Just Charge It!

January 9, 2008 - 18:57 ET

I've always said that if you really want to know what people think, forget about what they say in public and just watch where they put their money. Well, unfortunately, right now they're putting it in gold. It hit a new high of $880 dollars an ounce yesterday and since gold is viewed as a safe-haven hedge against doomsday -- that can only mean one thing: more and more investors believe that that's exactly where we're headed.

But if that doesn't convince you that we're headed for real trouble, then maybe this will: Countrywide Financial, which is the country's largest mortgage lender, yesterday suffered it's worst stock loss since Black Monday in 1987 after a rumor surfaced that they are headed for bankruptcy. That, of course, is still unconfirmed and while the company denies it, I'm guessing that Bank of America - the second largest bank in the country, is worried. That's because they invested $2 billion dollars in Countrywide last August; so if Countrywide goes under, the Bank of opportunity will take it on the chin as well. Who knows, maybe if they spent less time catering to illegal immigrants and more time researching their investments, the wouldn't be in this mess. I'm just sayin'.

But while Countrywide collapsing would be a huge sign that this crisis is nowhere near finished, the indicator that everyone is really watching is consumer spending, which now accounts for over 70% our economy. And so far, even in the midst of all the other turmoil, that spending has stayed remarkably strong, which, to me, seems a little fishy. After all, if voters really think that the economy is the number one issue right now, then why are they out there spending so much?

Well, I did some digging, and the Real Story is that consumers aren't spending, they're charging. And since home equity isn't available anymore, they've gone back to, where else?: credit cards. U.S. credit card debt rose almost $9 billion dollars in November alone, to a total that's just shy of one TRILLION dollars...and now, just like with their mortages, people are having trouble paying their those credit card bills. A recent study shows that late credit card balances are up 26 percent and defaults, which is when lenders basically write off the debt, are up 18%.

The truth is that Americans are now unfortunately following their government's example by taking on debts they can't afford to pay. But here's the dirty little secret: someone ALWAYS pays; and soon, when those bills come due, everyone will quickly begin to understand exactly what that means. Now, who wants to buy some gold?

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