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 …
Gold is the money of kings, silver is the money of gentlemen, and barter is the money of peasants. Debt is the money of slaves.
– Norm Franz
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.
– Ludwig Von Mises
Credits and Debits
Debit: Did you see this? An Illinois family of four now owes $168,000 in unfunded government pension liabilities – that’s more than two and a half times the $63,000 they earn in household income. In a state of 13 million residents, every man, woman, and child owes $42,000 – on an estimated $533 billion pension liability for its grossly overpaid public employees. In other words: When it comes to solvency, Illinois has all but passed the point of no return. Here are ten jaw-dropping examples from this orgy of fiscal excess at taxpayers’ expense:
Debit: The public sector is supposed to work for the citizenry – but since the turn of the century, taxpayers have been working for the public sector, as Illinois perfectly exemplifies. Investigative journalist, Andrew Andrzejewski, reports that “while crime skyrockets, public school test scores plummet, and inflation decimates private-sector paychecks, the Illinois public employee class is living the good life.” In fact, Illinois has 132,188 public employees and retirees who earn $100,000 or more annually. No, really. And, sadly, that’s par for the course in many other states across the nation. As for the tax-paying slobs in the private sector, it’s more of this:
Debit: In other news, I see that Japan recently unveiled a new plan for $200 billion in fresh spending that government officials said was designed to ease the impact of soaring inflation on consumers. That’s right; that means the BOJ is now effectively printing currency to “offset” the inflationary impact of, wait for it … printing their currency. Heh. And yet we’re continually being told that these government policy makers are among the world’s top macroeconomic experts. Go figure.
Credit: Of course, the Japanese government doesn’t have a monopoly on absurd monetary policies. As the inimitable MN Gordon points out, while “Ben Bernanke’s quantitative easing (QE) was a banking and mortgage market bailout, Fed Chair Powell’s QE – to finance mega spending bills – included QE for the people. This directly injected (cash) into the economy. At the same time, the shut down disrupted supply chains, resulting in a massive supply shock. In short: The printing press stimulated demand while lockdowns decreased supply. What did they think would happen?” That’s just it – they didn’t think.
Credit: If a decade of absurd Western central bank policies has shaken your faith in their ability to manage the global monetary system, you’re not alone. Russia and China are so fed up that they’re now looking to launch their own gold-backed monetary system. Then again, I guess that shouldn’t be surprising when, as Mr. Gordon puts it, “the feebleminded intellectuals” running the show “actually expected that the economy could be turned back on precisely when they commanded it. With the flick of a switch the central planners thought everything would return to normal. What fools!” Indeed. And on a related note …
Debit: Since 1980, bonds have been the de facto hedge against risk. However, this year bonds have experienced their worst drawdown in more than a century – yes, 100 years. And that, in turn, has made mincemeat of the previously tried-and-true 60/40 stock-and-bond portfolio used by investors who used diversification to avoid big losses. So … how bad has the 60/40 portfolio been this year? Well … those portfolios have experienced a negative return of almost 35% so far in 2022. Ouch. See for yourself:
Credit: On a related note, financial analyst Lance Roberts reminds us that markets run into trouble when interest rates rise. Whether it’s the secure US Treasuries or the riskiest junk bonds, Roberts says the trouble starts when “higher rates reduce the number of willing borrowers, and debt buyers balk at falling prices. And when debt buyers evaporate, the ability to issue debt to fund spending becomes increasingly problematic.” Needless to say, it’s one thing when a zombie company fails because fearful investors stop buying its debt. But it’s a whole different kettle of dead fish when that happens to a sovereign nation.
Debit: Unfortunately, as Roberts points out, “Outstanding US Treasury debt has expanded by $7 trillion since 2019. However, at the same time, the major financial institutions that act as ‘primary dealers’ are unwilling to serve as the net bond buyers.” Why? Because the Fed – like almost everyone else – has been a net seller of bonds for several months now. That, in turn, has proven to be an especially big problem because asking other entities to pick up the slack by buying US Treasuries is currently about as popular as this …
Credit: Financial analyst Matthew Piepenburg says that the US Treasury market is broken and warned that “shark fins are approaching.” In particular, he pointed to “the alarming lack of buying interest from central banks, which suggests previous politically-dependable buyers of those increasingly-unloved IOUs are no longer drinking the US Kool-aid, nor trusting Uncle Sam’s bar tab. So a lot more are about to get dumped … because the USD is too strong and rates are too high.” Very true. On the other hand, bonds aren’t the only assets suffering from a lack of enthusiasm these days:
Credit: Obviously, the inability to sell bonds is a real problem for a nation that depends on debt – rather than manufacturing – to sustain its economy. Macro analyst Robert Burgess is certainly aware of that fact. He points out that, “If the Treasury market seizes up, then the global economy and financial system will have much bigger problems than elevated inflation.” Yep. And if you’re not sure what problems he could be referring to, ask somebody who currently resides in Venezuela, or lived in Zimbabwe in 2008, or Brazil in the late 20th century, or Hungary during World War II, or Germany in the early 1920s, or …
Credit: Unfortunately, as macro analyst Peter Schiff points out, “Wall Street has been drunk on cheap (debt) for a decade, and it’s ultimately going to end in another financial crisis.” To drive the point home, Schiff says the severity of the resulting malinvestments and “misallocated resources that have been made by the government, the private sector, corporations, and individuals are monumental mistakes.” True. And there will be a reckoning because the math will ensure it. That being said, Wall Street isn’t the only one who’s drunk …
Debit: By the way, like most financially responsible people who demand accountability, Schiff asked – and answered – a very two pertinent questions: “Why was everybody on Wall Street drunk, and who liquored them up? Answer: It was the Fed – and Alan Greenspan was the bartender who kept serving the drinks. But while the whole nation was drunk on cheap money, people did a lot of stupid things.” As a result, Schiff says, “everybody is going to be exposed when the tide goes out – which is what’s happening right now.” Well … that is, everybody who isn’t already filthy rich. As for the rest of us, there’s always wealth insurance – because this isn’t a coincidence:
Last Week’s Poll Results
How long could you hold out if your home services were cut but you couldn’t leave?
- 2 to 3 weeks (29%)
- 1 week (25%)
- 1 month (20%)
- Bring on the walking dead! (20%)
- I’d panic immediately! (5%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that 1 in 5 have prepared themselves so well for unforeseen disasters that they’re ready to take on the zombie apocalypse from home. Well … assuming we get one.
This week’s question was brought to you by reader Frank. 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
After a COVID-19 slump, 2.5 million weddings are set to take place this year – that’s the biggest surge since 1984. With that in mind, here are the ten best states for the wedding industry, according to a recent survey:
10 New Jersey
3 Rhode Island
1 New York
Useless News: The Board Meeting
A business executive was trying to squeeze in a round of golf before an important meeting with his CEO – but his round took longer than expected and so he ended up walking in to the meeting 30 minutes late.
Unfortunately, this pissed off the Board of Directors. But the CEO was especially angry to be kept waiting and demanded to know why the executive was so tardy.
The executive said “I apologize, sir. You see … I was golfing with George this morning. I was five under par and having the round of my life. Then we got to the 12th hole and George dropped dead from a heart attack.”
“Oh my God!” the thoroughly embarrassed CEO exclaimed. “I’m so sorry; that must have been awful.”
“It sure was,” said the executive. “After that happened it was hit the ball and drag George. Hit the ball and drag George.”
(h/t: Dutchy of Ironie)
More Useless News
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You’re telling me! So … does this mean you won’t be asking me out for a date any time soon?
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