Although the Federal Reserve has recently abandoned its policy of zero interest rates and has put an end to (at least for now) its quantitative easing program, the era of QE and ultralow interest rates around the globe may be far from over.
This past week, the Fed announced it would hold interest rates at current levels although a hike or two still remains on the table for June and possibly December. In a surprising move, the Bank of Japan elected this week to do nothing. It was widely expected that the BOJ would take rates further into negative territory, and the lack of action sent the yen soaring.
It would appear to be painfully obvious that central bank policies have thus far failed to spur adequate economic activity. While the U.S. may see additional rate hikes, the pace of such rate hikes is likely to be very slow. China, the EU, and Japan, on the other hand, may continue with ongoing efforts to stimulate their respective economies.
This presents quite the conundrum for the Fed, and this divergence in policy could stoke volatility across a range of asset classes including currencies and interest rates.
In our view, however, the reality is that rates are not likely to rise by much in the U.S. anytime soon.
In fact, we would not be at all surprised to see additional stimulus from the Fed at some point although it may take a different form.
Enter the Helicopter
With all the money that has been pumped into the U.S. financial system over the last several years, you could certainly make the argument that QE was not much of a success.
The fact is that the U.S. may have to consider alternative options to spur inflation and boost economic activity.
As a new Fed Governor back in 2002, former Fed Chairman Ben Bernanke discussed non-Fed options for fighting deflation in a speech. Here is an excerpt:
“Each of the policy options I have discussed so far involves the Fed’s acting on its own. In practice, the effectiveness of anti-deflation
policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open market purchases to alleviate any tendency for interest rates to increase would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead rebalanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous “helicopter drop” of money.”
In other words, don’t be surprised if the U.S. is forced to enable a massive tax cut or simply cuts a check to American households to spend freely. With the U.S. Dollar already under pressure and on the verge of a major breakdown, one has to consider how such an action might affect the greenback.
With the possibility of lower tax revenues or a significant expenditure by the Treasury, the dollar could potentially see even more selling pressure, eroding your purchasing power in the process.
While other nations such as Japan and the EU may go further into negative interest rate territory to try to boost economic activity, we see something like a helicopter action as a next possible step for U.S. policy makers.
In our view, this only demonstrates the ongoing weakness in the domestic economy.
Furthermore, when considered in the context of global economic weakness, we could be headed for many years of sluggish growth and lackluster returns. Add the possibility of further, significant dollar weakness, and this is a recipe for tough times.
The time to take steps to try to insulate yourself from a falling dollar and era of slow growth is now.
Fortunately, there are asset classes that may potentially benefit from a falling dollar and may possibly increase in value if the dollar declines.
Gold and silver are two assets that may potentially serve such a purpose. If you don’t own these metals currently, now is the time to consider an allocation.
Fortunately, buying and holding physical gold, silver, and other precious metals has never been easier than it is today. In fact, you can conveniently use your existing IRA account to start building your holdings, or you can quickly set up a new precious metals IRA.
Don’t wait for a further erosion of your purchasing power or a stock market meltdown. Explore your options now. With or without additional stimulus measures, the global economy may potentially be headed for little to no growth over the coming years.
Consider assets that may potentially benefit from such a scenario.
Consider buying and holding physical gold, silver, and other precious metals. Talk with an Advantage Gold account executive today.
Start an allocation in physical metals while prices are still at current levels. Don’t wait for a massive stock market or dollar collapse. Call us today at 1-800-341-8584.Tags: advantage gold, central banks, deflation, dollar decline, federal reserve, gold, portfolio diversification, purchasing power, silver, us dollar