comes back and gives us an update, but I won’t hold my breath.
Anybody else remember the days when people who were lucky enough to save $500,000 could earn 6% and live off the $30,000 in interest it threw off every year (and this was back when $30,000 paid for a comfortable middle class lifestyle)?
That is how capitalism is supposed to work, Sam. Save “capital” which can then be put in a bank in exchange for interest, or invested for hoped-for future returns. What we have now is not capitalism at all — it is all a sham.
I remember as a teenager back in 1980 and 1981 — yeah, I’m old — collecting double digit interest on my savings. It was the greatest thing! Can you imagine collecting 12% or more today on that $500,000? That would give you $60,000 per year!
Could it be that more than a century of inflating the money supply has finally caught up with the bankers?
I think it could, Cowpoke. It hasn’t caught up yet, but I think it is getting close. After all, the math guaranteed that a day of reckoning was inevitable.
Blow up the Fed and the IRS and back the dollar by gold and silver. Wham-o. Problems solved overnight
Inflation is theft of human labor. If the Fed hadn’t stolen so much of our wealth, we’d all be much wealthier. Instead we have an ignorant populace who are content to be debt slaves and easily distracted by bread and circuses. It’s tough love but we need the house of cards to collapse ASAP because the longer this goes on, the harder the fall before we can reset. Nixon detaching the dollar from gold was the beginning of our demise as a wealthy nation.
I agree, William. But first there will be a lot of pain to endure after that happens as the US will be forced into a sort of financial cold turkey as it adjusts to no longer owning the world’s premier reserve currency. However, the move will also push the US rebuild its manufacturing base — and once that is accomplished, there is no reason to believe the nation won’t return to its former glory as an economic powerhouse, along with all of the accouterments that come with it.
Trouble is, no pol will deliberately act to bring this about. It would end the pol’s career.
Witness our president’s frantic push in the opposite direction, sustain the fraud and look to reelection in 2020.
His sheer deconstructive ways may contribute to bringing it about, anyway.
I believe most of his political strength lies in sound people’s hope that will happen.
Yep. I am extremely disappointed in the President’s flip flops regarding QE and low interest rates, Dave.
i understand that once you earn a certain amount – say $130,000 threshold, they no longer take social security from your paycheck.
Anything you earn above that threshold is yours – no contributions to social security.
So wealthy people contribute less to social security than everyone else.
Is this true?
What is the $$ threshold?
Yes, it’s true. The limit this year is $132,900. It usually increases in lock step with the CPI every year.
I’ve never been to Argentina but I feel bad for them with all their never ending financial troubles. I think Argentina took #2 spot having the largest sovereign debt default after Greece. This was back in 2001 I believe.
I think the Argentine voters have only themselves to blame, almost continually voting for politicians like the Kirchners and Perons who sold them on the “free lunch” fairy tale.
By the way, a large chunk of US voters are no different. So far we have escaped trouble only because the dollar is the world’s reserve currency. Once that ends, we will quickly suffer the same fate.
The scary part that will hit most uninformed Americans will be when they go to the bank to pull their money out and the teller kindly explains to come back another day when they have more money in stock.
Yeah … or (only slightly better) when they go to the ATM machine and they find out the bank imposed a daily withdrawal limit of $40 a day — assuming they want to stand in line for three hours.