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 wonderful weekend. I know I’m enjoying mine! So let’s dig right in, shall we?
The problem with fiat money is that it rewards the minority who can handle money, but fools the generation that has worked and saved money.
— Adam Smith
When you see that trading is not done by consent, but by compulsion; when you see that in order to produce you need to obtain permission from men who produce nothing; when you see money flowing into those who deal not in goods, but in favors; when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them but protects them against you; when you see corruption being rewarded and honesty becoming a self-sacrifice — then you know your society is doomed.
— from Francisco’s money speech; Ayn Rand’s Atlas Shrugged
Credits and Debits
Credit: This week Charles Hugh Smith lamented that America has been “hollowed-out; an economy of ever-greater financial wealth piling up in the hands of the few, while tens of millions of wage-earners can’t afford what was available to everyone in previous eras: to buy a modest family home and afford to have children.” And before you roll your eyes and tell Chuck to have another egg nog — you should know he’s absolutely correct.
Credit: You know, once upon a time, the income gains for America’s middle-class were so significant that the wealth gap was actually narrowing. That’s because, for all but the final few years between 1930 and 1970, the bottom 90% of wage earners saw their incomes steadily increase and outpace inflation, while those for the top 1% gradually fell. It’s okay … I’ll wait while you go back and read that again.
Debit: Meanwhile, Minneapolis Fed governor Neel Kashkari suggested this week that “monetary policy can play the redistributing role once thought to be the preserve of elected officials.” Apparently, he’s unaware that the Fed’s monetary policies have been redistributing wealth from savers to borrowers for decades now. No thanks, Neel. You and your colleagues have done enough damage already.
Debit: By the way, ever since the current wealth redistribution era from the middle class to the top 1% started 50 years ago, there has been an unprecedented increase in income growth for the wealthiest households, while inflation-adjusted income of the “Bottom 90%” has remained unchanged, at best — but you already knew that. As for what precipitated the decline of America’s middle class, well … it was this:
Debit: The following graph shows just how quickly the tables turned after the dollar’s anchor to gold was, to quote President Richard Nixon, “temporarily” broken. Doing so unleashed the massive financialization of the US economy that ultimately turned the previous income-growth paradigm on its head — killing the notion that, generally speaking, future generations should be financially better off than those who came before them:
(click to enlarge)
Credit: With that in mind, Deutschbank lists “wealth inequality” as its top risk for 2020. Why? As Zero Hedge points out, it’s “because there are two points in history when wealth was as unequally distributed; the last was just before the Great Depression. And the time before that? Right before the French revolution, when most of France’s ‘Top 1%’ lost their heads.” Hmm. I wonder if these people are aware of that:
Credit: As Bill Holter points out, before financialization hijacked the American economy, “people saved part of their earnings each year which in turn served as the ‘seed corn, water and fertilizer’ that the banks lent out for new projects and industries. However, this is no longer the case, as credit and cash are now created out of thin air and forced into the system just to hold it up and push prices higher.” In other words, the banks now make their own fertilizer.
Credit: Unfortunately, last week Saxo Bank’s Christopher Dembik admitted that central banks can never again allow stocks to drop: “We — and I mean mostly policymakers — can’t afford the stock market to fall, as it would lead to a contagion effect to the real economy. So much liquidity has been injected in the stock market, it’s now almost impossible to withdraw it.” Almost impossible? Mr. Dembik … it is impossible.
Debit: And that, in a nutshell, is why last month the Fed launched its latest money printing campaign — mockingly known as “not QE” — despite the S&P being at all-time highs. Simply put, now that the stock market is the economy, the Fed no longer has the stomach to risk any significant drop in equities ever again. Period. Hey … speaking of signifcant drops:
Debit: Thanks to more than a decade of central bank interference in the form of QE, the only things that matter to the stock market now are the Fed and the computer algorithms that backstop US indices. As such, the vast majority of US stocks today aren’t an accurate reflection of their respective company’s true value; they’re only a price. Revenue doesn’t matter. Profits don’t matter. Debt doesn’t matter. And, frankly, what they’re selling really doesn’t matter either.
Debit: Of course, QE is just one of many reasons why the world is slowly moving away from the dollar. How slow, you ask? Well …at the current pace it will take at least a decade — if not more — for local currencies to overtake the buck naturally. On the other hand, a dollar crisis — which is looking increasingly probable in the not-so-distant future — will definitely speed the process up.
Credit: For his part, macroeconomist Alasdair Macleod believes that the dollar doesn’t have a lot of time left. “The world of fiat currencies is facing its last hurrah,” he says. “Indeed, some of the more prescient central bankers appear concerned the system is running out of road, with the dollar as the world’s reserve currency no longer fit for this purpose.” One thing is certain: when the monetary reset comes, it will come with no warning. So you best be ready.
The Question of the Week
[poll id="296"]
Last Week’s Poll Results
What do you do with pennies you get as change?
- Save them (70%)
- Spend them (24%)
- Donate them (5%)
- Trash them (1%)
More than 1900 people responded to this week’s poll and it turns out that fewer than 1 in 4 of them put their pennies back into circulation after receiving them. Seven in ten save them. You can put me among the 1 in 20 who always put them in the register penny dish. Somewhat curiously, 1 in 100 say they literally toss any pennies they receive in the trash. It’s almost understandable, and a sad testament to the sharply declining value of the once Almighty Dollar.
By the Numbers
It’s hard to believe 1999 was 20 years ago, but it was! With that in mind, how many of the top 10 grossing movies of 1999 have you seen?
10 The Spy Who Shagged Me (worldwide gross: $312M)
9 American Beauty ($356M)
8 The World is Not Enough ($362M)
7 Notting Hill ($364M)
6 The Mummy ($416M)
5 Tarzan ($448M)
4 The Matrix ($463M)
3 Toy Story 2 ($485M)
2 The Sixth Sense ($673M)
1 Star Wars I: The Phantom Menace ($984M)
Source: Box Office Mojo
Useless News: The Quicky Divorce
Two newlyweds quickly realized their marriage wasn’t working and so they filed for a divorce.
On the day of the hearing, the judge asked the husband what the problem was. The man replied, “In the five short weeks that we’ve been together, we haven’t been able to agree on a single thing. Not one!”
The judge nodded his head somberly. He then turned to the man’s wife. “Okay, ma’am,” the judge said. “Now it’s your turn. Do you have anything else you’d like to add?”
“I certainly do, your honor,” she answered. “It’s been six weeks, not five.”
(h/t: Sharon)
While You’re Here … Please Don’t Forget to:
1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!
2. Make sure you follow me on Twitter!
And last, but not least …
3. Subscribe via email too!
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
The holiday season is here, so I guess I shouldn’t be surprised I got this note from Patrick regarding my article highlighting great gift ideas for people who have everything:
That article was very poorly written. Please find something else to do with your time.
I’m trying, Patrick. I’m trying … You just better hope I pass my coming American Idol audition.
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
I always wondered Len, do you drink your coffee black and what kind of mug do you use? I’ve been reading for years but I’m finally beginning to understand the gold standard thing. Only took AP economics back in the mid 90s!
Hi, Dr. P. I take my coffee with a little cream, no sugar. I use an old mug from The Apple Farm restaurant and hotel in San Luis Obispo, where I lived for five years way back in the 1980s when I was attending college there.
I’m glad you are beginning to get a handle on macroeconomics and gold’s role — or lack of it — in our current monetary system. I hope some of that learning was acquired here!
Len,
I hope you had a wonderful Thanksgiving! I for one am thankful for your weekend wrap ups. They’re perfect first thing on Saturday mornings with a nice cup of coffee! (But cream and sugar. Not black.)
Sara
Thank you, Sara. I am thankful that you always take the time to leave a comment every week!
“The world of fiat currencies is facing its last hurrah,” (Alasdair MacLeod) says. “Indeed, some of the more prescient central bankers appear concerned the system is running out of road, with the dollar as the worlds reserve currency no longer fit for this purpose.”
A prior “Black Coffee” article discussed the Dutch National bank’s moving toward gold reserves.
The Germans have joined the cub: https://www.voimagold.com/insight/german-central-bank-gold-is-the-bedrock-of-stability-for-the-international-monetary-system
Yep … if the central banks are making sure they have their wealth insurance in their own hands, shouldn’t we be doing the same thing?
That quote from Ayn Rand is more appropriate today than ever before.
Yes it is, Cowpoke. It’s all because our current “money” is corrupt.
Although I do have one quibble with the Rand quote above — which comes from the long, but brilliant, siloloquy on money by the Francisco D’Anconia character in Atlas Shrugged. (I’ve quoted other small snippets from that siloloquy here in the past.)
As I’ve said before, I am confident we are not doomed. What we are experiencing is typical for the end of any fiat money lifecycle. Paying the piper will be difficult, but once we do, the nation will once again have a bright future.
Those JG Wentworth ads always create questions in my mind. Are there THAT many people sitting around with annuities and structured settlements that are strapped for cash? Many of these people seem to be very young and not particularly motivated to do much. How does one get into this position? Asking for a friend.
LOL!
The only places where wages are climbing is big metro areas where the cost of living is high. Places like NYC, LA, SF, DC, Houston, Seattle, Philly, etc. where they have to seduce workers by offering higher salaries just to take a job there. After awhile many of them decide to move to the burbs to get away from the rancid cities and are stuck with a long commute.
I will say, commuting sucks. Looking back I can’t believe how much time in my life has been wasted behind the wheel of a car driving to and from work.
Cheap credit is keeping everyone afloat. It used to be hard to get a loan but now anybody who can write an X on the dotted line can get one. This easy credit will disappear when the system implodes, and then we’ll all see who is living beyond their means. We’ll soon be returning to a time when getting a loan depended on how financially responsible you are, or if your business model is actually workable.
Cheap credit is a double edged sword; people and companies who have become reliant on it, will find out that out the hard way after the easy-credit spigot is turned off.
I’ve noticed our standard of living has been declining for a long time. I think the difference now is the frogs in the pot are starting to notice how hot the water is getting.
I think you’re right, Nick. Not all of them, but the number is growing with each passing day.
The real question is WHY did Nixon decouple the US from the gold standard. In my view, this goes back to LBJ and his “Guns and Butter” political strategy where he wanted to assuage his ego with a victory won on HIS abilities. And create the welfare state to pry the Black voters from their traditional Republican voting habits.
I’ll have those n*gg*rs voting Democratic for the next 200 years. [Touting his underlying intentions for the “Great Society” programs, LBJ confided with two like-minded governors on Air Force One]
― Lyndon B. Johnson ― (D)- 36th President of the United States
Nixon saw that taking away the freebies or ending the war dishonorably was tantamount to losing elections. Nixon would not have done so without that impetus.
Pete, excellent comment. I completely agree that Nixon made a choice that he felt had to be made; the deficts from LBJ’s Guns & Butter program severed any remaining trust America’s allies had in the sanctity of the US dollar. That, in turn, led to a condition where the US Treasury began hemmoraging gold to the rest of the world at a pace that would have drained the last gold bars from Fort Knox in short order.
So he does get unfairly blamed as the guy who closed the gold window — but that’s the way it goes. Everybody knows Nixon did it; few understand why he felt he had to make the decision in the first place.
Nixon campaigned on getting us out of the war in Vietnam.
If you were to guess, what do you think would be the next world reserve currency when the dollar fails?
Melissa, unless it is gold, I do not think the next world reserve currency has been created yet!