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)
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
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.”
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):
- Why Paying Off the Mortgage Early May Be a Big Mistake
- Debt Elimination: The Pros and Cons of Dave Ramsey’s Baby Steps
- Why Extended Warranties for New Tires Are a Waste of Money
- 36 Amazing Uses for Plastic Grocery Bags
- A Georgia Teacher Shows Why It Always Pays to Read the Fine Print
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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
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
Lauren P. says
Len, this is the only place I can get a good cup of joe at a reasonable price these days! 😉
If you think it’s hard to save for retirement, try saving enough for that PLUS the lifetime of a disabled child. We want to provide financial resources for his caregivers after we’re gone, but GEEZ, it’s not easy these days. On the up side, we finally found a used car for our target price; only took 7 months…
Sam I Am says
I hate buying cars. My goal in life is to buy cars as infrequently as possible, which is why my current car is an ’02 Camry that I bought used in 2004. The old gal is still the apple of my eye. Runs well with no major problems. Just need to keep up on maintenance.
When I do buy a car I only buy with cash. For me, not having monthly payments on them makes the ownership experience so much better. Plus car insurance for old cars is cheap.
The buying wasn’t the worst part of my last used car – it was the DMV! What a headache. I paid what I felt was fair. The sellers were also happy. But the DMV said the price wasn’t reasonable. They only relented after a lot of painful back and forth.
Lauren P. says
Paul, WOW! The DMV here wouldn’t DREAM of interfering in an auto purchase, let alone presume to dictate what a ‘reasonable price’ is!
Martin, I’m with you all the way re: paying cash, and along with cheaper car insurance are cheaper DMV fees due to older car. 🙂
SamIAm, we’re replacing a minivan w/206K miles on it. We buy reliable used cars and drive them forever!
Len Penzo says
I’m so glad you found a used car in your target price, Lauren! And I know your savings goals are especially tough. You certainly seem to be making all the right moves like staying financially responsible, saving as much as you can, living in a great state with a relatively low cost of living. I know you’re going to get there! 🙂
Lauren P. says
Thanks for the encouragement, Len; we also try to read good personal finance blogs to keep us motivated an on track! 😉
Sara King says
I’m with Lauren on coffee prices. That’s why I always try to make my coffee at home and bring it with me. LOL!
As usual, your coffee is always brewed to perfection, unlike that burnt stuff they serve at Starbucks.
Have a great weekend everybody!
Len Penzo says
The only time I buy a cup of coffee is when I am traveling. And when I can help it, It’s either at a McDonald’s or Dunkin Donuts – not Starbucks.
In fact, I love Dunkin Donuts coffee so much I brew it at home.
It never dawned on me that there are young people out there who don’t know how to use a rotary phone. I have one in my closet. I also have an 11 y.o. nephew who has his own cell phone. I’m going to hook mine up and see if he can make a phone call on it too.
Len Penzo says
Be sure to tell us how that works out, Cowpoke!
I know this – When the global monetary system finally collapses due to all the debt in the world, at least I will be better prepared than Canada because it has no gold in its vaults.
Len Penzo says
That makes two of us, Gavin! Although, to be fair, I think Canada figures they have plenty of gold reserves in the ground that they can draw on when needed – which makes me just a bit nervous as a holder of stocks for a few mining companies that reside in the Great White North!
Congrats on the used car Lauren. Coming up on 20 years for my truck this October. Everyone drives a “used” car. Lol. Groceries are crazy. All the credit card debt must be from folks trying to make things “balance”. Thanks for the cup of needed Joe.
I drive a daily beater from the 90s. Great on gas. Sure, it has no back up camera, nav system, or those fancy blind spot sensors but it feels good to not be tied down to monthly payments and high insurance rates. On the luxury side, it has a CD player. Another bonus is I don’t worry about door dings in parking lots.
Ahahahaha! Literally laughed out loud on “CD player on luxury side”.
Len Penzo says
I thought that was pretty good too.
Hubbard, I didn’t realize people still play CDs in their cars. 😉
My daily driver is a 20 year old BMW that runs great. I think being kept in a garage has done wonders for it. I also make sure that I’m timely on the maintenance. I’m just 52 but I intend to drive the car until I die.
Len Penzo says
You know what, timmah … I feel the same way about garaging my cars! Next to my home, my two cars are my most expensive product purchases – which is why I insist on keeping my garage uncluttered so it can protect them from the elements (and kids’ soccer balls, and even potential vandals and thieves).
Few Americans can use their garages for their intended purpose – they collect too much junk…..
Len Penzo says
Yeah … it seems like most people I know use their garages for storage of things they never or rarely use, while their cars sit outside. Oh well … to each his/her own.
RD Blakeslee says
I’ve gotten too old to get up into my 1995 Dodge Ram 4X4, so I let a neighbor who has been helpful to me over the years, have it.
Now I just drive a 2017 Subaru Forrester, the latest of several I have owned: https://lenpenzo.com/blog/id52362-grandfather-says-a-look-back-at-the-29-cars-ive-owned-during-my-life.html
Len Penzo says
Dave, not long after my son and daughter were born, I remember having to sell my beloved 1979 GMC pick-up so we could afford to buy a minivan. Was I ever bummed!
Mr. Dave, I’m sorry you can’t get into your truck anymore. I’ve wound up in the opposite situation. I kept my truck because my legs put me right at seat height. I sit on it to get in, and put my legs on the ground to get out. Being built like an Egret came in handy.
Anybody else notice that in the strip mall photo, the stores are in the correct order? 😉
Len Penzo says
LOL! Very observant! I assume you are looking from left to right? (Although I guess a case could also be made from the other direction?)
Friend of mine used a buying service to buy a new car. When he mentioned that he intended to pay cash – boy were they unhappy. Would have canceled the deal if not for the buying service contract I assume. Interest, the gift that keeps on giving. I would not buy new, but if I did, I’ve heard good feedback from using buying services ( in this case Costco).
Regarding the phone – imagine the response to a telephone booth! Whitepages!
Former Treasury Secretary Larry Summers stated we may have a Wile E. Coyote correction. The economy is suspended in air, and suddenly crashes to air with great harm.
Gundlach of DoubleLine has warning lights of a recession are flashing yellow.
The heads of the big banks who helped cause the nightmare are warning of a recession.
How is it people stick their heads in the sand, and their rears in the air pretending it won’t happen? I learned early on in life, cover your behind.
Len Penzo says
Optimism reigns supreme, Bill. (By the way, I hear fruit cake provides excellent protection for one’s behind.) 😉
My goal is to legally pay as little in income taxes as is possible. The money I save can go to charitable causes I support.
Yesterday, I bought the accountant an award. It is a Kung Fu Panda figurine from the dollar store. He put the Kung Fu Panda on my tax return. Instead of owing $1200 more, I am getting a $2 refund. haha Just call me $2 bill.
Len Penzo says
Good thing you didn’t get a $3 dollar refund!
I’ll let you get the $3 one Len. I have a twisted spine, and sense of humor but I don’t bend that way. ha