Regardless of consequences, the Federal Reserve Board has committed to a course destined to result in a train wreck that few will walk away from. As their December meeting gets underway today, the Fed is already focused near exclusively on last week’s “all-important” jobs report, in spite of the inherently flawed unemployment numbers it produces. The Christmas Retail Season typically causes a spike in employment and Bloomberg is now projecting Q4 GDP growth at 1.7%. Based on Friday’s unemployment report, the Atlanta Fed has once again flipped and is suddenly raising its Q4 growth projection to 2%. Like most of today’s domestic politics, economic reality, like raging debt levels, declining growth, tail-chasing trade issues, and declining manufacturing numbers are being ignored and replaced with “warm and fuzzy” Christmas cheer from central banks.
For the most part central banks continue to win the market melt up battle utilizing their insipid yet powerful cheap credit fix. However, eventually the market, not the Fed, will send interest rates higher. But we must keep in mind that interest rates are an interactive global activity. Brazil, Russia and Turkey are all expected to continue to cut rates this month, while China and the U.S. appear content to simply remain unchanged, but certainly not increase rates. So, for the time being, there is no reason to expect central banks to back off their encouragement of debt-based growth, in order to stave off the building pressure of local and regional recessions.
As we’ve been reporting for more than a year, buying back our own government debt or buying back corporate debt or stock does absolutely nothing to facilitate or even spark real market productivity and growth, which is exclusively what we desperately need. The growing problem with rates so low and negative in a growing sector is that monetary policy, as an economic tool, is becoming ineffective as a policy option. How long this can continue remains to be seen, but as with any overdose, it ends badly for the user. 10-Year bond yields will be a good barometer, as they increase in return, so too does the opportunity for a major hemorrhagic stroke.
The toughest part of these developments to understand is why central banks, a major part of the foundation of our economy, have committed to play out a scenario that has absolutely no chance of success. The Trump Administration has expressed displeasure with the Fed, but only because they haven’t dropped interest rates to zero, an action that would only exacerbate and accelerate the country’s financial demise. The Fed has quite literally painted itself into a corner because they’ve committed to a course they must follow to the ultimate and ugly end, but are rapidly running out of tools to artificially combat the natural forces of supply and demand. Gold and other physical precious metals remain one of the best possible defenses against the economic cataclysm the Fed has created for investors, as well as non-investing citizens. Today’s still low prices are just another bonus. Call the experts at American Bullion for assistance at (800) 653-GOLD (4653).