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.
Well … another busy week is behind us. So with that in mind, let’s get this party started …
As long as the bosses pretend to pay us, we’ll pretend to work.
— An old Soviet proverb
Why are Soviet citizens so sure that it’s the most progressive country in the world? Because they know life was better yesterday than it’s going to be tomorrow.
— An old Soviet joke
The best way to destroy the capitalist system is to debauch the currency.
— Vladimir Lenin
Credits and Debits
Debit: Did you see this? Argentina is the poster child for big spending governments that willingly accept persistently high inflation in order to “fund” their wasteful, exorbitant budgets. In fact, its central bank raised interest rates for the fifth time this year – to 49% – in an attempt to halt an inflationary spike. The trouble is, inflation there is currently running at an annualized rate of 72% – so Argentina’s central bank will have to work a lot harder if it is truly serious about fixing the problem. (Psst. It’s not.)
Debit: Meanwhile, the latest US manufacturing survey revealed deteriorating business conditions thanks to higher costs; this is the second negative reading in three months and it infers that stagflation – that is, declining economic output coupled with rising consumer prices – is only getting worse in America. At the same time, it’s not just the US that is suffering from stagflation, as the latest world economic forecast is showing the exact same problem globally:
Debit: This week former Fed Chair, Ben Bernanke addressed stagflation’s inflation component when he admitted that the central bank erred in waiting to address the worst episode of rising consumer prices since the early 80s. In reality, however, the critical mistake was actually made many years ago by Bernanke himself. His reckless monetary policies created a moral hazard when it became clear that the Fed would never let the banks or the markets fail; a hazard that was continually reinforced between 2010 and 2016 with the Fed’s absurd refusal to raise interest rates off the zero bound.
Credit: Of course, as a result of those inane Fed policies, blogger Jack Raines pointed out last week, “an entire generation of investors has grown up in a market that only went up and to the right. Millions more joined the market during the Covid lockdowns, and everything they bought went to the moon. ‘Normal,’ for this group of novel investors, is rocket ship emojis, absurd valuations, and insane returns. But the party is over.” Then again, the real concern for everyone shouldn’t be focused so much crashing stocks, as it should be on the collapsing dollar and other fiat currencies.
Debit: On a related note, economist Michael Spence says that he believes the probability of simultaneous energy, food, and debt crises is growing with each passing day. The trouble is, the people with their hands on the levers of power still think that the way out of this mess is by continuing down the same road that got us into the current mess we all find ourselves in – printing more currency.
Credit: As David Stockman notes, ironically, the central banks of the US, Japan, China and the Eurozone have printed upwards of $30 trillion in fiat credits since 2008, with the Fed leading the way. “And yet,” he says, “the knuckleheads who run them have been surprised by the eruption of inflation.” It would be funny if the impacts on society weren’t so tragic.
Debit: In an effort to deflect blame for high inflation, legislation that would ban “excessive” gasoline prices is headed for a vote in Congress. The current bill – sponsored by the usual statist politicians – would allow the President to ban gasoline price hikes during times of national energy emergencies and abnormal market disruptions. In other words: this will legalize price controls, which only end up short-circuiting the ability of prices to maintain equilibrium between supply and demand. So if this economically-insane bill does becomes law, get ready for a return to the shortages and gas lines of the 1970s.
Credit: By the way, whenever the government tries to ‘fix’ a problem, those problems tend to get much worse. The latest drive for price controls is a good example because, as macro analyst Bill Holter reminds us, “When you tell someone whose widget-production cost is $10, that they have to sell their widgets for $7, then they simply stop producing. This is what happens time and time again in socialist countries such as the old Soviet Union and, more recently, Venezuela.” Very true … but in return the citizens also get subsidized food staples and “free” healthcare – along with sporadic availability and interminable lines. So there’s that.
Credit: Of course, as Franklin Sanders points out: “There are morons – and then there are educated morons. The statists’ belief that men are capable of planning a vast economy better than the free market is ridiculously laughable.” As proof, he notes that, of the 11 Fed Open Market Committee members, eight never held a job outside the Fed, and two come from academia. “In other words,” he says, “people who have never had to meet a payroll, fight competition, and who couldn’t run a snow cone stand, are determining the interest rate for the whole economy.” Clearly, a monkey could do a better job. And as an added bonus, they work for peanuts:
Credit: All this economic chaos makes you wonder why anybody would give their government – or even a central bank proxy – unfettered power to print fiat currency. After all, the stability of gold-based monetary systems is unparalleled. For instance, under a gold standard, wholesale prices in Great Britain gradually fell 17% between 1820 and 1897, despite the increase in above-ground gold stocks during that same timeframe; this was because, with gold acting as a yoke on spending, the productivity gains keeping prices in check couldn’t be siphoned off to the state. As for the US, it had a similar experience with gold between 1865 and 1912. Imagine that.
Credit: For his part, economist Tuomas Malinen notes that it was 700 years ago when “the idea of central banks started from a ‘liquidity back-stop’ of the financial system, but they’ve since mutated into powerful actors on the economic and political stage.” He goes on to warn that, as a result, “The ability to conjure limitless amounts of money eventually tempts central banks to adopt policies that are either impossible or unwise to pursue. This has happened several times in history, and now we’re there again; but this time, the costs will be dire.” Er … in case you haven’t noticed already.
Credit: But as macroeconomist Alasdair Macleod reminds us: “For fiat currencies to have any validity with its users, a fundamental confidence in the governments setting monetary policy is required.” Now for the punchline: Macleod says history proves that when that confidence finally cracks, the preference for any fiat currency eventually “erodes to the point where no sane consumer wants to hold it. We’re now at an important point in that journey to extinction.” And if you have any doubts about that, just ask any Venezuelan.
By the Numbers
How has inflation affected commodities? Here is look at a sampling of commodities with some of the biggest price changes since this time last year:
+160% Natural gas
+87% Heating oil
+66% Oil (West Texas Intermediate)
Source: Charlie Bilello
Last Week’s Poll Result
Are you a better or worse financial manager than your parents?
- Better (54%)
- About the same (35%)
- Worse (11%)
More than 1900 Len Penzo dot Com readers answered last week’s poll question and it turns out that slightly more than half of you say you’re a better manager of your personal finances than good ol’ Mom and Dad. This lines up pretty close with a recent study highlighted here last week that asked this very same question; in that study, 58% of the respondents said they were better financial managers than their parents.
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.
The Question of the Week
Useless News: Evening Prayers
A dad was listening to his three-year old daughter say her prayers before bedtime. She said, “God bless Mommy and God bless Daddy and God bless Grandma and … goodbye, Grandpa.”
“Why did you say that?” asked Dad.
“I don’t know,” replied his daughter. “I just felt like saying it.”
The next day, Grandpa dropped dead.
A month later at bedtime, the daughter prayed, “God bless Mommy and Daddy. And goodbye, Grandma.”
Sure enough, the next day Grandma breathed her last earthly breath.
By this time, the dad realized this was more than a coincidence, but he wasn’t sure what to do. And he didn’t want to disturb his wife by telling her.
A few more months passed. Then one night Dad was again listening to his daughter saying her prayers at bedtime: “God bless Mommy …” she said. Then the little girl turned her head and looked straight at her dad — ” … and goodbye, Daddy.”
The man was petrified. “What!? Are you sure, Honey?” he asked.
His daughter slowly nodded her head. And with that the man’s heart began to race and he broke out into a cold sweat. In fact, he became so upset, he couldn’t sleep at all that night.
The next day the dad went off to work and locked himself in his office. Then he took the phone off the hook, canceled all his meetings and awaited the inevitable.
Five o’clock came and went. But the man decided to stay locked up in his office because he felt secure there. He then watched the hours tick by until, finally, the clock struck midnight. At that point, the man realized he had somehow managed to cheat death.
Relieved, the drove home, drenched in sweat and his nerves frazzled.
When he walked in the front door, his wife was up and waiting for him. “Where the hell were you today??!” she asked.
“Don’t shout,” he said. “I’ve had an absolutely miserable day!”
“You had a miserable day?” his wife replied. “I assure you mine was worse. It all started when the pool boy dropped dead in our back yard …”
(h/t: Just the Facts)
More 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. Manitoba (2.05 pages/visit)
2. Newfoundland & Labrador (2.00)
3. Saskatchewan (1.95)
4. British Columbia (1.77)
5. Nova Scotia (1.61)
9. Nunavut (1.33)
10. Northwest Territories (1.25)
11. Alberta (1.23)
12. Ontario (1.19)
13. Quebec (1.14)
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(The Best of) 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
Michael wrote in this week to tell me he’s had enough:
I’ve deleted your trashy website from my favorites. Hope your blog improves in the future. Good luck.
Don’t hold your breath, Michael. It’s been all downhill since my first post in 2008.
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Photo Credit: stock photo