Last week for the first time since 2008, the Federal Reserve cut interest rates. But was this rate cut needed? The Fed has been trying to force feed consumers who contribute about 70% to GDP to keep borrowing and spending. The plan has been working thus far as the economic engine keeps churning and the markets are still strong despite some corrections. But the question remains, can this be sustained? There are only so many more rate cuts the Fed can implement to fuel the economic steam engine.
Are negative interest rates possible? According to Matthew Johnston of Investopedia, "a -2% interest rate means the bank pays the borrower $2 after a year of using the $100 loan, which is counterintuitive. While negative interest rates are a strong incentive to borrow, it is difficult to understand why a lender would be willing to provide funds considering the lender is the one taking the risk of a loan default. While seemingly inconceivable, there may be times when central banks run out of policy options to stimulate the economy and turn to the desperate measure of negative interest rates. In harsh economic times, people and businesses tend to hold on to their cash while they wait for the economy to improve. But this behavior can weaken the economy further, as a lack of spending causes further job losses, lowers profits, and reinforces people's fears, giving them even more incentive to hoard. deposit holders would also be charged for parking their money at their local bank while some borrowers enjoy the privilege of actually earning money by taking out a loan." https://www.investopedia.com/articles/investing/070915/how-negative-interest-rates-work.asp
The Fed seems determined to avoid a recession but it may be inevitable. The question remains, with a supposed strong economy and with historically some of the lowest inflation, interest and unemployment rates, why is the deficit/debt continuing to skyrocket? And how will this affect the population both in the short and long term. These are questions that cannot be simply answered in the scope of this article but continuing to stimulate the economy in the short term has consequences in the long term. The repayment of borrowing leads to less consumption in the future.
Can the Fed continue to lower interest rates even with a ballooning debt? A basic accounting equation states Assets-Liabilities=(Shareholders) Equity. If a country holds more assets than liabilities, it will have more equity. The US National Debt has recently hit $22 trillion. According to Wikipedia, the financial position of the United States includes assets of at least $269.6 trillion (1576% of GDP) and debts of $145.8 trillion (852% of GDP) to produce a net worth of at least $123.8 trillion (723% of GDP) as of Q1 2014. https://en.wikipedia.org/wiki/Financial_position_of_the_United_States Can a consumer keep continuing to borrow if his/her assets are greater than liabilities? Logic would say yes. But can that same person borrow when liabilities are greater than assets? Maybe if someone is willing to lend. So where is this going? The question remains, when will the US debt stop rising…probably not any time soon if ever. And it seems the debt will continue to balloon. If need be, the Fed can implement negative interest rates…you may get paid to borrow money…doesn't sound too bad now does it? But this is all at the peril of the inevitable.
I believe the benefactor in all of this will be precious metals. Realistically, what other form of asset or even 'currency' would you want to put your faith in? We have already seen a rise in the price of the precious metals and this may be only the appetizer as borrowing continues along with other macroeconomic factors such as a trade war with China and possibly more disruptions with Iran.
Happy Investing!
Dr. Kal Kotecha
TO JOIN OUR FREE NEWSLETTER PLEASE VISIT WWW.JUNIORGOLDREPORT.COM
Disclaimer
© 2010 Junior Gold Report/© 2018 Stock Trends Report
Stock Trends Report/Junior Gold Report Newsletter and website : Stock Trends Report Newsletter/Junior Gold Report Newsletter and website is published as a copyright publication of Stock Trends Report/Junior Gold Report (STR). No Guarantee as to Content:Although STR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein (newsletter and website). Any statements expressed are subject to change without notice. It may contain errors and you should not make any investment decisions based on what you have read on here. STR, its associates, authors, and affiliates are not responsible for errors or omissions. By accessing the site and receiving this email, you accept and agree to be bound by and comply with the terms and conditions as set out herein. If you do not accept and agree to the terms you should not use the Stock Trends Report site or accept this email. Consideration for Services: STR, it's editor, affiliates, associates, partners, family members, or contractors may have an interest or position in the featured companies, as well as sponsored companies which compensate STR as such our opinions are biased. We may hold options in and trade these stocks of the companies we profile and as such our opinions are biased. STR and its' owner and affiliates/associates may buy/sell and trade the featured companies from time to time. STR has been paid by the companies. Thus, multiple conflicts of interest exist. Therefore, information provided here within should not be construed as a financial analysis but rather as an advertisement. Conduct your own due diligence: The author's views and opinions regarding the companies featured in report(s) are his/her own views and are based on information that he/she has researched independently and has received, which the author assumes to be reliable. You should never base any buying/selling/trading decisions off of our emails, newsletter, website, videos or any of our published materials. STR aims to provide information and often stock ideas but are by no means recommendations. The ideas and companies featured are highly speculative and you could lose your entire investment - consult a licensed financial advisor if you are considering investing in any of the featured companies. Subscribers/readers are encouraged to conduct their own research and due diligence. The companies mentioned are high risk and considered penny stocks that contain a high risk of volatility, therefore consult your investment advisor and do your own due diligence before purchasing. Never base any investment decision on information contained from our emails, newsletter, website, videos or any of our published materials. No Offer to Sell Securities: STR is not a registered broker dealer, investment advisor, financial analyst, stock picker, investment banker or other investment professional. STR is intended for informational, educational and research purposes only. It is not to be considered as investment advice. No statement or expression of any opinions contained in this report constitutes an offer to buy or sell the shares of the companies mentioned herein. Links: STR may contain links to related websites for stock quotes, charts, etc. STR is not responsible for the content of or the privacy practices of these sites. Information contained herein was extracted from public filings, profiled company websites, and other publicly available sources deemed reliable. Information in this report was taken on or before writing and dissemination and may not be updated. Do you own due diligence as information and events can and do change. Published reports may reference company websites or link to company websites and we disclaim and responsibility for the content and accuracy of any such information or website. Release of Liability: By reading the newsletter/website and/or watching videos by STR, you agree to hold STR, its associates, sponsors, affiliates, and partners harmless and to completely release them from any and all liabilities due to any and all losses, damages, or injuries (financial or otherwise) that may be incurred.
Forward Looking Statements
Except for statements of historical fact, certain information contained herein constitutes forward-looking statements. Forward looking statements are usually identified by the use of certain terminology, including "will", "believes", "may", "expects", "should", "seeks", "anticipates", "has potential to", or "intends' or by discussions of strategy, forward looking numbers or intentions. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements to be materially different from any future results or achievements expressed or implied by such forward-looking statements. Forward-looking statements are statements that are not historical facts, and include but are not limited to, estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to the effectiveness of the Company's business model; future operations, products and services; the impact of regulatory initiatives on the Company's operations; the size of and opportunities related to the market for the Company's products; general industry and macroeconomic growth rates; expectations related to possible joint and/or strategic ventures and statements regarding future performance. Stock Trends Report does not take responsibility for the accuracy of forward looking statements and advises the reader to perform their own due diligence on forward looking numbers or statements.