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 …
Government is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.
– Ludwig von Mises
Credits and Debits
Debit: Did you see this? The price of the average new-vehicle is a record $49,507, which may suggest that borrowers could be getting in over their heads. This is backed up by the fact that almost 16% of consumers who financed a new car in the last quarter of 2022 have monthly payments reaching $1000 – that’s up from 10.5% in 2021 and just 6.7% in the 2020. In case you haven’ guessed, that’s an all-time record too. At least until the next quarter.
Debit: Of course, with car payments so high, it’s no surprise that that drivers are starting to fall behind on their bills. In fact, consumers with financed vehicles are so far behind that the percentage of borrowers at least 60 days late on their car payments is higher today than it was during the peak of the Great Recession in 2009. Which is hard to believe, considering that the economy is not in a recession. Or so we keep being told.
Credit: Last week, the always-pithy financial commentator, Franklin Sanders, observed that today’s “society is divided into the ‘actuals’ and the ‘virtuals.’ The virtuals work in the computer world pushing around electrons; the actuals are those who produce real, tangible things. The (US dollar) is a monster typical of the virtual world. Backed by nothing … it hath no substantial material existence, but dwelleth as electrons in a computer – I pass by for a moment the rapidly disappearing cash evidences of dollars; a vestige of ages past like your appendix.” True. That being said, don’t be surprised if the USD soon contracts appendicitis that’ll be very very real.
Credit: By the way, Sanders also points out that, despite the utter hollowness of the USD, “the actuals of this world – real things and production – are hostage to the virtual, insubstantial dollar. (But) the virtual world and its virtual dollar are drawing nigh to the end of their virtual lives as the social and economic pendulum swings towards real things – the wealth of the world that men take out of the ground. The virtual dollar will pass away as a dream at breaking day; a cobweb brushed aside by gold, oil, and real commodities. Better get ready to roll up your sleeves and get calluses.” Uh huh. Actual calluses, that is; not virtual ones.
Credit: On the other hand, optimists have been pointing out that the US dollar index (DXY) has been gaining strength recently. Never mind that “the Dixie” compares the fiat USD to other dying fiat currencies; that is, the best looking horse in the glue factory. But as macro analyst Matthew Piepenburg notes, “Whether the DXY rises or falls in the near-term, the end result is as inevitable and mathematical as Germany’s two-front war, Pickett’s charge or Napoleon’s Waterloo: Disaster. Once stock and bond bubbles reach their tipping points, the last bubble to die is always the currency.” Sadly, the last ones to figure that out is the public.
Credit: So what happens when people lose confidence in fiat currency and stop accepting it for their goods and services? The answer is: They demand real money in the form of gold or silver. And if you don’t believe me, just ask Venezuelan small-business owners who are still demanding payment in precious metals today – or any Zimbabwean who experienced that African nation’s most recent currency crisis in 2008:
Credit: In 1900, with a gold standard and freely-circulating specie in place, the average price of a high-end men’s suit was $35. Back then, a gold $20 US Double Eagle officially set the price of the yellow metal at $20.67 per ounce. That means it took 1.7 ounces of gold to buy a high-end suit. Today, with the average price of a high-end suit at $2000, it costs approximately 1.1 ounces of gold. Yes, it’s quite a trick. Then again, that huge run-up in the fiat-dollar price wouldn’t have been possible if the US hadn’t decided to “temporarily” break the dollar’s anchor to gold in 1971. But it did – so here we are. In the meantime …
Credit: But as financial analyst Michael Maharrey notes, “As you can see, the price of a suit in gold has dropped more than 35% since 1900; this is to be expected given advances in technology and productivity. But priced in US dollars, a high-end men’s suit has increased by 5600%.” That disparity is the inevitable result of federal politicians stealing countless productivity gains via five decades of deficit spending. It’s infuriating to be sure. But on the plus side, big-screen TVs and other consumer electronics are still cheap. So there’s that.
Credit: If you’re a glutton for punishment, Maharrey offers the same example from a slightly different perspective, noting that “if you had stuffed $41.34 under your mattress in 1900, today you might be able to buy a Polo shirt. But if you had bought two 1-ounce gold coins and stuffed those under your mattress instead, today you’d be able to buy a fancy suit – and have $1600 left over.” Needless to say, central banks are aware of this – which is why they’ve been purchasing the yellow metal at a record pace over the past two years.
Credit: As for those who think a return to the gold standard with circulating specie would place such rigid limits on the market that money lending would no longer be possible, well … they should think again. Individuals and banks would still be able to lend – but no more than what savers can accumulate and are willing to make available. Indeed, the gold standard returns protections to savers that are lost with fiat currency. How? By preventing the involuntary lending by savers, who are deprived in the process of some of the value of their savings. Er … assuming they’d make the right decision if given a choice:
Credit: Back in 1995, economist Bettina Bien Greaves remarked that under “the gold standard, banks would return to their original functions: serving as money warehouses and as money lenders … (where) the transfer of funds and money clearings could take place as rapidly and smoothly as they do now – but minus inflation, price distortions, economic miscalculations, and malinvestments.” It would also allow put a yoke on spendthrift politicians, and ensure reckless commercial banks could always be held accountable via bank runs. Which is why governments hate the gold standard – and are feverishly pushing a “better” solution. For them …
Credit: The bottom line is that a gold-based monetary system that includes circulating gold specie in the economy would benefit the public by preventing politicians from stealing productivity gains to expand the government. This would result in a gradual lowering of consumer prices over time. Perhaps even more importantly, it would provide a safe long-term store of value for savers with zero counterparty risk. As such, gold remains an excellent way to safely preserve wealth and mitigate portfolio risks – especially with the fraudulent debt-based fiat monetary system that we’re suffering with today.
By the Numbers
Here are the latest average interest rates being paid by debtors for various loans – and collected by savers for US Treasury bills, based upon the most recent Treasury auctions:
24.1% credit cards
13.7% used cars
8.7% new cars
4.59% 4-week T-bill
4.76% 8-week T-bill
4.89% 13-week T-bill
5.05% 17-week T-bill
5.15% 26-week T-bill
Sources: TreasuryDirect.gov; @KobeissiLetter
Last Week’s Poll Results
How old is your primary vehicle?
- 10 or more years (45%)
- 7 to 9 years (26%)
- 4 to 6 years (18%)
- 1 to 3 years (9%)
- Less than 1 year (2%)
More than 1900 Len Penzo dot Com readers responded to last week’s question and it turns out that 4 in 9 drive a primary vehicle that’s at least a decade old. You can put yours truly in that group, as my 2013 Honda Accord just crossed that milestone this year. It still runs like a top – and with no car payments, low insurance and registration fees, I love it more today than I did when I bought it.
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
Useless News: Who’s the Boss?
Two men were digging a ditch on a very hot day. One said to the other, “Why are we down in this hole digging a ditch when our boss is standing up there in the shade of a tree?”
“I don’t know,” responded the other. “I’ll ask him.” So he climbed out of the hole and went to his supervisor.
“Hey, boss!” said the ditch digger, “Why are we digging in the hot sun while you’re standing here in the shade?”
“Intelligence,” the boss said.
“What do you mean, ‘intelligence’?”
The boss said, “Well … I’ll show you. I’ll put my hand on this tree and I want you to hit it with your fist as hard as you can.” So the ditch digger took a mighty swing and tried to hit the boss’ hand — but the boss pulled it away and the ditch digger ended up punching the tree instead.
The boss said, “That’s intelligence!”
And with that, the ditch digger, with his hand throbbing, went back to his hole.
When he got back, his friend asked, “Well? What did he say?”
“He said we’re down here because of intelligence.”
“What’s intelligence?” asked the friend.
“Let me show you,” the ditch digger said. Then he put his hand on his face and told his friend, “Now take your shovel and hit my hand.”
More Useless News
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 checking out my sponsors’ ads!
Thank you!!!! 😊
(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 out to me at: Len@LenPenzo.com
After seeing pictures of my master bathroom remodel, Rudy gave this review:
Great job! It looks like a 5-star hotel bathroom!
Yep. Unfortunately, unlike those 5-star hotel bathrooms, I still have to pay for the hot water every morning.
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: public domain
Lauren P. says
Good morning Len, great ‘coffee’ this a.m! Re: New car prices, did you see where Ford’s applied to patent a device that disables autos if payments are late? Sounds like they’re taking things pretty seriously!
Enjoy your weekend! 🙂
Len Penzo says
Hi Lauren! Regarding that patent, I’m actually surprised that it took the car manufacturing industry as long as they did to actually file that kind of patent. Knowing how long it takes to go from patent filing to patent award, the actual patent may still be four or five years away from becoming reality.
Lauren P. says
As fast as tech moves today, what are the odds that by the time Ford’s patent gets approved, other car companies and phone apps will create similar devices?
I keep all my cash at home in my mattress. It’s been a habit after years of banks offering piddly interest. Looking at those T-bill numbers you posted, maybe I should let Uncle Sam hold them for a bit.
5% interest paid on $20,000 is $1000. Nice to see savers are starting to be rewarded for saving again.
Len Penzo says
That’s what I’m doing at the moment, Cowpoke. Almost all of my cash savings is tied up in laddered 8-week T-bills which I roll over (unless I need the cash) as they mature.
As I mentioned a couple of weeks ago, T-bills are safer than both bank savings accounts and money market funds, as they are not subject to bail-ins, gating or emergency crisis fees.
And unlike other savings vehicles, they are also exempt from state taxes.
Sara King says
Can you believe spring is right around the corner?
Also, I think it would be great to have gold and silver coins back in the economy! While I was out shopping I got some change the other day. I swear that the quarters and dimes feel like they are made of plastic these days. And when you drop them on the table they sound like plastic too.
Have a great weekend everybody!
Len Penzo says
Hi Sara! Yes, I am eagerly waiting for spring to get here. It’s been an usually cold and wet winter here in SoCal and I’m over it!
As for reintroducing silver coins into circulation – I’m all for it. It won’t happen though until our current fiat monetary system kicks the bucket.
One letter left! How does anyone not solve that WoF puzzle?
Len Penzo says
I couldn’t believe that one either. It was one of the most common letters too!
RD Blakeslee says
Interesting information (I think) about the U.S. Gold Eagle coin:
I think It indicates that the one-ounce Gold Eagle is gradually gaining public awareness, as junk silver now is to a much greater extent.
Len Penzo says
I think American gold Eagles are gorgeous coins. However, my recommendation on them is to avoid the fractional-ounce Eagles, as the premiums are ridiculously high.
I only buy the one-ounce Eagles.
Society may be split into “actuals” and “virtuals” but I think these days it’s much more realistic to say that it’s split into doers and followers. Or the sane and insane. Thanks for another good round up.
Len Penzo says
… or producers and takers.
People who don’t use a spending plan wonder where all their money went.
I have my money designated but I have $5.47 left over. Some finance peeps say every dollar should have a name. I named the $5.47, “Keep Bill Fat Fund”.
I think this thread should be called, “Black Coffee: Men In Tights”.
Len Penzo says
I like it – but I think I’ll save that one for another time. 😉