People wonder why gold is not already say $5000

People wonder why gold is not already say $5000 (it certainly could be) right now, given the fact that the US Fed alone and the US treasury have either given directly or bought (or guaranteed) up to $20 trillion USD worth of world bad debt/bonds/CDS/derivatives, you name it. That money went to US and European and other world banks and financial institutions into a literal rat’s nest of opaque levered multilayered contracts and leverage…


Jumping ahead

It would seem that the gold price should simply reflect all that money that was thrown out there, no? Answer at this stage? No.

Ok if all that incredible amount of money (and we are only talking the Fed at the moment, not the Chinese, the Japanese, nor the ECB all with say at least another close to ten $trillion USD worth, meaning in their own currency but we just use the USD to compare the amount here) they all threw into the flames….

Flames is a good analogy. What happened is this…They are attempting to keep alive a world awash in debt and all that money is merely being used to cover huge losses at financial institutions…which are basically like zombie banks now…and all the while the public funds are being depleted at a rapid rate.

Ultimately at the end of the day, all those trillions, which would have been far better spent say, paying off the total of US mortgage debt, like Iceland did, which would have caused a total resurgence of the US economy.

But they threw this money where it would not reach the general population. And since the general population is who accounts for the 70% of US GDP – i.e. consumption, and not only a few millionaires and billionaires, all that money was wasted…. Thus, clearly that money was literally burned, but with the cost of levering all the public governments and ultimately will cause interest rates to rise drastically. Ultimately. But the US has some time yet….
 


Phase Two

Phase one is debt deflation and money destruction. Gold is representing this situation perfectly, merely reflecting the inflated price of gold since (I am picking a date here) of about a 3 to one price hike in all goods and services (or make it 4 now) since 1980 when gold peaked at say $870 then dropped after Volcker raised US interest rates briefly to roughly 20 pct. which slammed US inflation which started in earnest after the oil shock…We have already discussed what phase one of a debt crisis does above. Let’s discuss Phase Two…I know these paragraphs are a bit dense but I like to write short concise stuff at times.

In Phase Two, after the central banks have realised that they have attempted to monetise the entire book value of the world markets (Probably Greenspan’s Gambit which is not well understood, where he stated he wanted to fight the next Great Depression, and probably thought he could simply monetise the markets in total and do a restart without an economic collapse) they will then have to start simply massively increasing public assistance and or direct aid to the rebelling and suffering populations. At this point, inflation starts up again and interest rates start rising, rapidly. In this scenario the UST rate could jump from say 2 pct. on the US ten year, to 5 in a matter of months or one year. Gold at that point will double.

Inflation will start to appear in all things, particularly oil and food. A sort of downward spiral which is self reinforcing will further contract the economy, the attempts to maintain all debts of all kinds will fall by the wayside, and people will focus on shelter and such only. The same will go for the public sector debts.

How close we are to phase two, and gold spiking to first say a jump from $2000 to $4000 is hard to say. But gold is headed there. In the meantime, the world is caught in an economic debt deflationary cycle, and until phase two is reached will meander between $1500 and $2000 for 2012, with the exception that a Mid-East war would probably spike oil, and possibly gold over $2000. But gold has a few problems there because oil price hikes cause economic contraction so that is a bit complicated.

Anyway, I have forecast gold to range from $1500 to $2200 for 2012 back in 2011, and have been right.

Record High Gold Prices Fail to Curb Global Demand

Despite a volatile year for gold prices in 2011, demand for the precious metal still remained strong. According to the latest World Gold Council’s annual report, gold demand totaled 4,067.1 tonnes, a slight increase from the prior year. Record low interest rates, inflation expectations and investment demand continued to drive the gold bull market.

The annual value for gold demand in 2011 equalled $205.5 billion, an all-time high and a 29 percent gain above the 2010 value. Jewellery accounted for $99 billion in gold demand, while investment demand was close behind with nearly $83 billion.  Interestingly, the majority of investment demand value was due to physical bar and coin demand, which represented $75 billion. As more investors remain sceptical and lose confidence in the global financial system, they turn to physical gold for protection. The annual report explains, “The bar and coin story is one which has traversed borders led by China, India and Europe, but other markets have also participated in terms of relative growth rates. Store of wealth demand, diversification, negative real deposit rates, the threat of inflation in developing markets, deflation in developed markets and currency debasement have all contributed to driving up demand over the last few years.”

In 2011, the average price of gold averaged $1,571 per ounce, which was more than 28 percent higher than its 2010 equivalent. While this contributed to the record annual value for gold demand, it also proved an argument against gold to be incorrect. Many gold critics claim that as gold prices increase, the supply of gold will also increase from people selling any form of gold they might hold. However, this is simply not true.  Despite a nominal record high of $1,900 per ounce, recycled gold declined by 2 percent. In fact, recycled gold supply has been declining since 2009, when it hit a peak of 1,694.7 tonnes. The WGC explains, “Despite the rise in prices, recycling activity was constrained by a combination of expectations for higher prices, acclimatisation to a higher current price level, economic growth and exhaustion of near-market supply.”

Record high gold prices also failed to significantly curtail the appetite for industrial demand. The technology sector demanded 463.5 tonnes of gold in 2011, down from 466.4 tonnes in 2010, but still above the 456.3 tonne average of the preceding five year period. Within the sector, electronic demand increased from 326.9 tonnes in 2010 to 330 tonnes in 2011. The dental segment is the one area that appears to be affected by rising gold prices. Dentistry gold demand fell 10 percent year-over-year to 43.8 tonnes. The WGC reports, “This result was driven by the elevated gold price and weak economic conditions which continued to encourage substitution both in favour of palladium and non-precious options, mainly cobalt-chrome and ceramic materials.”  However, dentistry represents a small portion of global gold demand, and will not have a material impact on prices.

Even though 2011 was filled with volatility and higher gold prices, the world still craves the only world reserve currency that can not be printed. The current trends that have fuelled the 11-year gold bull market remain in place. Furthermore, gold prices continue to receive additional support as central banks not only devalue fiat currencies, but also purchase gold themselves. “The net buying trend which started in Q2 2009 has proliferated, as emerging market central banks have continued to add gold on increasing concerns about the creditworthiness and low yields of their existing reserve assets. Both the euro area sovereign crisis and the sovereign debt downgrade in the US during the summer of 2011 have compounded these worries,” states WGC.  In the past two years, central banks have purchased more than 500 tonnes of gold.

In the Bullring With Gold

 

After prices fell 10 percent in December, many investors wondered if the bull market in gold was running out of steam. That was before Federal Reserve Chairman Ben Bernanke swooped in with a “red cape” and fired the bulls back up. Since the Fed reassured the world that interest rates will remain at “exceptionally low levels” for another two years, gold has jumped more than three percent.

UBS described the situation simply, “if investors needed a (further) reason why they should be long gold now, they got it yesterday … a more accommodative policy is a very good foundation for gold to build on the next move higher.”

To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.

Bernanke and the Fed aren’t the only central bankers in the fiscal and monetary bullring. Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 “easing moves” have been announced around the world in just the past five months as countries look to stimulate economic activity.

One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8 percent year-over-year in December, or about $4 trillion, according to ISI.China experienced a record increase in the three-month change in M-2 money supply following China’s reserve rate cut.

Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.

Adrian Ash from Bullionvault says global central banks are on a buying spree and they have been since the Fed cut interest rates by 25 basis points in 2007. Central bankers’ shift to buying gold was a significant sea change for the yellow metal.

You can see from the chart below that official gold reserves have historically been much higher, averaging around 35,000 tons. In the 1990s, central banks began selling, with reserves hitting a 30-year low right around the time the Fed began cutting rates. Adrian says that gold holdings are now at a six-year high with the current amount of gold reserves just less than 31,000 tons.

These are countries large and small. In December, Russia, which has been routinely adding to the country’s gold reserves since 2005, purchased nearly 10 tons; Kazakhstan purchased 3.1 tons and Mongolia bought 1.2 tons. UBS says “although reported volumes are not very large, it is still an extension of the official sector accumulation trend.”

 

Not all central banks are recent buyers, though. The “debt-heavy West” has sold its gold holdings, while emerging markets increased their gold reserves 25 percent by weight since 2008, says Adrian.

Reserves as a percent of all the gold mined has also declined, with “a far greater tonnage of gold ... finding its way into private ownership,” says Adrian. Since 1979, you can see the percentage of reserves to total gold has declined at a much faster pace as individuals increasingly perceived gold as a financial asset.

Adrian points to China’s Gold Accumulation Plan as a recent example of this trend. A joint effort between the Industrial & Commercial Bank of China (ICBC) and the World Gold Council (WGC), the program allows Chinese citizens to buy gold in small increments as a way to build up their gold holdings over time. The WGC reported in September that the program had established 2 million accounts during its first few months in operation and the amount is growing by the day.

These programs open the door for gold as an investment to a whole new class of people in China but that’s only a fraction of the tremendous demand for gold that we are seeing from China. In addition to the Fear Trade, gold is driven by the Love Trade, which is the strong cultural affinity the East, namely China and India, has to the precious metal.

In 2010, the Indian Sub Continent and East Asia made up nearly 60 percent of the world’s gold demand and 66 percent of the world’s gold jewelry demand, according to the WGC.

Indian jewelry demand has historically increased during the Shradh period of the Hindu calendar, but last year, high prices and a volatile rupee kept many Indian buyers on the sideline.

If you thought $1,900 was too much to pay for an ounce of gold, imagine how Indians felt when the rupee fell against the U.S. dollar, causing a gold price spike in rupees. Gold in Indian rupee terms rose more than 35 percent from July to November, roughly three times the magnitude of gold priced in U.S. dollars, yuan or yen. This currency swing significantly impacted Indian gold imports, which dropped 56 percent in the fourth quarter, according to data from the Bombay Bullion Association.

 

“Indian buyers will be back” after they adjust to the higher prices, says Fred Hickey. In one of his latest editions of “The High-Tech Strategist,” he cites late 2007 as a recent example when the Indian gold market experienced a similar rough patch. That year, gold demand in India fell off a cliff after prices spiked more than $1,000 an ounce in one quarter, tarnishing the country’s love affair with gold for a “brief period.” Fred says their cultural affinity for gold as an important store of wealth and protection against inflation will drive Indian buyers back into the market.

The trend was already changing in 2012, as UBS reported that the first day of trading saw physical sales to India were twice what they usually are, according to Fred. Although this is a very short time frame, I believe the buying trend will continue in this gold-loving country.

In China, “just as in India, gold is seen as a store of wealth and a hedge against inflation,” says Fred. Demand has been growing, especially in the third quarter, when China’s gold purchases outpaced India. “Physical demand for gold from the Chinese has been voracious all year,” says Fred. As of the third quarter, China had already obtained 612 tons, eclipsing its total 2010 demand, according to the WGC.

Across the Chinese retail sector, gold, silver and jewelry demand was the strongest performing segment in 2011, says J.P.Morgan in its “Hands-On China Report.” Growth in this segment far outpaced clothing and footwear, household electrical appliances, and even food, beverage, tobacco and liquor, all of which experienced more modest growth.

 

J.P.Morgan says the bulk of the increase came from lower-tier cities “where income levels are rising the fastest and improvements in retail infrastructure have allowed for rapid store expansion.”

Increasing incomes coupled with government policies that support growth have been the main drivers for rising gold prices. Take a look at the chart below, which shows the strong correlation between incomes in China and India and the gold price. As residents in these countries acquire higher incomes, they have historically purchased more gold, driving gold prices higher.

It is anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce.

This should serve as a warning to all of gold’s naysayer. Gold bullfighters beware—you now have to fight the gold bull while fending off a golden Chinese dragon.

The Gold Triple Play - Volatility, Currencies and Europe

Resurgent investment lifted global gold demand 6 percent from the previous year to just over 1,000 tons during the third quarter of 2011, according to the latest Gold Demand Trends Report from the World Gold Council (WGC). The ­­­potent cocktail of inflationary pressures in the emerging world and the European sovereign debt fiasco left investors searching for a safe haven—they looked for it in gold.

In an uncertain era where many asset values are declining, gold has thrived. Gold prices averaged $1,700 an ounce during the third quarter of 2011, 39 percent higher than the same time last year and 13 percent above the previous quarter, according to the WGC.

 

 

While investment demand thrived during the third quarter, jewelry demand fell victim to the quarter’s economic fragility and price volatility—falling 10 percent on a year-over-year basis. Only four markets—China, Hong Kong, Japan and Russia—saw jewelry demand increase.

The WGC says a shift toward high-growth economies is “undeniably conspicuous in the gold market.” Nowhere in the world is this more evident than in China, where consumer thirst for gold appears unquenchable. China’s total demand, around 612 tons year-to-date, has already eclipsed that of 2010. In addition to domestically consuming every speck of gold mined in China, it’s estimated that the country’s gold imports could reach 400 tons in 2011. That’s roughly equal to the combined tonnage of gold demand for the Middle East, Turkey and Indonesia in 2010—and that’s just imports.

Consumer demand for gold in China increased 13 percent (year-over-year) during the third quarter as the country continues to close the gap on India. Chinese jewelry demand, also up 13 percent, eclipsed India for only the fourth time since January 2003. Combined, the two Asian giants account for over 50 percent of global jewelry demand.

The WGC says, “China’s increase in demand is being fueled by rising income levels, a by-product of China’s rapid economic growth.” This growth has given birth to more than 100 million gold bugs in China’s rural areas. China’s smaller third- and fourth-tier cities were responsible for the bulk of the increase in jewelry demand, the WGC says. In addition, the Gold Accumulation Plan (GAP), a joint effort from the Industrial & Commercial Bank of China (ICBC) and the WGC which allows investors to purchase gold in small increments, reached 2 million accounts in September. The WGC says GAP sales have already exceeded 19 tons so far this year.

Things weren’t quite as rosy for demand in the world’s second-largest jewelry market. Indian jewelry demand took a 26 percent hit as volatility in the rupee shook investor confidence. The rupee decreased 9 percent against the U.S. dollar during the third quarter, more than double the currency’s average quarterly move over the past five years.

Historically, Indian jewelry demand bottoms in July-August, before picking up heading into the Shradh period of the Hindu calendar. That didn’t happen this year because Indian consumers were discouraged by high and volatile prices. The WGC says:

 “Consumer confidence in India has been knocked by the persistence of high domestic inflation rates. Inflation of almost 10 percent, as measured by the Wholesale Price Index (WPI), adversely affected jewelry demand, through its impact on both disposable income levels and general consumer sentiment.”

Currency Effect on Gold Prices

The weaknesses of the rupee against the U.S. dollar also negatively affected India’s demand. This chart illustrates the dramatic effect currency fluctuations can have on gold prices.

 

The gold price in Indian rupees has appreciated over 31 percent since June 30, more than three times the price appreciation denominated in Japanese yen. This means that a consumer looking to buy gold in Japan would have three times the purchasing power to buy gold at their local dealer than an Indian counterpart.

The gold price in yen terms has lagged due to the currency’s strong appreciation against other global currencies. It’s a similar story for the U.S. dollar and Chinese yuan (pegged to the U.S. dollar), which investors have favored since fleeing the euro.

Gold’s Volatility

Chaos in the currency markets amplified gold’s volatility to roughly twice historical levels during the third quarter, the WGC says. Our research also shows that gold’s recent roller-coaster ride is an anomaly. We sorted through 10 years of data to capture all of the 10 percent (plus or minus) moves selected assets have had over a one-month period. The results show gold experiences plus/minus 10 percent moves 7 percent of the time; about the same as the S&P 500 Index. In comparison, crude oil sees moves of this magnitude 30 percent of the time.

 

Gold equities have been more volatile than gold bullion. The NYSE Arca Gold Bugs Index (HUI) experienced these swings 33 percent of the time. In a market with gold prices trending upward, this beta provides a potential boost for miners. However, this can also have a negative effect during volatile markets as investors overreact to downside swings.

Gold and Silver Charts Point to Further Consolidation - Get Ready

Last week’s free fall in both gold and silver spot prices was enough to get investors into a panic. More on this in a minute though...

The fall was triggered by three key factors which caused the powerful move down. The first factor is based on pure technical analysis (price and volume patterns). Because the metals had such a strong run up this summer and prices had moved to far too fast, it is only natural so see price correct back to a normal price level. In general any investment that surges in one direction in a short period of time almost always falls back down shortly after. As I stated in my weekly report on August 31st, “gold is forming a topping pattern and all investors should take profits or tighten protective stops (exit orders)”. Three days later gold popped to the new high completing the pattern and was quickly sold off which continues to unfolding as we speak from $1920 down to $1532 in only a couple weeks.

The second factor which I think had the most power behind the drop were the margin requirements changes. This new rule literally overnight caused traders and investors holding to much of the metals in their account to liquidate (sell) their positions without having any say in the matter. That is when the most damage was done to the price of gold and silver.

The key factor was the US Dollar which rocketed higher and adding a lot of pressure to the metals. I also covered this in my Aug 31st report in detail. Overall, past few years we have seen both gold and silver move in opposite direction of the dollar. I don’t expect that to change much going forward. Back in August the US Dollar was coiling (building power) and it was only a matter of time before it would explode to the up side and rallied. This high probability move in the dollar was what triggered me to exit our long gold positions shortly after. I expected the dollar rally to last a month or more and that means we would see a lot of pressure on equities and metals going forward.

Now keep in mind, if Greece or other countries continue to get worse then we could see the dollar and gold move higher together as they are seen as the safe haven at this time. But with the nature of the two I am anticipating a rising dollar and sideways trading range for gold.

Ok, so back to precious metals investors...



Let’s take a look at the charts...

Silver Spot / Futures Price Chart

As you can see on the hard right edge silver is forming a very similar pattern which happened this past spring. I would like to note that this type of pattern is typical with extreme market selloffs as to how they generally bottom. I am anticipating silver trades in this range for a couple months and that we could see lower prices in the near term. But my upside target for silver in the coming few months is the $35-$36 level.

Gold Spot / Futures Price Chart

Gold is doing much the same as silver but I have noticed that when gold falls hard the second dip generally does not make a new low as often. If we do get a new low, all the better for buying on the dip but overall I feel gold should trade sideways for a couple months. My upside target for gold is the $1750-$1775 area.

US Dollar Index Price Chart

The Dollar index is looking ripe for another bounce and possibly another rally to new highs in the coming week. If this happens then we should see the SP500 short position (SDS) which we took Tuesday afternoon (Sept 27th) to continue rocketing another 5-8% in our favour again.

In short, I feel the US dollar is going to continue higher and that will put the most pressure on stocks, oil and silver. Depending how things evolve overseas gold could hold up and possibly rise with the dollar.

How High Will Gold Go in 2011?

After stellar years for both gold and silver, what prices will precious metals hit in 2011? First, take a look at the annual percentage gains that gold has registered since 2001 (based on London PM Fix closings): Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of '04 and '08, the average advance is 24.8%. So we can make some projections based on what it's done over the past 10 years. From the 12-31-10 closing price of $1,421.60, if gold matched… The average rise this decade, the price would hit $1,711.60 The average rise excluding the three weak years = $1,774.15 Last year's gain = $1,858.03 The largest advance to date (2007) = $1,875.09 But what if global economic circumstances continue to deteriorate? What if worldwide price inflation kicks in? And what if government efforts at currency debasement get more abusive? Here's what price levels could be reached based on the following percentage gains. 35% = $1,919.16 40% = $1,990.24 45% = $2,061.32 50% = $2,132.40 1979's gain of 125.7% = $3,208.55 It thus seems reasonable to expect gold to surpass $1,800 this year, as well as reach a potentially higher level since the factors pushing on the price could become more pronounced. Here's a look at silver. As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. And also tossing out the '08 decline, the average gain is 34.3%. So, from the 12-31-10 closing price of $30.91, if silver matched... The average rise this decade, the price would hit $39.41 The average gain excluding 2008 = $41.51 Last year's advance = $56.22 The 1979 gain of 267.5% = $113.59 So, $50 silver seems perfectly attainable this year.  And that's without monetary conditions worsening. It's titillating to ponder these advances for gold and silver, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to our gold and silver stocks, too. I would add one caution: the odds are high that there will be a significant correction before gold begins its march to these price levels. In every year but two ('02 and '06), gold fell below its prior-year close before heading higher. And here's something to watch for: in every year but one ('08), those lows occurred by May. In other words, a buying opportunity may be dead ahead. And if you buy on the next correction, your gains on the year could be higher than the annual advance.

Silver hour chart with falling wedge pattern

• Silver hour chart with falling wedge pattern.
• Above 25.86 bulls will get good upward momentum and may hit 26.50 and 27 in the short term.
• Below 24.98 things will turn negative again and bears will gain momentum.

Gold Weekly Technical Outlook

Gold jumped to new record high of 1424.3 last week but formed a short term top there and pulled back. Initial bias remains mildly on the downside this week for deeper fall. Though, strong support is expected at 1315.8 support, which is close to 38.2% retracement of 1155.6 to 1424.3 at 1321.7, and bring up trend resumption. On the upside, above 1395 minor resistance will flip intraday bias back to the upside. Further break of 1424.3 will target 161.8% projection of 1084.8 to 1266.5 from 1155.6 at 1449.6 next.

In the bigger picture, rise from 1155.6 is treated as the fifth wave of the five wave sequence from 1044.5, which should also be fifth wave of the rally from 681 (2008 low). Such rally is still expected to continue towards 161.8% projection of 931.3 to 1227.5 from 1044.5 at 1449.6 before completion. Though, we're aware of long term projection target of 100% projection of 253 to 1033.9 from 681 at 1462 and we'd anticipate strong resistance from there to bring medium term correction finally. On the downside, however, break of 1315.8 support will be an early alert of medium term reversal and will turn focus back to 1155.6 support for confirmation.

In the long term picture, rise from 681 is treated as resumption of the long term up trend from 1999 low of 253. The anticipated correction didn't happen and gold will now likely climb further to 100% projection of 253 to 1033.9 from 681 at 1462 before making a top.

Silver Weekly Technical Outlook

Silver soared to 29.34 last week but formed a short term top there and pulled back since then. Initial bias remains mildly on the downside this week for further decline to correct recent up trend. Though, strong support is expected at 24.95 cluster support (38.2% retracement of 17.735 to 29.34 at 24.907) and bring rally resumption. On the upside, decisive break of 29.34 will target 261.8 projection of 14.65 to 19.845 from 17.735 at 31.336 next.

In the bigger picture, silver's up trend is still in an acceleration phase. Current rally from 8.4 is treated as resumption of the whole rise from 2001 low of 4.01. 100% projection at 25.84 is already met. And Silver would now be targeting next key projection level at 161.8% projection of 4.01 to 21.44 from 8.4 at 36.6 level. On the downside, break of 20 psychological level is needed to signal medium term reversal. Otherwise, outlook will remain bullish.

Is the U.S. Economy So Bad It Can't Get Much Worse? - Business - The Atlantic

New and existing home sales are at drastic lows. Consumer sentiment is extremely weak. Auto sales in August hit a floor not seen in decades. The unemployment rate remains close to double-digits. It's easy to go on and on about some of the grim features of the current U.S. economy. In fact, things are so awful that you could ask: are things so bad already that they can't get much worse?
This claim was made by a Bank of America economist in a Bloomberg article on Thursday. It says:

The sectors of the economy that traditionally drive it into recession are already so depressed it's difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 30 percent below five years ago.

His point is well-taken. Some of these figures are already so brutally low that it's hard to imagine that they could sink much further. And if the economy keeps even its current sluggish pace, then the U.S. won't double dip -- it will just endure a painfully slow recovery. But is Harris right -- are things so bad that it's actually unrealistic to imagine they could get much worse?
One way to determine this would be to look at sales data. But that's not enough. There are lots of moving variables that can affect sales like population, wages, taxes, etc. So let's look at the ratio of personal consumption expenditures to personal disposable income. That should provide a good measure of how willing consumers are to spend. The ratio serves as a sort of economic comfort indicator based on the amount of the money people have they can and are spending. If the ratio is already at a very low level historically, then the thesis above is correct, and it would be very unlikely to see it fall much further.

This is a trailing three-month average of the ratio, which helps get rid of some of the noise. As you can see, consumption spending-to-disposable income has fallen recently, but still stands at 0.907 -- well above its 2009 low of 0.894. That variance might not seem like a lot, but it's a difference of $130 billion in annual spending.
So how big a change is that in terms of the entire U.S. economy? Let's imagine that consumer confidence fell further and drove spending to match that 2009 ratio low, with everything else remaining constant since the end of the second quarter. That $130 billion decline in spending would bring down GDP by 0.9%.
You may notice from the chart that there's an even deeper low that was hit in 1992, when the ratio was at 0.892. If spending dropped to that point, GDP would decline by $155 billion and GDP would drop 1.1%. Certainly, such outcomes are clearly within the realm of possibility, if consumers felt renewed uneasiness about the economy.
And what happens if GDP declines due to consumption? Businesses would sense weaker demand and would respond with additional layoffs. That would then reduce GDP even further. The dominos could continue to fall after that, pushing consumer confidence down even more.
Of course, if such a negative GDP move persisted for a few quarters, then the dreaded double dip would be upon us. So things aren't so bad that a double dip is out of the question. But even if the U.S. did double dip, considering how weak the economy is already, the dip would probably be a relatively shallow one, compared to the deep GDP declines we saw in late 2008 through early 2009.