Injections don't heal economy
Ben Bernanke handed the chair of the Federal Reserve to Janet Yellen earlier this month. He did so with the economy showing signs of recovery strong enough for Bernanke to have set in motion a tapering of the Fed's economic stimulus program.
Word that American retail sales rose for December prompted a rise in stock markets. However, little focus was given to the huge Christmas promotional discounts and their impact on profitability.
Gold continued to look shaken from a 28 percent fall in price in 2013. Scant attention was paid to the enormous increases in international debt that continued to accrue in 2013. According to the ING Bank, total world debt in May 2013 — including public, corporate, household, and the financial sector — was a staggering $223.3 trillion. That's 313 percent of the total world gross domestic product.
Emerging world debt amounted to some $11,621 per capita. Among the so-called “developed nations,” where government debt figures do not include government guarantees and social obligations that average $170,401 per citizen and $176,833 in the United States.
Stock markets look uncertain, despite bond-buying stimulus and stock margin levels at all time highs. For the developed world, these figures represent a shocking degree of political irresponsibility and threaten an international debt crisis.
If interest rates rise, a catastrophic currency crisis likely will result. Gold and silver, though disparaged by central banks, have outlasted numerous past collapsed currencies and would become the global default money.
Short of filing bankruptcy, corporations and individuals have the option of “deleveraging” — cutting expenses and paying down their debts.
According to the Fed, households have deleveraged at an unprecedented rate that was not included in the Fed's economic models, which formed the justification for Bernanke's multi-trillion dollar quantitative easing. That explains why, despite injections of monopoly money, consumers are spending less, causing companies to cut employment and keeping wage increases below the rise in prices.
Magnified by increased taxes and charges such as Obamacare, the world and now the United States face recession, if not depression. This concern exerts downward pressure on precious metals. As recent history has shown, however, investors never should underestimate the ability of central banks to make paper money from nowhere and to find novel means of injecting it into the economy.
One might expect trillions of dollars of student loans to be forgiven. Furthermore, the continued purchase of Treasuries might be mandated to justify continued tax benefits within IRA and 401(k) retirement accounts.
Such populist liquidity injections are likely if a Fed leadership dominated by Keynesian academics encourages legislation.
Inflation is muted right now. Therefore, precious metals likely will fall as a recession becomes increasingly evident and official downward price manipulation continues.
If these conditions reverse and interest rates rise to even half their historic levels, an explosion in precious metal prices and panic buying will result.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Bomb plot trial ends in Saudi’s conviction
- Trade for Winnik gives Penguins’ competition among bottom six
- Sophomore stars carry Beaver Falls to 3rd finals appearance in 4 seasons
- Few in Westmoreland County opposed to expansion plan for Mariner pipeline
- Trib Cup: South Park girls look ahead to PIAA tournament
- High school notebook: Armstrong, Freeport know playoff opponents
- Lincoln tries to rejuvenate career in second stint with Pirates
- High school roundup: Mt. Lebanon boys oust Hempfield
- Move to Canon-McMillan means less travel for wrestlers headed to Southwest Regional
- WPIAL finalists feature skilled scorers, playmakers on perimeter
- Jihadi John, slashing terrorist, is unmasked as Briton