• JP Morgan CEO Jamie Dimon says the US is entering withdrawals from its addiction to debt
• Rising interest rates and rising debt are likely to drive the country into recession
• Adding physical precious metals to a portfolio can hedge against the impact of runaway national and consumer debt

Runaway Debt Threatens Economy

America’s addiction to debt, both corporate and consumer, has economists and experts cautioning about the state of the economy in 2024. Wells Fargo warns the first half of 2024 is going to be “really, really sloppy” for stocks. Investors can expect high volatility with frequent price fluctuations. That might be good for speculating in short term trades, but spells trouble for those with long-term strategies and retirement fund holders.¹

Debt is surfacing as a primary source of concern. The US has acquired an enormous amount of debt since the pandemic. That debt includes around a trillion dollars in stimulus checks and $4 trillion doled out by the Federal Reserve to buy government bonds. That massive cash infusion led firms to rake in profits as stocks soared higher.

Record inflation soon followed the debt-fueled stimulus. The Fed had to apply the brakes to the easy money. Comparing debt to heroin, JPMorgan CEO Jamie Dimon said our debt addiction is putting the economy in a dangerous position as it faces ‘withdrawal’. Stocks struggled through 2022 and are plagued by extreme volatility throughout 2023.

Dimon continued to say that despite high interest rates meant to slow the economy, inflation is likely to stay elevated.

“We’re on this sugar high and I’m not saying this ends in a depression [but] I think there’s more inflationary forces out there,” Dimon warned. “There’s a higher chance that rates go higher, inflation doesn’t go away, and all these things cause more problems of some sort.”²

This is in part due to continued high levels of government spending. The US total debt hit a record $33 trillion for the first time this year. It’s closing in on $34 trillion as gridlocked lawmakers fight over a new budget.

Economists have been banging the drum about the dangers of the country’s runaway debt. But the problem is constantly kicked down the road. They have warned of a potential crisis over the coming decades. If the US doesn’t change course, it could potentially default on its debt in 20 years, the Penn Wharton Budget Model predicted. A default could end up having catastrophic consequences on the US economy.

While Dimon’s concerns focused on corporate and government debt, others are pointing in alarm at the dramatic spike in consumer debt. Non-mortgage interest payments by consumers are up more than 50% year-over-year, surpassing $1 trillion (annual rate) in the third quarter of 2023, per Bureau of Economic Analysis data. As shown below, the burgeoning “living beyond means” character of the consumer can most easily be seen when looking at consumers’ revolving credit, shown in the blue line; and the associated increase in serious credit card delinquencies, shown in the yellow line. Those delinquencies are particularly acute among younger borrowers.

³

Debt-fueled Recession

The rising cost of capital is starting to take a toll on corporations. The interest owed on their debt is ballooning. Historically, there is an 18-month lag between a move in Treasury rates and companies’ effective interest rates.  Which means the problem is only going to grow more severe over time. Corporations will soon be facing major defaults and bankruptcies. And those that don’t will find themselves with very little capital to invest and retain workers.

Charles Schwab predicts ‘economic pain is likely’ for 2024. They say the chances of the Fed “sticking the landing” are quite low. Their analysts believe that a recession in the traditional sense, meaning one declared by the National Bureau of Economic Research, is more likely than not in 2024. The Fed may want to do something to relieve the recession but will be unable to for fears of reigniting inflation. ⁴

Until that formal declaration is made, Schwab has been using the term “rolling recessions” to describe the economy. They point to several key segments of the US economy, including housing, manufacturing, and many consumer-oriented segments of the economy have experienced recession-level weakness.

Schwab also points to a yield curve that has been inverted for more than a year. As shown in the chart below, except for an extremely brief/mild inversion in 1998, inversions over the past six decades have had a perfect track record of signaling recessions.

⁵

Conclusion

The price for America’s addiction to cheap debt is starting to be paid. And it may cost this country its economic future. For those looking to protect their portfolios from the ravages of runaway debt, now is the time to investigate safe haven assets like precious metals. A Gold IRA from American Hartford Gold can safeguard your retirement funds. To learn more, contact us today at 800-462-0071.

Notes:

1. https://www.cnbc.com/2023/11/27/wells-fargo-market-warning-2024-will-get-really-sloppy-in-first-half.html
2. https://www.businessinsider.com/us-debt-jamie-dimon-economy-fed-inflation-interest-rates-2023-11
3. https://www.schwab.com/learn/story/us-outlook-one-thing-leads-to-another
4. https://www.schwab.com/learn/story/us-outlook-one-thing-leads-to-another
5. https://www.schwab.com/learn/story/us-outlook-one-thing-leads-to-another

• Global gold prices surged in the past month
• Continuing geopolitical risks, peaking bond yields, and a bear market can sustain gold’s momentum
• A Gold IRA can help grow personal wealth while protecting it

Gold Prices Surge

October proved to be a pivotal month for gold in the global precious metals market. It witnessed a dramatic 6.8% surge, culminating in a historic monthly close of US $1,997/oz. This marked the highest-ever finish for the London Bullion Market Association Precious Metals (LBMA PM) price. The LBMA PM is a benchmark price set for gold. The increase reversed an initial downturn in the month. The resurgence was primarily attributed to safe-haven demand fueled by escalating geopolitical tension.¹

October started with gold prices trailing below US$1,850/oz at the end of September. However, the geopolitical events in Israel on October 7 sparked a rally that catapulted gold prices above US$2,000/oz by October 27. Notably, this record-high closure resonated across major currencies, reflecting a global shift in prices.²

Global Gold Demand Rises

Globally, gold bars and coins had a strong first half of the year. Investment slowed down in the 3rd quarter, but quarter-over-quarter demand was still over the five-year average. While European demand dipped and US demand plateaued, other global regions compensated to lift overall demand.

China’s appetite for gold was the strongest since 2021. A depreciating currency and lack of alternative safe haven assets sent people to gold. The People’s Bank of China continued brisk buying as well. The country’s economic and political uncertainty boosted demand 16% year-over-year and a walloping 66% quarter-over-quarter. The outlook for future buying looks strong.³

India and Turkey also posted remarkably higher demand. India’s gold demand came from a growing economy and increased purchasing power. Paradoxically, demand in Turkey skyrocketed in response to collapsing economic conditions and political instability.

Central bank buying was also back in force. They are positioned to beat even last year’s record-breaking level of purchasing. Their gold acquisitions helped prices defy the headwinds of surging bond prices and a strong US dollar.

What’s Needed to Sustain This Rally

To sustain this bullish momentum, analysts believe one or more of the following need to occur. Geopolitical risks must continue or get worse. There must be a peak in bond yields and the US dollar. And there needs to be a bearish trend in equities coupled with a resurgence of recessionary fears.

Geopolitical Risks

As seen after the invasion of Ukraine, worsening political risk bolsters demand for physical gold. Economists think the current situation is worse than Ukraine because it adds to existing tensions instead of replacing them. Conflict dampens economic optimism, disrupts supply chains, and threatens to hike energy prices. All of which can slow growth and increase inflation, moving the global economy closer to stagflation. Under these conditions, investors turn to gold as a safe haven asset to preserve value.

Peak in Bond Yields

The recent spike in bond yields is wreaking havoc on the economy. But when bond yields have peaked, and inflation is decreasing, bonds become more attractive due to better returns. As a result, there’s a potential impact on how bonds and stocks relate to each other. During such times, investors might seek assets like gold as a hedge against market uncertainty. Thereby increasing demand and potentially lifting gold prices.

Bear Market and Recession Risks

Stocks have been on a continuing downward trend. After a solid start to the year, US stocks suffered declines in August, September, and October. They’ve given back nearly half of their gains. Six of ten industry sectors in the S&P 500 were in negative territory through the first nine months of the year. And the Nasdaq is down more than 10% from its mid-year peak during what is supposedly the seasonally strongest period. A greater than 20% drop would effectively enter a bear market. This could spur additional interest in gold from investors as they realize buying stock dips is no longer paying off. History shows recent bear markets have been good for gold returns. ⁴

⁵

Looking Forward

The past two years have cemented gold’s ability to remain strong in a turbulent environment as demand for gold comes from various independent sources. This diverse global market helps defy perceived price drivers. Gold is set to break out further in current world conditions. The necessary events to maintain gold’s momentum – sustained geopolitical tensions, potential equity market downturns, and a peak in bond yields- are all taking shape as we speak. Now is an opportune time to secure your retirement funds with physical precious metals. A Gold IRA from American Hartford Gold can help grow your wealth while protecting it. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.gold.org/goldhub/research/gold-market-commentary-october-2023?utm_medium=email&utm_source=newsletter&utm_campaign=GOLDHUB%3A+Your+Weekly+Gold+Market+Round-up%2C+November+10%2C+2023
2. https://www.gold.org/goldhub/research/gold-market-commentary-october-2023?utm_medium=email&utm_source=newsletter&utm_campaign=GOLDHUB%3A+Your+Weekly+Gold+Market+Round-up%2C+November+10%2C+2023
3. https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q3-2023/investment
4. https://www.usbank.com/investing/financial-perspectives/market-news/is-a-market-correction-coming.html
5. https://www.gold.org/goldhub/research/gold-market-commentary-october-2023?utm_medium=email&utm_source=newsletter&utm_campaign=GOLDHUB%3A+Your+Weekly+Gold+Market+Round-up%2C+November+10%2C+2023

• Despite inflation dipping slightly in October, JP Morgan CEO Jamie Dimon urged caution on the economy
• Analysts see inflation and high interest rates lingering for years
• Long-term inflation is taking a heavy toll on ordinary Americans

Inflation Dips

Inflation dropped from a year-over-year rate of 3.7% to 3.2% in October, according to the latest Consumer Price Index report released by the US Bureau of Labor Statistics. While the first drop since June sparked hope on Wall Street, others weren’t so enthusiastic. JPMorgan Chase CEO Jamie Dimon said that inflation might not improve as quickly as anticipated despite recent indicators. Inflation, and its consequences, are going to be with us for some time.¹

Dimon Weighs In

Dimon said people are overreacting to short term numbers and “they should stop doing that.” He said, “I’m afraid inflation might not go away that quickly.” He continued that the Federal Reserve is right to pause hikes for now but “they might have to do a little bit more.” Dimon’s remarks echoed those by Citadel founder Ken Griffin who said, “the Fed needs to have the message that they will put the inflation genie back in the bottle.”²

Dimon has been saying for over a year that despite being in good shape now, US consumers and businesses are facing major headwinds. The pushback includes the reduction of the money supply and geopolitical tensions. He said in September that JPMorgan is telling clients to be prepared for 7% interest rates. And that the Fed may have to further hike its benchmark rate to combat inflation.

Inflation Still Taking a Toll

Overall headline inflation was slightly down, but the effects weren’t the same across the board. Gas prices dropped. But prices of groceries, restaurant meals, clothing, and housing increased. Housing was up 6.7% since this time last year.

The markets are cheering the headline numbers. But as investors seem to be anticipating rate cuts from the Federal Reserve, the pressures of the paycheck-to-paycheck economy remain firmly in place.

“The challenge with inflation is it’s cumulative. So, if inflation goes up 8% one year, 10% the next year, and the rate of inflation growth slows down to 3%, big deal. But the price of a home is 30% higher than it was in 2020. The price of eggs is almost double what it was in 2020, and prices don’t come down,” said Mitch Roschelle, Madison Ventures Plus managing director.³

Recent data shows inflation’s lingering impact. 80% of consumers are exhausting their savings to pay bills. Middle-income consumers have seen their readily available savings drop 18% in the last year when factoring in inflation. And 12% spent more than they’ve earned in the last six months.⁴

In addition, the core inflation rate is telling another story. The core rate, which excludes volatile food and energy prices, is expected to rise 4.1% on an annual basis. The team at Bank of America is forecasting a slightly higher read.

⁵

The majority of Americans share one at least one belief with the billionaire chief of JPMorgan – they both think inflation will remain high through 2025. They anticipate further belt tightening down the road.

Fed Offers No Guarantees

Federal Reserve Chair Jerome Powell struck a cautious note about the central bank’s fight against inflation. He warned that it is premature to declare victory and that additional rate hikes may be warranted.

“We know that ongoing progress toward our 2% goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said.⁶

Powell’s comments came after the Fed voted to hold interest rates steady at a range of 5.25% to 5.5%, the highest level in 22 years. Policymakers have raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation and cooling the economy. In the span of just 16 months, interest rates surged from near zero at the fastest pace of tightening since the 1980s.

Officials are now trying to figure out whether they have tightened monetary policy enough, or whether they need to raise rates higher to tame stubborn inflation. They are scheduled to meet one more time in December. Odds are there won’t be another increase. But if Bank of America’s core rate prediction is true, a hike isn’t off the table.

Despite some investors’ optimism about the economic outlook, the road ahead remains uncertain. While there has been a slight drop in inflation, signs of continued economic strain linger, raising concerns about safeguarding one’s nest egg from inflationary pressures. In times of such uncertainty, diversification into assets that historically weather economic storms becomes crucial. A Gold IRA from American Hartford Gold provides a reliable hedge against inflation, offering stability and security in an ever-changing financial landscape. Learn more about protecting your savings by calling us today at 800-462-0071.

Notes:
1. https://www.cnbc.com/2023/11/14/long-way-to-go-before-inflation-is-under-control-expert-says.html
2. https://www.bloomberg.com/news/articles/2023-11-14/jpmorgan-s-dimon-says-inflation-might-not-go-away-that-quickly
3. https://www.foxbusiness.com/economy/inflation-easing-consumer-prices-remain-high
4. https://www.pymnts.com/economy/2023/jpmorgan-ceo-inflation-battle-isnt-over-yet/
5. https://www.foxbusiness.com/economy/inflation-easing-consumer-prices-remain-high
6. https://www.foxbusiness.com/economy/inflation-easing-consumer-prices-remain-high

• Half of Americans believe their finances are worse off since Biden took office
• The negative outlook is primarily due to high inflation, interests rates, and consumer debt
• Surveys show the economy will be the deciding factor in the 2024 election

Financial Situation Worse After Biden Elected

Since the 2020 election, the financial outlook for many Americans has taken a turn for the worse. According to a recent Bankrate survey, a staggering 50% of Americans now believe their financial situations have deteriorated over the past few years. Proving to be a significant blow to President Biden and his “Bidenomics” campaign theme, this downturn in economic confidence is shaping the direction this country takes in 2024.

The survey revealed that approximately 45% of respondents place the blame on President Biden and his economic policies. While 35% attribute their worsening financial situations to Congress. Another 27% hold the Federal Reserve responsible for their economic woes.¹

²

Surprisingly, only a minority of those who reported an improvement in their financial situations credited President Biden for this positive change. In fact, more than half of those who witnessed improvements believed that neither President Biden, Congress, nor the Federal Reserve had played a significant role in helping them.

Unrelenting Inflation

The White House has been keen to emphasize the steady decline in inflation as one of the successes of the current administration, yet many families have yet to experience any real relief. Economists argue that this decline is primarily the result of Federal Reserve interest rate hikes rather than the President’s economic agenda. Inflation has decreased from its peak of 9.1% to 3.7% but it is still far from the Fed’s 2% target.³

The Consumer Price Index (CPI) remains significantly higher than the pre-pandemic rates. The costs of essentials like food, gasoline, and rent continue to be far more expensive than they were just a year ago. As a result, Americans are now forced to allocate approximately $700 more per month compared to two years ago, according to data from Moody’s Analytics.

Political Impact

These ongoing economic challenges are expected to have a considerable impact on the 2024 election. An astounding 89% of respondents revealed that the state of the economy will be a major factor influencing their vote. A majority of respondents, 69%, stated that their cost of living has worsened since November 2020. Forty two percent reported that their short-term savings have taken a hit. Furthermore, 34% expressed concerns about their long-term investments, including retirement savings.⁴

Unsurprisingly, the perception of a declining economy varies significantly among political affiliations. Generally, Republicans and independents are more likely to view the economy as having worsened compared to Democrats. Nonetheless, most of all Americans seem to attribute their financial woes to President Biden, Congress, and the Federal Reserve, with President Biden being the most frequently cited reason.

Interestingly, the sentiment that personal financial situations are worsening appears to be more pronounced among older generations, particularly Generation X and Baby Boomers. These groups share concerns about the state of their retirement savings, cost of living, and overall financial well-being as they approach retirement age and grapple with the harsh reality of their financial situations.

Causes of Pessimism

Several economic trends appear to be shaping this negative financial outlook:

Interest Rates: Experts anticipate that interest rates will remain high throughout 2024, with no indications of cuts on the horizon. While these rates were increased to combat inflation, they have resulted in Americans paying more for car loans, mortgages, and home equity loans.

Inflation: Although inflation has decreased from its peak in 2022, it currently stands at 3.7%. Economists suggest that it may not hit the Fed’s 2% target until 2025 or 2026. High inflation leads to increased expenses across the board. It especially impacts the middle class and lower-income Americans who live paycheck to paycheck.

Consumer Debt: A significant number of Americans are grappling with substantial debt and minimal savings. Pandemic stimulus funds have been exhausted. Many individuals are now faced with repaying student loans and dealing with skyrocketing credit card debt. Studies indicate that 35% of Americans are carrying debt from month to month. The stress of which is taking a toll on their mental health.

Credit card debt has reached record highs, as have delinquencies. This growing reliance on credit cards raises concerns among economists, given astronomically high interest rates. The average annual percentage rate (APR) recently hit a new high of 20.72%, making it more expensive for consumers to repay their debt over time. The previous record was 19% back in 1991. The middle class is carrying a greater debt load at a greater cost as they turn to credit cards to cover everyday expenses.⁵

The New York Federal Reserve said credit card debt hit a record high at the end of September. It surged to $1.08 trillion from July to September, an increase of $48 billion. That is the highest level of credit card debt since 2003 and the 8th consecutive annual increase.

Furthermore, the amount of credit card debt contributed to a record total household debt of $17.29 billion. That is an increase of $2.9 trillion compared to the end of 2019.⁶

Delinquencies are also increasing. Borrowers are struggling with credit card, student, and auto loan payments. The number of newly delinquent individuals has surpassed the pre-pandemic level.

Future Outlook

Economic indicators suggest a 46% chance of entering a recession by September 2024, painting a bleak outlook for many. This general pessimism surrounding the economy has led to a collective feeling of hopelessness about the future.⁷

While economists and policymakers continue to grapple with high interest rates, inflation, and mounting consumer debt, individuals are left navigating an uncertain economic landscape. The importance of securing one’s savings and financial well-being cannot be overstated, especially in these turbulent times. Physical precious metals like gold and silver are seen as hedges against the potential repercussions of government economic policies. Notably, a Gold IRA offers an avenue for individuals to preserve and grow their wealth. To learn more about how a Gold IRA can serve as a shield for your savings, we encourage you to reach out to us at 800-462-0071.

Notes:

1. https://www.foxbusiness.com/economy/half-americans-believe-they-are-worse-biden-blow-bidenomics
2. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj
3. https://www.foxbusiness.com/economy/half-americans-believe-they-are-worse-biden-blow-bidenomics
4. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj
5. https://www.foxbusiness.com/economy/credit-card-debt-hits-new-record-delinquencies-also-rise
6. https://www.foxbusiness.com/economy/credit-card-debt-hits-new-record-delinquencies-also-rise
7. https://www.msn.com/en-us/money/personalfinance/survey-1-in-2-americans-say-their-overall-financial-situation-is-worse-now-than-it-was-before-biden-was-elected/ar-AA1jznrj

• The Federal Reserve kept interest rates unchanged after their latest meeting
• Some analysts think economic indicators show Fed rate hikes aren’t working
• A severe recession may be necessary to break the hold of inflation on the economy

Fed Pauses Rate Hikes

After its most recent meeting, the Federal Reserve choose not to raise interest rates again. Instead, they are taking a wait and see approach to observe the impact of previous rate hikes. While some may be happy to see a pause, others see a potential mistake.

¹

The facts on the ground show that the Fed’s policy isn’t working as anticipated. The economy is still too strong, and inflation is too high, even with 5.25 percentage points of rate hikes since March 2022. While the current 3.4% PCE rate (a measure of inflation that reflects changes in the prices of goods and services purchased by households for consumption) is better than the previous 7%, it is still far from 2%.²

In addition, the labor market is too resilient to reach the 2% inflation objective. The ratio of unfilled jobs to unemployed workers is well above the 1-to-1 ratio that Fed Chair Powell considers necessary.

Despite wages going up, overall inflation has outpaced wage growth. Consumers have been making up the difference with excess savings boosted by Covid relief. But those savings are running out. Consumers are cutting back and sinking into debt to stay above water. To make matters worse, spiking oil prices are eroding purchasing power and putting the brakes on the American economy.

Another indicator of the Fed’s policy not working is that the GDP is growing too fast. The third quarter of 2023 far exceeded the 20-year annual average for growth. Economists attribute the GDP growth to robust consumer spending and $1 trillion of government spending on infrastructure, green energy, and the semiconductor supply chain. Also, the sudden AI boom caused an S&P 500 rally that largely reversed the Fed’s tightening of financial conditions. Even if growth slows in the fourth quarter, it may not be enough to push inflation lower.³

These factors are leading analysts to think that the neutral rate Powell is aiming for may be higher than planned. The “neutral rate” refers to the level at which the interest rate neither stimulates nor restricts economic growth. It is often considered the ideal or balanced interest rate for the economy.

No Soft Landing

Economists have compared the Fed’s quest for a soft landing to a unicorn hunt. At this time, the Fed hopes that holding rates steady will result in 2% inflation without a recession. Historically, soft landings are almost as rare as unicorns. Only once, in 1994, has the Fed accomplished a soft landing. But the inflation it tamed was hardly comparable to the recent record heights.

The Fed is playing a dangerous balancing act. If rates aren’t high enough to push inflation down to 2%, inflation expectations could rise. When people expect prices to rise, they might buy things sooner, thinking it will cost more later. This can lead to higher demand for products and services, which, in turn, can increase prices. All the accomplishments of previous rate hikes could be undone. The Fed could be forced to return with more drastic rate hikes.

Unfortunately, it may take a severe recession to reach the 2% goal. In the 1980s, then Fed Chair Paul Volcker had to inflict a recession on the US to break the rampant inflation of the 1970s. Powell is amply aware of the history. Nonetheless, he may be repeating it.

Future Hikes

Fed Chair Powell is open to more rate hikes in the future. The Federal Reserve will keep the possibility open until all signs point to a steady path to 2% inflation. The problem is that the rate of inflation is growing chaotic. It slows, then speeds up and then slows again. When the stock market believes the Federal Reserve is done increasing interest rates, financial conditions get easier. This fuels more growth, and more inflation, so the Fed must consider another rate hike. Powell outright dismissed any talk of rate cuts soon.

It’s like the Fed is driving a car on a winding road with unpredictable weather. The Federal Reserve needs to adjust its speed and direction as the road conditions change, even though they don’t control the weather. They have an idea where they want to go, they just don’t have a clear vision to get there. And if they aren’t careful, they can steer right off a cliff.

According to some analysts, we are facing more than the risk of recession, we are facing the NEED for recession. Otherwise, the economy will be trapped in this endless up and down inflationary cycle. Whether its inflation or recession, things are going to need to get worse before they get better. If you are looking to protect your savings, now is the time to investigate a Gold IRA from American Hartford Gold. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.fool.com/the-ascent/federal-reserve-interest-rates/
2. https://seekingalpha.com/article/4644859-market-wont-be-pleased-fed-message-this-week
3. https://www.investors.com/news/economy/why-no-fed-news-is-bad-news-for-the-sp-500/