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 …
The view was generally held that centralization of banking would inevitably result in one of two alternatives: either complete government control, which meant politics in banking, or control by Wall Street, which meant banking in politics.
— Paul Warburg, 1930
Credits and Debits
Credit: Did you see this? A week after warning of a “stormy” banking environment, JP Morgan CEO Jamie Dimon has updated his assessment as “hurricane force.” Macroeconomist Alasdair Macleod observed that, “The signal is clear: JPMorgan will contract its balance sheet, and where it goes, so goes all the other global systemically important banks because when fear takes over, banks withdraw credit from the economy.” They always do. Unfortunately, as Macleod points out, whenever the banks stop lending, “a financial and banking crisis always follows.” Time to batten down the hatches, folks. Especially if you’re in the market for a new car.
Debit: Meanwhile, the latest Social Security (SS) Trustee report is calling for another crisis, warning that the program will be insolvent by 2035. At that point, every beneficiary will face an across-the-board benefits cut of 20%. And if that’s not bad enough, the Medicare Hospital Insurance (HI) trust fund will exhaust its reserves by 2028. That will require HI spending to be reduced by 10% – and then 20% in 2046. Surprised? You shouldn’t be. Fortunately, there’s some good news too:
Debit: Social Security’s big flaw is it’s a “pay-as-you-go” system that uses taxes on current workers to pay for the benefits owed to retirees. As long as demographics remain relatively stable this works just fine as a pension scheme – which is why the payroll tax that funds SS had no trouble covering the benefits. But with a rapidly increasing number of Baby Boomers now joining the growing ranks of SS beneficiaries, the demographics are no longer favorable. As a result, SS payroll taxes have been unable to cover 100% of the program’s benefit obligations since 2021, which forces SS to dip into its reserves each year to cover the deficit.
Debit: On a related note, Social Security recipients’ purchasing power has declined 40% since 2000. In fact, in order to maintain the same purchasing power as there was 22 years ago, the program would have to increase benefits by $540 per month. Heh. With that mind, it makes one wonder if it even matters if the fund will be insolvent less than a decade from now. I mean, Social Security is fixable; and there are plenty of intelligent inspirational people out there who are capable of making it a more stable and viable program. It’s just that almost all of them seem to be helping others solve science problems outside the field of economics:
Debit: Of course, “declining purchasing power” is just another way of saying “falling living standard” – and one of the clearest examples of Americans’ falling living standard is the raw affordability of new homes, which hit an all-time low this month. In fact, the median household income in April was just 17.4% of the value of the median new home sold during the month. See for yourself:
Credit: Not coincidentally, last week, Crescat Capital’s macro analyst Tavi Costa noted that, “After years of money printing and interest rate suppression, policy makers have created a historic speculative environment in financial assets. But now, the inflation genie is out of the bottle, and to restore its credibility, the Fed has no choice but to burst the bubble.” Now … you’d be forgiven for thinking that these insane policy makers have absolutely no idea what they’re doing – but, ironically, they really do. Unlike these guys:
Debit: Speaking of clueless policy makers, Congress received a letter from the banking industry this week, warning of “devastating consequences” if the Fed issues a central bank digital currency (CBDC). In fact, the letter warned that a US CBDC would shift a significant “volume of private money to public money by moving it from banks into accounts at the Fed where the funds can’t be lent back into the economy. These accounts represent 71% of bank funding today. Losing this would undermine the banking business model.” Unfortunately for private banks and credit unions, the Big Government pols in Congress and the DC bureaucrats don’t care.
Debit: The bankers’ letter goes on to torpedo a key argument in favor of CBDCs, noting that, “Contrary to the assertions of some proponents, a US CBDC is not necessary to ‘digitize the dollar,’ as the dollar functions primarily in digital form today. Commercial bank money is a digital dollar, and is currently accepted without question by businesses and consumers as a means of payment.” Then again, their point becomes moot after you realize the real purpose of CBDCs is to perpetuate and expand the state’s grip on its fraudulent debt-based monetary system.
Debit: The bottom line is that, it has been 50 years since the US dollar was decoupled from gold so that it could be printed without regard to economic reality. And we’re finally at the point where price discovery is dead and, as a result, almost every market is hopelessly broken. In fact, there are now so many dollars floating around that they are being treated by many as if they had little value at all. This is reflected not only by the Fed, which is holding interest rates near zero despite soaring inflation, but also by a growing army of highly-speculative investors in everything from over-priced homes to cryptocurrencies and NFTs. (And yet precious metals continue to be ignored.)
Debit: By the way, as the global monetary system enters its death throes, faith in the financial system is slowly beginning to crumble; this can be seen in a growing worldwide rush to move away from rapidly depreciating fiat currencies into real things like finished goods and commodities. In fact, there’s so much distrust in China now that many aluminum traders are rushing to local warehouses in order to verify the metal they hold is actually there.
Debit: Hey … it’s not just Chinese aluminum traders who are realizing they’ve been conned – sovereign nations are too. Just ask Austria; a plan conceived by their central bank in 2015 to move 50 tonnes of their monetary gold from London to Switzerland has still not been realized seven years later. Huh? Could it be that the Bank of England hasn’t repatriated Austria’s gold because they no longer have it? Heh. Is the Pope Catholic? It looks like Austria failed Counterparty Risk 101.
Credit: Here’s the bottom line: In the last 200+ years, 98% of all countries with a debt to GDP ratio of more than 130% have defaulted via inflation, currency devaluation, restructuring or pure default. Ultimately, this is the only reason why every national treasury or central bank in the world stores gold in its vault. Likewise, you should be your own central bank by keeping a small percentage of your net worth, excluding home equity, in the form of physical gold and/or silver. Just don’t make the same mistake as Austria. Remember, if you don’t hold it, you don’t own it.
Last Week’s Poll Result
Do you consider yourself a buy-and-hold stock investor?
- Yes (82%)
- No (18%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that more than 4 in 5 say they buy their stocks for the long-term. As long-time reader Cowpoke noted last week, “Everybody is a buy and hold investor until a long bear market settles in and they start watching their portfolio get decimated.” Maybe so. I promise I’ll ask this question again if the bear market is still here a year from now.
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
By the Numbers
A recent survey 1000 homeowners asked respondents about home renovations television shows and home improvement projects. Here were some of the key findings:
65% The percentage of respondents who said they feel that home improvement TV shows set unrealistic expectations.
58% The share of respondents who felt that, despite those unrealistic expectations, watching home improvement shows has made them a more educated homeowner, buyer, or renovator.
47% The percentage of respondents who said home improvement shows inspired admiration.
27% The percentage of respondents who said home improvement shows made them jealous.
50% The share of respondents who said they completed their own DIY home project after seeing it on a home improvement TV show.
57% Of the respondents who completed a DIY home project they saw on television, the percentage who said it turned out just the way they had hoped.
7% The percentage of respondents who said they did a DIY home renovation that was so bad, they had to hire a pro to fix what they’d messed up.
Useless News: Drugstore Shoppers
Two young boys walked into a drug store one day, picked up a box of tampons and proceeded to the checkout counter.
The pharmacist at the counter asked the older boy, “Son, how old are you?”
“Eight,” the boy replied.
The man continued, “Do you know what these are used for?”
The boy replied, “Not exactly, but they aren’t for me; they’re for him. He’s my brother; he’s four.”
“Oh, really?” the pharmacist replied with a grin.
“Yes,” the boy said. “We saw on TV that if you use these, you would be able to swim, play tennis and ride a bike. Right now, he can’t do any of those things.”
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. Alaska (2.15 pages/visit)
2. Kentucky (2.14)
3. Wyoming (2.12)
4. Arizona (2.09)
5. West Virginia (2.02)
46. Missouri (1.60)
47. New Mexico (1.59)
48. South Dakota (1.58)
49. Oregon (1.56)
50. Iowa (1.54)
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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 list of 18 tips to consider before buying home, life and car insurance, Olivia dropped this into the comment section:
I think that a sign of a good insurance provider is the ability to listen to you. The bad part is nobody ever listens to me.
If it makes you feel any better, every parent with a teenager knows exactly how you feel.
If you enjoyed this edition of Black Coffee and found it to be informative, please forward it to your friends and family. Thank you! 😀
Photo Credit: public domain