Will Credit Card Debt Crush American Households?

Will Credit Card Debt Crush American Households? The chart of American credit card debt is not pretty.
However, we disagree with negative tone of many market pundits on the increasing amount of American credit card debt. In our view, increasing credit debt level is not as worrisome as long as the total household debt as % of total net-worth of US households is still small and manageable. It appears to be the case as of end of 2008:

- US Household assets as a whole: $65.7 trillion, unadjusted for inflation.

- US Household liabilities: $14.2 trillion.

- Net worth of US/American households (assets minus liability) was $51.5 trillion.

(Source: The Federal Reserve)

This means the total household liabilities (not just the credit card debt) as % of total net-worth of US households is still 27.5%...very reasonable still.
Hence, we argue that US households in general on aggregate are still able to absorb and withstand higher debt levels. This is a surprising fact but fortunately true.
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5-23-09 Weekend Update - Gold and Silver

Gold Poised for Third Weekly Gain as Dollar Slumps Against Euro

Glenys Sim
Bloomberg
Friday, May 22, 2009

Gold traded near the highest in two months, set for a third weekly increase, as the dollar fell against the euro, boosting the appeal of the precious metal as an alternative investment.

The Dollar Index, a measure of the greenback against six major currencies, has lost 3.2 percent this week on speculation that the U.S. government’s creditworthiness may be weakening, after Standard & Poor’s yesterday cut its outlook on the U.K.’s AAA credit rating to “negative” from “stable.”

“Investor interest in gold was bolstered by the declines in international equity markets and the soft tone of the U.S. dollar,” David Moore, chief commodity strategist at Commonwealth Bank of Australia, said in an e-mail today.

Immediate-delivery gold was little changed at $952.45 an ounce at 12:27 p.m. in Singapore after touching $956.55 yesterday, the highest since March 23. The metal has climbed about 7.2 percent this month and is about 19 percent higher than this year’s low of $802.59 an ounce. Silver, which dropped 0.2 percent to $14.49 an ounce, is still up 3.5 percent this week.

Bill Gross, co-chief investment officer of Pacific Investment Management Co. in Newport Beach, California, said yesterday that the U.S.’s top AAA credit rating will “eventually” be lost. “The markets are beginning to anticipate the possibility of” a downgrade, Gross said.

Full article here