One main theme echoes through economic predictions for the beginning of the new year. Financial analysts see strong indicators of global economic stalling or even shrinking. U.S. Money Reserve produced “The Big Easing” to clearly explain these concerning economic factors, how they have historically impacted the U.S. and world economies, and of course, the steps that prudent people can take to protect their finances. Take a moment to review a summary of this free e-book and then download it from the resource library.
Economic Indicators of a Shrinking Global Economy
After a relatively healthy expansion in the past couple of years, global growth slowed to anemic rates in 2019. The International Monetary Fund (IMF) described growth as subdued and highlighted trade tensions, tariffs, political tension, and political policy. The Organization for Economic Growth and Co-operation (OECD) lowered growth projections for 2019 from 3.2 percent to 2.9 percent, the slowest growth rate since the dark days of 2008.
While some economists believe that governments and central banks should intervene more, others caution that previous interventions have sparked bubbles with their inevitable collapses, debt loads, and other financial woes that undermine stability. In any case, most people have little control over the actions of governments and big banks. The best they can do is understand why forecasts for global growth have grown so pessimistic and how to protect themselves against uncertainty.
“The Big Easing” explores three main areas of economic concern. These include low-interest rates, trade wars, and weak consumer spending.
1. Lower Interest Rates
During 2019, many of the largest central banks lowered interest rates. These included central banks in the U.S., the E.U., China, Russia, and several more. Japan, Denmark, and a handful of other nations even declared negative interest rates, an odd situation that forces banks to pay fees to store money.
Either way, this policy hurts savers and bank income and sparks inflation. It also encourages debt bubbles because borrowers have more incentive to borrow and little motivation to repay loans quickly.
2. Trade Wars
The United States put new tariffs on $550 billion in trade goods from China, including high-demand items such as phones, steel, aluminum, and solar panels. In turn, China reciprocated with $185 billion in new tariffs on such goods as fruit, wine, soybeans, and cars. The first impact was felt by U.S. industries, and it was also reflected in the stock and bond market.
Neither China nor the U.S. operate in a bubble. Of course, trade disputes between two of the largest economies in the world do not end at their borders. They affect international transportation, trade, and productivity. In response, international groups of finance ministers have encouraged dialogue over the disputes. For example, the head of Asia Economics at Oxford Economics, Louis Kujis, warned that export-dependent countries and emerging economies were particularly vulnerable to trade wars between larger economies.
3. Weak Consumer Spending
Despite some positive job numbers from Washington, the U.S. economy is also displaying clear signs of distress. For instance, August 2019 consumer spending and business investment numbers had softened versus previous months. While the Fed cut interest rates for the first time since the Great Recession, U.S. businesses have reduced or delayed spending in a number of areas, including hiring.
Across the ocean, China’s economic growth stalled to the slowest growth rate in three decades. This occurred despite such economic stimulus attempts as lower interest rates for small business loans.
This news prompted Bill Clinton’s former Treasury secretary to comment that we may be entering the most dangerous financial times since the recession of 2008–2009.
What Does This Grim Financial News Mean?
As central banks across the world appear to embrace extreme monetary policy, debt keeps ballooning while trade is decelerating. In addition, the European Purchasing Managers Index, or PMI, declined sharply in the fall as new orders sunk to 2012 levels. French production also fell short of prior forecasts, and Italy, Spain, and Ireland all declined. Currently, analysts say that German manufacturing has entered a recession. The No-Deal Brexit news has also put pressure on U.K. finances. Predictions for India’s economic growth have been reduced for both 2019 and 2020.
Meanwhile, China was struggling with its trade war with the U.S. For a while, the U.S. economy still appeared to shine. Yet economists still see troubling news in the exploding deficit, falling bond rates, and the impact of the trade war on farms, factories, and other sectors. The very monetary policy that the Fed has pursued to hold up the U.S. economy may have actually reduced the country’s ability to respond to a challenging economic climate.
To understand what this could mean, people can simply look at recent history. The most recent time when the economy stalled out this way, the world entered a recession. In the fourth quarter of 2008, gross domestic product fell more than six percent, which was the worst drop in the previous quarter of a century. At this time, the world suffered a downturn that affected both consumers and companies.
How to Protect Savings Portfolios from a Sluggish Economy
During the last big recession, savers saw large drops in the market value of their money, equities, and even real estate. At the same time, precious metals held their market value and even enjoyed steep price increases. In particular, gold rose to an all-time high of more than $1,900 an ounce by 2011. When other markets had gone south, some prudent savers had added gold and other precious metals to their assets as a type of wealth insurance.
These valuable metals acted as a store of market value upon which people could rely as a source of security and cash when other savings and assets declined. While gold and silver tend to hold their market values, they really shine when other financial products tumble. There is a strong negative correlation between other markets and the market value of precious metals. Often, gold enjoys the strongest bull markets when equities and other assets suffer from bear markets.
About U.S. Money Reserve
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