{"id":56570,"date":"2019-08-31T02:15:37","date_gmt":"2019-08-31T09:15:37","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=56570"},"modified":"2019-09-02T17:17:22","modified_gmt":"2019-09-03T00:17:22","slug":"black-coffee-31-aug-2019","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id56570-black-coffee-31-aug-2019.html","title":{"rendered":"Black Coffee: The Central Bankers’ Failing Battle to Stem the Tide"},"content":{"rendered":"

\"\"<\/a>It’s time to sit back, relax and enjoy a little joe …<\/em><\/p>\n

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.<\/p>\n

I hope everybody had a great week. I know I did. Of course, I love weekends even better, so let’s dig right in and then I’ll get mine started.<\/p>\n

All the perplexities, confusions, and distress in America arise, not from defects in their constitution or confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit, and circulation.<\/em><\/p><\/blockquote>\n

— John Adams, letter to Thomas Jefferson, August 25, 1787<\/strong><\/p>\n

Then he heard a distant rumble — louder than thunder. Looking out to sea, Sawat saw a grey wall of water, the width of the horizon, tumbling at high speed towards the shoreline.<\/em><\/p><\/blockquote>\n

— Kevin Ansbro, Kinnara<\/em><\/strong><\/p>\n

Credits and Debits<\/strong><\/p>\n

Debit:<\/strong><\/span> As a kid growing up in the 1970s, I’d get wide-eyed whenever I spotted a US $100 bill; they were a rare sight. Not anymore. In 2008, the $100 bill surpassed the $20 bill in circulation volume — and this year the Benjamin surpassed the $1 bill, making it the most widely circulated bill<\/a>. In fact, the number of $100 bills has doubled since the Great Financial Crisis. Remember that the next time you’re told inflation remains subdued<\/a>.<\/p>\n

Debit:<\/strong><\/span> On a related note, I see the mortgage default rate last quarter climbed 3%<\/a> year-over-year; that’s the first such annual increase since the Great Financial Crisis in 2008. Yikes. Of course, since we’re living in the best economy ever, I’m sure that’s nothing to worry about.<\/p>\n

Credit:<\/strong><\/span> Then again, maybe we should. Dave Kranzler notes that 21 key global and US economic indices are all worse now<\/a> than back in late 2007 — despite the fact that the Fed funds rate is less than 50% as high as it was previously. That’s like having a six-shooter with only a few rounds in the cylinder — and bad news for those who are expecting the Fed to ride to the rescue and save the day like they have during previous recessions.<\/p>\n

Debit:<\/strong><\/span> By the way, as the Fed has done its best to extend — if not completely eliminate — the business cycle over the past few decades, the number of recessions have become fewer, and the time between them has grown. As a result, a growing number of people have little experience with economic downturns. While the average adult of all ages has lived through six recessions, 40-year olds have experience just two. See for yourself:<\/p>\n

\"\"<\/a><\/p>\n

Debit:<\/strong><\/span> As Egon von Greyerz points out, in 1971 US debt was $400 billion versus $22 trillion today<\/a>; a 55-fold increase. At the same time, US GDP was $1.2 trillion in 1971 versus $20 trillion today. In other words, a 55-fold increase in debt only produced a 17-fold increase in GDP. And that’s<\/strong><\/em> when $1 of debt yielded $5 of growth; today<\/strong><\/em> that same dollar yields less than 40 cents of growth! Am I the only one who sees a problem here?<\/p>\n

Credit:<\/strong><\/span> Meanwhile, 2019 budget deficit is on pace to surpass $1.1 trillion, which would be the highest since 2012. As Ryan McMaken observes, “What’s especially notable is the current deficit is occurring during a time of economic expansion, when deficits should be much smaller. So if they’re this large now when times are good, how big will they become<\/a> when we enter a recession?” Good question. Hopefully they’re not this<\/strong><\/em> big:<\/p>\n