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.
This edition brought to you by the number 28 and the letter T. Courtesy of our $28 trillion National Debt.
I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …
It’s incredible where you can go with your imagination.
— Elmo
Today me will live in the moment — unless it’s unpleasant, in which case me will eat a cookie.
— Cookie Monster
Credits and Debits
Debit: Did you see this? When measured in terms of cost/per BTU, the benchmark European natural gas price surged on Tuesday to a new all-time high of 106.3 euros per MW-h, equivalent to $36 per MMBtu which is also the energy equivalent to oil at $230 per barrel. Later in the week, panic ensued and natural gas prices climbed another 60% — to the energy equivalent oil price of more than $350 per barrel of oil. Ouch.
Credit: Meanwhile, the grousing about taxing unrealized capital gains continues. Anthony Davies points out that the median US home price “shot up 14% in the past year, so the median homeowner would get socked with a $7000 unrealized gains tax bill simply because his house was worth more than the year before.” He also says with the average 401(k) worth $135,000 — and earning $13,000 in unrealized gains — that would add an additional $2000 in taxes. And, no; there is no refund if the market tanks the following year. So you may want to think about getting a bigger “sharing” jar …
Debit: In fact, government spending is so out of control that raising taxes is no longer enough. Davies warns that, “The politicians need new sources of revenue and their first step is to institute new taxes on unrealized capital gains. The next step will be to expand those taxes to the middle class. They hope that we’ll keep pointing fingers at the rich so we don’t notice who the real culprits are.” I guess Mr. Davies hasn’t noticed that all the politicians are now rich too.
Credit: Then again, at the other end of the economic spectrum are the savers on Main Street. As macro analyst David Stockman observes, thanks to artificially-low savings account interest rates, upwards of one-fifth of depositors’ real wealth has been seized by banks during the last decade alone. As a result, “the Fed has literally turned depositors into the indentured financial serfs of the banking system.” Yes; I can hear my friends on Wall Street now: “Okay … It’s a sad story, but if not them, who?” Maybe they should ask this guy:
Debit: Thankfully, Stockman goes on to say that, “Not in a million years would this have happened under a regime of sound money and honest free-market pricing in the money and capital markets.” Oh, yeah. You better believe it — because if that scam was attempted in a free market backed by an honest gold-based monetary system, the bankers would quickly discover that the only indentured financial serfs would be … them.
Credit: As macroeconomist Alasdair Macleod notes, “it’s clear that we’ve now got the problems you get when people realize that inflation is a problem, as they’re buying more of the things they normally purchase in case they have to pay more tomorrow. This means they’re reducing their cash position in favor of goods, which means they’re reducing the (dollar’s) purchasing power relative to the goods they buy.” It’s a logical response, of course. But at the same time, I suspect most people are doing absolutely nothing to protect their dollar-denominated retirement savings.
Debit: Needless to say, Macleod also points out that the Fed isn’t happy that the public is now well aware of inflation because it feeds “the acceleration in prices — so this is the beginning of a hyperinflation story. How can it be stopped? The only way is for central banks to increase interest rates enough to encourage people to save their cash and stop spending.” In the mean time, the rapidly-depreciating US dollar will continue to plague everyone — including the bad guys …
Credit: Macro analyst Bill Holter notes that the Fed currently has much more than an inflation problem on its hands because, “financial engineering allowed policy makers to create temporary realities in virtually all markets (via) unlimited credit and money supply.” As a result, “the financial system is broken; and it has survived on life support via QE ever since, with stock, bond, and real estate markets the only glue left holding the social system together.” Yeah … and that glue is showing clear signs of cracking.
Debit: Unfortunately, Holter also says that “This is the final chapter for the global monetary system. Supply chains are broken, credit has become untenable, the US dollar is collapsing versus real goods, and the shit has hit the fan. There’s no turning back. It’s over; the bubble has burst and no amount of new currency or free credit can possibly fix what has already broken.” So … unless I’m mistaken, I’m pretty sure he’s saying there’s still a chance. I think.
Debit: The legendary economist, Ludwig Von Mises, warned that the biggest threat to Western free markets was not a true socialist revolution, but rather a middle-of-the-road approach between capitalism and socialism that attracted an intellectually-shallow political class. Mises saw that these snake oil salesmen were pushing for a system that “stood midway between the other two — while (supposedly) retaining the advantages of both — and avoiding the disadvantages inherent in each.” In other words: an impossible utopia.
Credit: But as Thor Bishop observes, “Mises understood this ‘managerial revolution’ was not a sustainable form of government. Interventionism may be politically convenient, but ultimately it’s grounded in volatile inconsistencies. So it must be rejected completely — or it will inevitably lead to more and more power shifting to the state. And this is precisely what we have seen.” Yeah … now if only we could unsee it.
Debit: By the way, you may be surprised to learn that Mises pointed out this slow creep toward authoritarianism way back in 1950. Today, it’s easy to see that the tyrants are working on consolidating their gains — but that’s going to require them to completely co-opt the monetary system first. Sadly, were almost there.
By the Numbers
With the third quarter of 2021 officially over, let’s look at the current year-to-date performance for some major asset classes:
55.8% Crude oil (WTI)
34.4% Commodities Index (COMT)
19.5% US Real Estate Index (IYR)
14.7% S&P 500
12.1% Nasdaq
10.6% Dow Industrials
-3.9% 10-year US Treasuries
-7.8% Gold
-18.7% Silver
Source: GoldSilver.com
Last Week’s Poll Result
What are your top three reasons for carrying cash?
- In case of emergency (28%)
- For small purchases (25%)
- For cash-only locations (15%)
- To leave tips (14%)
- For transaction privacy (11%)
- To better manage my finances (7%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that slightly more than half of them say they carry cash primarily for small purchases or in case of an emergency. Somewhat surprisingly, only 7% said they use cash as a tool for managing their finances; some people who have trouble controlling their spending eschew credit cards in favor of cash, as it provides them with a constant visual reminder of their available budgeted discretionary funds.
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=”393″]
Useless News: A Day in the Life
At the end of a very long day, a man came home from work and found his children outside, still in their pajamas, playing in the mud, with empty food boxes and wrappers strewn around the yard.
His wife’s van door was also open — as was the front door to the house — and there was no sign of the family dog.
Walking in the front door, the man found … an even bigger mess. A lamp had been knocked over and the throw rug was against one wall. In the family room, the TV was loudly blaring the Cartoon Network; and the den was strewn with toys and various items of clothing.
In the kitchen, dishes filled the sink, breakfast food was spilled on the counter, the fridge door was wide open, dog food was strewn across the floor, a broken glass lay under the table and, inexplicably, a rather large sand pile was blocking the door to the backyard.
Thinking something terrible had happened, the man quickly headed upstairs, stepping over toys and more piles of clothes, looking for his wife.
At the top of the stairs, he was met with a small trickle of water as it made its way out the bathroom door. As he peered inside he found soaking wet towels, a scummy bar of soap, and a rubber duck laying on the floor. But that’s not all: Miles of toilet paper were also laid in a heap and toothpaste had been smeared over the bathroom mirror and walls.
Now completely frantic, the worried man rushed to the bedroom, where he found his wife still curled up in bed — in her pajamas and reading a novel. She immediately looked up at him.
“How was your day, Honey?” his wife said with a beaming smile.
Bewildered, the man looked at her and asked, “What on Earth happened here today?”
She again smiled and answered, “You know how you always come home from work and then you ask me what in the world I do all day?”
“Yes,” was his incredulous reply.
“Well,” she answered, “Today I didn’t do it.”
(h/t: Charlotte)
More Useless News
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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
Frank G. sent a message to me this week that opened up with this eye-opener:
At first I couldn’t figure out if you were shoveling bullshit or fertilizer, but you finally won me over.
Wait … so I guess you’re telling me that my blog is intended for, er, manure audiences only. 😜
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
If the trillion $ coin idea is so good, why do they talk about only minting a few of them? Why not mint 28 of them and pay off the entire debt? Or maybe mint 30 of them so they can give every citizen a few million bucks?
Good question! Here’s another one. What happens if they mint the coin and then the guy responsible for taking it from the mint to the Treasury vault loses it on the way there?
Do they just need to mint another coin? And does the guy who lost the coin get fired?
So many questions, so few answers!
The only realistic way the platinum coin idea can work is if the dollar is actually devalued against platinum; that is, artificially set the market price of platinum to $1T per ounce, which would act as a de facto devaluation of the dollar against gold.
The government could also retire the debt by mining $28 trillion dollars worth of platinum at the current market price (~$1000/oz) and create a very big 28 billion ounce platinum coin. But that isn’t very realistic either.
Otherwise, it’s just more banker hocus pocus.
I’m still trying to figure out the difference between “The Trillion Dollar Coin!” and Bitcoin.
Maybe our resident troll M8%42-#9*3 can grace us with his presence and explain?
Wait. That’s probably a bad idea.
The difference is you can at least hold a trillion $ coin in your hand!
LOL! 🤣 🤣 🤣
Funny, because it’s true.
Very funny Cowpoke. Bitcoins have limited supply and are digital, and verified by a blockchain. A trillion coin gimmick, not so much.
The $1 trillion coin sounds a lot like an NFT.
Good observation, Robert. This is the clown world we find ourselves in today. Still there are plenty of people out there who will try to convince you that all of these scams are legitimate.
The trillion dollar coin is sound policy. When it comes to fiat money, the rule is that monetary inflation occurs when there is not enough debt to offset the increased supply of money.
This is not true.
What? Last week you said gold was no different than fiat money. Now you say the coin scam is “sound policy”.
The trouble with your assertion is that it breaks down when you understand that our “money” isn’t money at all — it’s debt.
So let’s restate your logic, with that in mind:
“When it comes to fiat money, the rule is that monetary inflation occurs when there is not enough debt to offset the increased supply of
moneyDEBT.”Now do you see why you are incorrect?
And here’s another thing. The trillion dollar coin isn’t inflationary because it won’t circulate. It will stay at the Fed.
But the coin technically allows the US government to spend an additional $1 trillion over the debt limit. And thanks to fractional reserve banking, that $1 trillion ends up expanding the money supply by almost an order of magnitude.
Granted, not all of that would be inflationary, since a portion of it would result in the creation of additional goods and services — but not all of it.
So, again, you are incorrect.
What a sh*t show. Gold and silver down on the year (big time!) while oil is up 55% and commodities up 34%. Everything is backward and/or a lie. What a nightmare of a world we are living in.
This too shall pass. Although it may be a while.
I actually hope they advance the “unrealized gain” thing forward and into legislation. People need something to galvanize them into picking up pitchforks and storming the castle.
Getting a huge tax bill on something you thought was yours simply because a banking system has made a mockery out of our money (increasing the value of your home in phony dollars for example) MIGHT be enough of a shock to spark a revolution.
One thing is for sure……they won’t get it (so THEN what is plan B)…..because we don’t have it. If most people had to cough up the amount for income tax at the end of the year rather than have it extracted from each paycheck, the income tax would have likely bit the dust a long time ago.
You know it, Andy. Can you believe having to pay an annual tax bill of $10k or more just because the housing market went up (thanks to the Fed’s meddling) or because your 401k gained value?
For that reason, I can’t believe this will ever become reality. These people can’t be this stupid. Or can they?
Len…..Remember that Einstein quote about 2 thing he thought were infinite…..the universe and human stupidity……and he wasn’t all that sure about the first one.
The monetary/financial system is in trouble to be sure, but I’m betting its troubles are going to be resolved within the next 6 months.
We’ll see. That being said, I can’t see how this can continue for another three or four years. But you never know.
Cap gains tax – not happening. Effects too many rich people and our gov overlords. Also, if gains were taxed, then losses would be deductible.
Real estate gains are already taxed via RE taxes. Funny how when RE goes down, the taxes stay the same ( they just ratchet up the tax rate)
One would hope so, but the desperation to raise revenue is growing.
Knowing the government, I’m sure they would limit tax deduction losses to some token amount. Heads they win, tails we lose.