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Black Coffee: And the Band Played On

black coffeeIt’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.

I hope everyone is enjoying their weekend! In the meantime, why don’t we get this show on the road? Then I can start mine …

Who’s dumb enough to bet that more liquidity and negative interest rates will magically work when zero interest rates didn’t move the needle?

— Charles Hugh Smith

The bond market in Europe is stripped of its job, which is to discover price and rates and to help calibrate our feelings and our calculations about financial risk. It’s dead.

— Jim Grant

Credits and Debits

Debit: Did you see this? A new study has found that found that almost 1 in 4 people have lied to a new partner about their debt. The survey also revealed that many adults are deceptive about their financial situations in general. Three in 10 admit they have lied about their annual salaries, and more than 25% said they have hidden their spending habits from partners. Imagine that.

Debit: I’ll bet it’s tough to lie about your financial situation if you live in the Big Apple. After all, it’s tougher than ever for those making less than six figures to reside there. Assuming a maximum rent-to-income ratio of 40%, solo renters in popular “affordable” Brooklyn neighborhoods now need to earn at least $100,000 per year to live there; and single Manhattan renters need a gross income of $115,800. Yikes.

Credit: Meanwhile, back in the Workers’ Socialist Paradise of Venezuela, the news is a mixed bag. The good news is the annual inflation rate tumbled to 34,900% from 224,900% at the end of last year. The bad news is it hasn’t slowed inflation as much as the rate of the bolivar’s decline. Huh. Well … maybe they can try lopping a few zeroes off their currency. Again. Or not. Forward, amigos!

Debit: Things are no better in Zimbabwe this year, where pay has risen 10% — but costs for essential services jumped 400%. The annual inflation rate there is now 558%; that’s more than three times the “official” government rate. I know. As a result, roughly 3 in 5 rural Zimbabweans are unable to afford enough food. Many years ago, Zimbabwe used to be “the breadbasket of Africa.” Then socialism reared its ugly head.

Debit: In other news … First it was Denmark, then Switzerland, and now Germany; this week their entire bond curve turned negative for the first time ever. For those wondering how negative interest rates work, here it is in a nutshell: You pay bankrupt governments for the “privilege” of lending them currency that they’re rapidly debasing. Heh. And if you think that makes sense, I’m sure you see nothing wrong here either:

Credit: And while negative rates have yet to reach America’s shores, financial analyst Joachim Fels says that, “US Treasuries may be no exception to the negative yield phenomenon. And if trade tensions keep escalating, bond markets may move in that direction faster than you think.” Quite frankly, negative rates are coming to the US, regardless, because they’re baked into the cake; reduced trade tensions will only delay the inevitable.

Debit: Of course, most of the world’s central banks have been pursuing a negative interest rate policy (NIRP) to encourage borrowing in a bid to counteract a chronic global economic malaise — but it’s no longer working because the global economy is debt-saturated. Unfortunately, trying to solve a debt problem with even more debt is akin to “helping” a man who fell into a well by giving him a shovel.

Credit: Macroeconomist Alasdair Macleod reminds us that, “There’s no evidence that negative rates work. And assuming the Chapwood index provides a reasonable estimate of annual purchasing power loss for the dollar, negative rates means the public and businesses could lose up to 15% of their wealth and earnings annually.” Sadly, that won’t stop bankers from trying. Most likely by charging a percentage fee on withdrawals.

Credit: For his part, financial analyst Bill Holter argues that, “Negative rates are a long-term impossibility and carry many unintended consequences; a snake on the Titanic eating its own tail. And the ship is engulfed by debt with absolutely no mathematical way to perform.” As a result, Holter says, “The point where central banks lost control is in the rear view mirror.” He may be right; but just to be sure … let’s go to the tape:

Credit: Mish Shedlock says the cause of the global economic malaise is no secret: “It’s the debt, stupid! The global economy is choking on debt as central banks are determined to have more of it. The bubbles are proof (of) inflation. The bond markets say something else is coming.” I agree; I suspect they’re telling us the end of our corrupt debt-based monetary system is fast approaching. Just how close is it? Only time will tell.

By the Numbers

Welcome to Crazy Town. “Investors” have now sunk more $15 trillion into negative-yielding bonds; that number has jumped $1 trillion in the last several weeks alone. Here’s a small sample of the latest 10-year government bond yields as of August 7:

-0.96% Switzerland

-0.60% Germany

-0.55% Denmark

-0.49% Netherlands

-0.37% Austria

-0.35% France

-0.34% Finland

-0.30% Belgium

-0.28% Sweden

-0.19% Japan

Source: MarketWatch

Last Week’s Poll Result

Will you close your savings accounts if the banks go to negative interest rates?

  • Yes (71%)
  • I’m not sure (20%)
  • No (9%)

More than 1800 Len Penzo dot Com readers responded to last week’s question and it turns out more than 7 in 10 say they’ll close their savings account(s) if interest rates fall below zero. Only 1 in 11 say they will keep their savings accounts with their banks. Remember that, folks, when negative rates are finally imposed on savers. When it comes to bank runs, he who panics first, panics best.

The Question of the Week

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

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.

However, the whole town was suddenly debt free, and looked toward the future with renewed optimism.

(h/t: hugin-o-munin)

Other Useless News

Here are the top — and bottom — five states in terms of the average number of pages viewed per visit here at Len Penzo dot Com over the past 30 days:

1. Connecticut (3.00 pages/visit) !!
2. Vermont (1.79)
3. Hawaii (1.71)
4. Arkansas (1.69)
5. Arizona (1.67)

46. Nebraska (1.22)
47. Delaware (1.21)
48. Illinois (1.19)
49. Nevada (1.15)
50. Alaska (1.03)

Whether you happen to enjoy what you’re reading (like my friends and relatives in Connecticut) — or not (ahem, Alaska … for the second month in a row!) — please don’t forget to:

1. Click on that Like button in the sidebar to your right and become a fan of Len Penzo dot Com on Facebook!

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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: [email protected]

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: brendan-c

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