The Steep Cost of Lattes and Bad Economics

Starbucks, 7-dollar Iced Lattes, and Getting Screwed by Bidenomics

You might have seen Jim Cramer grilling the CEO of Starbucks about their recent financials in a video earlier this month.

I won’t go into it too deep, especially since Doug and Matt already covered it in one of their recent chats — but let’s just say that if someone like Jim Cramer can make the top person at your company look this bad, you have some problems.

But it was amusing…

So amusing, in fact, that I almost spit my own coffee when Laxman Narasimhan, the CEO, said, “We haven’t been able to communicate to them [our customers] the value we provide.”

"Wait a minute, what does that have to do with a good cup of coffee at a reasonable price?" Doug rightfully pointed out later during the podcast.

On second thought, the CEO guy might be right. Maybe they should do a better job communicating to customers why their iced latte is “valued” at $7. Perhaps their feel-good corporate activism and support for the “current thing” do have a price, after all.

But the whole thing made me wonder about the bigger picture: how many young, hip, city-dwelling, Democrat-loving young people who buy that overpriced latte are convinced that the current economy is working for them? Because I'd be hard-pressed…

Biden’s Multi-Trillion-Dollar Splurge

You probably know the story.

Under the guise of pandemic aid, the Biden Administration went on a trillions-of-dollars spending spree to fund its liberal agenda.

In the years since Biden took office, measures such as the American Rescue Plan, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act were signed into law. 

The promise of these stimulus projects, collectively dubbed “Bidenomics,” was to “rebuild our economy from the middle out and the bottom up.”

This was a complete reversal from the “trickle-down” approach of Republican presidents like Ronald Reagan. They favored tax cuts and incentives for the rich, saying that over time, the middle and lower classes would see benefits too.

Total cost of Biden's attempt at Soviet-style planning? About $4 trillion.

It’s noteworthy that this number doesn’t include less major pieces of the Bidenomics spending agenda like the CHIPS Act, aid to Ukraine, and a bunch of other initiatives.

In fact, if you add up the new spending initiatives pushed through by Biden, it comes to a staggering $6 trillion. To put it in perspective, the entire economic output for Germany, the world's third-largest economy, is about $4 trillion.

You don’t have to be a financial whiz to see how these policies could led to a double whammy of massive deficits and surging debt.

When Joe Biden took office, the national debt was $27.8 trillion. Now, it’s shot up to more than $34.7 trillion — that's over a quarter million dollars for every household.

Bidenomics = Bad Economics

But surely, you might say, it’s all totally worth it if the average American’s life has improved under Bidenomics.

That’s precisely the tale President Joe Biden loves telling… that his economic policies have helped the American middle class and small businesses.

The problem is, that’s just not true.

For one, the average American household must spend an additional $11,434 annually just to maintain the same standard of living they enjoyed in 2021, the year Biden took office.

Meanwhile, the top 20% of incomes now account for nearly 40% of consumer spending in the U.S. You can see this in the next chart.

At the same time, the bottom 20% of consumers now account for only 9% of consumer spending. Even if you combine the bottom 40% of incomes, they account for just 22% of consumer spending compared to 61% for the top 40%.

For someone who says he's all about equality, these stats aren't really something to brag about... though Biden might just do that anyway.

Meanwhile, U.S. households with two earners have an average annual income of just over $75,000. With the average sales price of a home at the end of 2023 around $413,200, that puts home affordability at a measly 18% — its lowest point in history.

In fact, only about one in six (16%) U.S. homes for sale in 2023 was affordable for the typical household, marking the lowest share on record. Alarmingly, this is down from two in five (40%) in 2021. That’s just three years ago. You can observe this dramatic shift since Biden took office in the chart below.

Thankfully, President Biden realizes the housing affordability issue could undermine his reelection chances, so he’s wracking his brain to defuse it. Oh, I'm sure only good things will come from this.

So, how is all of this affecting the lives of our coffee-loving youngsters?

Not great.

Besides the mounting levels of anxiety and depression among Gen Zers, their debt levels are also on the rise. Well, that might be an understatement considering that young people today have more debt than ever before. If you take a look at the next chart, they now hold 44% more mortgage debt, 26% more credit card debt, and 14% more in auto loans than their counterparts of the same age (Millennials) had in 2013.

Meanwhile, they're averaging $45,493 per year compared to the $51,852 Millennials were making a decade ago. That's despite the insane increase in living expenses we've witnessed since the Fed went off the rails during the pandemic and the subsequent Bidenomics era.

Talk about getting the short end of the stick…

So, for anyone under thirty, maybe think twice before indulging in another pricey Ice Latte at your local café. Your wallet could probably use a break.

Regards,

Lau Vegys

P.S. There's no better safeguard against overpriced coffee, Bidenomics, the Fed's reckless money printing than gold. Its track record speaks for itself. This is why Doug always recommends holding gold in your long-term investment portfolio. And if you're after some leverage, we have several precious metal stock picks — ones that Doug himself owns — to capitalize on in our Crisis Investing portfolio.