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 only two things that scare me are God and the IRS.
— Dr. Dre
People try to live within their income so they can afford to pay taxes to a government that can’t operate within its income.
— Robert Half
No man’s credit is as good as his money.
— John Dewey
Credits and Debits
Debit: Did you see this? The recent $1.28 billion Mega Millions lottery winner – that’s the second-largest award ever – will only get that prize if they take it over time. If they want the entire award now, the payout is $747 million. Now for the punchline: That’s before taxes. After the federal and state governments get their cut, the Illinois winner’s billion-dollar-plus payday becomes “just” $433 million. Yes, yes; I know. The “good” news is those taxes will help pay for the 87,000 new IRS agents authorized by Congress this week. Hey … Remember when Americans started a revolution over a tiny tea tax? Pepperidge Farms remembers.
Debit: Frankly, it looks like Americans are going to have to rely on lottery winnings if they want to move up the socio-economic ladder because real average weekly earnings continue to plunge; they’re now down 16 straight months as raging inflation – this week’s updated CPI shows it “officially” running at 8.5%, but in reality closer to 18% – continues to eat away at any wage gains. Then again, with real household income falling, middle-class Americans may be less likely to fall under the watchful eye of those 87,000 IRS new-hires. So there’s that.
Debit: Perhaps those falling real wages is why American workers now say they will need on average $1.7 million to cover expenses throughout their golden years, according to a recent survey on retirement. And while this is down from $1.9 million reported in last year’s survey, only 47% of the workers who participated in the 2022 survey now say they’re still “very likely to meet their retirement goals,” while just 13% report that they’re “not likely” to reach any of their goals. In the meantime, inflation will continue to consume the purchasing power of Americans’ nest eggs; young and old alike.
Debit: On a related note, plunging stock and bond prices have left state and local public pension funds with assets to cover only 78% of what they will eventually owe. Last year, the funds had 85% of the money needed to meet their obligations – that translates to almost $500 billion less that pension funds have on hand. So to try and make up the difference, pension funds are venturing into riskier investments that offer the chance of high profits, such as junk bonds. And if that doesn’t work, the same fund managers say they plan on taking whatever cash is left to a Vegas roulette table where they’ll put it all on red.
Credit: Of course, it’s not just US pension funds that are in danger of being unable to meet their financial obligations; the federal government is too. As macro analyst Matthew Piepenburg notes, “entitlements were 54% of US tax receipts in 2015; today, annual US entitlement payments will soon reach 90% of US tax receipts.” In short, Piepenburg warns that the Fed’s policy of raising interest rates “will bankrupt the US government” unless they pivot to cover the growing budget deficit with more currency printing. Uh huh. But maybe, just maybe, there is also another alternative …
Debit: Meanwhile, many small business sectors are continuing to struggle with high rents, including trucking companies, car services, restaurants, retail shops, and beauty salons. In fact, continuing rent hikes, rising labor costs, the ongoing labor shortage, high gas prices, and subdued consumer spending are all combining to create economic instability. Aside from those minor inconveniences, small businesses are doing better than ever. At least that’s what the those in charge are telling us:
Credit: Speaking of the people in charge, this week financial commentator Franklin Sanders asked a very good question: “Honest to goodness, these central banking people couldn’t make a profit with a snow cone stand in New Orleans in July, and they think they’re going to rule the world?” The question was rhetorical, of course. That being said, those same central bankers would simply tell you that it’s us unsophisticated plebes who don’t understand …
Credit: As for the inimitable MN Gordon, he notes that, “Failed Keynesian policies coupled with monetary madness have positioned the US economy in an extraordinarily unfavorable place: where consumer price inflation is raging while the economy is contracting. How much higher can the Fed (raise rates) before something breaks? We’ll find out soon. At this point, the Fed will have to trigger a massive, 1930s-style depression to stop inflation in its tracks.” Then again, based on the, er, “exuberance” behind their so-called quantitative tightening (QT) program, the Fed doesn’t look very eager to go with that option.
Credit: Needless to say, the Fed is reluctant to do anything because any move could implode the current debt-based monetary system, which is rapidly approaching its mathematical end point. As macro analyst Bill Holter points out, “Global GDP is $100 trillion – but global debt is $350 trillion. So the entire world is now in banana republic territory. Now central banks are raising rates on an over-leveraged system and that will eventually create a worldwide credit collapse.” Holter says when that happens we’ll simultaneously see asset deflation with, ironically, severe inflation in “the things we need to live our daily lives.” Meanwhile …
Debit: So how can there be simultaneous inflation and deflation? Well … Holter answers this by first noting that our modern economy relies on credit, which in turn depends on faith in the currency. He then uses a loaf of bread to illustrate: It takes multiple credit-dependent entities to make that loaf of bread and get it to market; from the farmer who sows and reaps the wheat, to the companies that provide the farmer with fertilizer, to the factories that mill the wheat into flour, to the bakeries that bake the flour into bread, to the truckers who transport the bread to the stores. Without credit, prices will increase due to shortages caused by broken supply chains. Er … and pissed off service providers:
Credit: Remember: real money, by definition, can never default. Unfortunately, the fiat dollar isn’t money – it’s credit; otherwise known as debt. So the only way to protect yourself from a catastrophic credit collapse is to have real money on hand – gold and silver – to conduct your transactions. For smaller transactions, the best way to do this is with “junk” silver US coins minted before 1965 – dimes, quarters, half-dollars, and dollars – which you can buy from precious metal dealers. For example, a silver dime will always buy a loaf of bread or a pound of chicken; likewise, a silver quarter will always buy a gallon of gas. As for gold coins, they can be used for large transactions.
Credit: By the way, last week a couple found a glass jar with $2000 in Depression Era cash buried in their front yard. Anybody out there care to guess how much that modest cache would have been worth if the contents of that jar held $2000 face value of US gold coins instead of those fancy green Federal Reserve Notes? Well … for those counting at home, at the current dollar price of the yellow metal, the answer is: $174,150. Give or take a few hundred bucks. But, hey … who’s counting?
The Question of the Week
[poll id=”435″]
Last Week’s Poll Result
How is your investment portfolio doing this year?
- It’s underwater (46%)
- It’s treading water (43%)
- It’s above water (11%)
More than 2500 Len Penzo dot Com readers responded to last week’s question and it turns out that a narrow plurality say their investment portfolio is underwater this year. I know mine is but, hey … we’ve still got almost half the year to turn things around!
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.
By the Numbers
With the dog days of summer here, let’s take a brief look at the findings of a survey of 2000 Americans regarding the downsides of summer:
5 Maximum number of summertime hours that the average American said they preferred to stay outside each day.
64 Temperature in degrees F that the average American keeps the AC running at during the summer months.
45% Percentage of respondents who said it’s hard to find an activity that everyone wants to do on hot summer days.
35% The share of respondents who say the worst aspect of summer is feeling sweaty.
32% Percentage who say the worst aspect of summer are the bugs.
31% The share who say the worst aspect of summer is getting sunburnt.
31% Percentage who say the worst aspect of summer is the muggy air.
74% Percentage of parents who say they have trouble keeping their kids entertained during the summer.
Source: Talker
Useless News: Wedding Day Shocker
A wedding ceremony came to the point where the minister asked if anyone had anything to say concerning the union of the bride and groom.
A young woman carrying a child stood up and walked slowly towards the minister; the congregation was shocked.
The groom’s jaw dropped as the woman approached.
The bride threw the bouquet into the air and burst out crying.
The groom’s mother fainted.
The best man shuffled in embarrassment.
The minister asked the woman, “Why have you come forward? What do you have to say?”
The woman replied, “We can’t hear you in the back.”
(h/t: RD Blakeslee)
More Useless News
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5. Maine (2.06)
46. Alaska (1.72)
47. New York (1.71)
48. South Carolina (1.69)
49. Connecticut (1.68)
50. Oregon (1.62)
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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
From Blondie:
I love your blog! I found it when I was Google-ing ‘lending money to friends.’
Awesome, Blondie! Thank you. Hey … Does this mean I can borrow $100 from you now?
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
Wow Len, that stadium pic puts the IRS plan in perspective and it’s unbelievable! I wonder how much $ our Fed. Gov’t. would need if they followed the plan of our Founders & the Constitution. I also wonder how far back in time we’d go to find them doing so (at least prior to FDR.)
Thanks for the coffee and have a great weekend!
Thanks, Lauren. If the federal government stuck solely to the powers enumerated to it in the Constitution, there would be no budget deficits. Or a fiat US dollar. Or the need for a central bank. (Despite claims to the contrary by America’s original Big Government advocate, Alexander Hamilton.)
Hi Len,
Welcome back! Last week I had another disappointing Saturday morning because I had no Black Coffee to read with my usual cup of joe. Two times in less than a month!
All those new IRS agents disturb me too. Sure seems like they are hellbent on declaring war on us little people.
Sara
Sorry for that, Sara. In prior years, when my schedule was really tight or I was sick with the flu, I would either get a guest poster or – more often – run myself ragged trying to get a new Black Coffee article out. But now that I am getting older, I just don’t have the energy anymore!
And I agree … almost everyone of those IRS agents are going to be focusing on the little people because we can’t afford a lawyer or CPA to battle the IRS.
I missed the buried money story, so thanks for sharing that! Explaining the difference in what it would have been worth today if it was in gold coins instead of paper money makes it easy for anyone to see why the dollar is pure crap for saving long term.
Homeowner who found the money: “$2,000 is a lot of money but it’s not life changing.”
No, but $175k is for a lot of people.
The lady said she looked up value of $2,000 in today’s dollars and it was $40,000. That number is based on CPI, which just goes to show how bad they have manipulated the CPI thru the years.
Yep. Best of all, gold held its purchasing power for all of those years without the need to take on risks that come with buying stocks and bonds.
The stock market is in the middle of a pretty good run up. Investors don’t seem to be buying the Fed’s claim it is going to keep raising rates.
The saying has always been “Don’t fight the Fed.” Usually that meant, when the Fed was loosening monetary policy, it was time to buy stocks and other assets. This time, “Don’t fight the Fed” means the opposite. So I think the Fed is going to keep raising rates until the stock market capitulates.
It’s bewildering to me that nearly half the people in the precious metal poll have no allocation to precious metals. If not now, when?
It’s more than half now. Most will have no allocation until the bitter end and they finally discover that their nest eggs were decimated because US dollar was debt – not money. But by then it will be too late.
I think the scariest fact you shared this week is the 16 straight months of falling real wages. That means people have been constantly losing ground to inflation since Feb of 2021 even with their raises. Until that gets turned around, the vice is going to keep squeezing the poor and middle classes tighter and tighter.
This weekend I heard someone on a news show touting that things aren’t so bad because “wages are rising.” Unfortunately, he was never challenged on the difference between nominal and real wages.
The IRS is going to have a hard time hiring that many agents. Just like every other business in the USA its hard too find help. Or nobody wants too work anymore. Take your pick. I have this distinct feeling that this isnt going to go end well for the current leader’s plans. Plus the new inflation bill that just passed is going to hurt the American people that much more further hurting the economic situation for all of us and our retirement accounts.
The rule of thumb for almost every Congressional act is that the title is exactly the opposite of what is advertised. See the “Patriot Act”, and the “Affordable Health Care Act” as the two biggest examples. The so-called “Inflation Reduction Act” will be no different.
I call that the Cheese Food rule. If you see a package labeled Cheese Food in the store, would you buy it? Would you eat it?
It’s interesting to me to watch the reactions of the public at large (their “average” response, so to speak).
For example, the sudden change in peoples’ vehicle buying choices with inflated gasoline prices:
https://wolfstreet.com/2022/08/13/new-vehicle-inventory-dips-near-record-low-fuel-efficient-cars-vanish-but-supply-of-full-size-pickups-suvs-rises-discounting-sets-in-to-move-the-iron/
Amazing, isn’t it, Dave?
Thanks Len. I think some readers may be at the 0.5 percent to 0.95 percent level. If we are just starting on our physical gold and silver wealth preservation. The IRS may have trouble locating your buried treasure, just put some other metal on top of it so they have more difficulty locating it. Lol, I agree that growing the IRS will not go over well in November for any who voted for it.
What buried treasure? I have no buried treasure. In fact, I have no treasure at all.
How many people in Texas were questioned about what they disliked most about summer? It would be the HEAT. It’s so hot here that before AC revival services were held in August all over the place. People were repenting because they didn’t want to go to hell. lol
It was so hot in California today that I just baked a beautiful lasagne in my mail box.
It sounds great but be warned your letter carrier might think it’s a food gift for them.
At this year’s annual meeting of Berkshire Hathaway, Charlie Munger spoke out against all this fiat printing by the Federal Reserve, and all this ridiculous government spending by the government. He was citing its harm on the economy.
Warren Buffet immediately spoke up saying he supported it and believed it was the right thing to do.
What might have been his reason? Robert Kiyosaki was being interviewed, and stated that this spending enriches the rich, and destroys the middle-class. He said I’m rich, and am greatly benefitting from it. The policies are going to wipeout the middle class in this country.
Indeed they are, Bill. And the Fed knows this, which is especially infuriating.
I just watched a podcast about the cause of inflation. They all blamed supply disruption due to COVID, and Global Warming.
None of the four speakers mentioned the extreme loss of jobs due to NAFTA and the trade agreement with China. The USA imports way too much and produces too little. The government spends too much, and floods the public with money. Worst of all, a fiat currency. The Federal Reserve lowered interest rates to 0 for the banks.
I thought, “Hmm. You people get paid for this stuff?”.
Before the America can become a manufacturing powerhouse again, the US dollar needs to lose its reserve currency status. Until then, Triffin’s Dilemma means nothing will change because the US has to continue running trade deficits to supply the rest of the world with US dollars.
The good news is, simple math suggests the USD’s days as the reserve currency are growing short. Once reserve status is lost, imports will become too expensive and the US will be forced to make things here once again. That, in turn, will help restore the middle class back to 1971 – where it was before the dollar was decoupled from gold – when a household could be richly supported by a single income.
That seems impossible, I know. But just watch.
It isn’t impossible. The thing I question is will we be in a dictatorship before it happens.
Personally, I believe that Americans can bring about the change themselves. They’d just have to own 4 shirts instead of 44 shirts. They’d need one pair of dress shoes, and a pair of sneakers instead of 54 pairs of shoes.
I once sat down and figured up what I paid for items made in the USA years ago, and what the same USA made items cost today. I then compared the wages for my job during the same time periods. I divided today’s wage by the wage then, and multiplied the old cost by that factor. They are actually less expensive now.
I know people shop out of boredom but I don’t know how people have time to get bored.
I don’t think the US will ever get to a true dictatorship; I am confident the 2A will ensure that.
As for t-shirts … they are less expensive, but they don’t make them like they used to. They are very thin today compared to 25 years ago. Same with most clothes. The quality of a pair of Levi’s today is nowhere near as good as it was in the 1970s or 80s; very thin material that doesn’t hold up to any rough work. The craftsmanship is very shoddy too; I’ve had more than one pair where the belt loops fail. They are two completely different pair of denim pants.
Len, the t-shirts and Levi’s you are buying are probably not made in USA. The products I’ve bought made in USA are just as good of quality as I hoped they’d be.
The one thing I have made in USA that just didn’t hold up like those made in the past is “me”.
That’s true for all of us, Bill!