Why the drastic swing in metals, stocks, and dollar?
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Anyway; I received an email this evening asking my opinion on why the sharp/drastic rise in silver, gold, and the stock market; and the drop in the dollar. That is a very good question. We are use to a normal day being the metals, stock market, oil, and the dollar going up or down a little bit at a time. We're also use to seeing one or two things having a drastic day, such as the DJIA dropping or rising 150-200 points, but most other things staying pretty stable. But why did the metals all go up, all the market exchanges went up, and the dollar took a dump? And why was it so drastic.
In my opinion, it's simply a preview of "Things to come". Investors are quite nervous. But, as most investors are, they are quite greedy too. Gone are the days of buying a stock and holding it for weeks or months. In today's "instant" society, stocks, bonds, commodities, futures, etc. are not only traded instantly, they are traded numerous times per day, per fund or person. Investors are getting nervous. Normally, people put money into silver and gold as a "Safe" place to hold their cash. If stocks are going down and currencies/bonds aren't making money, silver and gold can preserve their money until the turnaround. The problem is, because trading in the market and currencies have become so instant, a lot of investors don't have the time to put their assets in silver and gold. Silver and Gold will be more for longer terms. Not the long terms of years like our parents and grandparents dealt with in terms of investing; but in weeks and months. So, when the stocks start really crashing, and the currencies like the dollar isn't trusted, a lot of money is going to get transferred into silver and gold.
So, how does that play into what happened today with the quick upswing in metals, stocks, and the drop in the dollar. Well, the forecast by many, was that the Federal Reserve and the central banks were going to have finally start raising rates. This would raise the interest rates on loaning money between banks; international loans; private loans; etc. With the dollar still being the "Reserve Currency", people have been leaning towards the US dollar over the last couple weeks in the belief that if interest rates rose, they could profit off of a much stronger dollar. Well, the fed is leaning towards a much slower and easier rate hike. That had people scrambling away from the dollar and back into stocks, silver, gold, and other commodities. This spike however will most likely correct itself again in a day or two.
The reason I said this is a preview of things to come, is because I believe certain things must happen in the near future. 1st; rates will have to go up. If it doesn't, there will be massive inflation. Could lead to hyper-inflation. The dollar getting stronger, isn't necessarily a good thing. Yes, it's great if you're an American going on vacation to Europe or Asia, but that's all. For everyone else, it means the cost of goods are going to rise. There is also other good news for rates going up. It also means that private investing rates will go up. Bank accounts could actually see over 1% interest again. CD's could get back to the 3-4% rate. People would have a reason to put their money into banks. The banks in turn can loan it out. Remember; there will ALWAYS be a need to borrow and loan money. But when you make loans at 2% for a home, that means you have savings accounts, CD's, etc. at 0.04%. So no one is putting money into financial institutions and the institutions aren't loaning and people aren't borrowing.
Now; assuming I'm correct and the rates finally do go up; what happens next. In a normal economy; say 12-20 years ago; it does what I mentioned previously. Load rates go up, but so do savings rates. Money gets shifted all over. Economies grow. Unemployment goes down. Wages go up. And so on. (Contrary to what some may believe, a good economy with home loan rates of 4-5% is better than a dead economy with home loan rates at 2%. The 4-5% economy will create more loans, more jobs, more movement of money. HERE'S THE PROBLEM!!!! 12-20 years ago, the United States wasn't $18 TRILLION dollars in debt. And if the rates go up, the interest on the US Debt goes up. The US can't afford the debt they have at today's rates; let alone if the rates actually go up. Unlike a mortgage, the US debt isn't a "Fixed Rate" debt. It's like a credit card. It's a revolving debt and it's always changing. (No, they can't get a consolidation loan). I guess they could..... Does anyone know of anyone who will loan the USA $18 TRILLION DOLLARS????
Anyway, it's not even the actual number of $18 Trillion. It's the relationship between the debt and the GDP. (Gross Domestic Product). Below is a graph. The only times that there was a major swing in percentage of debt to GDP, was during the Civil War, WWI, The Great Depression, WWII, and a bump in the 1980's-1990's. These were all mainly due to military growth/war. This is not necessarily a bad thing. The government needs to have debt. It creates jobs, redistributes wealth, (Without being a welfare type handout), it sets up for individual prosperity, which in turn lowers the debt due to taxing and so on. Yes, trickle down economics actually does have some truth to it. Don't listen to the rhetoric. Look at the chart yourself. If you look at the graph, after each high spike of DEBT vs GDP, there was a major reduction in debt over the next few decades. So the debt isn't the problem. Unfortunately, after the 1980-1990's debt because of military expansion, as normal, the debt did indeed start coming down pretty quickly. During the Clinton era, the USA was back to a balanced budget and things were looking good. Unfortunately, we didn't get enough time to get back down. We needed more debt for things like the Hurrican Katrina and the 9-11 issues. Which are still lingering. If you look at the chart, the only other time the inflation rate rose this quickly, as it has over the last 6 years (DOUBLING OUR DEBT), was at the beginning of all 4 previous major conflicts. Civil War, WWI, Great Depression, and WWII. The 1980-1990 debt was gradual. But not this one.
Because of this major debt, and no plan (At least over the next 2-3 years) on how to reign it in, there isn't much faith in the dollar. There's even a number of countries, including allies of the USA, who are discussing trying to eliminate the dollar as the world's reserve currency. What's going to happen is; the stock markets need a correction. 2008 was a correction. Unfortunately, the economy wasn't allowed to evolve normally allowing for the correction. The government didn't let certain companies and banks fail. (LIKE THEY SHOULD HAVE). So instead of allowing for an economic correction, the government tried to bail it out. You can't do that. They know this, but that doesn't get them votes. So now, there will be another correction. This time however, the government's not going to be able to bail everyone out. The Dow will drop back towards 12-13K. But because the dollar isn't going to be trusted for the near future, silver and gold and some other commodities are going to go up considerably. This includes oil. If the government would have controlled the correction of 2008, we wouldn't be in this position. Yes, that meant letting GM go under. It meant letting some banks go under. Guess what??? The businesses would have be absorbed by competitors. Very few jobs would have been lost. Any losses from banks going under; would have been cheaper for the FDIC to pay off the depositors than to bail out the bank. Even if some of the banks and businesses paid back the bailout.... that's NOT the issue. The issue is; just like NATURE requires the occasional forest fire to clear out the dead under growth and produce a more healthy forest, so do economic corrections. When the government tries to STOP a natural forest fire because a few idiots decided to build houses there, they AREN'T HELPING NATURE. They're hurting it by not allowing it to naturally correct itself. Well, they've done the same exact thing with the economy. They didn't allow it to correct itself. They tried to put out the fire prematurely instead of letting it burn out the old undergrowth naturally. Now, there's going to be another fire. But this one is going to be BIGGER and BADDER. And they aren't going to be able to put it out so simply.
CYA: SE:
Android App download link:
https://apps.appypie.com/media/appfile/97679f467564.apk
Anyway; I received an email this evening asking my opinion on why the sharp/drastic rise in silver, gold, and the stock market; and the drop in the dollar. That is a very good question. We are use to a normal day being the metals, stock market, oil, and the dollar going up or down a little bit at a time. We're also use to seeing one or two things having a drastic day, such as the DJIA dropping or rising 150-200 points, but most other things staying pretty stable. But why did the metals all go up, all the market exchanges went up, and the dollar took a dump? And why was it so drastic.
In my opinion, it's simply a preview of "Things to come". Investors are quite nervous. But, as most investors are, they are quite greedy too. Gone are the days of buying a stock and holding it for weeks or months. In today's "instant" society, stocks, bonds, commodities, futures, etc. are not only traded instantly, they are traded numerous times per day, per fund or person. Investors are getting nervous. Normally, people put money into silver and gold as a "Safe" place to hold their cash. If stocks are going down and currencies/bonds aren't making money, silver and gold can preserve their money until the turnaround. The problem is, because trading in the market and currencies have become so instant, a lot of investors don't have the time to put their assets in silver and gold. Silver and Gold will be more for longer terms. Not the long terms of years like our parents and grandparents dealt with in terms of investing; but in weeks and months. So, when the stocks start really crashing, and the currencies like the dollar isn't trusted, a lot of money is going to get transferred into silver and gold.
So, how does that play into what happened today with the quick upswing in metals, stocks, and the drop in the dollar. Well, the forecast by many, was that the Federal Reserve and the central banks were going to have finally start raising rates. This would raise the interest rates on loaning money between banks; international loans; private loans; etc. With the dollar still being the "Reserve Currency", people have been leaning towards the US dollar over the last couple weeks in the belief that if interest rates rose, they could profit off of a much stronger dollar. Well, the fed is leaning towards a much slower and easier rate hike. That had people scrambling away from the dollar and back into stocks, silver, gold, and other commodities. This spike however will most likely correct itself again in a day or two.
The reason I said this is a preview of things to come, is because I believe certain things must happen in the near future. 1st; rates will have to go up. If it doesn't, there will be massive inflation. Could lead to hyper-inflation. The dollar getting stronger, isn't necessarily a good thing. Yes, it's great if you're an American going on vacation to Europe or Asia, but that's all. For everyone else, it means the cost of goods are going to rise. There is also other good news for rates going up. It also means that private investing rates will go up. Bank accounts could actually see over 1% interest again. CD's could get back to the 3-4% rate. People would have a reason to put their money into banks. The banks in turn can loan it out. Remember; there will ALWAYS be a need to borrow and loan money. But when you make loans at 2% for a home, that means you have savings accounts, CD's, etc. at 0.04%. So no one is putting money into financial institutions and the institutions aren't loaning and people aren't borrowing.
Now; assuming I'm correct and the rates finally do go up; what happens next. In a normal economy; say 12-20 years ago; it does what I mentioned previously. Load rates go up, but so do savings rates. Money gets shifted all over. Economies grow. Unemployment goes down. Wages go up. And so on. (Contrary to what some may believe, a good economy with home loan rates of 4-5% is better than a dead economy with home loan rates at 2%. The 4-5% economy will create more loans, more jobs, more movement of money. HERE'S THE PROBLEM!!!! 12-20 years ago, the United States wasn't $18 TRILLION dollars in debt. And if the rates go up, the interest on the US Debt goes up. The US can't afford the debt they have at today's rates; let alone if the rates actually go up. Unlike a mortgage, the US debt isn't a "Fixed Rate" debt. It's like a credit card. It's a revolving debt and it's always changing. (No, they can't get a consolidation loan). I guess they could..... Does anyone know of anyone who will loan the USA $18 TRILLION DOLLARS????
Anyway, it's not even the actual number of $18 Trillion. It's the relationship between the debt and the GDP. (Gross Domestic Product). Below is a graph. The only times that there was a major swing in percentage of debt to GDP, was during the Civil War, WWI, The Great Depression, WWII, and a bump in the 1980's-1990's. These were all mainly due to military growth/war. This is not necessarily a bad thing. The government needs to have debt. It creates jobs, redistributes wealth, (Without being a welfare type handout), it sets up for individual prosperity, which in turn lowers the debt due to taxing and so on. Yes, trickle down economics actually does have some truth to it. Don't listen to the rhetoric. Look at the chart yourself. If you look at the graph, after each high spike of DEBT vs GDP, there was a major reduction in debt over the next few decades. So the debt isn't the problem. Unfortunately, after the 1980-1990's debt because of military expansion, as normal, the debt did indeed start coming down pretty quickly. During the Clinton era, the USA was back to a balanced budget and things were looking good. Unfortunately, we didn't get enough time to get back down. We needed more debt for things like the Hurrican Katrina and the 9-11 issues. Which are still lingering. If you look at the chart, the only other time the inflation rate rose this quickly, as it has over the last 6 years (DOUBLING OUR DEBT), was at the beginning of all 4 previous major conflicts. Civil War, WWI, Great Depression, and WWII. The 1980-1990 debt was gradual. But not this one.
Because of this major debt, and no plan (At least over the next 2-3 years) on how to reign it in, there isn't much faith in the dollar. There's even a number of countries, including allies of the USA, who are discussing trying to eliminate the dollar as the world's reserve currency. What's going to happen is; the stock markets need a correction. 2008 was a correction. Unfortunately, the economy wasn't allowed to evolve normally allowing for the correction. The government didn't let certain companies and banks fail. (LIKE THEY SHOULD HAVE). So instead of allowing for an economic correction, the government tried to bail it out. You can't do that. They know this, but that doesn't get them votes. So now, there will be another correction. This time however, the government's not going to be able to bail everyone out. The Dow will drop back towards 12-13K. But because the dollar isn't going to be trusted for the near future, silver and gold and some other commodities are going to go up considerably. This includes oil. If the government would have controlled the correction of 2008, we wouldn't be in this position. Yes, that meant letting GM go under. It meant letting some banks go under. Guess what??? The businesses would have be absorbed by competitors. Very few jobs would have been lost. Any losses from banks going under; would have been cheaper for the FDIC to pay off the depositors than to bail out the bank. Even if some of the banks and businesses paid back the bailout.... that's NOT the issue. The issue is; just like NATURE requires the occasional forest fire to clear out the dead under growth and produce a more healthy forest, so do economic corrections. When the government tries to STOP a natural forest fire because a few idiots decided to build houses there, they AREN'T HELPING NATURE. They're hurting it by not allowing it to naturally correct itself. Well, they've done the same exact thing with the economy. They didn't allow it to correct itself. They tried to put out the fire prematurely instead of letting it burn out the old undergrowth naturally. Now, there's going to be another fire. But this one is going to be BIGGER and BADDER. And they aren't going to be able to put it out so simply.
CYA: SE:
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