Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Consumer Credit Could Launch Inflationary Spiral

Economics / Inflation May 05, 2011 - 03:48 AM GMT

By: Dr_Jeff_Lewis

Economics

Recent comments from Walmart chief executive Mike Duke have investors on high alert.  This time, though, the news spreads well beyond Walmart.

At a company event in New York, Duke reminded the crowd that retail is softening, “we’re seeing core consumers under a lot of pressure,” and later added that it was rising fuel costs, just another component of monetary inflation, that was driving the sales loss.  Of particular interest to inflation watchers should be his comments that were mostly ignored. 


End of the month purchases, Duke says, are falling off faster than beginning of the month purchases.  In retail-speak, this corresponds with unemployment benefits, which usually fuel the next month’s early purchasing pattern.  So too do Social Security checks and fixed-income payments, which ordinarily go to seniors and the disabled.

Inflationary Spiral

Americans have learned to deal with rising prices and personal budget shortfalls in all the wrong ways; usually, we borrow as we see fit, never realizing that it is our own spending that allows for further hikes in prices.  To see that end of the month purchases are declining is to see that entitlement payments and other government aid programs are not footing the bills.  So what is the American consumption economy to do?  Return to credit.

A return to consumer credit is mostly a non-starter when we discuss inflation.  In ordinary market cycles, the consumer credit economy is not tied to monetary expansion, and it does not allow for bank reserves and currency stockpiles to flow into the main economy.  This is no longer the case.

In bailing out the banks and purchasing trillions of dollars of assets, the Federal Reserve has made it quite evident to most everyone that the US is loaded with dollars.  This money, which was expected to remain at the M0 level, is now as mobile as ever.  Banks earn only 0-.5% on their stored dollars, and given the rise in confidence for the (employed) American consumer, banks should have little reason to keep their dollars at the Fed, earning far less than the rate of inflation when so many are willing to pay 10-20% annually on consumer credit lines.

This problem is only compounded by the failure of Social Security to keep up with rising inflation.  When seniors can no longer pay for rising gas and food prices at the same time, they’ll necessarily return to borrowing against their homes in Wall Street’s favorite product: the reverse mortgage.

Reverse mortgages, unlike consumer lines of credit, are entirely inflationary, as the bank can draw on the power of the fractional reserve banking system to further multiply their reserves against a perpetual lending program that is your average reverse mortgage.  In a reverse mortgage, home equity is removed from the homeowner at a steady monthly pace, thus building up a larger and larger debt as the homeowner removes valuable equity simply to pay the bills.  Is this kind of lending sustainable?  Absolutely not, and it only further continues the correlation between housing prices and American wealth.

The inflation concerned investor would be wise to see this opportunity as just another way to hedge their bets against the falling dollar.  With more borrowers now becoming borrowers until death, a slow churning of home equity for M2 dollars will create more dollars, more borrowing, more consumption and higher prices. 

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in