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’ve got another busy weekend ahead of me, so let’s get right to this week’s commentary …
You’ll never find your limit until you’ve gone too far.
— Aaron Rolston
Desperately seeking an escape route, he could see there was no way out except capitulation.
— CLR James
Credits and Debits
Debit: Did you see this? Driven by soaring energy and food costs, new data released this week shows that consumer prices in Europe’s largest economy surged 8.7% year-over-year (YoY) – that’s the highest rate in 60 years, when monthly data tracking started. And if that wasn’t bad enough, economist Friedrich Heinemann is warning that the worst is yet to come “because many inputs are still scarce and wholesale prices are still increasing dramatically.” Is that depressing to hear? Yes … but I know you didn’t come here expecting me to blow sunshine up your backside. That’s what the mainstream media is for.
Debit: One continent to the east, in yet another example of the spread of global stagflation that’s being largely ignored by the mainstream media, Pakistan is facing economic collapse – that’s according to its own Finance Minister, folks. Pakistan’s “official” inflation rate is currently 13.4% – but the truth is it’s actually closer to double that figure. Regardless of which figure you use, it’s the fastest rising inflation rate in Asia. And, yes, this is the same Pakistan with a nuclear arsenal – not to mention an ongoing border conflict with India which has sparked three wars since 1947. But, hey … I’m sure there’s nothing to be concerned about.
Debit: Meanwhile, here in North America, we learned this week that the Fed currently owns 38% of all outstanding Treasury bonds with 10 to 30 years remaining until maturity. Yes; 38%! Remember, this isn’t some shallowly-capitalized boutique market. It’s supposed to be the “deepest” market in the world, currently valued at $22.6 trillion – which should send shivers down the spine of anyone who thought the United States was an unquestioned bastion of free-market capitalism.
Credit: For those of you who are wondering what the big deal is, Pam Martenson at Wall Street on Parade explains that, by “gobbling up 38% of these 10-year US Treasury notes and 30-year US Treasury bonds, (the Fed) has created artificial demand for these instruments that would not otherwise exist. That, in turn, means that mortgage rates have been artificially held much lower than they would otherwise have been.” In other words: Since 2008 the Fed has been using financial sleight of hand to prop up both the bond and housing markets. Look! It’s magic!
Debit: But wait … with the Fed owning so many Treasuries, there’s an even bigger shoe that’s about to drop. What’s that, you ask? Well … with June finally here, the Fed is now reducing their purchases of Treasury securities and shrinking its balance sheet which, Martenson notes, “is going to have a dramatic impact on residential mortgage rates.” That it will – er … assuming the Fed doesn’t lose its nerve and reverse course. Then again, even if the Fed doesn’t sell any securities – or simply decides to let them roll off their balance sheet – there are other large Treasury security holders waiting in the wings that could very well end up selling theirs:
Debit: Sadly, America’s financial situation is eerily similar to the Roman Empire’s in its waning days. After 200 years of currency debasement – required to preserve its high living standard amid excessive expenditures – the end of the Roman Empire came at the same time its once-mighty silver denarius was being issued with no silver at all. “There are differences,” between the two empires says macroeconomist Alasdair Macleod, “but we share a suffocating bureaucracy and a lack of (gold and silver coins) in our currency systems. As Rome did from Nero onwards, we have lost the plot.” True … but that’s been apparent for a while now.
Credit: So how did the US get to this point? Well … Macleod notes that gold outflows “generated by accelerating government spending and Fed monetary policies led to the suspension of gold convertibility for American citizens in 1933, and the devaluation of the dollar from $20.67 to $35 per ounce of gold in 1934 – interventionism that has only increased ever since. And not just in America, but in all other advanced nations.” As a result, he says that “The socialization of earnings and profits, and the regulation of our behavior by governments, dominates economic activity today.” Heh. Ya think? Hold on… are we still allowed to say that?
Debit: Of course, all eyes are now on the Fed as they start their so-called quantitative tightening (QT) program. The good news is QT reduces the currency supply. The bad news is it will also reduce demand for market assets that the Fed had been buying on a regular basis; both directly with the bond markets, and indirectly, via the stock and housing markets. And that’s going to result in economic pain as bad as the runaway price inflation that has pushed the Fed to begin QT. It’s a tough choice for any central bank charged with maintaining economic stability. In the meantime, if you’re wondering how this movie ends, here’s a spoiler:
Credit: Needless to say, the Fed will ultimately have to pick its poison. Officially, they’re telling us they will sacrifice the markets in order to save the dollar by raising interest rates and implementing QT. But macro analyst Bill Holter says that, “there is no possibility that the Fed will shrink its balance sheet in any significant manner because the question then becomes: Who are they going to sell to? And if they do sell, then at what price?” Ahem. Actually, Bill, that’s two questions … but your point is taken. Besides, it looks like the market doesn’t believe the Fed either. In fact, they were double-dog daring them most days last week:
Debit: By the way, Holter goes on to predict that, before the end of the year, the reduced liquidity will collapse the markets, thereby forcing the Fed to restart the printing presses by way of the next – and final – round of quantitative easing (QE). Unfortunately, that will shred whatever remaining credibility the Fed has left regarding its intention to fight inflation and save the US dollar from total destruction. For those of you who still commute to work that’s like – if you’ll excuse the expression – pouring gasoline on an already-raging fire:
Debit: Needless to say, America now finds itself in an intractable financial situation where the accrued debt is so large that it’s no longer payable without blowing up the world’s reserve currency. This is because our debt-based monetary system is a Ponzi scheme – and you can’t taper a Ponzi because it requires a constant stream of fresh capital to stay “solvent.” But with most investors tapped out now, the only entity with enough fresh capital to keep the scam going is the Fed – so they will inject as many greenbacks into the system as necessary to keep the scam alive. Thankfully, there’s a silver lining: We’re fast approaching the point where the math will make this fraud obvious to everyone.
By the Numbers
A recent study surveyed more than 2000 American adults to discover their credit card usage, including spending habits, and the impact of the Covid-19 pandemic. Based on the results, it looks like the ladies are more responsible with their credit. Read it and weep, fellas!
53% Percentage of men who said their credit card issuer had reduced the limit on at least one of their credit cards in the past two years.
37% The share of women who said their credit card issuer had reduced the limit on at least one of their credit cards in the past two years.
82% The percentage of men who said they missed at least one payment and/or made a late payment during the Covid-19 pandemic.
71% The share of women who said they missed at least one payment and/or made a late payment during the Covid-19 pandemic.
48% The percentage of males who said they carry a credit card balance from one month to the next, resulting in interest charges.
36% The share of females who said they carry a credit card balance from one month to the next.
16% The percentage of women who said they have never applied for a credit card.
7% The share of men who said they’ve never applied for a credit card.
Source: Forbes Advisor
The Question of the Week
[poll id="427"]
Last Week’s Poll Results
Did you host/attend a barbecue during the Memorial Day weekend?
- No (71%)
- Yes (29%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that more than 2 in 3 of you said you didn’t get to enjoy a holiday barbecue last holiday weekend. I wonder if that’s because inflation is making the cost of grilling some meat too expensive. What do you think?
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: Planting Melons
A prisoner in jail received a letter from his wife: “I’ve decided to grow some melons in the old flower bed. When is the best time to plant them?”
The prisoner, knowing that the prison guards read the outgoing mail, replied in a letter to his wife: “Whatever you do, don’t touch the old flower bed! That is where I hid all the gold.”
A week or so later, he received another letter from his wife: “You won’t believe what happened. Some men came with shovels to the house, and dug up the entire flower bed!”
So the prisoner wrote another letter to his wife in reply: “Great! Now is the best time to plant the melons.”
(h/t: Carrie)
More Useless News
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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 out to me at: Len@LenPenzo.com
Here’s another gripe sent to the Len Penzo dot Com Complaint Department from Jayson:
Your weekly poll questions aren’t scientific so they can’t be trusted.
That’s not what the Department of Homeland Security told me.
If you enjoyed this edition of Black Coffee and found it to be informative, please forward it to your friends and family. Thank you! 😀
I’m Len Penzo and I approved this message.
Photo Credit: (flags) public domain; (cartoon) Investing.com
First! Hi, Len. I think I’ll stick with my Fruit Loops instead of the cricket cereal that guy up above is selling!
Who won last week’s contest?
Glad you asked! The correct answer was 36,956 comments. So our contest winners were:
Cameron and Lauren P.
Congratulations to both of you!
Please send me your mailing addresses to my email address at:
Len@LenPenzo.com
and I will get your books out to you ASAP!
Re: your poll question.
EVERYBODY is a buy and hold investor until a long bear market settles in and they start watching their portfolio get decimated. This time is no different.
I agree. As a long suffering mining stock holder, I’ve learned the secret to holding the line is two-fold:
1) have strength in my convictions BEFORE committing to buy
2) not check my brokerage account too often. 😉
Not surprised women have better credit habits than men. I am surprised though at the percent of men and women who missed a payment during pandemic. The numbers (82% men and 71% women) seem very high to me.
They seem high to me too, Oscar. Maybe it is a function of who I hang out with, but my experience is those numbers should be lower too.
Len, serious question. I know you don’t have a crystal ball, but how much longer do you think this “game” can go on? It seems like every time a crisis happens they just print more money and the game goes on.
As long as it takes to survive. Our government isn’t going to collapse dude. Don’t worry. We will survive and carry on.
Assume much dude? I wasn’t referring to a government collapse. I was talking about a monetary reset.
I will be shocked if there is not some sort of major crisis before the year is out.
And just to be clear, I have preached for years that a monetary reset or financial crisis will not be the end of the world. Life will go on, but it will be more difficult for a while.
Another good round up. Inflation is theft of human labor. If the Fed hadn’t stolen so much of our wealth, we’d all be much wealthier. Instead we have an ignorant populace who are content to be debt slaves and easily distracted by bread and circuses.
It’s tough love but we need the house of cards to collapse ASAP because the longer this goes on, the harder the fall before we can reset. Nixon detaching the dollar from gold was the beginning of our demise as a wealthy nation.
Well said, sir.
I agree that the Fed will be a force actively decreasing the money supply with QT. But since reserve requirements are still at 0% doesn’t that mean there’s no limit on the amount of money commercial banks can create through lending?
You are correct. But because the banks do not have a printing press, unlike the Fed, they still have to worry about their balance sheet (technically, the Fed does not). So when fear is in the air, the commercials banks will lend less.
Len, things are really starting to go sideways. I’m telling friends about i-bonds AND your blog, and imo a good question of the week might be, ‘how many folks are planning or expanding a garden this year?’
I think that is a great question. We have expanded our garden by 50% this year, so have many of our friends. We live in rural Michigan and have lots of room to grow. Trying to can more than free this year.
That’s awesome, Richard! I may have to do the same next year. For now, I will rely on my preps, if things really go pear-shaped.
Thank you, Lauren! (And congrats on winning the contest!)
I will make your question next week’s Question of the Week.