Credit card debt and the K-wave
Clif Droke
April 25, 2005
Returning to our discussion
of the various trading ranges that have developed in several
major markets this year, it's clear to see the financial regulators
are trying to keep inflation from over-heating this year as the
financial system cannot bear another white-hot commodities inflation
year. A respite is needed and we've already seen the first signs
that the needed "pause that refreshes" is upon us.
The Fed's stated goal is to stabilize the economy and prevent
inflationary pressures from gaining ascendency. After an explosive
3-year run, commodities have entered a "cooling off"
phase in response to the Fed's attempts at putting the U.S. and
the global economy back into balance.
Speaking of inflation, the Financial Times reports that the Bank
of Japan is poised to abandon its forecast of a return to inflation
this fiscal year, delaying an exit from zero interest rates until
March 2007 at the earliest. The BOJ apparently believes that
"deflation is not over yet" and the BOJ's deputy governor
told the Times his bank would reverse its prediction that the
Japanese economy would climb out of deflation this year by registering
a consumer price rise of 0.1 percent. Instead it would predict
more deflation.
This shows us that the long-wave worldwide deflationary trend
(K-wave) is still with us and should succeed in keeping inflationary
pressures from getting out of hand when they arise from time
to time. Whenever the central banks try to reflate the major
economies, including the U.S., K-wave deflation is right there
to put pressure on top of prices before they threaten to skyrocket
to ridiculous extremes. Remember, the K-wave is tentatively scheduled
to bottom along with the Kress Master Cycle of 120-years around
2012-2014. We've still got a ways to go before we get there.
There is so much debt out there - to the tune of trillions of
dollars - that whenever the Fed starts pumping the liquidity
pump like they did from 2001-2004, instead of that money being
used to pay down the excessive debt levels it only used to add
even more debt. While reflation does resuscitate the economy
to an extent and lift consumer spending, consumers have a relentless
tendency to take on even more debt in different forms. The Fed
is slowing down the money supply rate of change (ROC) as we've
noted in recent months, among other reasons, to keep the debt
bubble from over-expanding too quickly.
You see all these ads on TV, radio, etc., imploring the consumer
to "get out of debt now," meaning personal credit card
debt. That's a dominant message right now in the mainstream press.
The economy can't have its next wave of euphoria until some of
that outstanding debt is amortized, and I suspect the Fed is
goading consumers into cleaning up their balance sheets somewhat
by slowing down the money supply ROC. This will force them to
cut back on discretionary purchases and credit card binging.
Another thing that doesn't bode well for debtors is the recent
Senate approval of the Bankruptcy Reform Bill, which, in the
words of tax expert Dan Pilla, "will negatively affect the
rights of citizens with large credit card debt." The days
of the debtor being protected at the expense of the creditor
are coming to an end. This recent passage of the bankruptcy bill
is yet another sign that the regulators are trying to keep the
consumer debt bubble from popping prematurely.
Business Week did a 2-page spread last week titled "Tough
love for debtors" about credit card rules that will raise
minimum payments for debtors. According to BW, because of a crackdown
by the Office of the Comptroller of the Currency, "most
banks and credit-card issuers will ratchet up required minimum
monthly payments over the next 12 months or so," adding
that in the future, "the payments must cover all fees and
interest and pay down at least some of the outstanding borrowing."
Monthly payments on many cards will double to about 4% of balances,
according to BW.
The stated goal of this is assisting debtors pay their bills
in a timely fashion and slash the interest due. The actual reason
is that before the next credit inflation can occur, there must
first come a contraction - a temporary deflation of the credit
bubble. "Two steps forward, one step back" as the saying
goes. The regulators are busy paving the way for the final phase
of the decennial pattern (not to mention the final integration
of the global economy) which calls for a final mini-boom in 2007-2009
before the final "hard down" phase of K-wave deflation
and the 120-year cycle begins.
--Clif
Droke
Publishing Concepts
website: http://www.clifdroke.com/
email: clif@clifdroke.com
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Clif Droke
is the editor of several subscription services including:
1) The Gold
Strategies Review,
a monthly forecast & analysis of gold and silver futures
and precious metals stocks. Published online. $200/yr.
2) The Durban
Roodepoort Deep (a.k.a. The DROOY Report) for traders,
published online every trading day.
Aimed at
serious day and short-term traders of Durban Deep and followers
of the XAU & HUI index. DROOY Subscribers are billed monthly
$50/month.
Two
week 'trial' subscriptions now available $25, here.
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