• 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

• 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

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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