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.
Wow! Another week has come and gone — so without further ado, let’s get this show on the road.
Interest works night and day; in fair weather and in foul. It gnaws at a man’s substance with invisible teeth.
— Henry Ward Beecher
Debt is a prolific mother of folly and crime.
— Benjamin Disraeli
Chains of habit are too light to be felt until they are too heavy to be broken.
— Warren Buffett
Credits and Debits
Credit: Did you see this? In 2018 the median US household income was $63,179. Furthermore, after falling 0.5% last year, the official US poverty rate is now 11.8%; the rate has now fallen four consecutive years. As a result, poverty levels are significantly lower than they were in 2007, just prior to the Great Financial Crisis. Really? You’d never know it looking at all of the homeless people living in America’s largest cities.
Debit: Poverty may be on the decline, but the average millennial is in debt to the approximate tune of $27,900 — and that doesn’t include the mortgage. As for Gen Z, the oldest of which is just 22 years old, they carry an average debt load of $14,700. Then again, in today’s credit-based society — where delayed gratification and saving is only for suckers — that really shouldn’t be too shocking.
Debit: Here’s the reality: There’s simply a limit to how much debt each household can carry — even at historically low interest rates. This is why business owners remain on the defensive, reacting to demand increases due to population growth, rather stronger economic activity. This suggests that despite more debt, the economy is failing to sustain economic growth; in fact, growth is actually declining.
Debit: As Lance Roberts observes, “While debt can fill an immediate spending need, it doesn’t always lead to economic growth. It’s actually the opposite; debt detracts long-term growth as it diverts productive capital to debt service. Higher interest rates equals higher debt servicing requirements which in turns leads to lower economic growth.” Unfortunately, this is the debt trap we’re now hopelessly mired in.
Debit: Speaking of debt, and spurred on by desperate investors searching for yield, I see that the banks are packaging and selling mortgages by reviving the so-called private-label market for mortgage bonds, which imploded during the 2008 financial crisis. Yes, the banks got beat to a pulp the last time they tried this — and they’ll undoubtedly be pummeled this time too. That begs the question: Why do it again? Well … I’ll let this guy explain:
Debit: In other news, Zimbabwe is facing another hyperinflation scare as prices soar and its central bank sharply hikes rates to delay yet another currency collapse. In fact, Zimbabwe’s central bank raised its overnight borrowing rate last week from 50% to 70%. Yes, that’s one way to encourage people to save, thereby reducing money velocity. The trouble is, the inflation rate is many multiples higher than that.
Debit: Of course, along with Zimbabwe’s spiraling inflation comes the requisite chronic food and electricity shortages. Not surprisingly, the government has stopped releasing annual inflation data — as if that will fool anyone — but the estimated rate is currently nearing 570%. Meanwhile, the nation’s civil servants are demanding raises to regain their decimated savings and purchasing power. Heh. Good luck with that, folks.
Debit: Thankfully, the US dollar still enjoys the confidence of markets, governments, and central banks. For now. But that faith continues to weaken a little every year, as the amount of dollar-denominated global debt continues its inevitable — and mathematically guaranteed — climb to the sun at an ever-increasing rate. A rate that, at some point, will lead to a massive — and sudden — reduction in the dollar’s purchasing power.
Debit: The “good” news is, the central banks have a plan for dealing with all this debt. And, according to Tom Luongo, “What comes next is right in front of your nose: The end of cash, a crypto-version of the SDR, and a social credit system to ‘unperson’ anyone who steps out of line.” Huh. Who could ever object to a plan like that? I sure hope somebody is eventually knighted for such a brilliant proposal …
Credit: For his part, US Rep. Alex X. Mooney (R-West Virginia) is trying to get answers from the US Treasury, Fed, and the CFTC about covert interventions by the US government in the financial and commodity markets — but particularly the gold and silver markets. Not surprisingly, he is being stymied on almost every front — because the dollar’s continuing status as the premier global reserve currency depends on it.
Credit: Chris Powell says the government stonewalling strongly suggests the US is “deeply involved” in market manipulation. He also notes that if the mainstream media had the courage and integrity to address it, “then the market rigging and the imperialism the rigging represents might be defeated — and free and transparent markets restored, along with limited and accountable government.” Amen. Until then, the fraud will continue.
By the Numbers
With school now well underway in most — if not all — of the US, here are some numbers on the current academic year:
56,600,000 The number of students expected to attend public and private elementary and secondary schools this year; that’s 100,000 more than last year.
5,800,000 Students who are expected to attend private schools this year.
$13,440 The projected per student expenditure in public elementary and secondary schools in 2019-2020.
3,200,000 The number of public teachers working in fall 2019.
500,000 The number of private teachers working in fall 2019.
3,700,000 The number of students expected to graduate from public and private high schools in 2020.
19,900,000 The number of students expected to attend American colleges and universities this fall.
56.7 The projected percentage of female college students in fall 2019.
Source: HomeRoom
The Question of the Week
[poll id="286"]
Last Week’s Poll Result
Who handled the family’s personal finances when you were growing up?
- My mother (47%)
- My father (29%)
- Both parents (17%)
- I’m not sure (6%)
More than 1700 Len Penzo dot Com readers answered last week’s survey question and it turns out that, for almost half of them, mom was the household CEO. Curiously, 6% of those who responded wasn’t sure who handled their family finances when they were growing up. In my house, it was Mom who managed the money — at least most of the time.
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: Who’s the Dummy?
Little Johnny was always teased by the other neighborhood boys for being stupid. Their favorite joke was to offer Johnny his choice between a nickel and a dime — because Little Johnny always took the nickel.
One day, after Johnny took the nickel, a neighbor took him aside and said, “Johnny, those boys are making fun of you. Don’t you know that a dime is worth more than a nickel, even though the nickel’s bigger?”
Johnny grinned and said, “Well, if I took the dime, they’d stop doing it, and so far I’ve made $20!”
(h/t: RD Blakeslee)
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. Quebec (1.88)
3. Manitoba (1.76)
4. Alberta (1.61)
5. Ontario (1.53)
9. Prince Edward Island (1.10)
10. Saskatchewan (1.08)
11. Northwest Territories (0.00) !
12. Yukon Territory (0.00) !
13. Nunavut (0.00) !
Whether you happen to enjoy what you’re reading (like those crazy canucks in New Brunswick, eh … for the second month in a row!!) — or not (ahem, all you hosers living on the frozen tundra north of the 60th parallel) — please don’t forget to:
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And last, but not least …
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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 tip inflation, Jeff shared this:
In Japan there is NO tipping and the service is excellent — a point of pride, or service. It’s like the server is saying, ‘If I take no money from you, then you know my service was sincere.’ A tip is an insult.
You can bet there are servers in America who often consider some of their tips to be insulting too.
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
Good morning Len, and thanks again for another eye-opening edition of “Black Coffee”. Question: If the US dollar is on its last legs and negative inflation is a possibility, WHERE does one safely save for the future? Property is paid for, we DO invest in ‘wealth insurance’, but how do we simply save $ for our (and our disabled son’s) future? If you know (*or figure it out), please share! :o)
Hi Lauren … It’s not an easy answer and I am not a certified financial planner, so any opinions I give must be taken with the requisite amount of salt, as they are only opinions.
Part of the answer lies in your convictions. There are some very smart people who are 100% certain (as if anyone can actually be 100% certain) that the US dollar is going to see a signficant reduction in purchasing power and they believe in holding only enough cash in the bank to pay the monthly bills and maybe a little extra to cover a modest emergency and the annual vacation. The rest they keep in hard assets (including precious metals).
That being said, the good news about precious metals is this: At a minimum, putting as little as 10% of your investment portfolio into physical precious metals should be enough to keep you whole in a currency crisis.
Here’s how Jim Rickards explains it:
“For purposes of simplification, we’ll assume an overall portfolio contains 10% gold, 30% cash, and 60% equities. Obviously those percentages can vary and the equity portion can include private equity and other alternative investments.
“Here’s how the 10% allocation to gold works to preserve wealth:
“If gold declines 20% — unlikely in my view — the impact on your overall portfolio is a 2% decline (20% x 10%). That’s not highly damaging and will be made up as equity assets outperform.
“Conversely, if gold goes to $10,000 per ounce, that’s a 650% gain from current levels; highly likely in my view. That price spike gives you a 65% gain on your overall portfolio (650% x 10%).”
Note that the $10,000 per ounce figure for gold used by Rickards is a conservative estimate for the actual value of gold based on the amount of gold claimed to be in Fort Knox and the current money supply, assuming a very modest 20% backing. The dollar figure for gold would be even higher if the more reasonable figure of 40% backing was used — and higher still if the dollar was 100% backed by gold!
Physical gold and silver are known as wealth insurance because they always pay out in a currency crisis. So I guess that is a long way of saying if you already have 10% of your portfolio in “wealth insurance,” then you’re almost certainly covered — the only question is do you want to buy more insurance as a purely speculative move? The answer to that depends upon your convictions regarding the dollar. 😀
Thanks for making things a bit more clear, Len! :o)
Ever onward and upward with fiat money manipulations, this time to “fund” banks’ liquidity through treasury’s financing of banks’ overnight borrowing needs, to meet their reserve requirements. These reserve requirement “needs” are growing exponentially, as paper asset prices (e.g. stocks) inflate. The Fed’s inevitable loss of control is getting ever closer.
“… (Thursday) the Fed surprised market watchers who were expecting the Fed to continue conducting only overnight repos, but announcing that not only would it conduct overnight $75 Billion repos every day from Monday until Thursday, October 10, but it would also introduce 2 week term repos with a total size of “at least $30 billion” for the first time since the financial crisis,
“One … practical implication: since the market is now convinced it urgently needs the Fed to restart POMOs, expect another “near-death” event for the repo market some time in October/early November, which will be the catalyst forcing the John Williams Fed to move beyond mere repos and activate POMOs (Permanent Open Market Operations) as the liquidity-injecting operation of choice.”
“And with that, QE4 will have arrived.”
https://www.zerohedge.com/markets/liquidity-scramble-fed-announces-overnight-repos-every-day-next-week-introduces-term-repos
Yep, Dave. The daily repos the Fed announced this week that will occur between now and mid-October is essentially QE now. I belive it will officially get started in even higher amounts in November.
Remember, 10 years ago the Fed (Bernanke) promised QE was only a temporary and extraordinary policy. Smart economists like Peter Schiff called them liars back then — and they were right. Once they unleashed QE, they could never go back.
Those who can’t see the dollar charade is coming to an end, there’s nothing else to say to them other than “good luck.”
The nation has a serious debt problem. It’s just a shame that there’s no way to back up a government’s currency with some sort of physical asset.
Awwww, but there is!!!! Gold!!!!! However this will not enable the politicians and bankers to keep up their criminal Ponzi schemes. Things will have to Break before the People (sheep) finally wake up and end these criminals rule of the markets.
Yes, and I seem to sense a bit of sarcasm there, Cowpoke. (Because I know you know better!)
With national debt of more than $22 trillion and unfunded liabilities (SS, medicare, etc.) of another $100+ trillion, it is safe to say the debt is never going to be repaid. When enough people figur that out, it is game over.
Truer words were never spoken, Oscar.
Don’t be too hard on those living in the North. Most were probably out enjoying their fleeting summer before it disappeared for another year.
I know there aren’t a lot of people up there, Tom .. but not a single soul from north of the 60th parallel (in Canada, at least) checked out my blog last month!
Most of the folks up there don’t use money very much, Len. What happens to money elsewhere in the world doesn’t bother them. Their wealth comes directly from nature – from
the salmon runs, moose, bear, seal, whale and caribou meat and hides, firewood from the forests and driftwood. They get quite a lot of the little money they use from selling art objects made from ivory and other native materials to the tourist trade.
Their ivory supply is protected by the Canadian and U.S. Governments; It is illegal for a non-native to possess contemporary ivory that has not been certified as acquired from a native.
OK, the good ol’ U.S. of A. is buried under a huge mountain of debt. But the dollar will always be the cleanest dirty shirt available! Am I the only one here who remembers when the US credit rating was downgraded and interest rates STILL fell as investors fled to “safety” in our downgraded debt?
This time they will be burned, Sam. Sven Henrich noted that people were running into a burning building a few weeks ago when everybody was piling into negative-yielding bonds.
As the Chinese saying goes … “May you live in interesting times …” Get ready … Weimar 2.0 is coming …
It doesn’t have to be that way, Nick. We just need our leaders to admit the current system is finished, and then be proactive by setting up a new system on their terms before a collapse forces them to put something together under more chaotic circumstances.
I do not believe our Ruling Elite seees a generous payday in telling the truth. to us. But then they are imbued with an ethos that tells them to lie even if the truth would help.
Debt always needs to be paid. It always shocks me how people see government bonds as a “safe investment”.
Nothing objectively safe about lending money, whether it’s to a government, person, or a corporate.
That’s for sure, Leonardo!
Donation to the Penzonia video vault
https://m.youtube.com/watch?v=QxSbEK60nb4
WC Field running the fed? Could be.
Good one, Duke! Thanks for sharing it.