Debt and Deflation: The Economic Valley Looks Deep

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Debt and Deflation: The Economic Valley Looks Deep
Signs of financial conservatism

By Bob Stokes
Thu, 14 Jun 2012 17:30:00 ET

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In normal economic times, keeping money under the mattress makes you an oddball. You're supposed to trust financial institutions. The basic savings account has zero risk

But in today's economic climate, extreme financial conservatism is becoming more popular. A May 3 SmartMoney magazine sub-headline reads

Have Americans lost trust in banks? More folks are keeping valuables at home, whether in room-size vaults or under-bed safes.

The article says that some makers of safes have recently seen a 40 percent increase in sales.

One safe "parking place" for capital during a deflationary crash is cash notes...in a safe depository to which you will always have access. That way, you will have money if the bank fails, you will have money if credit collapses, and you will have money if the government defaults on its debt.

Those words were first published ten years ago in the book Conquer the Crash.

Even investors who do own risk-assets have increased their cash allocation. A June 12 CNBC article says

Investors are heading for cover, taking their most conservative positions since the depths of the financial crisis. Cash now makes up an average 5.3 percent of portfolios, the most since January 2009.

In fact, the New York Times reports (May 29) on "a growing retreat from the stock market...The portion of Americans invested in the stock market dropped this year to its lowest level since Gallup started asking, every two years, in 1998."

Here's another sign of economic contraction:

From February to March, debt rose by $21.4 billion, the seventh straight increase and the largest monthly rise since November 2001. However, the rate of change at the bottom of the chart shows a steady erosion of upside momentum.

Financial Forecast, June 2012

But note: much of the rise in consumer debt from 2008 through March 2012 came from student loans, not from consumers using their credit cards for new cars, televisions and the like.

All of the above is just part of the evidence of a financial conservatism trend.

So why have the stock market and economy held up so far?

Learn the answer to those questions plus find out why you need to financially brace yourself for what we see just ahead. Our Financial Forecast Service is available to you risk-free for 30-days>>

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Tags: cash, conquer the crash, debt, deflation, money markets, mutual funds, safe haven, sentiment, stock indexes

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