X-raying the US economy.

I have been lucky enough to find references to various aspects of the US economy currently. I shall write conclusions down along with important data.

I. The Stock Market.

All the underpinnings of the Stock Market are straining. Let's check these.
a) Margin debt.

Margin debt is at record high. Note that in 2000 and 2007 there were sharp increases in the margin debt before a Market crash. We may be at the beginning of the sharp increase that preceds the crash. The FED is trapped. Increasing the interest rate would precipitate a Market crash. That is why the FED backed down and announced a slowing or halt to raising interest rates. The announcement of the increase did drop the market.

b) Participation rate.

The number of shares traded is decreasing while the Index is increasing.

c) Price to Earnings ratio is getting too high.

The 'normal' ratio of the P/E is 16, but the current ratio is 27. Even this ratio is suspicious. Why? Because companies borrowed money and bought back stock so the earnings per share would look higher (fewer shares). This is another reason the FED is trapped into ZIRP. If the interest rate is hiked seriously, it would create havoc with the companies that borrowed cheap money to reduce the number of their shares. Higher interest rates would increase their cost of paying for their debt which would reduce their earnings, thus increase their P/E and reduce share price.

II. The Housing Market.

Several factors impact the Housing Market. Homeownership has fallen because housing prices have been driven up and fewer people can afford them. The reason housing prices went up is because some big investors have bought up the houses. Mortgage rates are very low, so big investors can speculate in buying up houses. This is another trap for the FED. If interest rates were raised, it would force big investors to unload their property and create another housing bust.

III. Wealth transfer to safer investment.

An aging population (baby boomers) is retiring at a rate of 10,000/day.They must have safe investments to have income and must reduce spending. This feeds back negatively on the economy as a whole.

IV. Silent wealth confiscation.

The US Dollar has increased in value because (as Larry elucidated for us) it is a mistaken belief that the Dollar is safe. However, over the longer term, the Dollar lost value.

The graph predicts a 30% loss in the value of the Dollar.

V. The dwindling velocity of money.

Money velocity is defined as nominal GDP/money supply.
This can be illustrated by a hypothetical example. Say that I spend five Dollars and buy a hotdog in some unit time (like a day?). The hot dog vendor then buys a package of hot dog buns from the baker and the baker goes next door and buys a coffee. In this instance, the $5 turns over 3 times, so the money velocity is 3. Suppose the bakes does not sell enough product and decides to forego the coffee. The money velocity is now only 2. Our economy is becoming stagnant. It does little good to add more money to the banks, it will not increase the turnover of money.

VI. Unemployment.

The official unemployment is 5.6%. This figure is reached by ignoring those who have been without job for a long time and are no longer eligible for unemployment. Here is a graph of unemployment.

VII.Debt.

Public and private debt can inhibit economic growth. Of this the public debt is especially toxic. US debt has skyrocketed in recent years and continues to do so.

This is another trap for the FED. The interest on the debt is tolerable now because interest rates are low but if the FED raises the rates, the interest will start mounting. Up till recently, Treasuries were bought by foreign governments and private individuals. But, with low interest, governments are dumping Treasuries so now the FED buys 71% of new debt. Also, foreign governments are beginning to dump their Treasuries. To entice them to buy more, the FED will have to raise interest rates,. But remember, the FED faces all kinds of pressure to keep interests low. This is an insoluble dilemma.

In these circumstances, buying gold and silver is the best method  to preserve wealth. Gold miners and silver miners have been a good investment this year. The FED's latest action renewed the Bull Market and put a stop to the increase in gold prices. Some even believe that gold will now drop. If gold can hold above 1,250, the Gold Bull Market will continue. Good luck.