2006 - The Year Debt Finally Matters?

Most economists have been gushing about how 'resilient' the American consumer has been, and how great this has been for the US economy. That's true, since consumer spending makes up 67-70% of America's GDP.

The only problem with this is debt has to be repaid, or defaulted on. Manic borrowing and spending by consumers, corporations and government has led to an economy 'juiced up' with financial steroids. Like an athlete who's performance slips after he (or she) goes off the juice, I see the American economy being less buff in 2006.

The debt and real estate bubble has gone on much longer than I thought it would. It proves the old saying correct: "The market can remain illogical longer than you can remain liquid." Luckily, I didn't lose any money shorting stocks during the last few years.

How will this house of credit cards, mortgages and car loans come tumbling down? It's hard to say, but I think we're starting to see the decline in certain areas. Foreclosures have been increasing in the seven county Denver-metro area, and hit their highest level since the oil bust days of 1988. General Motors recently announced they're lowering prices on new cars and trucks.

GM realizes that consumers aren't buying cars the way they used to, and GMAC probably wants to minimize its risk exposure to high balance loans. On top of this, Fortune 500 companies are outsourcing more white-collar service jobs to India. With American workers' incomes stagnating, and expenses going higher because of inflation, we're seeing that rare economic creature that hasn't been seen in the US since the 1970s.

It's name? Stagflation. These conditions fueled the last big commodities bull market during this decade of disco. Gold hit a peak around $850/ounce in 1980, and silver topped at around $50/ounce until the feds put the kibosh on the Hunt brothers.

A wise man once said, "History doesn't repeat itself, but it usually rhymes."

These economic tunes from the disco and today's techno times sound very, very similar. That's why I'm very bullish about gold and silver, along with well-managed energy and metals stocks and funds. That's all for now, until next time...