Bob Chapman: Economic Crisis in America: Mounting Household Debts, Threat to Pension Funds and Social Security

The experts’ keep telling us how great shopping is this Christmas Season when only 17% of shoppers are using credit cards. That is a drop of 50% from last year, and the lowest usage in 27 years. We guess buyers have unloaded the cookie jar and pulled their savings from under the mattress. The consumer sentiment index has risen 2.6, but we will wait to see if attitudes turn into sales. Home buying intentions continue to fall as interest rates hit 4.66% for a 30-year fixed mortgage this past week, putting a further damper on future sales.

By many yardsticks it looks like the stock market is topping out again. If for no other negative fundamental or technical reason then the fact that all strategists are bullish. GS believes profits will rise 25%. We don’t, we see GDP growth at 2% in 2011 including a tax compromise and a net of $800 billion and the Feds addition of $1.7 trillion. This is what happened in the last stimulus effort. Besides from our point of view shares are already overpriced. The market will be helped by a relatively stable dollar due to the turmoil in Europe and Japan. As the year moves on we see an eventual weaker dollar in spite of sovereign credit problems in Europe reflected in the euro. As 2011 wears on the developing world will have inflation problems caused in part by imported dollar inflation. During the course of the year barriers will be erected as they have been in Brazil.

The Fed will continue to monetize, as the deflationary undertow remains strong. Money velocity will rise, as will inflation and the prices of gold and silver. In spite of dollar strength on a relative basis the struggle between the dollar and gold for mastery will be ongoing as the dollar loses the pitched battle versus gold for monetary supremacy. Underlying deflation will be aided by ever falling prices in residential and commercial real estate. Household de-leveraging will continue at a moderate pace as it has for the past 2-1/2 years. Personal savings are back down to 4%, a reflection of debt pay down. (more)