Black Coffee: Orgies of Excess

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 …

I wish the pain of betrayal was as easy to ignore as the red flags that forewarned it.

– Steve Maraboli

Credits and Debits

Debit: Did you see this? The drop in Americans’ living standard continues. Thanks to increasing mortgage interest rates, owning a home now takes up around 27% of a typical family’s monthly income, compared to only 19% a year ago. Not surprisingly, this has resulted in the pace of mortgage applications falling to a multi-decade low amid high housing interest rates.

Debit: There is, however, some good news with respect to rising living costs: It turns out that Social Security recipients will be getting an 8.7% cost-of-living adjustment in 2023. Hooray! The bad news is, while the September CPI came in at an annualized rate of 8.2%, year-over-year inflation figure is actually twice that high – if not more. For those who doubt it – or don’t buy gasoline, pay rent, go to the doctor, or shop for groceries – PepsiCo reported this week that its product prices, which include its Rice-a-Roni, Life cereal, Quaker Oats and Aunt Jemima food brands, have risen 17% over the past year.

Credit: Of course, the Fed is now raising interest rates in a half-hearted attempt to tame inflation in the US – and that’s now wreaking havoc with economies all around the world. As Adventures In Capitalism points out, “the world doesn’t want a lower standard of living so that US consumers can continue their orgy of excess.” And who can blame them? Although, to be fair, I think it’s safe to say that most Americans don’t want a lower standard of living so that the federal government can continue its orgy of excess. And yet here we are.

Debit: By the way, the same blog also notes that, while the Fed can continue to try and crash global GDP by continuing to raise interest rates, “OPEC wields a much larger stick and will cut production even faster.” So it should be no surprise that OPEC has already signaled the Fed that it’s wasting its time. Why? Because ultimately, “OPEC controls the price of oil – and oil is the world’s Central Banker, not the Fed.” That’s very true. At least until the Fed can figure out a way to print black gold – or run a gas station:

Credit: After watching the National Debt increase 54-fold since 1971, macro analyst Peter Schiff says the Fed is in a pickle because “the economy is less able to tolerate 5% interest rates now than in 2008.”  For example, Schiff observes that, “If the Fed Funds Rate (FFR) gets to 5%, the 30-year mortgage rate will be 9%; people can’t afford 9% when they’re borrowing 95% of their home’s value. Then there’s the $31 trillion national debt; if the FFR gets to 5%, how can the government spend $1.5 trillion a year on the interest payments?” Very true. And the inevitable budget cuts could be a real problem for many Americans – but not all of them:

Debit: As for Schiff, he was just getting warmed up. “What about all the corporate debt?” he asked. “It has to be rolled over; how will the FFR go from 3% to 7% or 9%? What about junk bonds; how will they survive? What about all the municipal and state governments that have borrowed at low rates; how can they roll that debt over? How’s commercial real estate going to survive? The Fed created an economy completely dependent on near 0% interest rates. Now there’s no way to finance these companies – so there’s going to be a massive implosion.” Thankfully, the Fed learned how to defuse explosive situations from one of the best. Oh, wait …

Credit: Peter Schiff isn’t the only one that’s worried. Macro analyst Nick Giambruno says that, “It’s self-evident the fiat currency system centered on the US dollar is self-destructing at an alarming rate. After more than 50 years, it’s long past the end of its shelf-life; like a carton of spoiled milk. Even the elites running the system can see that and are openly talking about what they’d like to see come next, which is why there’s all this talk about a reset as the current monetary system falters.” All I can say is: “It’s about time.” On a side note: If these so-called “elites” need a tin foil hat, I’ve got plenty to spare.

Credit: Meanwhile, financial analyst Paul Wong is warning that, “Red flags developing in the yen, yuan, euro, and especially the pound and gilts are all signaling that cracks are now showing up in foreign (currencies) and rates. Credit stress is rising and credit liquidity is falling to the point where market accidents tend to happen. So the end of higher rates and quantitative tightening (QT) are coming into sight – but not before there’s more market turmoil.” At least that’s the conventional wisdom. So why does everyone seem to realize this except for the Fed?

Debit: On a related note, I see that the combined balance sheet of the world’s four largest central banks – the Bank of Japan, the Federal Reserve, the European Central Bank, and the People’s Bank of China – are now an insane 32% of global gross domestic product (GDP). Imagine that.

Credit: In the meantime, the European banking system is on the verge of crumbling. Then again, as economist Tuomas Malinen warns, the global financial system has even more pressing concerns at the moment: “Now, if policymakers in Europe or elsewhere push us into a hyperinflation, it’s clear that our political leaders are either utterly incompetent or they are deliberately trying to destroy our living standards.” Well … I vote for utterly incompetent.

Debit: According to Malinen, we’re now at the point where “Prices increase but the demand will not come down, because it is supported by the vast amounts of money sloshing around in the economy. When a sustained demand meets ailing supply, prices naturally continue rising. Then consumers will notice that the purchasing power of their wages is declining, and they start to demand higher salaries. This is the self-sustaining process of inflation that central banks helped to create.” Oh … and speaking of insatiable demand:

Debit: Believe it or not, hyperinflation is always a political decision. And Malinen warns that Europe is on the verge of fulfilling hyperinflation’s two preconditions for unleashing a rapid decline in the value of fiat cash: 1) The creation of vast amounts of central bank credit and currency, and 2) a serious diminution of production capabilities. Needless to say, the first precondition has been met. As for the second one, Malinen says Europe is “almost there.” In other words: Weimar, here we come. Again.

Debit: Then again, hyperinflation is inevitable with a fiat monetary system. When a government decides it no longer wants to be constrained by the fiscal responsibility imposed upon it by gold it will introduce a fiat currency with no anchor to the yellow metal. Then the government slowly inflates their poisonous new currency over several generations to hide the gradual erosion of purchasing power from the populace until it becomes all but worthless. This process has been underway for more than 50 years in America – but the end is now clearly in sight. Let’s just hope the public won’t be fooled again when politicians try to introduce the next fiat currency scam.

By the Numbers

According to a recent survey, the average American estimates they’ve made four wrong major decisions in their life. Here are some other findings from the same research:

31% The share of Americans who say they’ve made more than four major decisions in their life.

54% Respondents who shared they’re more likely to turn to friends or family for advice.

40% The percentage of respondents who said they’re more likely to turn to the internet for advice.

76% The share of Americans who said that one of their main goals is to educate themselves about important money decisions they’ll have to make.

27% The percentage of respondents who said investing decisions make them nervous.

50% The share of respondents who said they’ve put off investing because they can’t seem to figure it out.

71% Percentage who wish they had more guidance when it comes to making large life decisions.

57% The share of respondents who say they haven’t invested because they think stocks are too risky.

4 On average, the number of investors who say they’ve lost money through an investment.

80% Percentage of investors who say it’s hard for them to trust their own judgement after losing money.

Source: Talker

The Question of the Week

[poll id="444"]

Last Week’s Poll Result

What is the most money you’ve spent on a single vacation?

• $1001 to $5000 (43%)
• $5001 to $10,000 (26%)
• More than $10,000 (18%)
• $1000 or less (12%)

More than 2000 Len Penzo dot Com readers answered last week’s poll question and it turns out that there is a slight edge in the number of people who have spent more than $10,000 on a single vacation, versus the number of people who have spent less than $1000. As for yours truly, I’ve never spent $10,000 or more on a single vacay, but I have come close.

This week’s question comes from long-time Len Penzo dot Com reader, Frank. 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.

Useless News: The Wrong Question

A Russian Jew named Jacob was finally allowed to emigrate to Israel.

At the Moscow airport, a customs inspector found a statue of Lenin in his luggage. “What is this?”

Jacob replied, “Wrong question, comrade. You should have asked ‘Who is this?’ This is Comrade Lenin. He laid the foundations of Socialism and created the future prosperity of the Russian people. I am taking it with me as a memory of our dear hero.”

The Russian customs official sent him on his way.

At Tel Aviv airport, the Israeli customs official also asked “What is this?”

“Wrong question, sir. You should be asking ‘Who is this?’ This, my friend, is Lenin, the bastard who caused me, a Jew, to leave Russia. I take this statue as a reminder to curse him every day.”

The Israeli official sent him on his way.

When he settled in his new home, Jacob placed the statue on a table. The following evening, he invited friends and relatives to dinner.

Spotting the statue, one of his cousins asked, “Who is this?”

Jacob replied, “Wrong question. You should have asked ‘What is this?'”

“Okay then,” said the cousin, “What is this?”

“This,” said Jacob, “is five kilograms of solid gold that I managed to bring with me without having to pay any customs duty or tax!”

(h/t: Mickey)

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. Yukon (2.25 pages/visit)
2. Saskatchewan (2.16)
3. Manitoba (2.12)
4. Alberta (1.95)
5. Ontario (1.83)

9. Quebec (1.69)
10. Newfoundland & Labrador  (1.67)
11. Nova Scotia (1.50)
12. New Brunswick (1.48)
13. Nunavut (1.25)

Whether you happen to enjoy what you’re reading (like those crazy Canucks in Yukon, eh) — or not (ahem, all you hosers living on the frozen Nunavut tundra) — please don’t forget to:

1. Subscribe to my weekly Len Penzo dot Com Newsletter! (It’s easy! See the big green box in the sidebar at the top of the page.)

2. Make sure you follow me on my new favorite quick-chat site, Gab — oh yeah, and Parler too! Of course, you can always follow me on Twitter. Just be careful what you say there.

3. Become a fan of Len Penzo dot Com on Facebook too!

And last, but not least …

4. Please support this website by patronizing my sponsors!

Thank you!!!! 😊

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

After reading about the 10 worst things I ever bought, Buy, Hold Long dropped this note:

Some of these are quite funny!

Thank you. Unfortunately for me, most of them aren’t cheap laughs.

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: stock photo