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 …
The few who understand the system will either be so interested in its profits or be so dependent upon its favors that there will be no opposition from that class. On the other hand, the great body of people … will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.
– Mayer Amschel Rothschild
Credits and Debits
Debit: Did you see this? All indications are that the math remains truly daunting for prospective American homebuyers, as the difference between a mortgage payment and rent is the largest it’s been since the 2006 housing bubble. How big is it? Well … on average, a 30-year fixed-rate mortgage payment on a newly-purchased home with a 10% down payment now costs a staggering $1176 more than renting an apartment. Then again, renting an apartment isn’t a great deal either these days – in fact, renting a place of your own is at least $1000 more per month than living for free in Mom & Dad’s basement.
Debit: The current financial attraction of renting an apartment over purchasing real estate becomes even clearer when you realize that the cost of owning a home has soared 71% over the past three years – that’s an average of about 20% per year, compared to the average annual rent increase of 6.3% over the same period. That’s not to say there aren’t any hidden gems waiting to be found …
Debit: Speaking of real estate, thanks to a prolonged period of the central banks’ easy-money policy, the commercial real estate (CRE) sector is now facing significant headwinds from higher rates and a paradigm shift caused by a growing number of people who insist on working from home. As a result, CRE – especially, downtown office buildings – is facing a perfect storm, as tenants are reducing the amount of square footage they are renting. On the other hand, maybe commercial real estate isn’t doing so well for other reasons …
Debit: Needless to say, as those downtown tenants continue to reduce their space requirements – if not abandon them entirely – the slump will only feed on itself as vacancy rates continue to climb. This will ultimately force landlords to cut rents in a desperate effort to attract other tenants. In turn, the combination of lower rents and higher vacancy rates will lead to plunging revenue. And that will lead to landlords defaulting on their CRE loans which, in turn, will put pressure on the banking system. Hey … what’s not to love?
Debit: By the way, if everything is fine with the banking system, then why are US banks borrowing billions at punitive rates at the discount window in far larger amounts than they did during the Great Financial Crisis of 2008? You can bet Moody’s rating agency has an inkling why that’s so. Last week they downgraded the entire US banking system from “stable” to “negative” in order “to reflect the rapid deterioration in the operating environment.” Then again, if Moody’s was really on the ball, shouldn’t they have downgraded the banking sector at some point before the sector entered crisis mode, not after? I’m just askin’.
Debit: As if rising interest rates weren’t causing enough problems for the banking sector, now there are even more storm clouds on the horizon. That’s because Goldman Sachs recently estimated that 80% of all commercial real estate lending goes through small- and medium-sized banks. Unfortunately, delinquencies on commercial real estate loans started rising sharply in the last quarter of 2022, while commercial building prices were starting to fall. As a result, many hedge funds that are smelling blood in the water have begun piling into the latest ‘Big Short.’ And we all know how that worked out for the housing and banking sectors in 2008.
Credit: The trouble is, for the last 40 years or so, the Western economic system has become increasingly dependent on financialization rather than production. This dependence is the result of its addicted to borrowing-funded consumption and investment fueled by bank credit. It’s why billionaire investor and entrepreneur Frank Giustra warned this week that “at some point, someone has to pay the piper for all the reckless monetary policy we have witnessed over the last two decades, which is almost guaranteed to be the average taxpayer through inflation.” Although our esteemed Secretary of the Treasury assures us everything is under control. Oh, wait …
Credit: Of course, the banks effortlessly conjure “money” out of thin air – the same money we earn with our sweat, labor and production. But here’s the rub: Any money borrowed by the public or the government must be paid back with interest. Although in both cases that interest is paid by a public who must work for it! It gets better: When a borrower defaults on a mortgage or other collateralized loan, the bank ends up owning the asset. It’s a great gig – but Giustra says the party is almost over because “we’re nearing the end of the current global monetary system.” Yep. Even an army of 87,000 new IRS agents can’t stop that.
Debit: Frankly, our fraudulent debt-based monetary system can’t end soon enough. Especially when you consider that the people who run this fraudulent system can devalue their “money” conjured out of thin air at any time in order to balance the books, thereby requiring the public to work even harder to earn the green paper you alone are allowed to create without being tossed in the slammer. It’s a confidence game enhanced with just enough sleight of hand to keep the public thoroughly bamboozled. Kinda like this:
Debit: According to the Wall Street Journal there are currently as many as 190 financial institutions that are in the same balance sheet distress that ultimately sank Silicon Valley, Signature, and Silvergate banks. The good news is it’s becoming clear to more people that the fractional reserve banking system is based almost entirely on faith and trust in people who are not faithful or trustworthy.
(h/t: mediacloud.theweek.com)
Debit: Perhaps not coincidentally, Kenyan President William Ruto urged citizens to dispose of US dollars because they will decrease in value within weeks. Perhaps this is related to a rumor which is currently circulating that claims a large number of countries have agreed to “Operation Sandman.” The operation involves refusing to accept US dollars for payment in trade – or perhaps selling US Treasuries en masse – and it appears that these countries may take action within a couple of weeks. Or something like that. It’s all so confusing …
Credit: Ready or not, the financialization era of dollar-based reserves and floating exchange rates unleashed by breaking the dollar’s gold anchor in 1971 is – mercifully – fast approaching its inevitable demise. Banks around the world are now feeling the pain of this ailing system – and they will respond by starving the economies they serve of USD credit. In turn, that dwindling credit will accelerate the shift to an alternative global monetary reserve system; most likely one that restores the anchor to gold.
Last Week’s Poll Results
Which of these events is your biggest financial worry?
- Hyperinflation wiping out my savings (41%)
- Losing my job or business (18%)
- Outliving my retirement savings (16%)
- Major medical expenses (15%)
- Making ends meet with my current income (10%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that a strong plurality of slightly more than 2 in 5 say they’re biggest financial worry is seeing their savings wiped out by hyperinflation. Wow! How times have changed; I suspect that answer would have struggled to garner even 1% of the vote even a decade ago.
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
[poll id="468"]
By the Numbers
A new study that looked at the best states to start a small business based upon government data including tax rates, startup survival rates, cost of living, educated worker migration, loans, funding, consumer spending, and incentive programs over the past seven years. With that in mind, here are the friendliest – and unfriendliest – states to start a new small business:
50 Hawaii (Z-score: -0.83)
49 Maine (-0.41)
48 New Hampshire (-0.39)
47 California (-0.37)
46 New Jersey (-0.36)
5 North Carolina (+0.40)
4 Massachusetts (+0.41)
3 Ohio (+0.42)
2 Florida (+0.61)
1 Texas (+0.62)
Source: Lendio
Useless News: Missing Person Report
Two guys, one old, one young, are pushing their carts around Wal-Mart when they collide.
The old guy says to the young guy, “Sorry about that. I’m looking for my wife, and I guess I wasn’t paying attention to where I was going.”
The young guy says, “That’s OK, it’s a coincidence. I’m looking for my wife, too … I can’t find her and I’m getting a little desperate.”
The old guy says, “Well, maybe I can help you find her. What does she look like?”
The young guy says, “Well, she is 27 years old, tall, with red hair, blue eyes, and buxom. Also, she’s wearing no bra, has long legs, and is wearing short shorts. What does your wife look like?”
To which the old guy says, “Doesn’t matter – let’s look for yours.”
(h/t: RD Blakeslee)
More Useless News
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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 out to me at: Len@LenPenzo.com
The other day I found this invitation from Jamie sitting in my inbox:
I’m hosting a (chat group) to discuss buying a new car on Thursday, August 153th at 1 pm. Interested?
Pardon my pedantry, Jamie, but it’s “August 153rd” – and, unfortunately, I’m going to be out of town that day.
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
Thanks for the Joe, Len. Thanks also for keeping your sense of humor throughout this mess; at least laughter hasn’t lost it’s value these days! 😉
We got an oddly timed financial statement from one of our credit unions last week; I wonder how many other banks/credit unions felt the need to reassure their customers recently.
Very interesting about your credit union, Lauren. Was it a statement saying, “don’t panic!” – or something more benign? It seems to me that any “don’t panic!” statements designed to reassure the public usually end up backfiring – even if they are well-intentioned and fully-justified.
Len, it wasn’t a “don’t panic” type notice, or I would have probably seriously considered pulling our $ out (yes, a backfire!) Simply an annual report, but we usually get one at fiscal year’s end, not NOW. Next time I visit them, I intend to ask why they sent it now.
Hi Len,
Loved the Three Stooges clip! Too bad they don’t make ’em like that anymore.
Have a great weekend everybody!
Sara
Thanks, Sara. I’m glad you enjoyed it. I know I did!
Silver on the move this week, but so are stocks! I guess the banking crisis is over.
I hear ya, Madison. At least until the next one. 😉
Unrealized liabilities…..hmmmm, interest rates go up, there may be more realization. Interest rates go down….what inflation. Lol. Either direction, put your faith in tangible items and of course those you love. Enjoy the weekend everyone, let me go help find his wife.
Yes; the Fed is totally screwed here. I see Yellen held an emergency meeting with the US banks on Friday. I wonder what that was about – and if she called it, or the banks requested it. One thing is certain: the banks need interest rates on Treasuries much lower, or they are going to continue to feel a lot of pain. On the other hand, if rates start coming down, the US dollar will be toast.
There is still time left on the clock, but our current debt-based monetary system has lost the game. It’s clear that gold is going to win in a blowout. The losing side still has a few timeouts left if they want to extend the game, but there are no longer any tactics that they can implement to change the final outcome.
Len, I have 550 ounces of silver that I’ve been slowly accumulating over the last few years. I want to buy more, but I’m thinking silver might try to test $20 one more time before it makes its next big move higher. So maybe I should wait for that. What do you think?
I think you need to read the tea leaves as best you can and make your own decision, Nathan.
The system is rigged for the big boys. See Sam Bankscam Fraud and the millionaires who held deposits at Silicon Valley Bank. The lesson to be learned is, if you’re going to steal, steal big so you get away with it and get another chance to do it again.
Sad but true.
My 2 cents: Lots of volatility and financial stress out there. But until people are rioting in the streets, we will limp along with the current system. Discuss.
You may be right … but I don’t think it will get that bad. We’ll see …
Great roundup this week. I’ve said it before and I will say it again. Things are getting worse and worse with each passing day, and it is now obvious to anyone who is at least half awake that the current system is coming to an end. More pain is coming, but we’ll all be better off after this system dies and we get a dollar backed by gold.
I’d prefer returning to a system where the USD was officially convertible to gold at any US bank via the reintroduction of specie (legal tender gold coins) – but absent of that, devaluing the USD against gold would be a tolerable consolation prize.
I don’t see the relevance of the 3 stooges example as their net worth was zero before and zero after. No goods/services were exchanged …. or even if they were, it is a barter system with net zero distortion. The 60$ total liability is a meaningless number if you don’t factor in assets or consumption or production.
e.g.
Case (1) 3 cars in economy. Print money and give to people. Producers make 3 new cars and Consumers buy with said printed money –> overproduction.
Case (2) 3 cars in economy. Print money and give to people. No new production. Now, the same 3 cars are 2x expensive –> inflation.
Case (2) is worst.
Case (1) is a weird cash intervention in economy to stimulate production. Effects can be anything (loss in value of all cars, inflation, temporary increase in car jobs, eventual crash in industry, etc) but likely temporary sugar spike. Best case is that the market can absorb the 3 new cars without distorting anything but such an assumption is usually the mother of all …..
Case of 3 stooges is actually quite logical. Gold or barter would work exactly this way and I am not seeing how it would distort a reasonably functioning market.
OMG. I bet your a blast at parties.
It wasn’t meant to be an exact correlation, Kyron.
Perhaps I overstepped! Probably why i don’t get invited to parties, lol!
Thanks for the joke Mr. Dave. lol
China has already begun maneuvering the world away from the dollar as the reserve currency. Last week, Brazil entered into just such a deal with China. More and more nations are breaking ties with Taiwan, and entering into agreements with China.
Thank you Bill Clinton, and the United States Congress for what is to come.
It’s all moving very quickly now, Bill. Even the mainstream media is finally getting at least a whiff that something is up. Both CNN and FoxNews actually ran very rudimentary stories on the threats to the USD last week.
It’s a start. But it will make many more news segments to wake most Americans up at this point though; their normalcy bias toward “the Almighty Dollar” is so deeply ingrained that I don’t think a one-off report will wake them from their slumber.
hmmmm, rent an apartment or live in your own house for $1000/month more? No brainer. After 30 years you own your place free and clear and had a lifestyle much more enjoyable, unless of course your idea of fun is living in an apartment. I have friends who did the rent lifestyle and now they are in their 70s realising they just moved into a piece of crap trailer with a small porch addition on a dead end road full of pitbulls and rotties because they had no choice. Just saying….. Oh yeah, they moved because my son sold his 2nd house that they had been renting in order to pay off another home he is currently living in. Son is 39. Gave them lots of notice, in fact told them not to move until the place sold and then they would have 3 months notice….but they were so afraid they could not find anything affordable they left on their own accord. The place did not sell right away, so son rented it out again, this time at 2X the mortgage payment and the current renters have decided to buy it as soon as their own place in town sells. Meanwhile, friend is dodging pitbulls in his $1000 Envoy that could break down any day.
“Poor planning precludes poor performance”, I was told at 17. Haven’t forgotten it.
My Dad used to often repeat a corollary to that rule: “Poor planning on your part doesn’t constitute an emergency on mine.”