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Black Coffee: The Fed Is Officially In Panic Mode

It’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.

And away we go …

When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes.

— Napoleon Bonaparte

America started to die when the Federal Reserve was founded, and it really started to die in 1971 when gold backing was taken away from the dollar.

— Jeff Berwick

When I did my research, I came to the startling conclusion that the Federal Reserve System doesn’t need to be audited — it needs to be abolished.

— G. Edward Griffin

Credits and Debits

Debit: It’s time for a reality check. As Egon VonGreyerz reminds us: “Very few realize that (our) high standard of living has nothing to do with real economic growth or productivity. Instead, it’s based on $500 trillion of debt and printed currency, including unfunded liabilities and pensions.” Sadly, that doesn’t stop everyone else from believing the monetary charade will continue forever.

Debit: No matter where you look, debt is everywhere. And while nations and corporations have racked up the majority of debt since 2008, consumers continue to drown in a sea of red ink too — especially when it comes to credit cards, as a new study has found that the average American household carries a monthly balance of $6929 — and pays $1140 a year in interest. Ouch.

Debit: Then again, consumer debt has grown progressively worse over the last 40 years. For example, in 1980 the average American carried a debt load equivalent to double his or her monthly salary. Today, that number has ballooned to the jaw-dropping sum of 5 times monthly wages. Does anybody see a problem here? No? Okay … well, then how about here:

Debit: With most consumers essentially tapped out, it’s no wonder that unconventional home loans aimed at those who can’t provide proof of income are making a comeback. In fact, lenders issued $34 billion of these unconventional mortgages in the first three quarters of 2018 — that’s a 24% increase over the same period a year earlier.

Debit: Meanwhile, the US Treasury Department is set to maintain elevated sales of long-term debt to finance the government’s growing budget deficit, with new issuance projected to top $1 trillion for a second-straight year. Remember, these trillion-dollar deficits are occurring during an economic expansion. During recessions it’s not unusual for deficits to double or triple from levels seen prior to the downturn. Think about that.

Credit: By the way, in light of the rapidly-escalating deficit, this tweet from Peter Schiff suggests that at least bitcoin owners finally seem to be waking up:

Debit: Of course, while the Fed has been removing liquidity from the system for its quantitative tightening (QT) campaign, stock investors have been doing what they did when the Fed was printing dollars during their quantitative easing (QE) heyday — only in reverse, which caused the stock market to tank. And investors have been on edge because the Fed has been implying that four more years of QT was on the way.

Credit: In theory, the Fed’s is supposed to protect the dollar. In theory. But it’s been apparent for years that the Fed is more concerned with the stock market. And the Fed only solidified those suspicions on Wednesday when it announced a pause in rate hikes, and intimated that QT may end sooner than expected. Hey … do you think December’s stock market plunge had anything to with that? You bet it did.

Credit: As macroeconomist John Williams notes, by prematurely stopping rate hikes, the Fed will intensify the next economic downturn, which in turn will necessitate even more QE. True, stock market investors will rejoice — but the ensuing currency devaluation will further erode global confidence in the dollar, as more people realize that QE is the only way to keep the dying debt-based global monetary system from imploding.

Debit: The Fed says the economy is healthy, but they’re in panic mode because stock investors had a tantrum last month. The truth is, price discovery is dead because the markets are being managed to delay the inevitable reckoning that’s coming. But the manipulation will eventually fail because the Fed is trapped. By trying to keep the stock market levitated, the Fed is simultaneously hastening the demise of the dollar.

Credit: If you ask financial analyst Lance Roberts, he’ll tell you that the real crisis will start when panicking pensioners start a run on their funds, causing “a debacle of mass proportions.” But Roberts notes that there’s also a silver lining to this impending financial disaster: “The good news, if you want to call it that, is that the next crisis, will be the great reset — which will also make it the last crisis.” Just don’t tell that to this guy:

By the Numbers

Here are some shocking numbers on the historic polar vortex that blanketed the midwest US earlier this week:

-77 The nighttime wind chill temperature, in degrees Fahrenheit, recorded at Thief River Falls, Minnesota, on January 29th.

-23 Record low temp in Chicago on the morning of January 30th; that was the lowest reading since the mid-1980s.

14 Consecutive hours the wind chill temp was under 50 below zero F in Minneapolis on January 29th.

94 Temperature difference, in degrees F, between morning lows at Key West, Florida, and Key West, Iowa, on January 30th.

6 States with a temperature on the morning of January 30th that was equal to or less than the low of 27 below zero F registered at the South Pole Station. (North Dakota, South Dakota, Minnesota, Wisconsin, Iowa, and Illinois)

Source: AccuWeather

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

How many homes have you owned in your lifetime?

  • 3 (29%)
  • 2 (28%)
  • 4 or more (19%)
  • 1 (13%)
  • 0 (11%)

More than 1700 Len Penzo dot Com readers responded to last week’s question and it turns out that only 1 in 9 of them have never owned a home. Of those who have, most people have owned two or three during their lifetime. As for yours truly, I’ve owned two homes, including my current house, which I bought when it was brand new, 22 years ago. How time flies.

Useless News: Who’s the Boss?

One day, there was a catastrophic event which caused all living creatures on earth to die. To sort things out, everyone was sent to the Pearly Gates.

After a brief wait, God approached everyone and commanded, “I want all of the women to go with St. Peter. As for the men, I want you to make two lines. One line for the men who ruled their women on Earth, and the other line for the men who were ruled by their women.”

The next time God looked, all of the women were gone, and there were two lines of men. The line of men who were ruled by their women was a thousand miles long, while the line of men who ruled their women consisted of a single soul.

After doing a double take at the scene before him, God became angry and said, “You men should be ashamed of yourselves! I created you in my image and yet you were all whipped by your mates. Now all of you — behold the only one of my sons who managed to make me proud. Learn from him! Tell them, my son — how did you manage to be the only man standing in this line?”

“I don’t really know,” the man replied. “My wife told me to stand here.”

(h/t: Santander)

Other Useless News

Programming note: Unlike most blogs, I’m always open for the weekend here at Len Penzo dot Com. There’s a fresh new article waiting for you every Saturday afternoon. At least there should be. If not, somebody call 9-1-1.

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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]

This week I heard from Z, a triggered BMW owner who left yet another comment on my post explaining why smart people aren’t impressed by people who drive luxury cars:

What’s next? An article shaming people who live in Tudor styled homes vs. ranches?

I bet you’re only asking that because your Beemer is a sporty Tudor.

If you enjoyed what you read here, please forward this to your friends and family. I’m Len Penzo and I approved this message.

Photo Credit: brendan-c

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