Black Coffee: Living on Borrowed Time

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.

Another busy week is crossed off the list. So without further ado, let’s get right to the commentary …

No man’s credit is as good as his money.

– John Dewey

Credits and Debits

Debit: Did you see this? Financial services company Synchrony Financial says it’s seeing signs of growing consumer stress, thanks to an inflation storm that has seen real wages fall for 24 straight months. In short, a growing number of households are draining personal savings and over-utilizing credit cards to either maintain their standard of living, if not make ends meet. As a result, CFO Brian Wenzel says, “What we’re seeing is significant (credit) score deterioration; 680 or a 690 going to a 620.” Imagine that.

Debit: Needless to say, consumers with lower credit scores will have increasing trouble qualifying for new credit lines. For many this risks cutting off their lifelines. With that in mind, it shouldn’t be surprising that there has been a surge in Google searches for “pawn shop near me” as consumers pawn off items for quick loans – which makes me wonder how much somebody could get for this:

Debit: By the way, falling consumer credit scores aren’t the only sign of economic distress; yield curve inversion between 10-year and 3-month Treasuries is as deep into negative territory as it’s ever been. Economists say that deep inversions typically signal that a serious economic event is on the horizon, whether it’s a recession – or something worse. Those events historically occur an average of 13 months after the inversion appears; for those of you counting at home, the current yield curve inversion started last November, which means we can expect to wait at least another six months before we begin feeling the effects. If any.

Credit: Unfortunately, any recession will put a large dent in the federal government’s tax revenue. And that’s bad news for a nation that will end the fiscal year $2 trillion in the red. Large deficits bely a structural decline in the currency – US deficits have doubled since 2017. With that in mind, it shouldn’t be a surprise to anyone that Bloomberg macro analyst Simon White is warning, the federal government’s inability to control its spending “will be increasingly detrimental for the US dollar.” In other words: Expect more inflation and a continued decline in real wages. Oh … and higher credit rates too.

Debit: Of course, the debt problem isn’t limited to the US; globally, the entire world is underwater to the tune of more than $300 trillion. Then there is, what Warren Buffett calls “financial instruments of mass destruction” – a.k.a. bank derivatives – in the neighborhood of $2.5 quadrillion. Now for the punchline: All of that odious debt is supported on a puny foundation of just $2 trillion in gold – which means the yellow metal is critically undervalued at the moment. Sadly, it will remain undervalued until the teetering debt pyramid finally implodes on itself. Meanwhile, in Magic Money Tree land …

Credit: Clearly, the current debt-based fiat international monetary system – and the US dollar’s role as the world reserve currency – is living on borrowed time. As macroeconomist Alasdair Macleod noted this week, “We’ve been brainwashed with Keynesian misconceptions and the state theory of money for so long that our statist establishments and market participants fail to see the logic of sound money, and the threat it presents to our own currencies and economies.” Amen, my sound-money brother. And speaking of sound money …

Credit: In the meantime, macro analyst Doug Casey points out that the USD’s reserve status “allows the US government to do all kinds of things – almost all of them stupid and destructive – that it wouldn’t otherwise be able to afford. Roughly $800 billion dollars are exported annually; that trade deficit has been going on for over 40 years, and it has artificially raised Americans’ standard of living.” Uh huh. Here’s the rub: Those deficits have also encouraged development of new currencies that are immune from the resulting loss of purchasing power. Thankfully, higher interest rates will attract more Treasury bond buyers in the future. Oh, wait …

(h/t: @WSSHFANS)

Credit: There hasn’t been a major new currency since the euro was introduced in 1999. Meanwhile, all signs indicate that the BRICS trading bloc – consisting of nearly 70% of the world’s population – will be unveiling a new gold-backed currency at their economic conference next month. As Macleod points out, “Without the burden of expensive welfare commitments, all of the attending (nations) can tie their currency values to gold with less difficulty than (Western) welfare-dependent nations – and it’s now in their commercial interests to do so.” So gold; not bitcoin. Q: What do they know that the cryptocurrency fanboys don’t? A: This …

Debit: The bottom line is this: America is in deep doo doo; the entire nation’s economy is essentially a giant, over-inflated financial bubble looking for a pin to run into. Corrupt money leads to a corrupt society – and here we are. Thanks to the fiat USD, United States has been resting on its 20th-century economic juggernaut laurels for more than 50 years; since then, it has been eating its seed corn to survive. Today, America’s biggest export is the USD. It’s too bad that most Americans still continue to see the US as a wealthy nation; in reality, it is a shadow of its former self. Then again, I guess that’s to be expected when we’re led by “professionals” like this:

Credit: We’ll end this week’s round-up with some final words from Mr. Casey who cautions that by virtue of the USD being the global reserve currency for almost 100 years, “Americans think government economic policy is wise – which it isn’t. When decades of accumulated offshore dollars come back home, trillions of dollars will be traded for real wealth in the US and prices will skyrocket. And with less than an ounce of gold for every person on the planet, there’s going to be much more demand for it as national currencies collapse. Gold is a refuge from chaos, and chaos is in the cards.” The big question is: when?

The Question of the Week

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Last Week’s Poll Results

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