Black Coffee: How Not to Do It

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 a wonderful week. And with that, let’s get right to this week’s commentary, shall we?

Holding fiat currency for the long term is like holding a burning match.

– Doug Casey

It’s hard to imagine a more stupid or more dangerous way of making decisions than by putting those decisions in the hands of people who pay no price for being wrong.

– Thomas Sowell

Credits and Debits

Debit: Did you see this? A recent survey found that 96% of Americans have less than $1 million saved for retirement, and more than 50% have less than $20,000 saved. And that’s not the only red flag regarding the state of US households; it turns out that 401(k) withdrawals due to hardship increased from 2.1% to 2.8% from the year prior. That’s an increase of 33%. Yikes! And, yes, those hardship withdrawals are most definitely taxed – which may or may not be a good thing, depending on your point of view:

Debit: In case you’re wondering, the average 401(k) balance was $112,572 at the end of 2022 — a 20% drop from the previous year. Now … I know what you’re thinking; for a more realistic analysis, we need to avoid a picture skewed by the top range of accounts. Those of you who paid attention in math class know this is done by looking at the median account, where the balance of $27,376 saw a 23% decrease since year-end 2021. So it turns out that retirement account pain has been felt by almost everyone over the past year. Just don’t tell that to the Fed:

Debit: Then again, Americans are borrowing like never before, as US household debt swelled to a record $16.9 trillion in the final quarter of 2022 – that was the largest quarterly increase in 20 years. Overall, household debt balances are now $2.8 trillion higher than at the end of 2019, which was the last year before the pandemic. The rising debt burden suggests that households are either borrowing because they’re wildly bullish on the economy – or they’re no longer able to maintain their standard of living without help from creditors. Which one do you think is more likely?

Credit: What is clear is that, after more than a decade of gross mismanagement of the US dollar (USD) by the Fed – in the form of its zero interest rate policy (ZIRP) – our debt-based monetary system is now in its death throes. Unfortunately, as macroeconomist Daniel Lacalle notes, America’s politicians aren’t worried. And why is that? According to Lacalle, it’s because they fail to understand that “the process is slow – until it suddenly accelerates with hyperinflation and the state crumbles.” On the other hand, politicians aren’t the only ones that have trouble understanding things …

Debit: By the way, thanks to reckless Fed policies like ZIRP, even savers are falling behind. How far behind? Well … when one measures inflation using the same methodology the US government used back in 1980, it turns out that savers lost $15,000 in purchasing power for every $100,000 they had squirreled away in a bank account last year. And over the last two years for every $100,000 in the bank, they lost more than $30,000 of purchasing power for every $100,000 in a bank savings account. Oh … and in case you’re wondering, all of that lost purchasing power was transferred – and spent – by the government. Thank you very much.

Debit: The bad news is, when banks artificially set the price of money to zero – and by extension, real rates to negative – savers being punished via lost purchasing power is just one of many financial absurdities that suddenly appear. When interest rates are at or near 0%, speculators are encouraged to take wild financial risks that would never happen if there was an actual cost to borrowing. Think: investing in NFTs and cryptocurrencies, and lending to profitless zombie companies, which encourages malinvestment and stifles productive economic growth. Speaking of speculators (and clueless ones at that):

Debit: Of course, while speculators love 0% interest rates, ZIRP is a double-edged sword for the general public that ultimately lead to unaffordable mortgages and rents, stock and housing market bubbles, a contraction of the middle class and declining living standards, and the insolvency (at least on paper) of most public pension funds. And although there are many economists and macro analysts who correctly warned of those eventual consequences, for some reason the confused experts at the Fed who enacted ZIRP failed to anticipate them. Oh … and speaking of confusion:

Debit: Not coincidentally, nine months into the latest Fed rate-hiking campaign, there has been a surge of large US companies filing for bankruptcy. Last month there were 20 bankruptcy filings by American companies with at least $50 million of liabilities. That’s more than any January since 2010, which saw 25 such filings. Not surprisingly, most of these struggling companies have a common theme: as rates rise, credit is now harder to come by. Not coincidentally, rising rates also increase the number of Xanax prescriptions being handed out to CEOs of zombie corporations – much to the delight of Big Pharma. So there’s that.

Debit: In other news, over the last three weeks, used car prices just saw the largest increase in 14 years as inflation continues to drive consumer prices. For those counting at home, wholesale used-vehicle prices increased 4.1% since the start of the month – that’s the largest February increase since 2009’s full-month 4.4% gain. In the meantime, the Fed will continue its folly of trying to rein in double-digit inflation with interest rates in the neighborhood of 5%. Never mind that with the National Debt now pushing $32 trillion, double-digit rates would consume every last penny of tax revenue. In other words: the Fed is trapped.

Credit: In fact, macro analyst Peter Schiff noted this week that if the Fed was winning the inflation fight “consumers would be borrowing less and credit card debt would be falling. But it’s not happening because rates haven’t gone up nearly enough to discourage borrowing. The Fed knows if it got serious about fighting inflation, it would crash the economy, and probably cause a financial crisis. But it can never admit that. So, it pretends that it’s fighting inflation even though it’s pursuing policies that are fueling the fire.” Imagine that.

Debit: The reality is, rising price for everything from used cars to groceries are actually a symptom of the rapidly falling purchasing power of fiat currencies – and that results from central banks having to “print money” to cover excessive government debt. And there has been a lot of USDs printed during the last 15 years. For those who haven’t been paying attention, government debt has risen twice as much as GDP since the monetary system officially broke in 2008.

Credit: The good news for precious metals holders is that, ultimately, as the rate of collapse of fiat currencies accelerates, demand for gold will continue to increase at a significant pace. The result of this will be such that prices for goods, commodities, homes and other tangible assets measured in troy ounces of gold and silver will fall significantly. Or, to put it another way: As fiat currencies get closer to their demise, the purchasing power of gold and silver holders will increase dramatically. For most people, it will almost certainly be to breathtaking heights. After all, history tells us that a little wealth insurance goes a long way.

By the Numbers

Energy bills can differ from state to state; factors such as climate, local rates, and even state laws can see prices vary dramatically. So when combining electricity and natural gas prices, which states do you think have the most – and least – expensive energy bills? Here are the highest and lowest average monthly costs per household in each state:

50 Hawaii (average monthly cost: $399.49)

49 Connecticut ($242.49)

48 Alabama ($222.78)

47 Georgia ($215.80)

46 Arizona ($214.92)

5 New Mexico ($148.35)

4 Wyoming ($147.19)

3 Montana ($141.14)

2 Colorado ($134.20)

1 Idaho ($130.37)

Source: TNRealEstate

Last Week’s Poll Results

• Printing too much currency (63%)
• Something else (13%)
• The war on fossil fuels (13%)
• Supply chain issues (6%)
• COVID (5%)

More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out that 3 in 8 say the primary cause of the inflation that we’re all currently suffering from is due to something other than too much currency printing – which just goes to show that I still have more work to do. 😉

Last week’s question was submitted by reader Kevin. 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.

The Question of the Week

[poll id="463"]

Useless News: Decisions, Decisions

An angel appeared at a faculty meeting and told the dean that in return for his unselfish and exemplary behavior, the Lord would reward him with his choice of infinite wealth, impeccable wisdom, or incredible beauty.

Without hesitating, the dean selected impeccable wisdom.

“Done!” said the angel, who then disappeared in a cloud of smoke and a bolt of lightning.

And with that, all heads turned toward the dean, who was now surrounded by a faint halo of beautiful light.

After a few seconds of uneasy silence, one the dean’s colleagues implored him to say something.

The dean gave a heavy sigh and said, “I should have taken the money.”

(h/t: Mikey)

More Useless News

Here are the top five articles viewed by my 45,022 RSS feed, weekly email subscribers, and other followers over the past 30 days (excluding Black Coffee posts):

1. Why Paying Off the Mortgage Early May Be a Big Mistake
2. Debt Elimination: The Pros and Cons of Dave Ramsey’s Baby Steps
3. Why Extended Warranties for New Tires Are a Waste of Money
4. 36 Amazing Uses for Plastic Grocery Bags
5. A Georgia Teacher Shows Why It Always Pays to Read the Fine Print

Hey, while you’re here, 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! 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 out to me at: Len@LenPenzo.com

After reading this article on my blog explaining why a college degree isn’t necessary to succeed, Jimmy Ekwere left this comment:

“Your [sic] 65% right. For me i [sic] believe that if one is able to read and write than [sic] your [sic] good to go. Hence if we could teach our children how to communicate and enroll than on an handwork [sic] it could help reduce unmployment [sic].”

You definitely made your point, Jimmy!

If you enjoyed this, please forward it to your friends and family. 😊

I’m Len Penzo and I approved this message.

Photo Credit: public domain