Big Changes Are Coming to Our Economy... Are You Prepared?
By Sean Goldsmith
Saturday, March 7, 2015
Please Enable Images to See this Today, another warning on why you should own some gold…
The global currency war isn't a foreign topic. Central banks around the world are cutting interest rates in a race to debase their currencies. Almost every major currency is plummeting versus the dollar.
If you're curious what a debased currency looks like, see the chart below, which shows the euro-to-dollar ratio…
Please Enable Images to See this
Please Enable Images to See this The euro hit its lowest level since 2003 this week, falling to less than 1.10 against the dollar.
We won't go into the finer details of the currency wars today. But understand this: Things are just getting started…
India surprised the market Tuesday with its second interest-rate cut in two months. The Reserve Bank of India ("RBI") cut the benchmark interest rate from 7.75% to 7.5%.
RBI Governor Raghuram Rajan explained his reasoning for the cut before the bank's April meeting…
The still-weak state of certain sectors of the economy as well as the global trend toward easing suggest that any policy action should be anticipatory.
In other words, everybody else is doing it… so why don't we?
Following India's move, Poland's central bank cut its benchmark interest rate from 2% to a record-low 1.5%. (The market was expecting 1.75%.)
To date this year, 21 central banks have cut interest rates. Some have cut rates multiple times… Denmark cut interest rates an astounding four times this year (trying to maintain its euro peg after the European Central Bank announced quantitative easing).
Albania
European Central Bank
Romania#
Australia
India#
Russia
Botswana
Indonesia
Singapore
Canada
Israel
Sweden
China#
Pakistan
Switzerland
Denmark^
Peru
Turkey
Egypt
Poland
Uzbekistan
# Two rate cuts
^ Four rate cuts
This rate-cutting frenzy is bad news for anyone living on a fixed income.
About one-third of European sovereign debt now has a negative yield. There is now $3 trillion in government bonds with negative nominal interest rates worldwide.
Today, the demand for "safe" government bonds is greater than the supply (hence the negative yields).
But how safe is locking your capital into a guaranteed loss (the so-called "return-free risk")?
Please Enable Images to See this There's always the possibility – or rather, the likelihood – that new money will push bond yields further negative. In that case, investors buying bonds at today's negative rates would profit as bond prices continue their relentless march upward.
We'd rather own gold – a much safer currency of which central banks can't simply print more. Non-believers in gold point to its zero yield. It's true that gold yields 0%. But 0% is better than negative rates.
