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 …
Debts nowadays are like children; begot with pleasure, but brought forth in pain.
Arithmetic is where the answer is right, everything is nice, and you can look out the window and see blue sky – or the answer is wrong, and you have to start over and try again.
– Carl Sandburg
Credits and Debits
Debit: Did you see this? A tentative debt ceiling deal was reached last weekend that raises it by roughly $4 trillion over the next two years. Frankly, it’s all one giant scam. Especially when you consider it’s a date-driven debt limit that permits unlimited spending through 31 December 2024 – which means we get to enjoy the next debt ceiling drama starting in November 2024. By then, the National Debt should be pushing $37 trillion, if not more. Well … assuming our fraudulent debt-based monetary system is still intact by then.
Credit: Then again, just because the political theater of the most recent debt ceiling negotiations is apparently over, macro analyst Tavi Costa says there is a growing realization “that the true risk this time around lies not in the failure to reach a debt ceiling agreement, but rather in the escalating debt.” He goes to warn that, in the past, “the responsibility of absorbing this debt fell on the US banks, but they’ve withdrawn from that role, (which) may necessitate the intervention of the Fed as the buyer of last resort.” Needless to say, Congress is betting that the pool of suckers willing to extend more credit to their bankrupt organization hasn’t dried up.
Debit: Speaking of the federal debt, for the US, implicit debt at the federal level for social spending and Medicare is estimated at slightly more than 400% of GDP. This is in addition to explicit debt amounting to 127% of GDP. In the meantime, it’s the same ol’ same ol’ …
Credit: Indeed, the growing US debt – along with America’s weaponization of the US dollar (USD) – are big reasons why the world, led by China, India, Russia, and Saudi Arabia are actively moving away from a dollar-centric trading system. But this needs to be put into perspective because, despite the USD’s share of central banks’ foreign reserves having fallen to a two-decade low, it’s still at similar level as 1995. Now … if only the inflation we’re suffering with today was at a similar level to 1995.
Credit: Of course, a large national debt can be sustained indefinitely by a government so long as it can manage paying the interest on the debt. And for the past 25 years or so, servicing the debt was relatively painless because interest rates have been absurdly low. However, that all changed last year, when the Fed started sharply raising interest rates in a desperate – not to mention very tardy – attempt to contain inflation. At least that was the plan they drew up. As for how that’s been working out, well … what’s that old saying about the best-laid plans of mice and men?
Credit: As macro analyst Matthew Piepenburg points out, “the (Fed) will have to take a long and hard look at the glowing red button on their money printer and decide which is worthing saving: the (economy) or the currency?” Ultimately, Piepenburg believes the Fed will try to save both – and relatively soon. He expects the Fed’s current rate-hiking policy to result in a deflationary recession that will then be followed by hyperinflation after the Fed tries to “save” the bond market and too-big-to-fail banks by printing trillions of dollars. But that’s what happens when financial system arsonists are asked to extinguish economic fires sparked by their own hand.
Credit: So for all its problems, what is taking so long to topple the Almighty Dollar? As macro analyst Simon White explains, while the international order is changing, and the USD’s role within it, America is currently the only nation with “deep and liquid capital markets, an absence of capital controls, and a willingness to accommodate the rest of the world’s imbalances.” Yep. But the world is working on changing that. Then again, it’s a complicated process … kinda like this:
Debit: The question is, will the change be gradual – as most economists insist – or sudden? Well … that depends on whether the current debt-based monetary system can continue to limp along without imploding before the USD is officially dethroned as the current global reserve currency.
Credit: On the other hand, if the monetary system breaks down before a new alternative comes to the forefront, then the transition will be quick – if not chaotic. It will also force the world back toward a solution based upon the ultimate monetary safe haven: gold. And for good reason …
Credit: Needless to say, America’s financial situation has been deteriorating for a long time. As financial commentator Ryan McMaken points out: “For more than 30 years, stern warnings about the federal debt and annual deficits have come from wet-blanket curmudgeons who insisted that (they) would become a problem – and they were right. But rising global productivity, a globalized work force, and solid global dollar demand dragged (the consequences) out quite a bit longer than most anticipated.” Which means the tin foil hat crowd can take a bow. Yet again. By the way, it’s a crowd that’s rapidly growing with each passing day. See for yourself:
Credit: Unfortunately for all of us, however, McMaken points out that, “things are changing. And in the coming five years we’ll see how accelerating debt, declining demand for dollars, and rising price inflation will finally reveal how and why deficits do matter, after all.” Yep. The question is: Will you be ready for it?
How much is your monthly rent or mortgage payment (excluding taxes and insurance)?
- $0 – $500 (45%)
- $1001 – $1500 (16%)
- $1501 – $2000 (14%)
- More than $2000 (13%)
- $501 – $1000 (12%)
More than 2000 Len Penzo dot Com readers responded to last week’s question and it turns out that 4 in 7 of you spend $1000 or less per month for housing, excluding taxes and insurance. That’s good to know in a world where many people today are using more than 40% of their take-home income to cover the rent or mortgage.
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
Will you be taking a summer road trip of 500 miles or more this year?
- No (54%)
- Yes (36%)
- Maybe (10%)
Total Voters: 2,039
By the Numbers
Here are the states with highest – and lowest – percentage of households with a dog in America:
50 New Hampshire (23.7%)
49 Hawaii (23.8%)
48 Connecticut (24.0%)
47 Rhode Island (25.8%)
46 New York (27.0%)
5 West Virginia (49.6%)
4 Mississippi (51.0%)
3 Arkansas (51.6%)
2 Montana (51.9%)
1 Idaho (58.3%)
After exchanging a few pleasantries, the friend informed the man that a horse named “Lucky 5” was scheduled to run as the number 5 entry in the fifth race at the local track that evening.
Well … the man was absolutely convinced that this was a sign of unbelievable good fortune, so he went to his bank and emptied his savings account of nearly every last penny.
The man then went to the races and bet $5555.55 on “Lucky 5” to win.
Sure enough … the horse came in fifth place.
More Useless News
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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 last Monday’s article explaining the reasons why you should — and should not — pay off your mortgage early, Nicky wrote this:
Nice post! I learned something new today.
Good blog posts are rare here, Nicky… but even a blind squirrel finds an acorn once in awhile.
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