Black Coffee: The Good Ol’ Days

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 …

The way prices are rising, the good old days are last week.

– Les Dawson

We’re devaluing the US dollar so rapidly that you can’t even bribe … senators with cash today. You need gold bars to get the job done, just so the bribes hold value.

– Matt Gaetz

Credits and Debits

Credit: Did you see this? It’s estimated that the Social Security cost-of-living adjustment (COLA) for 2024 will be 3.2%. The adjustment, which takes effect in January, will result in an average $57 increase, raising benefit checks to $1790 for the average recipient. Even so, many people are grumbling that the 3.2% COLA is far lower than last year’s 8.7% hike, which was the highest increase in 40 years. That being said, the estimated 2024 COLA would still be higher than the 2.6% average over the past 20 years. So I guess you can’t please everyone … although there are exceptions:

Debit: In other news, I think it is safe to say that most Americans today would be shocked if you told them that the pinnacle of US power occurred way back in 1944. Back then, the US was not only the premier military power of World War II, it also held 22,000 tons of gold – most of it in Fort Knox – while the American industrial base was responsible for producing 70% (!) of the world’s manufactured goods. But those days are gone. Now get off of my lawn!

Debit: More than 50 years after America decoupled the US dollar (USD) from gold, the fiat monetary system’s chickens are finally coming home to roost as a majority of the world is getting serious about finding an alternative currency that can’t be inflated away so easily. As a result, the BRICS economic block now includes four of the world’s six largest oil producers and is bigger than the G7. Most importantly, the 11 BRICS nations have pledged to bypass the USD for trade, thereby initiating an economic power shift and dealing a huge blow to the dollar’s 80-year run as the premier global reserve currency. And speaking of power shifts:

Credit: Unfortunately, the impacts of losing the the premier global reserve currency will sharply reduce the purchasing power of the US dollar (USD) – as well as middle- and lower-class American living standards. Then again, as macro analyst Peter Hanseler points out, “When the US was at the peak of its might and forced Bretton Woods on the rest of the world, it still took 12 years until the USD overtook the British pound in international trade in 1956. Some trends may be irreversible – but they take time.” Then again, knowing that the Fed is in charge of protecting the USD, maybe this time is different …

Debit: Meanwhile, the average American consumer now requires more than $6500 of debt per year to fill the gap between the inflation-adjusted cost of living and the spread between their income and savings. Or to put it another way: A significant proportion of Americans who refuse to take on additional debt have seen their living standard decline, while those who are merely trying to maintain their current standard if living are essentially burning the furniture to heat the house. What does it all mean? Well … here’s one way to put it:

Debit: Of course, rapidly rising bond yields is a big red flag for the debt market, stock market, and real estate markets. More importantly, the US bond market has been inverted – that is, with short term yields higher than long-term yields – for the longest period in more than 60 years. In fact, it’s the most inverted it’s ever been. On the other hand, long-term yields are still high enough to keep many first-time homebuyers on the sidelines – which means the increasing number of adult children living with their parents isn’t going to reverse anytime soon. Which is unfortunate for everyone involved …

Debit: Regardless of your particular living situation, it’s important to keep in mind that rapidly-increasing bond yields are a clear signal of increasing instability in the debt market. And that, in turn, puts pressure on stocks. Just don’t tell that to the Fed and the politicians in Washington – they keep insisting we’re headed for a “soft landing.” Ah, yes … the more things change, the more they stay the same:

Debit: Speaking of debt-market instability, Bank of America had $106 billion in unrealized losses on its held-to-maturity securities. Yes, that Bank of America. Now for the punchline: As Wall Street on Parade reports: “That figure is far beyond what its peers reported (and) a stunning 34% of all unrealized losses on held-to-maturity securities reported by 4645 FDIC-insured banks.” Meh. After all, Treasury Secretary Janet Yellen insisted “the banking system is sound” immediately after its near-collapse in March. So I’m sure this is nothing to worry about either. Then again, banks have many pressing problems that still need to be fixed …

Debit:  Oh … and in case you missed it, the very same Janet Yellen also announced last week that she will begin a “buy back program” for underwater Treasury bonds in early 2024 – essentially yield curve control (YCC). However, with BoA – which is the second largest US bank – and who knows how many other systemically-important financial institutions sitting on a mountain of unrealized losses, I’m sure that’s a total coincidence. Heh. Yeah, totally.

Credit: For his part, macro analyst Greg Mannarino isn’t surprised by Ms. Yellen’s latest announcement. In fact, warned this week that, “What we’ll see moving forward is a herculean effort to ‘save’ the system by adding more debt to it. World leaders colluding with their respective central banks will attempt to find every manner of reason to continue to inflate the (monetary) system, but this will again only exacerbate the problem.” Imagine that.

Credit: By the way, if you’re looking for a monetary-system end-game road map , Mannarino explains that as the situation worsens, so-called “safe-haven” bonds start losing value “because of inflation, defaults, and bankruptcies. This leads to a sell-off which pushes bond yields higher, further exacerbating losses – which pushes yields even higher, further exacerbating the problem.’ According to Mannarino, as time goes on, the growing risk “rattles stock markets, and currencies lose still more purchasing power, making inflation even worse, and resulting in a complete meltdown of the (global) financial system.” Yep. That’s when the only true safe haven is revealed:

Credit: Frankly, whether the current monetary system paradigm changes gradually, as the BRICS economic bloc slowly siphons market share away from the USD – or all at once in a chaotic monetary system meltdown – is irrelevant. What is important is that your wealth is protected from the resulting catastrophic financial consequences that are sure to follow.

Last Week’s Poll Results

What rate are you currently being paid on your cash savings?

• 3.0% to 5.0% (48%)
• 1.0% to 2.9% (24%)
• More than 5.0% (21%)
• Less than 1.0% (7%)

More than 1900 Len Penzo dot Com readers responded to this week’s poll and it turns out that almost 7 in 10 of you are getting at least 3.0% on your cash savings. At the same time, 1 out of every 14 readers are still being paid less than 1.0%. Let’s hope those of you in the latter group are doing so because you don’t have enough cash on hand to make a difference. Then again, that points to a whole ‘nother problem altogether!

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="494"]

By the Numbers

With housing prices and rent skyrocketing and no immediate hope for lower interest rates, finding a space to fit your needs is more challenging than ever. Here’s a closer look at the results of a recent survey on how Americans value their personal living space:

1 Moving expenses’ rank among surveyed Americans’ list of biggest barriers to getting a more spacious home. (Home prices and interest rates are ranked second and third, respectively.)

59% … say they’ve acquired too much stuff and feel like they need more space.

51% … say they actually want more living space.

43% … feel like all of their belongings make it hard to live in their current space

63% … say they can’t afford more square footage right now.

33% … say they’ll never be able to afford enough living space.

21% … say living in a larger space doesn’t make home maintenance more difficult.

49% … would consider downsizing to save money.

Source: AllStarHome.com

Useless News: All Paid Up

It’s a rainy August afternoon at a resort town sitting next to the shores of a lake. It’s tough times, everybody is in debt, and everybody lives on credit.

The little town looks totally deserted.

Then a rich tourist arrives and enters the town’s only hotel. He places a $100 bill on the reception counter and heads upstairs to inspect the rooms.

While the tourist was upstairs, the hotel proprietor took the $100 bill and ran down the street to pay his debt to the butcher.

Then the butcher took the same hundy and immediately went next door to pay his debt to the pig raiser, who hurriedly ran off with the $100 bill so he could pay his debt to the supplier of his feed and fuel. The feed and fuel supplier, in turn, took the same Benjamin and used it to settle his debt with the town’s prostitute who, in these hard times, had provided her “services” on credit.

The hooker then ran to the hotel and handed the $100 bill to the hotel proprietor in order to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then laid the $100 bill back on his reception counter so that the rich tourist wouldn’t suspect anything.

At that moment, the rich tourist returned from inspecting the hotel rooms and took back his $100 bill because he didn’t like any of the available accommodations.

The rich tourist then promptly left town – so nobody earned anything.

The good news is that the whole town was suddenly debt free, and looked toward the future with renewed optimism.

(h/t: hugin-o-munin)

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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

After reading the results of my latest brown bag sandwich price survey, Francis had this to say after reading that eggs at my local grocery store were selling for $2.32 per dozen last month:

Where the heck do you shop for eggs?

Um … Would you believe New Yolk City?

If you enjoyed this, please forward it to your friends and family. I’m Len Penzo and I approved this message. 🙂

Photo Credit: stock photo