In today’s post, we’re going to discuss the problems in the US Economy, why there shouldn’t be a September rate cut, and why gold and silver are one of the best ways to protect oneself from a variety of issues. We will see there seems to be mixed messages coming in regard to the economy.
To begin, we need to have an understanding of why the Fed cuts interest rates. Lower interest rates boost economic activity, as lower rates translate to easier financing and more consumer spending, which is the main component that drives GDP.
But should a silver stacker want a rate cut?
Interest rate cuts usually boost gold and silver prices as investors but less treasuries, since their yield is lower, and they buy more gold. In addition, silver is an industrial metal and lower rates means companies can buy more silver as financing is easier.
So, from a personal perspective, a silver or gold stacker should want this.
However, it’s not that simple.
So right now, like usual, everything in the economy, according to the financial press, looks good. According to the mainstream financial media, inflation has come down, the banking sector is strong and also the consumer as well. In addition, the stock market is at all-time highs.
This all raises the question around why a rate cut is needed if the economy is so good?
Many point to the labor market looking increasingly weak and also the lag effect. The lag effect is simply that once the Fed makes some sort of change, like raising or lowering interest rates, it takes months to take effect.
But why are they really lowering interest rates?
There are a few reasons. One is the national debt situation in the United States is clearly out of control. The National debt is over 35 trillion and interest on the debt alone will be around the defense budget. Even the CBO is sounding the alarm on this. The interest on the debt is spiraling out of control and going to cause overseas investors to abandon the US dollar, or at least cut purchases dramatically.
One important thing to point out about the debt too is that the CBO projections, in my opinion, are understating what the national debt will be. This is because they don’t account for “shocks” over the long term like a possible conflict with another country or even natural disasters.
In addition, to the national debt, Credit Card debt is also spiking. With credit card debt at an all-time high and interest rates higher than ever, this could send more people than ever into bankruptcy. Remember that as delinquent payments increase and credit card defaults rise, we can expect Banks will raise interest rates on credit card debt even higher. This will make credit even harder to obtain and reduce economic activity.
One other reason I believe a rate cut is coming is pressure. Pressure from the White House and others. For example, the Japanese Yen is cradling and a rate cut from the Fed would help the Yen gain some appreciation against the US dollar. We saw the bank of Japan intervene twice to stop the Yen from spiking.
One final reason for the rate cut is wall street and real estate. Commercial real estate, with many loans at high interest rates could sink the economy. On the residential side, no one is buying homes due to the high rates. Wall Street needs easy money to operate too.
Should there be a cut?
In my opinion, no. When we start to unpack and look deeper at the story and data it’s clear that the US economy is in a very fragile state. Inflation is still alive and well and could spike again.
Will the US economy crater?
In my opinion, this bubble is going to burst.
In sum, a rate cut won’t help and will ultimately just add fuel to the fire when it does.
And that’s why owning gold and silver is so important in my opinion. It provides that protection and preserves your purchasing power. Not only does it serve as an inflation hedge, but also works as a deflation hedge. One of my favorite aspects of stacking gold and silver is that there is a great community of people too. Most people are looking to preserve what they have.