• Almost $1 trillion in corporate debt defaults are predicted by Bank of America
• The bankruptcies are driven by record interest rates and a shrinking economy
• The surge in defaults can bring down stock prices and devalue retirement portfolios

Surging Debt Defaults

The growing threat of corporate debt defaults poses a significant risk to retirement funds. Experts are bracing for a tsunami of defaults as credit conditions tighten and companies struggle to manage heavy debt loads. The impact of rising interest rates and credit downgrades is already being felt. The number of troubled companies facing bankruptcy is swelling. The economic consequences could surpass those of previous financial crises. Fortunately, there are actions that can defend the value of retirement funds.

The credit crunch and impending recession could result in $1 trillion of corporate debt defaults according to Bank of America. They say a 15% corporate default rate is a distinct risk. B of A calculates that even an 8% default rate could translate into $920 billion of losses.¹

US corporate debt defaults in 2023 have already surpassed last year’s totals. Fifty-five American firms have defaulted on their debt so far. That’s a 53% increase from all of 2022. Moody’s Investors Service says global debt defaults could keep surging as financial conditions continue to tighten. The global default rate could reach 13.7%, surpassing the 2008 financial crisis. And Deutsche Bank see defaults hitting 11.3%. That is only slightly lower than the all-time-high seen during the Great Recession.²

³

“It’s safe to bet there will be more defaults,” says Mark Hootnick. He is the co-head of capital transformation and debt advisory at Solomon Partners. Until now, “we’ve been in an environment of incredibly lax credit, where, frankly, companies that shouldn’t be tapping the debt markets have been able to do so without limitations.”⁴

At the moment, troubled companies are being affected. Regional financial institution Silicon Valley Bank, retail chain Bed Bath & Beyond and regional sports network owner Diamond Sports are among the largest bankruptcy filings so far this year, according to S&P Global Market Intelligence. But experts expect even stable companies to run into trouble when it comes time to refinance due to high interest rates.

Causes of Corporate Debt Default

The debt defaults are caused by several factors. Companies are facing uncertain economic conditions and heavy debt loads. Refinancing that debt is becoming more challenging. High interest rates are making new debt very expensive. In addition, banks are tightening credit conditions since the collapse of Silicon Valley Bank. Companies are also facing downgrades to junk credit ratings, resulting in higher borrowing costs.

“Capital is much more expensive now,” said Mohsin Meghji, founding partner of restructuring and advisory firm M3 Partners. “Look at the cost of debt. You could reasonably get debt financing for 4% to 6% at any point on average over the last 15 years. Now that cost of debt has gone up to 9% to 13%.”⁵

Corporations shouldn’t expect debt relief anytime soon. The Federal Reserve indicated at least two more rate hikes this year. They aim to keep raising rates until their 2% inflation target is hit.

NY Fed US Recession Probability Index predicting 68% of recession by April 2024.⁶ Recession risk is fueled by continued rate hikes. The recent banking crisis also increased recession risks. Banks are taking losses on their dropping bond portfolios and steep deposit flight. Bank of America analysts say when the recession arrives doesn’t matter. Even if it doesn’t start until 2024, the default cycle will only be delayed, not canceled.

³

Dangers of Default

Rising corporate debt defaults present a significant risk to the global economy. The impact of rising interest rates is yet to be fully felt. While some companies may be able to navigate through the challenges with debt restructuring, not all will survive.

Corporate debt defaults most often lead to an increased desire to sell shares and a consequential drop in stock prices. The desire to sell is fueled by several reasons. Shareholders lose confidence in the stock as they perceive financial distress or mismanagement. And the indication of higher risk has investors demanding higher returns for holding the stock. This can lead to a decrease in the stock’s price to adjust for the increased risk. Additionally, credit rating downgrades and liquidity concerns add more selling pressure. These negative effects extend beyond the defaulting company. Overall market sentiment may also be impacted, causing broader declines in other companies’ stock prices.

Thus, it can be seen, corporate debt defaults can drive down stock prices. Retirement funds that are composed of securities are vulnerable to significant losses. To protect the value of such funds, their owners can diversify their holdings with safe haven assets. Precious metals such as gold can hold their value as bankruptcies pull down the stock market. A Gold IRA from American Hartford Gold is structured to protect portfolio value in the face of a growing debt crisis. Contact us today at 800-462-0071 to learn more about how to safeguard your future.

Notes:
1. https://markets.businessinsider.com/news/bonds/recession-credit-crunch-us-economy-debt-default-bank-of-america-2023-5?utm_medium=ingest&utm_source=markets
2. https://markets.businessinsider.com/news/bonds/corporate-debt-defaults-recession-credit-crunch-financial-crisis-default-rate-2023-7
3. https://www.reuters.com/markets/long-feared-corporate-debt-woes-start-hit-home-2023-07-18/
4. https://www.cnbc.com/2023/06/24/high-interest-rates-economic-uncertainty-boost-corporate-defaults.html
5. https://www.cnbc.com/2023/06/24/high-interest-rates-economic-uncertainty-boost-corporate-defaults.html
6. https://markets.businessinsider.com/news/bonds/recession-credit-crunch-us-economy-debt-default-bank-of-america-2023-5?utm_medium=ingest&utm_source=markets

• A former CIA advisor predicted that US Dollar hegemony will end on August 22nd
• On that date, the BRICS alliance will announce a rival gold-backed currency
• As the new currency is adopted, analysts predict the value of the dollar will plummet and gold will surge

End Date of US Dollar Supremacy Predicted

Before summer is over, US dollar supremacy will disintegrate. That is, according to James Rickards. He is an investment banker and former CIA and Defense Department advisor.
Rickards predicts that the status of the US dollar as the world’s reserve currency and medium for exchange will formally collapse on August 22nd. On that date, the BRICS alliance will announce the launch of their new currency, signaling the end of the American empire.

Rickards isn’t alone in his assessment. Many analysts have been speculating about a new global currency to challenge the US dollar’s role as the world’s reserve currency. In late March, Former Goldman Sachs chief economist Jim O’Neill said that the US dollar’s dominance is destabilizing global monetary policies. He added that a BRICS currency, challenging the U.S. dollar’s dominance, would bring stability to the global economy.

Reasons for Collapse

Rickards bases this prediction on several factors. One is the weaponization of the dollar against Russia amid the conflict in Ukraine. Other countries saw what happens if they run afoul of US policy. They want to take preemptive measures to avoid the impact of sanctions. By abandoning the dollar, the potency of sanctions is diluted.

A second factor is the United States’ $31 trillion national debt. Economists foresee a time where interest on the astronomical debt consumes the entire budget. The US would enter a ‘doom loop’ of endless borrowing at higher and higher interest rates. With no money to spend, the economy will collapse, and the dollar will become worthless.

And a third, most notable factor, is the BRICS group plan to enter the next phase of dedollarization – the launch of a rival currency.

“On August 22, about two-and-a-half months from today, the most significant development in international finance since 1971 will be unveiled,” Rickards wrote. He cites that date because it is when the BRICS Leaders Summit will unveil plans for substituting the dollar in global trade. Of note, August 22, 1971, was the day the US dropped the gold standard.¹

Rickards believes the rollout of a major new currency could weaken the role of the dollar. The US dollar would be displaced as the dominant trade and reserve currency. This change could occur within just a few years. The currency shift would affect world trade, direct foreign investment and investor portfolios in “dramatic and unforeseen ways.” Rickards warned the currency could set off an “unprecedented geopolitical shockwave.”

Who Are the BRICS?

At its core, the BRICS alliance consists of Brazil, Russia, India, China, and South Africa. Eight other countries have applied for membership. Twelve more have expressed interest in joining the bloc. Of note, Saudi Arabia is one of those countries. Saudi Arabia helped make the US dollar the supreme currency through the petrodollar system. Requiring oil to be traded exclusively in dollars cemented US dominance. With Russia and Saudi Arabia as BRICS members, two of the three largest energy producers with be aligned (the US is the other member of the energy Big Three). The new currency could seize the preeminent role in the energy trade and the benefits that go along with it.

The BRICS countries make up 30 percent of the world’s surface. They produce 50 percent of the globe’s wheat and rice. And they control 15 percent of the planet’s gold reserves. It accounts for 40 percent of the world population. Economically, the BRICS control almost a third of the world’s GDP.

In other words, the BRICS are a substantial and credible threat to Western hegemony. Their new currency has the resources and infrastructure to succeed. And as it is embraced by the globe, it will be able to eventually overthrow the dollar’s preeminence.

Rickards explains that the new currency must offer a safe store of value to be successful. For people to adopt it, the currency should rival the security found in the US bond market. To achieve this credibility, the BRICS are proposing to tie their currency to gold.

He sees “this entire turn of events—introduction of a new gold-backed currency, rapid adoption as a payment currency, and gradual use as a reserve asset currency—will begin on August 22, 2023, after years of development.” The dollar will be effectively removed from a large portion of global trade. Its value will decrease. The effects of which could result in collapsing stock prices, hyperinflation, and a shrinking economy. ²

Gold

The BRICS currency plan could spark a new bull market for gold. The Russian government confirmed the new currency will be backed by gold.

Gold has been playing an outsize role in the dedollarization movement since 2022. Central banks worldwide have been buying gold at a historic pace to diversify their reserves away from the US dollar, as seen below:

³

Analysts see a gold-backed currency as the next natural step in the new currency’s evolution. Many see China’s record gold purchases as an attempt to bring credibility to the yuan.

The global fiat money system could be in for a major disruptive shock. A gold-backed currency may lead to a sharp devaluation of many fiat currencies. As a result, it could catapult up goods prices on those fiat currencies.

The launch of a gold-back BRICS currency could fundamentally shift the entire global economic order. Uncertainty will increase as the dollar loses its dominant role. And assets denominated in dollars, like stocks and bonds, face a major devaluation. Retirement funds that aren’t diversified away from such assets are sitting on huge potential losses. For those who want to secure the value of their portfolios, now is the time to investigate gold. A Gold IRA from American Hartford Gold can protect the value of your funds and reap the rewards of a rising gold market. Learn more before August 22nd arrives. Call us today at 800-462-0071.

Notes:
1. https://mronline.org/2023/06/09/ex-cia-advisor-predicts-date-when-u-s-dollar-hegemony-will-collapse/
2. https://mronline.org/2023/06/09/ex-cia-advisor-predicts-date-when-u-s-dollar-hegemony-will-collapse/
3. https://sophisticatedinvestor.com/wp-content/uploads/2023/07/COMM-central-bank-demand-04062023.png

• Investment guru Jeremy Grantham warns there is a 70% chance of a stock market crash after the ‘superbubble’ bursts
• Stocks will drop to their true value after too much money in the system overinflated prices across sectors
• Precious metals can safeguard portfolio value and position you for post-crash buying opportunities

Superbubble Warning

Legendary investor Jeremy Grantham warns that the current stock market is on the verge of a major crash. According to Grantham, there is a 70% chance of a crash occurring within the next few years. He believes the market is experiencing a “superbubble” on the brink of implosion.¹

But what exactly is a superbubble? A market bubble occurs when prices are too high based on historical metrics. A superbubble takes this concept to an extreme level. It refers to a situation where excessive speculation sends asset prices to multiple times their true value.

Superbubbles have led to catastrophic market crashes in the past. These include the stock market crash of 1929, the 1970s economic downturn, and the dot-com bubble of 2000. The events resulted in drastic drops in stock prices, ranging from 50% to a staggering 90%.²

Reasons for Warning

A combination of factors is fueling this current superbubble. The primary cause was too much money being pumped into the financial system. This abundance of dollars flooded into various asset classes, commodities, bonds, and goods and services. Easy access to fiat currency over the past 15 years, especially since the 2008 financial crisis, created this liquidity. The response to the 2020 pandemic further accelerated this trend. Reckless government spending and central bank printing becoming the norm. As seen in the chart below:

³

Grantham had previously predicted the dot-com crash and the housing bubble implosion. He diagnosed a “superbubble” spanning stocks, housing, and commodities in January 2022. He declared last September that it was likely in its final stages, and a historic crash seemed imminent. The S&P 500 and Nasdaq ended the year deeply in the red — but have rallied 16% and 32% respectively this year. The recent AI-driven surge in the stock market is providing a boost. But Grantham argues that it won’t prevent the superbubble from bursting. It is only delaying the inevitable. He suggests that the S&P 500 could experience a brutal 44% drop from its current level.⁴

Grantham points out that there are striking similarities between the current situation and previous crashes. He thinks conditions resemble the ones in 1929 and 2000. He sees a dangerous mix of overvalued stocks, bonds, and housing, combining with a commodity shock and a hawkish Federal Reserve.

The collapse of a superbubble occurs in several stages. First, there is a setback, followed by a slight rally. Finally, the market reaches its low point as fundamentals break down. The S&P 500 exited the longest bear market since 1948 at the beginning of June. Some analysts, such as those from HSBC and UBS, are already predicting a painful second half of 2023. They see an economic downturn deflating the AI boom and exposing the vulnerabilities of the superbubble. UBS analysts noted equity prices can fall as they confront “slowing growth and stickier inflation.”⁵

Even though the stock market has experienced a rally in recent months, it doesn’t necessarily mean that the bear market is over. History has shown that bear markets can have temporary rallies before experiencing further downside.

How to Prepare

Considering these warnings, it’s crucial to be cautious and prepared for a potential market crash. Grantham himself has bet on bargain assets and positioned against expensive growth stocks. Some analysts see the upcoming downturn as a generational opportunity to make money. But it is vital to preserve your wealth to take advantage of buying opportunities.

In times of market uncertainty, assets like gold have often been considered safe havens. Looking back at previous crashes, gold prices experienced notable increases. That’s because investors sought safe-haven assets. For example, during the crash of 1929, gold prices rose by about 27.5% within a year. Similarly, during the dot-com bubble burst in 2000, gold prices increased by approximately 11%.

Based on his track record, Jeremy Grantham’s warnings should be heeded. Ultimately, the fate of the current superbubble rests on economic conditions, investor sentiment, and market dynamics. As the saying goes, “history doesn’t repeat itself, but it often rhymes.” By learning from past market crashes, you can navigate the uncertain waters and make informed decisions to safeguard your wealth. Now is the time to carefully evaluate your portfolio. Is it diversified and protected against risk and loss? To learn more how a Gold IRA from American Hartford Gold can secure against a bursting bubble, talk to us today at 800-462-0071.

Notes:
1. https://www.businessinsider.in/stock-market/news/the-stock-market-has-70-chance-of-crashing-in-a-few-years-according-to-legendary-investor-jeremy-grantham/articleshow/101492341.cms
2. https://www.moneyshow.com/articles/tradingidea-59462/explained-the-american-economy-is-now-a-super-bubble/#:~:text=A%20superbubble%20is%20when%20asset,due%20to%20extreme%20speculative%20conditions.
3. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
4. https://markets.businessinsider.com/news/stocks/jeremy-grantham-gmo-superbubble-ai-stocks-housing-market-bubble-crash-2023-7
5. https://www.foxbusiness.com/markets/us-stock-market-faces-more-challenges-second-half-2023-ubs-warns

• A Central Bank Digital Currency (CBDC), aka the digital dollar, would be a national currency controlled by the Federal Reserve
• Citing threats to personal and economic freedom, Congress is pushing back against the implementation of a CBDC
• Gold is proving itself to be an effective defense against the threats posed by CBDCs

Recognizing the Central Bank Digital Currency Threat

Congress is on the same page as the American people when it comes to the ‘digital dollar.’ Both view the electronic currency as a pitfall rather than a prize. Elected officials are pushing back against plans for a central bank digital currency (CBDC). They are driven by concerns over privacy and economic freedom.

The Cato Institute think tank surveyed Americans on CBDCs. The survey showed only 16% favor adopting a CBDC while 34% oppose. But that opposition increases after learning about the potential risks of a CBDC, as seen in the chart below.

¹

Contrary to supporting arguments, CBDC is not a just another form of money. A CBDC is a digital national currency. But it is very different from existing digital forms of the US dollar and cryptocurrency. Relying on cryptography to store and exchange value, cryptocurrency is independent from government. The rise of CBDCs could require the end of cash and cryptocurrency.

Unlike cryptocurrency, a CBDC solidifies government control over money and payments. A central bank like the Federal Reserve creates the CBDC. They then handle and control all transactions. By extension, the government can then determine who gets to use money and precisely how they use it. True, paper money is a Federal Reserve liability. But the government can’t control dollar bills once they are in circulation.

A CBDC also unravels the current public-private partnership between regulators and banks. A CBDC can remove banks from the financial system. And when the government is the only bank in the land, getting a loan could become a political as well as an economic decision.

By automatically monitoring transactions, CBDCs are de facto surveillance tools. China is already using their ‘digital yuan’ as a tool to control their population.

Opposition to CBDC

Rep Alex Mooney recently introduced H.R. 3712, the Digital Dollar Pilot Prevention Act. The bill closes the Federal Reserve’s Central Bank Digital Currency pilot program loophole. Rep. Mooney said, “CBDCs would threaten the liberties of law-abiding Americans and are being used by authoritarian countries right now to crack down on dissent.”²

Republicans stated the Federal Reserve needs Congressional approval to issue a CBDC. The pilot program gained attention last year after the Fed partnered with major banks to test potential CBDCs. Now, Republicans want a law to prevent the Fed from issuing a CBDC under the guise of a ‘pilot program.’

The National Association of Federally-Insured Credit Unions (NAFCU) declared support for Rep. Mooney’s bill. NAFCU said the Federal Reserve should halt all studies into CBDCs until there are clear regulatory guidelines. Such guidelines should be written by Congress and stakeholders like banks and credit unions. NAFCU fears a CBDC could upend the payments industry. Critics say a CBDC makes the Federal Reserve both a regulator and a competitor for deposits. Some financial institutions fear a massive bank run as investors convert their deposits to CBDCs.

Governor Ron DeSantis announced legislation in March against CBDCs. The bill prohibits adopting the use of CBDC as money within Florida’s Uniform Commercial Code. DeSantis said, “The Biden administration’s efforts to inject a Centralized Bank Digital Currency is about surveillance and control.”³

Gold to the Rescue

A CBDC amplifies power of the Federal Reserve to an unprecedented level. In the name of stimulating the economy, the Fed could use CBDCs to stop savings and retirement planning. They’d do this with negative interest rates or issuing money that expires if it isn’t spent within a limited amount of time. A CBDC lets the Fed create or remove money from the system. There would be no need for their current ad hoc interest rate hikes to try and tame inflation. With a click, they could simply erase the oversupply of money from your savings.

In contrast, gold stands as a safeguard for personal and financial freedom. Physical gold offers tangible benefits. It is a secure, long-term store of value. Gold provides a hedge against inflation and currency devaluation.

Gold ownership remains confidential, protecting personal privacy. Moreover, gold offers independence from cyber threats and technological failures. Individuals can protect their financial destiny and personal freedom by diversifying with gold. Contact us at 800-462-0071 to learn how a Gold IRA can protect your retirement savings from the dangers of the digital dollar.

Notes:

1. https://www.cato.org/survey-reports/poll-only-16-americans-support-government-issuing-central-bank-digital-currency#68-americans-would-oppose-cbdc-government-could-monitor-what-people-buy
2. https://mooney.house.gov/congressman-mooney-introduces-the-digital-dollar-pilot-prevention-act/
3. https://www.flgov.com/2023/03/20/governor-ron-desantis-announces-legislation-to-protect-floridians-from-a-federally-controlled-central-bank-digital-currency-and-surveillance-state/

• The Federal pause on student loan repayment is coming to an end
• The Supreme Court is deciding the legality of Biden’s loan forgiveness
• Economic hardship caused by renewed payments may be enough to tip the economy into recession

Student Debt Comes Due

America’s higher education bill is coming due, and the economy may pay the price. For more than three years, federal student loan borrowers haven’t had to make monthly payments. Those payments hover between $200 and $300. All told, borrowers are set to resume paying about $10 billion a month. As we speak, the Supreme Court is weighing the merits of Biden’s loan forgiveness. While politicians and borrowers await the Supreme Court’s ruling, analysts fear the economy will suffer, along with retirement funds, no matter what the Court decides.¹

²

Student Debt Paused

In March 2020, President Trump implemented a student-loan payment pause to give relief during the pandemic. Biden has continued to extend the pause. He most recently extended it 60 days after June 30. In other words, 60 days after the Supreme Court issues a final decision on the legality of Biden’s plan to cancel up to $20,000 in student debt. This most recent extension will most likely be the last. The end of the pause was written into the debt ceiling deal with Speaker of the House McCarthy.

Some economists saw the pause as a boon to the economy. The Education Department estimated the pause put $5 billion back in borrowers’ pockets. Money that would have gone to debt payments went into consumer spending instead. Marshall Steinbaum is an economics professor at University of Utah. He said, “it’s pretty clear the payment pause has been very stimulative to the macroeconomy.” Conversely, he followed up by saying the government is going to be put in the position of trying to collect debt that can’t be repaid. And that squeezing borrowers will be bad for the economy. Resulting in what Steinbaum called, “a pretty severe fiscal contraction.”³

Supreme Court Decides

Eight million borrowers stand to receive loan forgiveness. The Supreme Court will issue a decision about the legality of the student debt relief this month. Lawmakers aren’t waiting for that decision. They’ve already passed a bill to overturn Biden’s debt relief and end the payment pause.

⁴

Tipping the Scales into Recession

The economy, while fragile, is recovering from the pandemic. Some analysts think resuming student loan payments may jeopardize that recovery.

Mark Zandi is the Chief Economist at Moody’s Analytics. He said, “In a typical economy, the impact of restarting payments wouldn’t tip the US into recession. But in the current environment with the economy as weak as it is, recession risks as high as they are, a couple of tenths of percent can matter.”⁵

The odds of entering a recession are being debated now. A resilient labor market and strong consumer spending, even after aggressive rate hikes, are giving some hopes of a ‘soft landing.’ Deutsche Bank holds no such hopes. They’ve declared that an economic downturn is 100% inevitable. They base this opinion on a few factors. The short-term benchmark fed funds rate stands at the highest level since 2006. But inflation’s still twice the Fed’s goal. Fed Chairman Jerome Powell warned that more rate hikes will likely be necessary to further cool inflation. Deutsche Bank thinks a recession is needed to finally break ‘sticky’ inflation. Their chief economist stated, “Avoiding a hard landing would be historically unprecedented.” ⁶

Goldman Sachs sees the end of the pause as a break-even situation. If the Court rules in favor of forgiveness, Goldman Sachs estimates $400 billion in loan balances would be erased. If the Court rules against relief, Goldman predicts the decrease in disposable income would create a drag on public spending. Their calculations show a return to loan payments will equal the loss of consumer spending.⁷

Borrowers themselves are much less optimistic. A Credit Karma survey found that 43% of borrowers do not feel financially stable and 21% had no savings. A similar survey found that 53% of borrowers said their financial stability depends on loan forgiveness or the federal forbearance period. 26% were using money that would have gone to loan payments for bills and necessities.⁸

The Federal Reserve Bank of New York found missed debt payments are higher than before the pandemic. This could be a sign of more financial problems for borrowers once the federal forbearance ends.

Economic Impact of Repayment

While general spending may decrease across the board, retailers will be particularly hard hit. UBS and JPMorgan both warn of a coming “ice-age for retail” because it caters to millennials, the largest holders of student loan debt.

The resumption of student loan payments alone won’t crash the economy. But they may be the straw that breaks the camel’s back and pushes the US into a recession. A recession would bring increased unemployment and reduced corporate earnings. Stock prices, and in turn, retirement funds, could drop as a result. Government relief or not, that bill is going to be paid one way or another. Someone else’s education may result in a drop in your retirement savings. To preserve the value of your retirement funds before this happens, investigate the benefits of a Gold IRA. Contact an American Hartford Gold specialist at 800-462-0071 to learn how you can protect your savings.

Notes:

1. https://www.foxbusiness.com/economy/student-loan-repayments-slam-big-name-retailers-fall
2. https://finance.yahoo.com/news/student-loans-how-will-the-restart-in-payments-affect-the-economy-experts-are-split-182305006.html
3. https://www.businessinsider.com/what-will-happen-to-economy-when-student-loan-payments-resume-2023-5
4. https://finance.yahoo.com/news/student-loans-how-will-the-restart-in-payments-affect-the-economy-experts-are-split-182305006.html
5. https://www.businessinsider.com/what-will-happen-to-economy-when-student-loan-payments-resume-2023-5
6. https://www.usatoday.com/story/money/economy/2023/06/15/recession-inevitable-deutsche-bank/70327467007/
7. https://finance.yahoo.com/news/student-loans-how-will-the-restart-in-payments-affect-the-economy-experts-are-split-182305006.html
8. https://finance.yahoo.com/news/student-loans-how-will-the-restart-in-payments-affect-the-economy-experts-are-split-182305006.html