The Ticking Credit Card Time Bomb
For those holding out hope
that the American economy can miraculously avoid a long and deep
recession consumer credit is often viewed as the wonder drug
that can cure all manner of economic ills. As such, this week's
report showing $15 billion growth in consumer credit was widely
heralded as proof of America's economic strength and resilience.
However, we are now suffering the after effects of too
much debt, and our salvation cannot be found in more of the same.
The statistics tell the tale. According to Equifax, a credit card analysis firm, people have been buying more with their credit cards but paying down less. As a result average balances jumped nearly 9% in 2007 and delinquency rates recently hit a 4-year high of 4.5%.
Also, the reliance on credit cards is preventing some of the markets salutary forces from working. With credit always an option, domestic demand remains strong despite rising prices. Absent the option of putting more costly gasoline on their credit cards, Americans might have actually been forced to cut back on their consumption, taking some of the upward pressure off gas prices.
It should be painfully obvious that expanded consumer credit is not evidence of improvement, but simply, deterioration. Unfortunately, when it comes to understanding the economy, there is little common sense on display. By going even deeper into debt just to make ends meet, American consumers are digging themselves, and our entire economy, into an even greater economic hole and laying the foundation for the next major credit debacle. It's fitting that just as both Treasury Secretary Paulson and JP Morgan CEO Jamie Dimon declared that the worst of the crisis has past, we are on the verge of kicking the whole thing into a much higher gear!
My guess is that many Americas
continue to run up massive credit card debt because they have
little intention of every paying it off. Since many who
are underwater on the home loans, and behind on the auto and
student loans see bankruptcy as a foregone conclusion, they see
no downside to pilling on as much debt as possible while the
taps remain open.
For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my book "Crash Proof: How to Profit from the Coming Economic Collapse." Click here to buy a copy today.
More importantly, don't wait for reality to set in. Protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com, download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com, and subscribe to my free, on-line investment newsletter.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange