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 had an enjoyable week. Without further ado, let’s get right to this week’s commentary …
Don’t get up from the feast of life without paying for your share of it.
— William Inge
A borrower who doesn’t return is a beggar.
— Amit Kalantri
Credits and Debits
Debit: Did you see this? New Jersey’s massive ‘American Dream’ mega-mall looks as though it’s officially mega-broke. It turns out that, after making a $9.3 million interest payment that was due in January, the mega-mall – which officially opened in October 2019 – now has just $820 in its reserve fund. Furthermore, the owners say it’s ‘unclear’ whether or not they’ll be able to make their next interest payment on their $290 million debt that is due in August. As for the American Dream, it officially met its demise back in 2008.
Debit: In other news, I see this week’s CPI release showed that it accelerated to 7.5% year-over-year (YoY) – that’s the highest inflation rate in 40 years. Imagine that. Then again, I hope you’ll excuse me for believing that 7.5% seems just a tad on the low side …
Credit: Normally, central banks can douse inflationary fires by raising interest rates. But this week, economist Andre Marques took some time to remind us that, “the Fed is trapped in its own web because it doesn’t have room to raise rates without major complications; and if it ever starts, it won’t get far.” Yep. And that’s extremely bad news for anyone hoping the Fed can get inflation under control without unleashing a depression that results from plummeting stock, bond and housing markets, which the Fed will then be forced to parry with a final – and most likely, fatal – barrage of currency printing.
Debit: Indeed, when it comes to controlling inflation, recent history suggests the Fed has very little wiggle room this time if only because during the last hiking cycle the National Debt was $22 trillion; today, it stands at $30 trillion. So, how constrained is the Fed? Well … during the last hiking cycle the Fed Funds rate only reached 2.4% before they were forced to retreat in order to save plunging markets. Today, with even more debt on the books, the new threshold where the Fed Funds rate triggers another market melt-down will be far lower – possibly as low as 1.5%. Uh oh.
Credit: Needless to say, the Fed continues to insist that it is going to begin raising rates next month – never mind that it should have started raising them more than a year ago when inflation began spiraling out of control. However, macro analyst Bill Holter thinks the Fed’s claim that it will eventually hike rates five or more times is “hilarious.” In fact, Holter says that the Fed “will do maybe two hikes, and possibly a third before everything blows up. Then we’ll be back to more QE. The Fed is planning to bleed its balance sheet down from $9 trillion – but who is going to buy those assets?” Good question … but I think I found a candidate:
Debit: Unfortunately, thanks to decades of Fed meddling, the markets have become the economy now; this puts the federal government in a bind because since the late 1990s, tax receipts have been tightly correlated to the stock market. As a result, any steep decline in equities will almost certainly result in a concomitant decrease in federal tax revenue – which is the last thing a government in debt to the tune of $30 trillion needs. (It also explains why the Fed isn’t in any hurry to raise interest rates.)
Debit: For those of you with 401(k) and other retirement accounts out there, keep this in mind: If the Fed stops propping up the markets, the ensuing declines could be historic. For example, between 1929 and 1932 the Dow lost a staggering 90% of its value; it then took 25 years for it to recover to the 1929 high in nominal terms. In Japan, the Nikkei fell 89% after peaking at 39,000 in 1989; it’s now 33 years later, and, despite the BoJ printing the yen into oblivion, the Nikkei still hasn’t returned to its old 1989 high. Here’s what has happened, though: Japanese retirees, savers and other yen holders have seen their purchasing power become decimated.
Debit: Most people with retirement accounts may find it hard to believe, but only a very small percentage of Americans have a stake in the stock and bond markets. Even so, today those markets are where the balance of power resides; in essence, those markets are now “the system.” As such, American pols and the Fed will no longer sacrifice “the system” to preserve the value of the dollar – even though it is in the interest of almost every American for the purchasing power of the dollar to remain strong and stable.
Credit: By the way, the blogger known as FOFOA points out that central bankers and politicians will always sacrifice the currency to save the system – and they use a simple formula to do it. Here’s how it works: “There are four players: the debtors, the savers, the banks and the printer. They never print and give the money to the debtors to pay off their debt; instead they print and give it to either the creditors (banks) or the savers (e.g., pension funds) in exchange for the older bad debt, which they then put on the public balance sheet to socialize the lost value.” Yes; and debase the currency in the process …
Debit: So … to sum up the politicians’ and central bankers’ game, FOFOA says, “they ‘bail out’ the banks and the savers nominally, which in turn actually bails out the debtors and screws the savers through currency debasement. The banks come out even because they only require nominal performance. But the retirees and pensioners who require real performance at the supermarket get screwed.” You can say that again. Although the manufacturers are still trying their very best to hide it:
Debit: Not coincidentally, this week Tyson Foods announced that it is raising prices even more as it grapples with a tight labor market and smaller livestock herds. According to the report, beef prices jumped by 32% in the quarter, with chicken up 20% and pork 13%. The good news is, despite skyrocketing meat prices, you can still enjoy your favorite dishes – you just have to be willing to reduce the portion size:
Debit: Of course, it’s not just food prices that are soaring; oil hit a seven-year high last week when the price climbed to more than $92 a barrel which, as Peter Schiff notes, “is yet another indication that we’ve yet to hit peak inflation.” Indeed. ‘Black gold’ is already up 23% in 2022, with its last peak coming in 2008 at just under $150, when the average price of gas in the US was nearly $3.50 – just as it is today. With that in mind, one can only wonder how high gasoline prices will go the next time oil touches $150 per barrel. The sad thing is: If the Fed can’t get inflation under control, we may not have to wait long to find out.
By the Numbers
Experian’s annual State of Credit report for 2021 found an increase in mortgage debt across all generations, rising by $13,587 over 2020’s level to a total of $299,242 in 2021. That’s $18,979 more than the average amount in 2019. However, not every generation shares the same amount mortgage debt. Here’s the latest mortgage debt breakdown by generation:
$163,254 Silent Generation
$192,276 Gen Z
$198,203 Baby Boomers
$255,527 Millennials
$259,100 Gen X
Source: Experian
The Question of the Week
[poll id=”411″]
Last Week’s Poll Result
Do you plan on watching any of the Olympic games this year?
- No (69%)
- Yes (21%)
- I’m still on the fence (10%)
More than 2100 Len Penzo dot Com readers responded to last week’s question and it turns out that 4 in 5 of them will not be watching this year’s winter Olympic games in Beijing, or are still trying to decide if it is worth their time. Put me in the group who has no interest in watching. I used to love the games, but at some point, so many of the participants thought it was more important to be activists rather than athletes that the Olympics no longer appealed to me. And, frankly, the Olympics aren’t the only sporting events that have been ruined for me.
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.
Useless News: Smart Kid
An atheist found himself seated next to a 10-year-old girl on an airplane. Several minutes after take-off, he turned to her and asked, “Would you like to talk? I’ve found that flights go much quicker when I strike up a conversation with my fellow passenger.”
The little girl, who had just started reading her book, looked up from the pages and replied to the stranger, “What would you like to talk about?”
“Oh, I don’t know,” the atheist replied. He then smiled smugly and said, “Why don’t we talk about why there is no God, or no heaven or hell, or no life after death?”
The little girl played with the pages of her book while pondering the man’s suggestions. She then said, “Those are all interesting topics — but can I ask you a question first?”
“Well … aren’t you precious!” said the atheist, “Of course, you can!”
The little girl thanked the stranger for the compliment. She then said, “A horse, a cow and a deer all eat the same stuff — grass. Yet a deer excretes little pellets, a cow turns out a flat patty, and a horse produces waste in clumps. Why do you suppose that is?”
The atheist, visibly surprised by the little girl’s intelligence, thought about her question for a few moments. Unable to come up with an answer, he finally admitted, “To be honest, I have no idea!”
The little girl replied, “So what makes you feel qualified to discuss God, heaven and hell, or life after death, when you don’t know shit?”
(h/t: Cowpoke)
More 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. Vermont (3.83 pages/visit) (!!)
2. North Dakota (3.00) (!)
3. Kentucky (2.31)
4. Wisconsin (2.10)
5. Arkansas (2.08)
46. Montana (1.45)
47. Iowa (1.44)
48. Oklahoma (1.33)
49. Alaska (1.28)
50. Wyoming (1.13)
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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 my recent article on the marriage conundrum of joint versus separate accounts, DrewShock passed along his solution:
I kept it real simple: I’m still single.
You know what they say, Drew: Before marriage, a man yearns for the woman he loves. After marriage, the “y” becomes silent. 😉
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
Much of the “money economy” with its uncontrollable effect on the lives of ordinary citizens, can be avoided by those determined to do so.
For example TnAndy and I can tell you our cost of beef hasn’t changed; we own our beef cattle and process our pwn meat.
Not practical, you say? Well, how do we do it, then? It all depends on one’s determination.
One has to embark on a whole, relatively independent way of life, to be sure
For every problem, there is always a solution or risk mitigation option waiting to be discovered or employed.
The rumor is there is going to be an emergency 0.50% rate hike coming this Monday. I can’t wait to see what that does to the “markets”
We’ll see. I’ve heard some analysts say the stock market has already baked five or six hikes into the cake.
The Fed is refusing to raise rates because the segments of population it caters to benefit from them not doing so. The young, poor, and working class have been royally screwed, but that’s a sacrifice the government is happy to put up with.
I think the screwing is just getting started, Gene.
Peter Schiff will be screaming from the rooftops saying I Told You So !! Buy my gold now!
Peter Schiff has been early because he – and many others, including myself – never imagined (naively) the lengths the Fed would go to keep the game going, even if it meant destroying the currency in the process. After all, the primary role of the Fed is supposed to be protecting the purchasing power of the USD.
Alas, the Fed eventually decided it was more important to protect Wall St. and the big-spending Big Government politicians in DC (98% of all pols), than the American people; although some argue the day TARP became law was when that happened, I think Bernanke’s decision to unleash QE made it official.
That being said, everything Schiff has been warning about since the Fed began its QE program a decade ago, is finally starting to happen. This is not going to drag out another decade. As Hemingway noted, “How did you go bankrupt? Gradually, then all at once.”
The “gradually” part is almost over.
Sadly, most people will realize that it is better to be a decade early than two seconds too late.
That beef wellington looks yummy! I think I’m going to have to make one of my own soon. (Although much larger than the one in the video!)
Won’t higher interest rates kill the housing market?
I can’t afford to buy a house now at the current rate!
I bought my first house at a 16% mortgage rate way back. Now, I’m at 3.125%. I guess I’m never leaving.
My first mortgage was at 10.0% and that was back in 1989; I thought I got a pretty good deal at the time!
Yes.
Debt. It’s the American way! I used to wonder how some of my friends and family members bought fancy brand new cars and always had the latest top of the line tech even though I knew for a fact some of them make far less than me. The truth is, most of them have lots of debt. I know there ARE responsible people out there (like everyone who comes here!) but there are so many people out there who live far beyond their means under a mountain of debt with little to no savings because credit is so easy to get.
^^^^ This.
I think that has been true since the 1970s. After the USD’s gold anchor was broken, the credit monster was finally unleashed and the stigma of buying things on credit gradually disappeared. It’s hard to believe there actually was a time when people saved their money to buy things. Anybody remember layaway plans?
Hey, Len! Thanks for another great cuppa Black Coffee!
Thank you for stopping by and commenting, Madison!
Len, for my son and others just beginning to understand what’s happening in the world of $ policy, please consider re-running and adding to your posts about PMs! “Newby’s” need to understand why they’re ‘wealth insurance’, how to purchase, etc., and they AND I are still a bit fuzzy on how (and where) to use and redeem PM’s when we need to, etc. Thanks much, and now I’m off to stock up on PASTA before the boxes get any smaller! :oO
Thanks for the reminder, Lauren. My next post on precious metals is scheduled for Feb 28th … a couple weeks away!
If you saw my store of dried pasta and egg noodles you’d be impressed! I’ve got four or five pounds of virtually every shape you can imagine.
I’m looking forward to 2/28, Len! I also get the ‘pasta stash’, as my mom was an Italian and we can’t survive long w/o it (thank God for Sam’s Club & Costco! :o)
This goes farther back than most people know. After the depression, and WW2, people were afraid to buy on credit, and they saved money. The banks were flush with cash. They approached members of Congress, and got them to urge the public to spend money.
Remember, credit card interest used to be tax deductible.
All the irresponsible behavior of the Fed was discussed by Larry Burkett many decades ago in “The Coming Economic Earthquake”. What he said is just what many on here have been discussing.
The Fed basically exists to keep the big money players in financials afloat. Alan Greenspan could have stopped it all. He could have tightened the stock market speculation, and prevented the housing nightmare. He was conducting an experiment. The week before the 2008 election, when polls said Obama would win, Congress called him before them, and raked him over the coals. He said he made a mistake. Now he blames others.
If only Greenspan had stuck to his original principles espoused in his excellent treatise, Gold and Economic Freedom.