{"id":56854,"date":"2019-09-21T02:15:30","date_gmt":"2019-09-21T09:15:30","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=56854"},"modified":"2022-02-05T13:00:45","modified_gmt":"2022-02-05T21:00:45","slug":"black-coffee-21-sep-2019","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id56854-black-coffee-21-sep-2019.html","title":{"rendered":"Black Coffee: Revenge of the Debt Monster"},"content":{"rendered":"

\"\"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

Wow! Another week has come and gone — so without further ado, let’s get this show on the road.<\/p>\n

Interest works night and day; in fair weather and in foul. It gnaws at a man’s substance with invisible teeth.<\/em><\/p><\/blockquote>\n

— Henry Ward Beecher<\/strong><\/p>\n

Debt is a prolific mother of folly and crime.<\/em><\/p><\/blockquote>\n

— Benjamin Disraeli<\/strong><\/p>\n

Chains of habit are too light to be felt until they are too heavy to be broken.<\/em><\/p><\/blockquote>\n

— Warren Buffett<\/strong><\/p>\n

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

Credit:<\/strong><\/span> Did you see this? In 2018 the median US household income was $63,179. Furthermore, after falling 0.5% last year, the official US poverty rate is now 11.8%; the rate has now fallen four consecutive years<\/a>. As a result, poverty levels are significantly lower than they were in 2007, just prior to the Great Financial Crisis. Really? You’d never know it looking at all of the homeless people living in America’s largest cities.<\/p>\n

Debit:<\/strong><\/span> Poverty may be on the decline, but the average millennial is in debt<\/a> to the approximate tune of $27,900 — and that doesn’t<\/strong><\/em> include the mortgage. As for Gen Z, the oldest of which is just 22 years old, they carry an average debt load of $14,700. Then again, in today’s credit-based society — where delayed gratification and saving is only for suckers — that really shouldn’t be too shocking.<\/p>\n

Debit:<\/strong><\/span> Here’s the reality: There’s simply a limit to how much debt<\/a> each household can carry — even at historically low interest rates. This is why business owners remain on the defensive, reacting to demand increases due to population growth, rather stronger economic activity. This suggests that despite more debt, the economy is failing to sustain economic growth; in fact, growth is actually declining<\/strong><\/em>.<\/p>\n

Debit:<\/strong><\/span> As Lance Roberts observes, “While debt can fill an immediate spending need, it doesn’t always lead to economic growth<\/a>. It’s actually the opposite; debt detracts long-term growth as it diverts productive capital to debt service. Higher interest rates equals higher debt servicing requirements which in turns leads to lower economic growth.” Unfortunately, this is the debt trap we’re now hopelessly mired in.<\/p>\n

Debit:<\/strong><\/span> Speaking of debt, and spurred on by desperate investors searching for yield, I see that the banks are packaging and selling mortgages by reviving the so-called private-label market<\/a> for mortgage bonds, which imploded during the 2008 financial crisis. Yes, the banks got beat to a pulp the last time they tried this — and they’ll undoubtedly be pummeled this time too. That begs the question: Why do it again<\/strong><\/em>? Well … I’ll let this guy explain:<\/p>\n