Black Coffee: A Ponzi for Your Thoughts

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 holiday party started …

I miss the good old days when the government was stealing from my kids’ and grandkids’ future. Now, they’re stealing from me every day.

– Anonymous

Credits and Debits

Credit: Did you see this? Last month the Bank of Japan (BoJ) ended its seven-year experiment with yield curve control, raising the 10-year government bond ceiling from 0.25% to 0.50%. Now the bond market smells blood in the water. So it has been testing the BoJ’s new upper limit, which may force the central bank to retreat again – this time to 1.0%. As a result, speculation is mounting that the BoJ is losing control of its bond market. If true, legendary market analyst Jim Grant believes that could break the global financial system. Is Mr. Grant being just a bit hysterical? Probably. I mean, it’s not as if the BoJ is running out of bonds to buy. Oh, wait …

Debit: Of course, when it comes to debt and the means of funding it, Japan isn’t alone, with the US National Debt currently sitting at $31.5 trillion, and another $181 trillion in unfunded liabilities for Social Security, Medicare, and other things such as federal employee and veteran benefits. The good news is the Magic Money Tree crowd seems to think this isn’t a problem because, for the most part, “we owe the money to ourselves.” On the other hand, those same people also believe this is legitimate too:

Credit: As the inimitable MN Gordon points out, “These debts won’t magically disappear. However, they won’t be directly paid either; simple arithmetic doesn’t allow it. But they will be paid, nonetheless. You’ll pay with your time and your talents. You’ll also pay with a declining standard of living. In fact, you already are.” Indeed. That’s because every dollar the Fed conjures from thin air devalues the existing dollars in our wallets. Needless to say, the Fed has been playing David Copperfield since 2010 – conjuring a lot of dollars in the process, while making the greenback’s purchasing power all but disappear. In the meantime:

Debit: While the government continues to crow that its preferred inflation indicator (CPI) shows that consumer price increases are slowing – from 9.1% this summer to 6.5% now – the official inflation rate is still three times higher than the pre-pandemic average. In other words: Inflation’s rate of change is slowing down – but in a debt-based monetary system, any previous losses in consumer purchasing power are never recovered. So it’s easy to see why the financial burden placed on millions of American households continues unabated. Especially for relatively new homeowners who recently took out a mortgage.

Debit: If you’re wondering just how unreliable the CPI figure is, keep in mind that the government’s formula has been changed more than two dozen times since 1980 in order to impart a lower bias to the final inflation figure. In fact, if the CPI was still calculated using the methodology from 1980, the most recent inflation figure would be 15% – not 6.5%. Then again, the US government loves to game the system in order to make things seem rosier than they really are. For example, last year it said two consecutive quarters of negative GDP growth no longer met the official definition of recession. However, back in the real world …

Debit: Needless to say, now that the pandemic stimulus money has completely dried up, Americans are using their credit cards to cope with skyrocketing prices. In fact, Americans are running up credit card balances at an unprecedented pace, as evidenced by the latest data that shows revolving credit increasing 16.9% in November. The run up means that Americans now owe an astounding $1.2 trillion in revolving debt. To put the increase into perspective, the annual increase in 2019, prior to the pandemic, was “only” 3.6%. The good news is this is something that only the tin-foil-hat crowd usually worries about. So there’s that.

Debit: Then again, the real problem isn’t simply the rising credit card balances – it’s the one-two punch of rising debt and interest rates, which is making the average American more than a bit punch drunk from all of the charges they’re racking up in a desperate attempt to maintain their standard of living. As for this little fella, he certainly knows how they feel …

Debit: So … just how toxic is Americans’ growing addiction to the plastic in their wallets? Well … as NBC News points out, “it would take 16 years for someone to pay off the current average credit card balance of $5474 by making the minimum payments at 19.2%. At that point, they would have shelled out $7365 in interest alone.” And if you think that’s toxic, you should see this. Or maybe not …

Credit: Meanwhile, as first pointed out last week, the US money supply is continuing to contract. In fact, it is contracting at the fastest and most prolonged pace since the US dollar’s final anchor to gold was broken back in 1971.

Credit: Unfortunately, our debt-based monetary system has a fatal flaw which is now beginning to manifest. As macroeconomist Daniel Oliver points out, any new currency that’s “lent into existence carries a usurious interest burden … making the whole social, political, economic and financial structure dependent on accelerating money printing … (eventually) leading to exponential growth.”  This is why even a relatively small pullback in the money supply is poison to the current global fiat monetary system. How small? Well … some of you may have to squint to see the tiny pullback that led to the Great Financial Crisis of 2008.

Credit: By the way, Mr. Oliver says, “Now the money supply is falling, and set to shrink more – while demand for money is rising. If these trends continue, it would be the end of the world as we know it. But it won’t continue because the Fed’s mission is to fund the state.” And that has never been truer, as Saudi Arabia once again signaled this week that the petrodollar – which was a primary tool for funding US profligacy – is now a thing of the past. Remember when the US government didn’t have to worry about the inflationary impacts of its enormous annual budget deficits because foreigners always picked up the tab? Pepperidge Farms remembers.

Credit: We’ll leave the final words this week to Mr. Oliver, who says the current “rhetoric from the Fed is: higher yields for longer to slay inflation. But the bond market doesn’t believe it. Neither does gold, which has spiked from $1618 on September 28 to above $1900 currently. This jump in price has evoked surprisingly little commentary, suggesting we’re early in the move. The gold market spent two years shaking out those late to the party in 2020. Now it’s time for the next leg higher.” Which is a nice way of saying the price of wealth insurance may be going up this year. Assuming you care about stuff like that.

By the Numbers

The December CPI was released last week, and while food prices increased just 0.2% from the previous month, one data-point leaps right out of the monthly food market basket. In fact, almost every item in the basket saw a price decline. You can probably guess which product had the highest month-over-month price increase – by far – of any food expenditure. Here’s an overview:

-2.9% bacon

-1.1% fruits & vegetables

-1.0% milk

-1.0% fish

-1.0% chicken

-0.6% pork

-0.2% ground beef

-0.2% bread

0.0% coffee

+11.1% eggs

Source: Forbes

The Question of the Week

[poll id="458"]

Last Week’s Poll Result

Have you ever purchased insurance on electronics, appliances or other household products?

• No (59%)
• Yes, but never again. (31%)
• Yes, and I’d do it again! (9%)

More than 1900 Len Penzo dot Com readers answered last week’s poll question and it turns out that just 2 in 5 of you have ever purchased insurance on electronics, appliances or other household products. More telling, of those who have bought that insurance, just 23% say they would do it again – which makes me kind of glad to be in the camp with those who have never shelled out cash for the protection.

Last week’s question was contributed by 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: Positive Outlook

(h/t: The Honeybee)

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. Ontario (2.05 pages/visit)
2. Alberta (1.96)
3. Newfoundland & Labrador (1.84)
4. Saskatchewan (1.81)
5. Nunavut (1.67)

9. Saskatchewan (1.42)
10. Quebec (1.39)
11. Manitoba (1.37)
12. Yukon (1.25)
13. Northwest Territories (1.00)

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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 me at: Len@LenPenzo.com

After reading about RD Blakeslee’s experience working on Ford’s 8N farm tractor assembly line way back in 1949, Barbara R. shared this:

We have a 1949 8N. Her name is Daisybelle!

According to RD, you should sit on Daisybelle carefully — he says he may not have got all the seat bolts tightened. Thanks for sharing the photo!

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: stock photo