Fed Chair Just Made this Case for Gold

Photo by Wikimedia.orgCC BY | Photoshopped

In addressing the distressed economy, Jerome Powell made the case for more government stimulus. Here’s why one author argues it will be great for gold.

On Wednesday, Federal Reserve Chair Jerome Powell gave a speech addressing the difficulties that surround both the domestic and global economy. As expected, the speech had little optimism to it and immediately pushed the stock market down. In the meantime, gold continued to test new highs, having most recently climbed above $1,750 during Friday’s trading session.

As FXEmpire’s Arkadiusz Sieron notes, the closest to optimism one could glean from the speech was Powell’s reveal that the Fed would keep interest rates in positive territory. Although the chair dismissed the negative interest rates of the European Central Bank and the Bank of Japan as dubious experiments, the fact remains that Treasuries have posted some of their all-time low showings even before the coronavirus.

From there, Powell went to some lengths to detail just how bad the situation has gotten from a purely economic standpoint. The chair noted that lawmakers were not only struck by the magnitude, but also the speed at which the pandemic had engulfed all layers of the economy, likening the crisis to the worst of its kind since World War 2.

What was already a decline in economic activity was greatly aggravated by the coronavirus, with Powell noting that any job gains made over the past decade have been erased. Furthermore, the chair revealed that the pandemic caused a loss of 20 million American jobs in the span of just two months.

The rest of Powell’s speech struck a familiar chord, as the chair warned people not too get overly anxious with expectations of a recovery and warned that a V-shaped recovery, or a quick turnaround, is unlikely. Instead, Powell and his team expect the coming rebound to not only be slow, but riddled with uncertainties.

Addressing government spending, Powell seemed satisfied with the Fed’s lack of hesitation when it came to issuing their trillion-dollar stimulus check. The chair said that the trillions of dollars printed thus far might not be the Fed’s final response on the matter, and that the central bank is open to more stimulus if the need arises.

Likewise, during the speech, Powell appeared to urge Congress to open the door for more fiscal spending. The federal government has already created a massive deficit, moving the budget from a $160 billion surplus in April 2019 to a deficit of $737.9 billion during the same month this year.

Pointing out that the Fed deals more with lending than it does with spending, Powell seemingly wasn’t content with the $2.9 trillion spent on mitigating the effects of the pandemic, believing more support could be in order. In short, the speech at the Peterson Institute for International Economics was one of a contracting economy, uncertain recovery, currency debasement and piled-up debt, all major tailwinds that have kept gold breaching one high after another over the few past weeks.

The Fed Raised Interest Rates. Now What?

Not only has the Fed raised interest rates, they want to keep on doing it through 2018. Can our economy sustain the ongoing increases?

The Fed Raised Interest Rates. Now What?

From Filip Karinja, for Birch Gold Group

This week, the Federal Reserve voted to raise interest rates a quarter of a percent to 0.5%, the first rate risesince 2006.

But this wasn’t the only bold announcement the Fed made. In a report released the same day, titled “Economic Projections“, they predicted that by 2018 they would raise rates to 3.3%.

It seems odd that they would come out with such a view on rates when, just last month, Janet Yellen said she would consider lowering rates into negative territory if the market was to fall considerably, like in 2008.

Considering the astronomic levels of our federal debt, having rates at 3.3% would be economic suicide; the United States simply would not be able to meet its obligations to its debt.

Interest rate target Federal Reserve The Fed Raised Interest Rates. Now What?

Projected Federal Reserve interest rate target (SOURCE)

So what does the Fed see changing in the next three years so positively — not only in the United States, but around the world — to be able to raise rates so sharply?

Here are the present day facts:

  • The global economy is beginning to contract, with many central banks already printing money like crazy and reducing rates into negative territory.
  • Retail sales have been falling short of expectations.
  • New housing has dropped off sharply.
  • The United States is becoming more polarized than ever — on politics, race, religion, etc.
  • The possibility of war in Syria and the Middle East region is ever intensifying, with nations taking turns dropping bombs all over the region.
  • Terrorism is increasingly spreading into the western world.
  • The threat of conflict with nations such as China, Russia, Syria and Iran is on the rise. Consider how Turkey shot down a Russian jet earlier this month.
  • Youth unemployment in Europe is reaching worrying levels.

For some reason, none of these factors seem to be weighing in on the Fed’s projections for the coming years. But ask yourself: How many of these problems do you think will be solved any time soon?

If you think any of this is overly cynical, take a look at this video, from Mr. Positive himself, motivational coach Tony Robbins. In it, he explains the nation’s debt problem and how there is no solution for it. Even if the rich were to be taxed a full 100% on earnings, it would not put a dent in the deficit.

Now, pretend you’re over two years in the future, in 2018. Would you guess that the debt will increase or decrease?

With the debt already so absurdly high, if the Fed moved rates out to 3.3%, the interest on this debt would be practically impossible to pay.

So put yourself two years in the future, and think about what it may hold for our nation. If you have any concerns, you may want to consider protecting your savings with some precious metals. Give us a call — we’re ready to help.

Is the bond market the next shoe to drop in Wall Street? Read why here.

photo credit: Perspectived, lines, madame #instaprol via photopin (license)

Wall Street Has The Death Star Pointed At The Bond Market

star wars movie comes out first before hike Wall Street has the Death Star Pointed at the Bond Market

From L Todd Wood, for Birch Gold Group

This is shaping up to be a monumental week. Depending on your interests in life, you may be looking forward to the new Star Wars release, camped outside the movie theater for first crack at the coveted golden ticket.

Or, you could be anticipating the much heralded twenty-five basis point increase in the Fed’s short term interest rate. Either one is likely to be talked about over and over in the press for some time to come.

However, I think it’s telling that we have waited longer for the Star Wars movie than a Fed rate hike.

Birch Gold has written much recently about the consequences of an interest rate hike in this weakened economy. Although, there is one issue that is only starting to be discussed in the financial press that is the weakness in the credit markets and lack of liquidity since the Dodd-Frank bill was implemented.

As an ex-bond trader, I can tell you that life on this part of the ‘Street’ has gotten very difficult. Electronic systems are replacing many trading jobs as it did with the equity markets over the last decade.

However, the bond market is unique. Some bonds are not freely traded and it takes a good trader to know where the bones are buried and how to make sure liquidity in a certain security is adequate. Periods of stress in the interest rate markets make this job all the more difficult.

In addition to technology destroying jobs in the bond market, Dodd-Frank disincentivized large banks from participating in the market. This consequence may turn out to be extremely destructive as the Fed begins to raise rates. Investors holding certain bonds may see the need to sell those securities as a rise in interest rates will make the paper less valuable going forward.

The problem is, with big banks out of the market, there is no one to take the other side of the trade. In the past, hedge funds and such could just sell a large position to a broker, who would take it on their balance sheet and ‘work’ the sale over several weeks or months, limiting the impact on the price of the security.

Now, there is no one to off-load the position to. If you call a large trading desk (if there are any left), they will offer to ‘try and find a buyer.’ If you need to sell right away, to cover a margin call or other financial need, you could devastate the price of the bond. This is what market crashes are made of.

Over the past few trading days, there have been failures of three bond mutual funds at last count, due to this very reason. The liquidity in the market is just not there. I saw in 1994 when the Fed raised unexpectedly, investors who thought they were in ‘safe bond funds’ saw their principal reduced by upwards of thirty percent.

It seems many others are remembering these days as well and are attempting to get their money out. Why they waited this long is a mystery as the Fed has been looking to raise for some time now. However, these funds are now trying to sell bonds and there are no buyers. So they close and go into bankruptcy and investor money is held up longer.

This risk is very real. The Federal Reserve hiking rates will have all kinds of unintended consequences and as with roaches in the kitchen, if there is one, there are many. I can almost guarantee, if three bond funds fail, there will be many more. All of this negative activity could land us in a new recession. The bond market may just be the proverbial canary in the coal mine.

Don’t let your portfolio be destroyed as the markets readjusts. Make sure your savings is protected and back your money with a safe-haven asset such as physical precious metals.

If you’re on Twitter, be sure to follow us here. We will keep you up to date on all relevant and important financial news you need to know.

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Will Economic Disaster Follow After The Fed Raises Interest Rates?


fed interest raise december Will Economic Disaster Follow After the Fed Raises Interest Rates?

From Filip Karinja, for Birch Gold Group

With the Federal Reserve set to meet next week to vote on what to do with interest rates, many are speculating that we may see a rate hike.

This is something Janet Yellen has hinted at over the past few months but has kept delaying.

Should the Fed raise rates, it would be the first hike in 7 years since rates were lowered to 0.25%. Prior to these past years, it was unheard of to have rates so low, and for such a long time.

With some financial experts claiming that the economy is likely headed for another recession, why would Yellen want to raise rates now? According to the L.A. Times, ”…she said one reason to raise the so-called federal funds rate… is so the Fed has the flexibility to lower it if those risks cause the economy to falter in the future.”

In other words, the claim is that Yellen is buying herself some breathing room. By raising rates now, if (and when) crisis strikes in the future, she can lower them again back to today’s levels, and thus avoid having to lower rates all the way down to 0% (or negative) and/or launch QE4.

So by next week, backed by her dubious claims that the economy is finally on solid footing, we may see Yellen increase rates rise to 0.5%. And in the coming months, she may even go as high as 0.75%.

Here’s the problem: This illusion of a recovery put on by the Fed has so many holes in it that a growing number of people are beginning to see through. And more people are also questioning, Why further stunt growth of our plodding economy by increasing rates?

Can you imagine how embarrassing it will be if they raise rates next week and the economy slows even further, or we see a sell-off in stocks? What will they do then?

They won’t be able to raise rates any higher, as it will just compound the problem. But lowering rates immediately may not work either, as it would be a huge blow to confidence in the Fed’s ability to forecast the economy, something for which they already have a poor track record.

After next week’s decision, if the Fed needs to take steps in the future to begin easing monetary policy again, the only other option it will have is to fire up the printing presses again and print money through some form ofquantitative easing (QE). In fact, some experts are predicting that QE4 will be launched early in 2016.

Keep in mind that on a global level, Europe is already printing money as the global network of central banks collude and take turns in trying to prop up the frail global economy.

When it’s the Federal Reserve’s turn to print money, you can rest assured that we are nearing the end game.

But until our economy reaches that final point of no return, you can count on Yellen to continue to do whatever is necessary to keep the economy going, even if her decisions aren’t sustainable.

Is such an aimless monetary policy something you want to tie your savings to? If you want to put at least some of your savings into an asset that can provide a counterbalance, give us a call.

What will happen to gold if the Fed raises interest rates? Find out here.

photo credit: Federal Reserve Chairman Janet Yellen testifies before the House Finance Committee with Senior Fellow Donald Kohn observing. via photopin (license)

Interest Rates Just Dropped From 20% To Zero – What Happens From Here

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rob with fountain pen Interest Rates Just Dropped from 20% to Zero – What Happens From Here?

L. Todd Wood

For the past several decades, bond yields have grinded lower and lower, now reaching effectively 0%. Yet despite such a decline, there has been a lot of talk in the financial press of a growing bubble in the market.

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Is Europe’s $1.28 Trillion Economic Plan A Recipe For Disaster

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mario draghi ecb qe Is Europes $1.28 trillion economic plan a recipe for disaster?

From Filip Karinja

Here we go again – only this time, in Europe.

This past Thursday, Mario Draghi, president of the European Central Bank (ECB), announced that the ECB will launch its own Quantitative Easing program in March, purchasing €60 billion ($67 billion) in government debt each month. [Read more…]