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.
And the financial crisis rages on, so let’s get right to this week’s commentary …
Modern Monetary Theory (MMT) is to economics what astrology is to astronomy, alchemy is to chemistry, and quackery is to medicine.
— Markus Krall
We abandoned free market principles to save the free market system.
— George W. Bush (16 Dec. 2008)
Credits and Debits
Debit: Did you see this? Chicago Mayor Lori Lightfoot issued an executive order this week allowing illegal immigrants in the city, regardless of birth country or current citizenship status, access to municipal relief funds amid the coronavirus pandemic. Unbelievable.
Debit: Meanwhile, thanks to all of the sage politicians and government healthcare bureaucrats whose edicts have crippled the economy in response to the coronavirus, 17 million Americans have lost their jobs — in the past three weeks alone. I know; but it was sooooo worth it. As of Thursday, only 1132 jobs have been lost for every COVID-19 death. (Psst. I hope the dripping sarcasm was obvious.)
Debit: What’s truly frightening is the true economic damage we’ll all be facing — regardless of whether or not we lose our jobs — is just getting started. For example, just 69% of US tenants paid any rent during the first week in April; compare that to last year when 81% covered their rent for the same week in March and 82% in April 2019. You’re fooling yourself if you think the effects of those missed payments won’t eventually affect the broader economy; that pain hasn’t even started yet.
Debit: And it’s not just renters — as of April 1st, the total number of US mortgages in forbearance grew to 2.66%. To put that in perspective, last month the rate was just 0.25% — that’s a 1064% increase. No, no … I didn’t forget a decimal point. By the way, this is only going to get worse too — which is why bankers and mortgage lenders all across the country are shaking in their fancy Italian shoes. As they should. And so should you — even if you don’t own a pair.
Have you noticed?
The skies no longer have jet trails. pic.twitter.com/xTN1gRiPBmSven Henrich (@NorthmanTrader) April 10, 2020
Debit: In light of all this, it shouldn’t surprise anyone that this week the Fed announced a hard-to-understand plan to buy $625 billion worth of bonds per week into the foreseeable future (read: permanently). Hey! Here’s a fun fact: At that rate, the Fed will own two-thirds of the Treasury market in a year. Yeah, just 67% of the deepest and most liquid bond market in the world. So … who else still believes the United States is a bastion of free and fair markets?
Debit: Of course, our dollar-based fiat monetary system requires ever-expanding debt to avoid imploding. Unfortunately, corporate- , student- , mortgage- and household-debt are all at their effective limits — especially since the Fed has reached its limit in affecting the economy via interest rate manipulation. This means all that’s left is expansion of government debt — a limit the Fed will never have to worry about because it can do this:
Debit: With that in mind, its not surprising that foreign holders of US Treasuries dumped more than $100 billion of the American bonds in the three weeks leading up to March 25th — that is on course for the biggest monthly exodus on record. Imagine that.
Credit: As Alexander Deluce notes, “The continuous fire sale of US Treasuries is the Fed’s worst nightmare because, if it gets out of control, interest rates would skyrocket and the dollar would completely collapse on foreign exchange markets.” Well … the Fed may want to start getting used to scary stories, because a fire sale is not a matter of “if” … rather, it’s “when.”
Debit: On Thursday, the Fed announced “there is no limit to what they can do” — so they’re buying any and all junk bonds, dubious corporate and municipal debt, and any other financial garbage that nobody wants. In fact, they’re buying everything now except stocks — but even that day is coming soon. That’s not capitalism; it’s socialism for Wall Street. Unfortunately, the mainstream financial media defends it anyway. Here’s Exhibit A:
The U.S. shouldnt bail out billionaires and hedge funds during the coronavirus pandemic, Social Capital CEO Chamath Palihapitiya says. Who cares? Let them get wiped out. https://t.co/dIbizumtqG pic.twitter.com/u8BSVvr0B1
CNBC (@CNBC) April 9, 2020
Credit: The Fed’s latest moves make it easy to see why asset manager Robert L. Rodriguez is warning that, “The perversion and conversion to a dystopian economic system is complete. With the Fed’s unlimited QE, multi-trillion stimulus package, and willingness to buy or support almost anything, this is the end of the capital markets as we’ve known them. We’ve entered MMT, where there’s no escape.” Uh oh.
Credit: For his part, macroeconomist Alasdair Macleod soberly notes that the masses are “about to learn what less sophisticated people never unlearned: There’s a difference between a world that’s accustomed to ever-increasing public debt to provide for their welfare, and one where the state provides little or no welfare and people must save to provide for their own and their families future.”
Debit: The bottom line is that the Fed’s printing press is stuck in overdrive for a very simple reason: The global debt-based fiat-dollar monetary system has reached the end of its useful life, as evidenced by the outright manipulation and corruption now required to keep the system going. So although the “Almighty Dollar” is running on empty, that won’t stop the Fed from running on, well … MMT for as long as they can:
Credit: The sooner we pull the plug on the current system and replace it with an honest monetary system based on gold, the sooner we can return to a time when the US was flush with high-paying manufacturing jobs, and Americans could support a family on a single income — even without a college degree. Yes, the transition will be painful — but if we don’t, the economic decline will continue until we have no choice anyway. So why prolong the agony?
Last Week’s Poll Result
What will you do with your stimulus check?
- Save it. (56%)
- Pay down debt. (21%)
- Spend it. (13%)
- I’m not getting a check. (10%)
More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that, among those who are getting a check, almost 9 in 10 say they’re either going to save it, or use it to pay down debt. Ironically, that’s bad news for the Fed — who is hoping those checks will be spent to stimulate economic activity and/or keep asset prices artificially elevated. In fact, if the Fed had its way, they would prefer nobody use their checks to pay down debt, as doing so actually destroys dollars — something the Fed is desperately trying to stave off at the moment. Of course, that’s because monetary deflation is like kryptonite to our fraudulent debt-based monetary system.
By the way, this week’s question was suggested by reader Frank. 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.
The Question of the Week
[poll id=”316″]
By the Numbers
Thanks to the coronavirus panic, toilet paper producers are on a, er … roll. In fact, US toilet paper sales jumped 60% last month, compared to March 2019. Here’s how America’s rise in March TP sales compares to the year-over-year increases of other select countries:
0% China
14% Japan
35% Germany
51% India
80% UK
82% Spain
98% Australia
140% Italy
Source: Statista
Useless News: The Easter Dress
For the Sunday morning children’s sermon all of the kids were invited to come forward.
One little girl was wearing a particularly pretty dress and, as she sat down, the pastor leaned over and said, “That’s a very pretty dress. Is it your Easter dress?”
The little girl replied, directly into the pastor’s clip-on microphone, “Yes, and my mom says it’s a bitch to iron.”
(h/t: RD Blakeslee)
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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. Minnesota (1.85 pages/visit)
2. New Mexico (1.81)
3. Arkansas (1.75)
4. Oklahoma (1.68)
5. Maine (1.66)
46. Rhode Island (1.20)
47. Iowa (1.19)
48. Montana (1.16)
49. Alaska (1.13)
50. Illinois (1.07)
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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 this week’s article explaining how people with bad credit can get an ATV loan, Frank, had this question:
“If you have shit credit, then do you really need to be spending your money on a toy?”
Note to self: If I ever have bad credit, but still want a loan to buy an ATV, stay away from the Bank of Frank.
If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message.
Photo Credit: public domain
Len,
I’d seen the 69% figure on April 1st rent coverage (though wondering HOW the heck they came up with it, nobody has ever asked me about my one rental property), but I had not seen that LAST April was 82%.
Taking the figures at face value, that means even LAST April nearly 1/5 of tenants were in trouble…..way before “the virus”. While the virus is certainly going to exacerbate the financial problem for many, it’s clear to me we had problems before.
Given 17 million have now applied for unemployment, and there are a HUGE unknown number of self employed/gig/1099 type workers who can’t even apply under current State rules (despite what the Feds say) and thus are not reflected in any figures, my guess is the May figures are going to be a lot worse.
On a personal level, I was expecting to have to have a conversation with my tenant, who is a self employed concrete guy (runs his own crew) for commercial work, but the check showed up April 2nd. I’m still thinking next month could be problematic, but I’m certainly willing to work with the guy given he has been an excellent paying tenant AND maintains the place well. I’d be willing to forgo a couple months to keep him in the place, because I suspect replacing him would be near impossible at this point.
I imagine landlords all over are going to have to face this same issue in the coming months.
Andy, I expect self-reliant, productive folks like you and your tenant will find a way to do OK.
Same with my son and his tenants, who are studying at a local medical college to become physicians.
RD,
I actually only bought the place (2ac + Mobile home) for another guy who was helping me part time on our place. He had a full time job in construction work, but a sorry living situation. So I offered him this deal: I’ll buy this place, rent it to you for 300/mo AND two days/mo help…..cut firewood, mow, hay, whatever needed doing at the time here. Worked great for about a year, then the rent started getting late, and the help less frequent…..turned out Meth was a bigger deal in his life than much else, so I had to send him on down the road……last I heard, he/wife were living in their car at Walmart parking lot. Shame…..guy worked great WHEN he worked.
So I put the place back up for sale, but the only nibble I got was a guy willing to rent-to-own, which is OK….he put enough down + what he has paid in monthly so he has a pretty vested interest in keeping the contract going.
Andy, my best friend is a self-employed civil engineer and so far he has seen no cancellations of projects he is working on — so that is a good sign. But I still believe that is because there is going to be an obvious lag between the event (i.e., the self-imposed economic shutdown) and the eventual impacts.
I liken it to the delay between when an aircraft breaks the sound barrier and the delay it takes for the effects of the sonic boom to reach the observer — and I expect THIS “sonic boom” to break a lot of windows.
Hi Len,
You know I look forward to my weekly cup of joe every week, and this was another good one! I do worry about how bad things will get when the buck is no longer the reserve currency but you’re right. It’s best to get this over with. Just like it’s best to amputate a limb when it has gangrene.
Sara
Thanks, Sara. When this transition finally does occur — whether voluntarily or because the markets finally force the issue — there will be a lot of complaining at first because so many people have gotten used to a life where saving is not required to acquire the things they want in life. But the pain will be worth it in the end — especially for the millennials, Gen Z and follow-on generations.
What about Gen X?
They’re kind of in that no man’s land, Oscar. (Aside: I watched 1917 this week … great movie!)
Older Gen Xers like me won’t have as much time to benefit as the younger ones.
I’m a Gen Xer myself, so thankful Peter Schiff opened my eyes in 2015 and I’ve been stacking ever since!
You are right. The true effects of all these businesses being closed down hasn’t been felt yet. I think a lot of small businesses that have been “temporarily” closed against their will are not going to open again. I also think an even bigger lot will open again but will shut down for good after a few months because much of their customer base won’t return.
As usual, most people are clueless. They think a massive economy can be magically turned on and off like a light switch.
Right now, I get the impression this forced shutdown seems like an extended vacation for most people. It’s not; it has badly damaged our economy. That will only be seen in the coming months as the effects of people being out of work and not paying their bills ripple through the economy and then cascade to others — including those who remain employed.
The other major factor that will eventually affect all of us is the Fed’s monetary response — I’m still trying to figure most of it out, but at first glance I do not see how they will be able to sterilize all the printing this time around. Significant price inflation — if not hyperinflation — seems like a very high probability at some point.
Will the U.S. Dollar Collapse?
There are some conceivable scenarios that might cause a sudden crisis for the dollar. The most realistic is the dual-threat of high inflation and high debt, a scenario in which rising consumer prices force the Fed to sharply raise interest rates. Much of the national debt is made up of relatively short-term instruments, so a spike in rates would act like an adjustable-rate mortgage after the teaser period ends. If the U.S. government struggled to afford its interest payments, foreign creditors could dump the dollar and trigger a collapse. ( from investopedia)
Think there is to much lead in my coffee!
Let’s fight inflation with low prices and keep GDP 2-3%. 1.5% for 18 mont CD
Wish they would pay us in bonds
1200.00 about the average price of a gold coin. Are these teaser points?
Hey what about the car insurance bonus?
Paid off morgage buys one gold coin each month. But they don’t cook well on my grill but they leave a hell of a sweet taste in my mouth.
Pkg of garden seed is 5 dollars. I get 4.40 cents worth of radishes back! Organic? Oh the pkg they come in costs $2,50. So there you have it there is always a printing fee, Fed Playbook.
I taped a gold coin to my face mask. One person got the joke. See you are putting your money where your mouth is,
Thought about going to the Fed laying 6 feet of gold coins on the ground. Take a selfie says I am soicially financing myself from the FED. (Candy gold coins) Heard there were alot of crooks in DC. so needed to be prudent!
Happy Easter
Happy Easter, Duke. Loved your observations! Some real clever ones there …
However, regarding your comment in favor of “fighting inflation with low prices”: I hope you are not advocating for price controls. All price controls do is speed up the shortages and increase the empty shelves. Anybody else here old enough to remember those gasoline lines in the ’70s?
Yep!
But as in much of my life, I enjoyed coping with it.
We lived in the countryside near Warrenton, VA back then and I commuted to DC to work.
When the gasoline tanker truck showed up at the local gas station, I got in line for gas like everybody else, except I was in my pickup truck towing a little lowboy trailer I had built to haul the family harpsichord around in.
But this time the trailer had six empty 55 gallon drums on it which I filled with gasoline and I only had to wait in line one time before the shortage eased.
My hon. #1 son remembers (fondly NOT) having to go fill up the car from the drums.
Those who remember sound money and are looking forward will note the fact that PMs at APMEX have the value they always did, while the fiat dollar that might have bought them ten days ago is now “worth” 6% less .
While fiat prices of PMs have been successfully rigged since the closure of the U.S. gold window 1971, it looks to me like the corona virus has precipitated the great denouement and gold and silver will assert themselves again as has happened throughout history. We’ll see.
Sure looks that way, Dave. The separation between the spot and physical gold and silver prices is definitely a sign of stress in the market.
Love that Seinfeld clip. It’s a perfect analogy for those who will do anything to keep the dollar going as long as possible. Well done.
Thanks, Cowpoke. I am a huge Seinfeld fan — it was my favorite show back in the day!
So if I happen to have enough cash in the bank to live on for over a year, even though I still have my job…would it be prudent to pay off the remaining $11k of my new car loan? Or would you keep the emergency fund fully stocked. I have no other debts and a paid-for house. Not sure what the dollar will be worth a year from now anyway. Thanks!
You have to do what is best for you, Mark. That being said, I have a mortgage and I am not paying it off — although I could if I so chose. Since 2010, my reasoning has been to let the depreciating dollar pay it off for me. The Fed’s decision to launch QE back then changed my philosophy on paying off the mortgage; I decided it was better to use current-year dollars for investment purposes, and slowly pay off my mortgage over time with rapidly depreciating dollars. This decision was made even easier due to the low interest rate on my fixed-rate mortgage!
My philosophy would be the same if I had a car loan — especially if it has a low-interest fixed rate.
Or, like mine, zero interest for four years on a car bought in 2017. My reasoning is similar to Len’s: Bank interest is zilch, use depreciating dollars from the checking account to pay off the loan.
You can’t print food, medical supplies, other commodities and productive jobs. This three card monte game has been working for many years – but not this time. There is no printing our way out of this one.
I don’t think so either, DK. I really don’t.
Then again, I thought the Fed was in big trouble after they started QE3 in 2012 but they managed to keep the plates spinning.
Reuters says the Fed is now free of the “moral hazzard” (!!!) of holding borrowers responsible for their profligacy.
https://www.reuters.com/article/us-health-coronavirus-fed-moralhazard-an/seen-everywhere-in-last-u-s-crisis-moral-hazard-is-nowhere-in-this-one-idUSKCN21U0GV
Remember when we used to laugh at the Soviet Union for turning metrics of life upside down?
This is the world we live in today, Dave. Frankly, it is frightening to me. The world is upside-down; up is down, black is white, bad is good. People have gone insane.
We have massive quarantines for a virus with a death rate essentially equivalent to a typical flu season, at best — but probably far lower, assuming we could identify all of the asymptomatic people (which we can’t).
Meanwhile, our freedoms are being impinged to ridiculous degrees now, even though they are based on sophomoric and dangerously-faulty statistical models. Going to a grocery store is okay, but religious services are not, and those who defy the orders are subject to criminal arrest — all while the same authorities are releasing child molesters and other convicts from prison (because of the virus) … and yet the people are accepting all of this with barely a whimper.
Just wait until price inflation kicks up and supply shortages really kick in — which I expect to occur before the end of this year, or early next year. Then the real “fun” is going to begin.
Okay … rant over.
By the way … what has led to all of this? Answer: Our corrupt debt-based fiat monetary system. That’s right; corrupt money eventually leads to a corrupt society.
Every. Single. Time.
One of my highs school friends is an accountant in Orange County and we were debating the same thing in our high school alumni page. I told him, “you and this aerospace engineer personal finance blogger said the same thing!” It is interesting he said the same thing about the University of Washington models about the flawed assumptions. It was uncanny. I referred him to your blog.
Thank you so much, Dr. P!
The following article makes it clear how the Fed is now accelerating its funding the financial transactions and debt of the whole world!
https://www.zerohedge.com/markets/down-rabbit-hole-eurodollar-market-matrix-behind-it-all
It’s minor but the figure of a 51% increase in toilet paper in India still means an infinitesimal amount as toilet paper is used only by Americans and Europeans in India while Indians use a different technique and different material (water) for bathroom purposes. As a side note they also mostly have rather uncomfortable restroom facilities by American standards, I ALWAYS ask for the “British toilet” in tourist attractions and public facilities. Toilet paper rolls in India are half the size of American or European rolls. At the start of the pandemic my friend in Kolkata (From which I had returned a week before the travel bans.) called me to tell me that India was not going to have any toilet paper shortages because of course India mostly did not use toilet paper. Perhaps they have revved up production to sell to the U. S. A.?
Glad to hear you got back before the travel bans were put in place, Karen.
I agree the level of debt being taken on is scary and just kicks the proverbial can down the road. While it is scary to think of what would happen if the government didn’t bail out people, the government should think about tax reform that encourages people to hold savings for an emergency. A great idea would be a tax deduction for money contributed to a savings account up to a certain limit, like $10,000 or an automatic tax credit for having so much in a LIQUID savings account. Then, more people might be encouraged to hold onto cash for emergencies. Another idea would be to pay reasonable interest rates! It’s difficult to want to save six months of expenses when a “high-yield” savings account pays 1.60% APR. Sometimes the only way to learn is to fall and get hurt, and the government isn’t letting enough people do this, which doesn’t just prop up the little guy, it saves the big guys from losing as much in the long run.
Yeah, those “high-yield” accounts are pretty funny, William. As a teen back in the early 1980s I remember getting paid interest in the high teens for my basic savings account. I was unloading every penny I made working at a grocery store into it — I thought I had died and gone to heaven at the time.
I expect that once the monetary system resets, people will once again be earning 5% on their savings.
this black coffee is tasty like informative.
As to readers in various states, my ISP shows me in a different state than I am in.
That’s a good thing. Nobody knows where you really live.