Saturday, September 21st, 2019 MST

World economy slowing

By many measures, the world’s economy is slowing, and some CBs — namely New Zealand, India, Malaysia, and the Philippines — have already lowered rates.  Australia lowered June 4, the largest developed country to cut rates this year.  In May, China lowered reserve requirements for small- and medium-sized banks, which pushed interest rates there to the lowest levels since 2009.

Bank of England Governor Mark Carney warned today that the UK’s economy is slowing.  He noted that “second quarter will be considerably weaker,” partially because of the drag from the UK exiting the European Union.  Also disclosed today was that UK builders suffered their worst monthly decline in a decade.

In the US, there are now about 7.25 million fewer jobs than when the recession began back in 2007.  Also for the US, real GDP coming out of the 2008 World Financial Crisis has been the lowest of any economic recovery.  Many investors are counting on the Fed to cut interest rates in an attempt to keep the economy growing and stocks rising, but that may not be the case.

At some point, concerns about the slowing economy will overtake optimism about the Fed lowering interest rates.  Additionally, there is much discussion among the Democrat presidential aspirants about how the Fed’s 2008 purchase of many banks’ troubled assets having flowed to Wall Street, with Main Street left high and dry.

Consequently, we can look for Congress to propose programs that stimulate lower and middle income workers, which may result in former Fed chief Ben Bernanke’s plan to helicopter funds directly into the accounts of those workers.

Even if direct deposits are not implemented, there will be stimulus programs aimed at increasing lower and middle income spending, which will be inflationary.

Yet there will come a time when fears of a massive recession overwhelms the optimism about Fed rate cuts.  That’s when gold and silver will see still further rises in price.

 

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