• The US is in a ‘rolling recession’ with some industries sinking as the overall economy treads water
• Conditions are creating a unique ‘richcession’ where white collar workers are being laid off en masse
• A Gold IRA can protect the value of assets from the effects of the impending recession

A ‘Rolling Recession’ Plagues the Economy

A surging stock market, declining inflation, and solid job market have analysts putting the idea of recession behind us. This view is strengthened by signals from the Fed of potential interest rate cuts. However, this perspective isn’t seeing the whole picture. Hopes for a ‘soft landing’ are blinding some observers to the current ‘rolling recession’ and the advent of a ‘richcession’.

Rolling Recession

‘Rolling recession’ was coined to describe the current situation where only some industries are shrinking while the overall economy manages to stay above water. The economic weakness is across various segments but primarily focused on manufacturing and housing. An overall recession has been avoided by offsetting that weakness with the relative strength in consumer services such as travel, restaurants, etc.

Excessive government spending shielded sectors like education, government work, and healthcare from surging interest rate hikes. Private industry was not so lucky. The housing sector was the first to suffer from aggressive rate hikes. Mortgage rates nearly doubled, and home sales plunged. They are 19% lower than they were a year ago.

Manufacturing quickly followed. It’s been dubbed the “global cardboard box recession” because demand dropped for things that go in a cardboard box. Factory output dropped dramatically in 2023. The Global Manufacturing Purchasing Managers Index (PMI) marked the 15th straight month below 50, the level that divides growth from contraction. That is the longest stretch in history. A shrinking number of new orders indicate that production weakness will continue well into 2024, furthering the record duration. ¹

²

The Richcession

Current economic conditions are giving rise to a phenomenon dubbed a ‘richcession’. In a typical recession, lower paying jobs are cut first and in greater numbers. Now, service industries – restaurants, hotel, bars – are hiring. Major job cuts are concentrated in higher paying industries like technology and finance.

³

Economists point out that higher-income individuals tend to have financial cushions to withstand layoffs. Therefore, their rising unemployment is less likely to sink the overall economy. Still, their economic pain is compounded by fewer comparable job openings and salaries. Having the overall economy stay above water is cold comfort to someone approaching retirement age. A recent Bank of America report showed that the number of 401(k) plan participants taking hardship withdrawals was up 13% from the second quarter and 27% compared with the first quarter of the year.⁴

Major companies initiated substantial job cuts, reminiscent of the significant layoffs observed in 2022 when over 120 large U.S. companies downsized, affecting about 125,000 employees. Tech firms bore the brunt, but startups, banks, manufacturers, and online platforms were also affected. Major US banks trimmed 20,000 jobs in 2023. Salesforce let 10% of its workforce go, about 8,000 employees. Amazon fired 18,000 people, mostly impacting corporate roles with hourly staff minimally affected. And Spotify cut 17% of its global workforce. ⁵

A 2023 Randstad RiseSmart report revealed that 92% of employers are gearing up for layoffs in 2024 to address COVID-19’s economic impact and potential overstaffing.

Full Recession is Coming

Analysts don’t see the consumer sector offsetting declining parts of the economy much longer. Most leading indicators suggest consumer spending is slowing. Higher costs and borrowing rates will continue to put pressure on profit margins. And spending cuts by households and businesses will result in an across-the-board recession.

Predictions of a soft landing are being challenged by a couple of factors. First is the lagging in impact of rate hikes. We have not officially past the ‘expiration’ date for those lags. This is seen in the Leading Economic Index (LEI). The LEI is a composite index designed to predict the future direction of the economy. It’s comprised of several individual indicators, including the stock market, job market, and interest rates.

The LEI has declined for 19 consecutive months. Such steep declines typically only occur during recession. This recession signal from the LEI has not expired. The average length between peaks in the LEI and recession start is 11 months. But the actual range is much larger. It’s been as little as three months to as many as 21 months.⁶

Another recession signal is the inverted yield curve. The yield curve has been inverted for more than a year. Now, except for an extremely brief and mild inversion in 1998, all other inversions over the past six decades have had a perfect track record of signaling recessions to come.

Conclusion

Despite hopes for a ‘soft landing,’ the burden of a ‘rolling recession’ continues to impact specific sectors like manufacturing and housing. Moreover, the emergence of a ‘richcession’ signals a unique economic downturn, characterized by job cuts in higher-paying industries. Indicators point towards an inevitable recession when the rest of the economy starts to shrink. As the economic ground shifts, people contemplating retirement should carefully examine how to protect their portfolios. A Gold IRA can protect retirement funds from the effects of recession and richcession. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.schwab.com/learn/story/market-outlook-whats-store-2024
2. https://www.bloomberg.com/news/articles/2023-02-09/what-is-a-rolling-recession-us-could-escape-economic-pain
3. https://economictimes.indiatimes.com/tech/technology/2023-year-in-review-how-layoffs-hit-technology-and-startup-workers/articleshow/106377064.cms
4. https://www.cnbc.com/2023/11/28/401k-balances-are-down-while-hardship-withdrawals-are-up.html#:~:text=’Last%20resort’%20401(k)%20hardship%20withdrawals%20rise&text=Bank%20of%20America’s%20recent%20participant,withdrawal%20amount%20just%20over%20%245%2C000
5. https://investorplace.com/2023/12/layoffs-2023-a-roundup-of-the-biggest-companies-making-job-cuts-in-q4/
6. https://www.schwab.com/learn/story/market-outlook-whats-store-2024

• Buy Now, Pay Later loans are luring consumers into deep debt
• Called ‘Phantom Debt’ due to the lack of oversight, its rapid rise can lead to recession
• Physical precious metals can protect portfolio value from runaway debt

The Heavy Price of Buy Now Pay Later Services

A new fintech version of the old layaway plan, Buy Now, Pay Later (BNPL) services are growing rapidly. And are dangerously luring people deeper into debt. Economists are calling the loans ‘phantom debt’ because it exists outside the scope of regulators. For a country already drowning in national and consumer debt, experts fear the exponential growth of BNPL can pose a threat to individuals and the economy at large.

Promoted as easy and convenient, BNPL split purchases into four equal payments. Adding to their appeal, this type of short-term loan doesn’t involve a credit check. They seem like an attractive option compared to credit cards averaging 21% interest, a record high rate for the past 30 years since it’s been tracked.

Experts estimate 93.3 million people will use buy now pay later services by the end of 2024.
BNPL purchases are projected to top $1 trillion by 2025. BNPL surged more than tenfold between 2019 and 2021, pushing the dollar volume from $2 billion to $24.2 billion.
BNPL are promoted as short-term no-interest loans – a cost effective way to spread out payments. But users who miss payments find themselves swamped by penalties and late fees. And fees stack up quickly when payments are due every 2 weeks. Ultimately, an average of 25% is added onto the purchase price.¹

BNPL fans say they use the service to avoid high interest rates on credit cards. Credit card debt has broken record levels – hitting more than $1.08 trillion nationwide. However, some BNPL are paid with credit cards. “New BNPL users experience rapid increases in overdraft charges and credit card interest and fees, as compared to non-users…They are facing fees on two products rather than one. “²

The Consumer Finance Protection Bureau said last March 43% of BNPL clients had overdrawn their bank accounts in the preceding 12 months. Missed payments can also impact user’s credit rating. ³

⁴

Critics of BNPL-linked fees are turning to regulators to consider consumer protections. The relatively new field has virtually no oversight. There is also no transparency. The Senate Banking Committee found that BNPL programs lure consumers into taking more debt and overextend themselves. The debt quickly becomes unmanageable. The Committee stressed that the rapid rise in household debt, high inflation and a massive drop in savings are putting Americans in financial jeopardy and urged some oversight.

Credit Risks

The short-term loans are not reported to credit bureaus. Lenders can’t see the true financial risk posed by potential borrowers. And borrowers can easily get in over their heads with new loans. Putting fragile banks and indebted consumers in jeopardy.

“Until there is a definitive measure for it, there is no way to know when this phantom debt could create substantial problems for the consumer and the broader economy,” Wells Fargo economists wrote earlier this month. They continued, “But it could also be an “unregulated danger zone that could lull consumers into a false security in which many small payments add up to one big problem.”⁵

Impact on the Economy

There is no central repository for monitoring “phantom debt.” Its growth could imply total household debt levels are much higher than traditional measures capture.

Consumer spending accounts for 70% of the American economy. Unpaid consumer debt, when widespread, can strain the financial health of individuals. As debt accumulates, people spend less on goods and services, impacting businesses’ revenues. This reduced spending can lead to a slowdown in economic growth, potentially causing job losses, decreased investments, and a general economic downturn, which, if severe, can result in a recession.

National and consumer debt already pose an existential threat to the American economy. The explosive growth of BNPL services looks like a last gasp by desperate consumers facing high inflation and dropping income. That’s why experts are looking at gold and silver. Physical precious metals have intrinsic value that’s not tied to national debt or currency fluctuations. When national debt rises, it can weaken a country’s currency. Precious metals tend to retain their value or even appreciate during such times. They act as a hedge, preserving wealth by offering stability and serving as a safeguard against the erosion of value. A Gold IRA from American Hartford Gold can help protect your financial future. Contact us today at 800-462-0071 to learn how.

Notes:

1. https://www.inc.com/bruce-crumley/growing-buy-now-pay-later-debt-prompts-calls-forregulation.html
2. https://www.inc.com/bruce-crumley/growing-buy-now-pay-later-debt-prompts-calls-forregulation.html
3. https://www.inc.com/bruce-crumley/growing-buy-now-pay-later-debt-prompts-calls-forregulation.html
4. https://www.statista.com/statistics/1328323/bnpl-missed-payments-in-the-us/
5. https://themessenger.com/business/buy-now-pay-later-bnpl-affirm-afterpay-klarna-paypal

• Inflation continues to plague everyday Americans
• Astronomical debt and a bursting ‘everything bubble’ signal extreme volatility
• Experts are flocking to physical precious metals to protect the value of portfolios

Economic System Positioned for Major Disruption in 2024

The aftershocks of the Biden administration’s pandemic spending spree are still shaking the foundations of the economy. Even in the face of recent drops, inflation is still punishing consumers and businesses. And the debt accrued from the near bottomless printing of money is undermining the stability of the financial system.

Inflation, having hit a 40-year high last year of 9.1%, is still above the Fed’s 2% target. The cumulative effects of inflation are straining Americans to a breaking point. The cost of groceries is up 25% since January 2020. According to a recent holiday shopping survey, one in three Americans are foregoing giving gifts this year. And one in four still have holiday debt from last year they are paying off. The survey showed that almost half of Americans are cutting back on charitable donations as well.

President Biden is touting the success of his ‘Bidenomics’. But that success doesn’t translate down to the personal level. Credit card debt is at record highs and personal savings are at a new low. With stimulus payments all but spent, 33% of Americans have less than a hundred dollars in savings.

Record government debt, overinflated stock prices, and a simmering bank crisis have experts predicting the high probability of a major economic disruption. The stability of the financial system is coming into question. This concern is reflected in gold prices hitting all-time-highs as people seek safe haven assets to protect the value of their portfolios. Gold is expected to continue its upward trajectory in 2024, making now an ideal time to investigate the benefits of a Gold IRA.

Contact us today at 800-462-0071 to learn how you can protect your funds with precious metals or a Gold IRA.

• Economists say the ‘Everything Bubble’ is going to burst in 2024
• The country will experience one of the biggest stock market crashes in history as a result
• Financial gurus advise protecting portfolio value with precious metals

Bursting ‘Everything Bubble’ Could Devastate Economy

Since 2009, an ‘everything bubble’ – composed of stocks, bonds, real estate, and crypto – has been inflated by unprecedented money printing and deficits. Today’s prices are deemed by some experts as 100% artificial. But now, the tap of free money has been turned off and the bill for the astronomical debt is coming due. Harry Dent, a leading economist said, “I think 2024 is going to be the biggest single crash year we’ll see in our lifetimes.” He continued, “I don’t think we’ll ever see a bubble for any of our lifetimes again”. ¹

Market bubbles are characterized by a rapid rise in stock prices before being met by a sharp fall.
Dent stated the ‘everything bubble’ picked up momentum in late 2021. The first signs of it bursting occurred in 2022 when the Nasdaq dropped 38%. In 2024, Dent predicts the ‘B wave’ of the crash will occur.

²

According to his analysis, this crash is not going to be a correction. A stock market correction refers to a short-term reverse movement in the stock market. Typically, a decline of around 10% or more from the recent peak in stock prices. Corrections are considered normal and are part of the market cycles. They are distinct from bear markets, which involve more prolonged downturns and larger drops in stock prices. Corrections are seen as healthy adjustments that can bring stock prices back in line with their fundamental values and prevent overvaluation.

Instead, Dent maintains that the drastic drop in market value will recreate conditions like the Great Depression. He predicted an 86% crash in the S&P 500, 92% drop in the Nasdaq, and a 96% dip in crypto. Housing is also projected to lose 50% of its value, declining more than at any time in history. ³

Dent considers this current surge in the market a ‘gift’ of time to get yourself out before the crash happens.

The Fed & Rate Cuts

The current leap in stock prices can be traced to optimism about potential interest rate cuts in 2024. Policymakers, in their annual projections, priced in the potential of three rate cuts, with the federal funds rate falling to a range of 4.4% to 4.9%, down from the current 5.25% to 5.50%.

Examining the Federal Reserve’s anticipated rate adjustments, Dent said that achieving a ‘soft landing’ was virtually impossible. He believes the Fed has overtightened and the full impact of the rate cuts will be felt in 2024. And when they hit, the damage to the economy will be severe. He deduces the economy will move beyond recession and into depression. Dent doesn’t see the economy recovering for at least a decade.

Dent isn’t alone in his forecast. “Rich Dad, Poor Dad” author Robert Kiyosaki is also sounding the alarm. He stated, “This may be the start of the biggest crash in history. Hope I am wrong yet no time to play Russian Roulette with your life.”⁴

Kiyosaki focused on the impact the crash will have on retirement savings. As millions of Americans are heavily invested in the stock market via their retirement funds, a substantial decline in the S&P 500 could have catastrophic consequences. In the market downturn of 2022, participants in 401(k) and IRA plans collectively suffered an estimated loss of roughly $3 trillion.⁵

Kiyosaki offered this advice to prepare for the upcoming crisis: Buy gold while you still can. Gold is a time-tested safe haven asset that can safeguard your future from economic collapse. Gold is already at all-time-highs and experts predict that it is only going to go higher.

“You will wish you had bought gold below $2,000. Next stop gold $3,700,” said Robert Kiyosaki.⁶

There are many ways to gain exposure to gold and silver, but Kiyosaki prefers to just buy the physical metals directly. “I do not touch paper gold or silver ETFs. I only want real gold or silver coins.”⁷

Reckless government spending and monetary policy have created the ‘everything bubble’ – with drastically overinflated prices for stocks, bonds, real estate, and cryptocurrencies. And signs point to the bubble bursting in 2024. And when it does, economists see the worst stock market crash happening in our lifetimes. Retirement funds could be wiped out. Now is the time to protect your portfolio. A Gold IRA from American Hartford Gold can shield your assets from the severe impact of the bursting ‘everything bubble’. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://nypost.com/2023/12/19/business/us-economist-predicts-2024-will-bring-biggest-crash-of-our-lifetime/
2. https://www.google.com/url?sa=i&url=https%3A%2F%2Fgoldbroker.com%2Fnews%2Ftime-say-goodbye-everything-bubble-2479&psig=AOvVaw1zqwYqph8xOYAabGZG-Ar4&ust=1703188651210000&source=images&cd=vfe&opi=89978449&ved=0CBIQjRxqFwoTCJjdvKnmnoMDFQAAAAAdAAAAABAf
3. https://nypost.com/2023/12/19/business/us-economist-predicts-2024-will-bring-biggest-crash-of-our-lifetime/
4. https://finance.yahoo.com/news/biggest-crash-history-robert-kiyosaki-130000435.html
5. https://finance.yahoo.com/news/biggest-crash-history-robert-kiyosaki-130000435.html
6. https://finance.yahoo.com/news/biggest-crash-history-robert-kiyosaki-130000435.html
7. https://finance.yahoo.com/news/biggest-crash-history-robert-kiyosaki-130000435.html

• Commercial real estate values are plummeting in the aftermath of the pandemic’ shift to remote work
• Drastically reduced valuations are running headlong into the need to refinance at record high interest rates
• The collapse of the commercial real estate sector can send shock wave through the entire economy

The Collapse of Commercial Real Estate

The pandemic’s enduring impact on work dynamics has reshaped the office landscape, turning office towers into empty husks. The seismic shift towards remote or hybrid work has shattered the very foundations of commercial real estate. The fall of WeWork was an $18 billion canary in the coal mine, shedding dozens of leases in New York City alone. Experts fear an impending collapse of what was once a cornerstone of the American economy. The ramifications of which could resonate and upend the financial system.¹

Gary Shilling is a financial analyst best known for forecasting the 2008 housing crash. He said ” I think the biggest bubble right now is commercial real estate… I think it is a bubble which is beginning to crack.”²

The office sector is the most visible sign of the commercial real estate collapse. Vacancy rates are at nearly 1.5 times the amount of 2019. There may be as much a 1 billion square feet of unused office space by the end of the decade. Moody’s Analytics calls the office vacancy rate of 19.2% this quarter “perilously close” to the 19.3% record-high vacancy rate in 1986 and 1991.³

Schilling sees this as part of larger economic downturn. He also predicts the S&P could fall to its lowest level since the pandemic and that there is a recession on the horizon, if we aren’t already in one. “I’ve been of the opinion that stocks would decline about 30% to 40%, peak to trough…If you look at many of the major indicators that are reliably forerunners of recessions, when you look at that combination of things, it’s pretty hard to escape a recession.” ⁴

Commercial real estate’s recovery will take a long time. Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia Business School, said “It could easily take several years for the office market to stabilize…it’s a trainwreck in slow motion.”⁵

“Shark Tank” star Kevin O’Leary shares the belief that the commercial real estate sector is on the brink of collapse. He says the ripple effects will be detrimental to investors and small business owners.

O’Leary pointed to the typical commercial real estate business model. A property is bought with a loan from a bank, usually a regional one. The owners then only pay back the interest on the loan, refinancing when the balloon payment comes due. This model worked when interest rates were near zero.

But in the next four years, roughly two thirds of the commercial office real estate will need to be refinanced. Crashing vacancies and lower valuations are going to meet significantly higher interest rates. There will be losses all around as owners are unable to pay back the banks.

Delinquency rates for commercial mortgages, which include office, multifamily, and other commercial properties, have been on the rise for four consecutive quarters, according to the Mortgage Bankers Association (MBA).

This will cause serious issues for the regional banks that are invested in these buildings. The banking system has about $3 trillion of commercial real estate on their balance sheets. Roughly two thirds of that are held outside of the largest 25 banks.⁶

“These banks are going to fail because up to 40% of their portfolio is in commercial real estate,” O’Leary said. The rapid rise in interest rates is what sparked the banking crisis and caused the collapse of Silicon Valley Bank and First Republic. Both were overleveraged in commercial real estate. ⁷

This will spillover and hurt small businesses. Regional banks are the prime commercial real estate lenders. With commercial real estate draining their resources, they will be unable or unwilling to make small business loans.

Adding to the problems caused by low vacancies and high interest rates are new banking rules. The rules were put into effect after the collapse of SVB to stall the banking crisis. Previously, banks didn’t have to do anything as long as loan payments kept coming in. Now, banks are required to set aside reserves for expected losses from existing loans. This strains the liquidity of some banks. It potentially turns a slow-moving downturn into a value disaster that everybody has to put in their balance sheet at the same time. Suddenly 500 banks can become insolvent on paper.⁸

⁹

There is no precise date of when the commercial real estate sector will collapse. Some believe it is happening as we speak. Real estate tycoon Jeff Greene, who bet against the mid-2000s housing bubble and netted about $800 million, said that we’re just in the initial stages of a commercial real estate crash, “I think we’re just in the first inning of this correction.”¹⁰

The impact of such a crash will reverberate throughout the economy and could ultimately drag down the value of stock-based retirement funds. Now is the time to protect those funds. A Gold IRA can safeguard the value of your portfolio from the imminent real estate collapse. Contact American Hartford Gold at 800-462-0071 to learn more today.

Notes:
1. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/
2. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/
3. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/
4. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/
5. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/
6. https://insights.som.yale.edu/insights/is-commercial-real-estate-in-for-downturnor-crisis
7. https://www.gobankingrates.com/investing/real-estate/kevin-oleary-says-coming-real-estate-collapse-will-lead-to-chaos/
8. https://insights.som.yale.edu/insights/is-commercial-real-estate-in-for-downturnor-crisis
9. https://www.bloomberg.com/news/articles/2023-10-02/us-office-market-is-poised-for-a-crash-investors-say-in-survey?embedded-checkout=true
10. https://fortune.com/2023/11/20/economist-who-predicted-2008-housing-crash-says-commercial-real-estate-bubble-will-burst/

• China’s governmental and personal debt is reaching dangerous new heights
• The skyrocketing debt can undermine the Chinese economy and, in turn, the global economy
• A Gold IRA can protect your portfolio from the severe negative impact of China’s collapse

The Danger of China’s Debt

The Chinese economy is like a sinking ship threatening to take down the global economy in its wake. China is the world’s 2nd largest economy. But it is also one of the most indebted large economies in the world. Its state-owned banks are perched on mountains of bad debt. And that’s just on the surface. Underneath are trillions of dollars in murky off-balance sheet lending that threatens to destabilize China’s, and in turn, the world’s economy.

The debt undermining China’s economy extends to the personal and government level. Defaults by Chinese borrowers have surged to record heights, highlighting the depth of the country’s economic downturn. More than 8 million Chinese citizens have been blacklisted by the government for missing payments. That number is up from 5.7 million in 2020. Blacklisted people are blocked from a range of economic activities and become unable to make money in the face of restrictions. Much like a debtor’s prison, they are trapped and unable to ever repay their debts. The situation is worsened by staggering unemployment, especially among younger people, that hit a record 21 %.¹

The government’s response to growing personal debt was to simply stop reporting the data. They are slow to pass regulations to help the situation because they fear corruption may be revealed.

A larger issue is that government debt is skyrocketing along with personal debt. China’s economic growth is slowing. Soon local governments will start defaulting on interest and principal payments. Most commercial banks are state owned. They often make decisions based on government decree rather than economic pragmatism. This include making risky loans to state-controlled companies. Official bad loans at Chinese banks hit $540 billion in 2020.²

Economists cite a bigger concern that cities and provinces across the country have accumulated a massive amount of ‘hidden debt’ following years of unchecked borrowing and spending. Hidden debt in the Chinese economy refers to undisclosed or off-balance-sheet liabilities, often within local governments or state-owned enterprises, that are not fully transparent or accounted for in official reports or statements. The IMF and Wall Street banks estimate the total outstanding off-balance-sheet government debt is between $7 trillion and $11 trillion. A significant portion of that debt is at high risk of default.

³

To get non-performing loans off their bank’s balance sheets, they are often bundled and sold to investors. The exact thing that the caused Global Financial Crisis of 2007-2008. That crisis was triggered in part by the bundling of subprime mortgages (high-risk loans given to borrowers with poor credit) into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), which were then sold to investors.

A wave of local bank defaults could spread losses far and wide. It could quickly snowball into a nationwide financial crisis. Credit markets could seize up and banks could start failing across the country.

Moody’s Investors Service lowered its outlook on China’s credit rating to negative from stable. They pointed to the central government needing to bail out local government debt and the country’s slowing economic growth.

China has also experienced a yearlong property bust and dozens of real estate defaults. Local governments and banks are being put at the greatest risk of collapse since they funded the majority of such projects. Local governments, however, are still under pressure to stimulate growth and are still borrowing heavily. Their outstanding debt has doubled since 2018.

Impact on the US

Much of China’s record growth was fueled by debt. With the bill coming due, China’s economy is rapidly sinking, like a house built on sand. With our highly connected world economy, China’s demise can have severe consequences for the US and significantly impact stock-based retirement funds.

There are various ways China’s decline will impact the West. Firstly, reduced demand for goods and services from China directly affects US companies reliant on exports to the country, impacting their revenue streams. Additionally, intricate supply chains involving Chinese components may face disruptions, hampering production capabilities of US firms. Moreover, a slowdown in China’s economy might decrease the demand for commodities, adversely affecting US energy and commodities sectors.

Investor uncertainty fueled by these events can spike market volatility and incite investors to offload stocks, further impacting market stability. Financial institutions with Chinese investments might undergo stress, potentially affecting US financial sectors. Furthermore, the depreciation of the yuan could instigate currency market instability.

As of now, US pension funds, individuals and institutional investors are on the hook for $2.1 trillion in Chinese companies listed on American exchanges. Holders of China’s foreign currency debt are at risk of losing $2.4 trillion.⁴

China’s economic chaos will eventually wash up on our shores. Before it does, it could pay to investigate how to protect the value of your retirement funds. One proven method is shifting assets in a Gold IRA. Contact American Hartford Gold today at 800-462-0071 to learn more.

Notes:
1. https://www.ft.com/content/f144f763-873c-4b4d-99e7-5e71ae07316d
2. https://warontherocks.com/2021/12/could-chinas-massive-public-debt-torpedo-the-global-economy/
3.

4. https://warontherocks.com/2021/12/could-chinas-massive-public-debt-torpedo-the-global-economy/

• 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