{"id":79815,"date":"2023-08-12T01:15:08","date_gmt":"2023-08-12T08:15:08","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=79815"},"modified":"2023-08-15T06:44:01","modified_gmt":"2023-08-15T13:44:01","slug":"black-coffee-12-aug-2023","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id79815-black-coffee-12-aug-2023.html","title":{"rendered":"Black Coffee: Good News, Bad News"},"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

I hope everybody had an enjoyable week. Without further ado, let’s get right to this week’s commentary …<\/p>\n

I’d rather get bad news from an honest man than lies from a flatterer.<\/em><\/p><\/blockquote>\n

– Ursula K. Le Guin<\/strong><\/p>\n

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

Debit:<\/strong><\/span> Did you see this? The global food index, which tracks monthly changes in the international prices of globally-traded food commodities rose 1.3% last month. That’s the biggest increase in almost two years and a sign that higher food prices<\/a> aren’t going away anytime soon. The latest price increase was driven by a 12% jump in vegetable oil. Among the major grains, rice prices have been hit especially hard – they’re up 20% this year. That being said, with the food inflation we’ve already experienced, I wonder if anybody even notices. As for America’s UPS drivers, they no longer care<\/a> …<\/p>\n

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Debit:<\/strong><\/span> Economic headwinds may not be affecting UPS drivers, but they are<\/strong><\/em> affecting banks, as evidenced by the fact that, with two exceptions, they’re lending less money<\/a> to both struggling consumers and<\/strong><\/em> businesses. The two exceptions: home loans and credit cards. Imagine that.<\/p>\n

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Debit:<\/strong><\/span> Speaking of struggling consumers, a typical American household now carries $10,000 in credit card debt<\/a> – that’s an all-time high. Now consider this: At $250 per month, with 24% interest, you’ll be making payments until 2030. You’ll also spend a total of $20,318 in the process. That’s twice what you owed – and that<\/strong><\/em> assumes you never use the card again. Overall, Americans’ card debt stands $1 trillion – that’s up 33% in just two years. Yes; it seems inconceivable that so many Americans would rather run up debt than live within their means. But here we are. I wonder if that’s because they’re just getting a lot of bad advice …<\/p>\n

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Credit:<\/strong><\/span> I know \u2026 the economy is supposed to be booming. At least if you believe the headline data that is continually being touted by the mainstream media month-in and month-out. However, as macroeconomist Jeff Snider observes, since the start of the year, the Bureau of Lying<\/del><\/span> Labor Statistics has quietly revised the employment figures<\/a> in every single month of 2023, thereby erasing a quarter-million previously-claimed “new jobs” in the process. Obviously, those downward revisions are completely ignored by a complicit media. Oh … and speaking of complicity:<\/p>\n

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Debit:<\/strong><\/span> On a related note, I see that America’s public debt-to-GDP ratio is set to reach a record 134% by 2027. You can thank the sharp rise in interest rates that is increasing debt servicing costs<\/a>. The cost to service the debt stood at $475 billion last year and it’s projected to reach $1 trillion<\/strong><\/em> by early next year. Yes; the government’s fiscal policy that has led to the enormous debt load makes absolutely zero sense. Then again, neither does this<\/strong><\/em>:<\/p>\n

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Debit:<\/strong><\/span> Unfortunately, America’s skyrocketing federal debt is occurring at the same time US tax revenue is experiencing its second-largest annual decline ever. Curiously, that’s in an economy that we’re told is supposedly growing<\/strong><\/em> at 2.4%. You can’t make this stuff up. Oh, wait \u2026 they did. Welcome to the world of government math<\/a>. Want more examples? Okay … how about these<\/strong><\/em>:<\/p>\n

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Debit:<\/strong><\/span> Needless to say, all of that debt puts pressure on US Treasury bonds, as lenders demand higher yields to take on the resulting additional risk that comes with the fiscally-absurd debt burden<\/a>. Never mind that those higher bond yields also<\/strong><\/em> raise the cost of servicing America’s $32 trillion – and climbing – National Debt. In fact, interest on the federal debt is projected to total almost $11 trillion over the next 10 years. And that’s assuming interest rates don’t rise even higher<\/strong><\/em> over the same period. As for those of you wondering if there’s any<\/strong><\/em> good economic news coming out of Washington DC, the answer is: Absolutely!<\/p>\n

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Debit:<\/strong><\/span> Meanwhile, both struggling banks<\/a> and the Fed are reducing their Treasury holdings, while foreigners now collectively own about $5 trillion less USTs – about 10% – than they did in 2021. At the same time the so-called “Treasury put” means large fiscal deficits are soon to become entrenched. That means inflation is likely to get worse over time. Even if they are<\/strong><\/em> changing definitions again …<\/p>\n

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Debit:<\/strong><\/span> So …. if you add it all up, it quickly becomes apparent that yield curve control (YCC) will<\/strong><\/em> eventually be employed by the Fed to try and control rates<\/a> in order to keep debt service costs manageable. When<\/strong><\/em> this begins, long rates will be capped. But that will result in sharply-negative real interest rates as nominal rates are held below the actual inflation rate. In other words: the Fed’s plan won’t solve anything<\/strong><\/em>. But, hey … when it comes to the Fed, that’s par for the course. And if you don’t believe me, here’s a guy who has learned everything he knows from the Fed about how to fix serious problems …<\/p>\n