{"id":72874,"date":"2022-05-21T02:15:15","date_gmt":"2022-05-21T09:15:15","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=72874"},"modified":"2022-05-24T06:12:33","modified_gmt":"2022-05-24T13:12:33","slug":"black-coffee-21-may-2022","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id72874-black-coffee-21-may-2022.html","title":{"rendered":"Black Coffee: Back to the Borscht Belt"},"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

Well … another busy week is behind us. So with that in mind, let’s get this party started …<\/p>\n

As long as the bosses pretend to pay us, we’ll pretend to work.<\/em><\/p><\/blockquote>\n

— An old Soviet proverb<\/strong><\/p>\n

Why are Soviet citizens so sure that it’s the most progressive country in the world? Because they know life was better yesterday than it’s going to be tomorrow.<\/em><\/p><\/blockquote>\n

— An old Soviet joke<\/strong><\/p>\n

The best way to destroy the capitalist system is to debauch the currency.<\/em><\/p><\/blockquote>\n

— Vladimir Lenin<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? Argentina is the poster child for big spending governments that willingly accept persistently high inflation in order to “fund” their wasteful, exorbitant budgets. In fact, its central bank raised interest rates for the fifth time this year – to 49%<\/a> – in an attempt to halt an inflationary spike. The trouble is, inflation there is currently running at an annualized rate of 72% – so Argentina’s central bank will have to work a lot harder if it is truly serious about fixing the problem. (Psst. It’s not.)<\/p>\n

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Debit:<\/strong><\/span> Meanwhile, the latest US manufacturing survey revealed deteriorating business conditions<\/a> thanks to higher costs; this is the second negative reading in three months and it infers that stagflation – that is, declining economic output coupled with rising consumer prices – is only getting worse in America. At the same time, it’s not just the US that is suffering from stagflation, as the latest world economic forecast is showing the exact same problem globally:<\/p>\n

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Debit:<\/strong><\/span> This week former Fed Chair, Ben Bernanke addressed stagflation’s inflation component when he admitted that the central bank erred<\/a> in waiting to address the worst episode of rising consumer prices since the early 80s. In reality, however, the critical mistake was actually made many years ago by Bernanke himself. His reckless monetary policies created a moral hazard when it became clear that the Fed would never let the banks or<\/strong><\/em> the markets fail; a hazard that was continually reinforced between 2010 and 2016 with the Fed’s absurd refusal to raise interest rates off the zero bound.<\/p>\n

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Credit:<\/strong><\/span> Of course, as a result of those inane Fed policies, blogger Jack Raines pointed out last week, “an entire generation of investors has grown up in a market that only went up and to the right. Millions more joined the market during the Covid lockdowns, and everything they<\/strong><\/em> bought went to the moon<\/a>. ‘Normal,’ for this group of novel investors, is rocket ship emojis, absurd valuations, and insane returns. But the party is over.” Then again, the real concern for everyone shouldn’t be focused so much crashing stocks, as it should be on the collapsing dollar and other fiat currencies.<\/p>\n

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Debit:<\/strong><\/span> On a related note, economist Michael Spence says that he believes the probability of simultaneous energy, food, and debt crises is growing<\/a> with each passing day. The trouble is, the people with their hands on the levers of power still think that the way out of this mess is by continuing down the same road that got us into the current mess we all find ourselves in – printing more currency.<\/p>\n

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Credit:<\/strong><\/span> As David Stockman notes, ironically, the central banks of the US, Japan, China and the Eurozone have printed upwards of $30 trillion in fiat credits since 2008, with the Fed leading the way. “And yet,” he says, “the knuckleheads who run them<\/a> have been surprised by the eruption of inflation.” It would be funny if the impacts on society weren’t so tragic.<\/p>\n

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(h\/t: King World News)<\/p><\/div>\n

Debit:<\/strong><\/span> In an effort to deflect blame for high inflation, legislation that would ban “excessive” gasoline prices<\/a> is headed for a vote in Congress. The current bill – sponsored by the usual statist politicians – would allow the President to ban gasoline price hikes during times of national energy emergencies and abnormal market disruptions. In other words: this will legalize price controls, which only end up short-circuiting the ability of prices to maintain equilibrium between supply and demand. So if this economically-insane bill does<\/strong><\/em> becomes law, get ready for a return to the shortages and gas lines of the 1970s.<\/p>\n

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Credit:<\/strong><\/span> By the way, whenever the government tries to ‘fix’ a problem, those problems tend to get much worse. The latest drive for price controls is a good example because, as macro analyst Bill Holter reminds us, “When you tell someone whose widget-production cost is $10, that they have to sell their widgets for $7, then they simply stop producing<\/a>. This is what happens time and time again in socialist countries such as the old Soviet Union and, more recently, Venezuela.” Very true … but in return the citizens also get subsidized food staples and<\/strong><\/em> “free” healthcare – along with sporadic availability and interminable lines. So there’s that.<\/p>\n