More Bad News for Consumer Spending

As most of you who are regular readers of this site know by now, I am of the opinion that the US economy is extremely weak in spite of the massive bubble in the equity markets. My reason for having this view is that the consumer, the backbone of this debt-based system, is not in a happy mood.

Opinion polls reflect the pessimism of the public at large as the majority believe the US is in decline as a nation and is on the wrong track. Wages are stagnant and as a result of that abomination known euphemistically as the "AFFORDABLE" Care Act ( it is anything but that for the vast majority), many workers have been cut from full time to part time status or have lost their health insurance benefits. That means they will have to foot the bill for that out of their own pockets now. Translation - that leaves less money for discretionary consumer spending.

Now comes the news that as of this Friday, the temporary boost in food-stamp benefits that was passed not all that long ago will expire. Analysts are projecting that will leave 48 million Americans with an estimated $16 billion LESS to spend over the next three years - according to an article from Dow Jones Wire Services this AM.

This will hit low-income shoppers the hardest. That demographic tends to frequent the discounters, dollar stores, mini_marts, etc.

Also, the story relates a fact that I had forgotten but was glad to be reminded of - the temporary payroll tax cut which was enacted but expired some months ago  also leaves consumers with less money to spend.

Perhaps the one saving benefit of these deflationary type pressures has been the drop in crude oil and by consequence gasoline prices and heating oil prices. If we get the type of winter that some of the firms are suggesting, consumers will be thankful for that at least.

Regardless, my take remains the same - there are too many deflationary factors at work from a structural standpoint to allow the Velocity of Money to increase any time soon. That will be a tough headwind for gold to deal with without some sort of other catalyst that cracks the confidence in the Dollar.

I am carefully monitoring interest rates here in the US as that will also have a significant impact on the consumer borrowing and spending issue.