Good afternoon my friends, this is a great article pointing out exactly the problem the US is facing, perhaps soon to be other western countries as well, and just goes to show you there is no time to sit on the duff allowing dust to collect.

Its a very good time to maximize our diversification of income and ‘buy low’ so we can ’sell high’ later. Notice the players buying gold right now? The top 5%. They are not the top 5% because they are stupid, they are the top 5% because they know when and where to put their money.

The flip side, who is selling their gold? The average person, which comes perfectly in line with what my mentor Simon Heapes always says: “the generationally wealthy always buy when the majority is selling, and sell, when the majority is buying”.

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How long can the median US household hold out in this recession?
Eric Janszen, President iTulip, Inc.
April 15, 2008

,…We read every day about the credit crunch. As bank lending standards tighten along with the credit standards of credit card companies, households’ access to credit is declining. As the economy slows en unemployment rises, incomes fall as well.

How long can the median US household hold out in this recession?

Ready for this?

The median US household if deprived of credit due to tighter lending and income due to job loss has enough savings to finance 18 days of cash flow, down from 30 days in 2001.


Eighteen days of liquidity based on media household cash flow

You want to know, Who are the people in line selling their coins and jewels? Here is your answer: they are the North Americans whose real wages crashed at the end of 2007.

Trend of rising inflation and stagnant wages accelerated in Q4 2007

Of course they are selling gold and jewels! They’re in debt. They’re broke. Yet everything they buy, from gas to food – and now even the items they are used to getting from China for next to nothing – is getting more expensive.

Inflation Hedges: Who is buying and why?

Obviously, gold prices can’t go up if everyone is selling. Who is buying gold to drive prices up over $900 while the median household is forced to sell gold to raise cash?

The answer: hedge funds, mutual funds, ETFs, investment banks, and financial advisors whose clients are in the top 5% of the net worth group. While median real income growth turned negative last year as the chart above shows, if you dig deeper into the incomes numbers by wealth group you can see that of the real incomes of top 5% increased 16% while real incomes for the bottom 95% declined. Only the top 5% of income earners experienced real gains since 2005.

Wage inflation? Yes. But whose?

Conclusion

In the 1970s the lines around the block were North Americans buying gold and silver to protect their savings from the ravages of inflation. Today the lines are of sellers, not buyers. The tragic difference between the 1970s stagflation and today’s is that where the average North American had savings then to convert into gold and silver to protect, today after 25 years of debt-serf neo-feudalism they instead have debt. Yet all the Fed can do to fight the forces of debt deflation unleashed by the collapse of the housing and mortgage bubbles is to print money and allow the dollar to depreciate further.

Here is the combined result.

Household and business cash flow squeezed by inflation and falling demand

Anyone who expects anything but the equivalent of an economic face plant to result from the Dual Cycles of Demand Destruction is either a dreamer or an apologist for the system that created this mess. In a recent interview with Australian economist Steve Keen we were treated to a bold prediction that the only policy solution that will allow US households to pay down their debts is – ready? – a conscious monetary policy of wage inflation.

We are living through the final chapter in a story of misguided, ideology based economic policy that started in the early 1980s. The story of its dissolution has not and will not covered by the MSM. Tomorrow, April 9 at 3PM I will join Henry Blodget and Barry Ritholtz at the HedgeWorld/Reuters AdvicePoint event at the New York Athletic Club where I will explain to money managers why reading the FIRE Economy media is bad for your their client’s financial health. See you there.

Eric Janszen
Founder & President
iTulip, Inc.

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Have you got gold yet?

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