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Black Coffee: Overdosing on Crazy Pills

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.

Well … another glorious long holiday weekend is upon us, so let’s get this party started, shall we?

The lunatics are running the asylum. Debt has become so highly priced, locking in guaranteed losses is now seen as ‘wisdom.’ In fact, negative interest rates mean the world now values debt more than money. If you think this through, it means ‘everything is worth nothing.’

— Bill Holter

Radical monetary policy begets more radical monetary policy.

— Jim Grant

A nation without a central bank is like a cockroach without a cell phone.

— Franklin Sanders

Credits and Debits

Credit: Well … it turns out that last quarter’s GDP was far stronger than expected, with US households going on a massive spending binge. In all, consumers were responsible for 138% of the 2.1% quarterly GDP print. Last quarter, personal consumption was up 4.3% — that’s the strongest rate in five years. Hooray!

Credit: However, market analyst Sven Henrich wonders if last quarter’s spending surge was due to something else: credit card debt, which rose 8% (vs. 1.5% in Q1) to a new all-time high. He says, “With 78% of US workers living paycheck to paycheck, that’s called ‘living on the edge‘ — and warns of a coming storm.” Uh huh. By the way … now you know why Sven never gets invited to any neighborhood parties.

Debit: Then again, it’s not just US consumers who are saddled with record debt. The federal government is drowning in red ink too — which is why this week the US Congress suspended the debt ceiling until August 2021. Congress also lifted spending caps that would otherwise have put a yoke on its relentlessly-expanding federal agency and military budgets. Yes, yes …. we’ve all seen this movie many times before:

Credit: As MN Gordon noted this week, America’s politicians suspended the debt ceiling so “the descent to hell can be made as comfortable as possible. When the next recession arrives, and Washington counters it with massive new applications of debt based stimulus, the debt will go vertical.” True. But with our fraudulent debt-based monetary system, ever-expanding deficits are baked into the cake; a feature, not a bug.

Debit: Frankly, many people argue that American debt is going vertical now, with the latest US plans to borrow $800 billion in just the final six months of the current fiscal year alone. No, really. Talk about a smelly dome of debt! Come to think of it, I remember another smelly mountain from long ago — but unlike the loathsome pile being created in Washington, this one actually benefited society:

Debit: Fortunately, the cost of servicing that growing debt load got a little bit cheaper this week when the Fed kicked off its journey to negative rates with a 0.25% cut. Of course, the real reason for the Fed’s first cut in 11 years was because Wall St. all but promised a stock market meltdown without one. Alas, this is what monetary policy looks like when the inmates run the asylum. And it will all end in tears.

Credit: In the meantime, stocks continue to hover at or near all-time highs. But financial analyst Dave Kranzler observes, “The melt-up in the chip- and unicorn-company stocks is stunningly similar to the melt-up in the same chip stocks and the dot-coms in late 1999. Unicorn companies such as Tesla, Uber and Beyond Meat are this era’s dot-com stocks.” In other words: mess with the unicorn and you’ll eventually get the horn.

Credit: With stock market capitalization versus the economy as high as it’s ever been, and with the Fed having so little ammunition to fight the next economic downturn, market analyst Sven Henrich wants no part of the stock market. He wonders if blowing “a massive market bubble is the end game — (especially) with a market cap of 145% of GDP, but no history of being able to sustain that level.” Well … it sure seems so, Sven.

Debit: Meanwhile, Euro interest rates are so low that Switzerland’s largest bank, UBS, will soon be charging their clients negative interest on deposits of $2 million or more; presumably at the Swiss National Bank’s current -0.75% rate. Even worse, UBS expects the SNB rate to hit -1.0% next month. Absurd? Yes. But it begs the question: How much is our cash really worth if the banks won’t even pay us for holding it?

Debit: So when does the debt bomb finally go off? If you believe the US Treasury, sometime in 2024, every last penny of new debt issuance will be required just to service the debt. Yes, all of it. And, yes, just five years from now. Although government finance estimates tend to be wildly optimistic, which is why we’ll probably reach that dubious milestone much sooner than advertised.

Debit: Zero Hedge reminds us, once 100% of new debt issuance is required to service the debt, “every increase in rates, which will happen simply due to rising inflation expectations, will merely accelerate the Ponzi process, whereby even more debt is sold just to fund the rising interest on the debt, thereby requiring even more debt, and so on.” At that point, the “Almighty” dollar’s reign comes to an end; and if we’re lucky, so does the Fed’s.

By the Numbers

Hopefully, at some point relatively soon, the ever-growing debt figures will become so absurdly large that even the world’s central bankers will finally be forced to admit that our current fraudulent debt-based monetary system has reached the end of the road:

$244,000,000,000,000 Approximate total global debt at the end of 2018.

$22,555,807,375,126 The US National Debt as of Aug 2, 2019.

$67,026 Approximate amount of National Debt each American citizen is responsible for paying.

$870,000,000,000 Total US credit card debt.

$1,270,000,000,000 Total US auto loan debt.

$1,460,000,000,000 Total US student loan debt.

$13,540,000,000,000 Total US household debt.

$200,000,000,000,000 Estimated US unfunded liabilities.

Sources: Bloomberg; US Government and Federal Reserve Bank data via NBC

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.

Last Week’s Poll Results

Has your summer been hotter than usual this year?

  • No (66%)
  • Yes (24%)
  • I’m not sure (10%)

More than 1800 Len Penzo dot Com readers responded to last week’s question and 2 out of 3 say the summertime heat has been pretty typical for this time of year; just 1 in 4 said it’s been hotter than usual where they live. For what it’s worth — and although I can’t confirm it — here in Southern California it seems like we’ve had a cooler-than-normal summer. Very pleasant!

Hey … If you have a question you’d like me to ask your fellow readers here, send it to me at [email protected] — and be sure to put “Question of the Week” in the subject line.

Useless News: Shaken, Not Stirred

A lady walked into a bar and said, “Barkeep, gimme a martooni!” So the bartender fixed her a martini.

The lady quickly downed her drink, then immediately raised her glass and said, “Barkeep, gimme another martooni!”

So the bartender fixed her another drink — and once again, the lady gulped it down and immediately asked for another.

The same exchange continued for a few more rounds. But after her fifth drink, the lady just sat at the bar, not saying anything.

Finally, after a few minutes the bartender walked over to her and asked, “Would you like another?”

The woman replied, “Barkeep, I’d have another martooni if I could … but I’ve suddenly come down with a terrible case of heartburn.”

“Okay, let’s get a few things straight,” said the bartender. “Number 1: It’s called a martini, not a martooni. Number 2: I’m a bartender, not a barkeep. And Number 3: You’re not suffering from heartburn — your boob is in the ash tray.”

(h/t: Cowpoke)

More Useless News

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(The Best of) 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]

Sometimes I get the strangest email questions, like this one from Mr. Wonderful:

You got change for a hundy?

You actually have a $100 bill in your wallet? Hmm … If you’re so wonderful, then why aren’t you married?

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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