As I was looking through a brochure of succulent Christmas decor I pondered what it was that grabs us to spend so much at this time of year? I once knew of someone who in conversation said that they were still paying off the previous Christmas in the following September. That is crazy.
And it hit me that all the living rooms and dining tables of the Christmas marketing look rich and opulent. For a day we believe we are rich. But most of us are not. I cannot encourage friends and readers alike more than to keep an eye on the reality and the future over this season, while reveling in the free joy of time with family and friends. A few nice pieces of food yes, but this is rationally not the time to get into debt. Logically it is a time to get out of debt and that takes discipline.
Regardless of the lovely feeling of wandering among fairy lighted shops and thick tinsel and coming home to a warm mince pie and brandy cream, the reality of the economy has not changed. Underneath the temporary distraction of Christmas, if we're honest, I think we all know it. Russia, Syria, Turkey, Iran, ISIS, the Eurozone, the Chinese economic collapse, the oil price collapse, mining collapse, the migrant crisis, terror attacks on a daily basis in the Middle East and now also in Europe. Rather than get depressed, it's actually a reason to cherish time with our loved ones even more. And to stay focused economically. I don't believe 2016 is going to be easy in the economy. Far from it.
Peter Schiff has always been a voice of calm logic and reason and here is what he had to say this week: "Back before 2008 Peter Schiff was harshly criticized and laughed at for his predictions about a coming economic collapse. Among other things Schiff warned that consumer spending had hit a wall, stocks were overpriced and lax credit lending practices would lead to a detonation of the banking system. Rather than heed the warnings, the biggest names in mainstream media tried to discredit him for not toeing the official narrative. Shortly thereafter, of course, Schiff was vindicated and much of the doom he had forecast came to pass. Today, Schiff continues to argue that the economy is on a downhill trajectory and this time there’ll be no stopping it. All of the emergency measures implemented by the government following the Crash of 2008 were merely temporary stop-gaps. The light at the end of the tunnel being touted by officials as recovery, Schiff has famously said, is actually an oncoming train. And if the forecast he laid out in his latest interview is as accurate as those he shared in 2007, then the the train is about to derail. We’re broke. We’re basically living off of debt.
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end. The problem, of course, is that no one with any real influence over public perception, like our elected officials or the media, will do anything about it. They’ll continue the party until it comes to an abrupt and irreversible end, and anyone who goes against the official narrative will be branded a lunatic gloom and doomer or extremist."
You may like to watch the video of the half hour interview, "Peter Schiff Warns The Whole Economy Has Imploded; Collapse Is Coming" below:
His views are reiterated by research groups such as Citi Group, who last week released their report for the Economic outlook for 2016: "Citi released its 2016 economic outlook Wednesday (2nd December), which stated that there’s a 65 percent chance of a U.S. recession in 2016. With the weakest economic expansion following a recession, this will be a serious blow to the U.S. The outlook isn't just bleak for the U.S. but also for the rest of the world."
A striking announcement was made yesterday by Stephen Poloz, governor of the Bank of Canada : "The Bank of Canada would be willing to cut its benchmark interest rate to below zero per cent if the country is faced with a major economic shock". In a speech to the Empire Club of Canada in Toronto, Poloz described the use of negative interest rates as one of four “unconventional monetary policy measures” it would be willing to deploy if faced with a major economic crisis. Yet he said "the bank is unlikely to use such measures as it expects the Canadian economy to grow in 2016 and reach full capacity in mid-2017." My question why even raise it if the economy really is recovering?
There are two points which stick out to me in this announcement; firstly, that the Governor of a national bank goes on to completely describe the circumstances under which a NEGATIVE INTEREST RATE would occur, and yes it is exactly what we, and Peter Schiff and others, believe will happen in the near future: "He said it would take an event similar to the global financial meltdown of 2008-09 before the bank would consider such a move. The second point which stands out is how often banking figure heads say something will never happen, then it does. Canada once said it's interest rate would never go below .25% but any minus figure is obviously well below .25%! "The bank’s new willingness to adopt a policy rate of zero per cent or even -0.5 per cent is notable because back in 2009, the bank said it would never cut its policy rate below 0.25 per cent." Out of interest Switzerland's interest rate is already negative at a massive -0.75%!
What does a negative interest rate mean in real life? That instead of earning interest, the bank charges it's customers to deposit their money with it! Why are they doing this? To discourage hoarding cash deposits and to encourage spending. Does it work? No one really knows so far. As the Guardian point out in a somewhat vague tone: "if it provided the desired boost to the eurozone economy and put it on the path to a sustainable recovery, that would be good news for the UK economy too. On the flipside, if there were some nasty unintended consequences, including a shock to the eurozone banking system, Britain's economic recovery could potentially be undermined." That was written back in June of 2014 when the European Central Bank dipped its interest rates into the negative to try to stop member banks parking fund with them instead of spending into the economy! I think the consequences in retrospect speak for themselves. I don't see a recovered Eurozone economy. I see Greece, and then Italy and Spain all grumbling in financial meltdown, together with a debt laden Europe trying to cope with an unprecedented migrant crisis.
In real terms, negative interest rates are good for Gold and Silver sales. Why pay a bank to hold your money when you can put your money into a physical object and store of historical value instead? We reiterate the point made by The Telegraph last month that "Gold remains the best insurance for a crisis; as central banks race to devalue currency private individuals are hoarding record amounts of gold."
On the other hand, many commentators believe the Federal Reserve will not lower but raise interest rates imminently. Alex Brummer of the Mail Online wrote a piece this morning on the triple threat to the economy of tumbling oil prices, the mining meltdown and the possibility of a rate rise: "On the currency markets the Canadian dollar, which remained so robust during the financial crisis, has fallen to an 11-year low against the greenback and is worth just 74 cents. The Norwegian krone, the Aussie dollar, the South African rand and Mexican peso also are tumbling. The volatility may yet get worse. If, as expected, the Federal Reserve does press ahead with its interest rate increase next week, we can expect capital flows from advanced countries and emerging markets to the US. Britain may benefit in the short term from cheap commodity prices which will keep inflation low. The pound will probably fall against the dollar, improving export prospects. But with large chunks of the world suffering from cash constraints, including our big customers for aerospace and arms in the Middle East, the UK’s medium-term outlook begins to look a little gloomier."
From all angles, Bleyer would like to invite you to call us to discuss holding at least some of your savings in Physical Gold and Silver. Browse our website and call one of the team now on 01769 618618 to discuss which products would best suit your budget and financial plans over the coming months and years.