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What is the likelihood of a Double-Dip Recession?
Nearly all the commentary we have heard on this
question says the same. "Yes, the prospects of a Double-Dip recession
have increased but it remains unlikely that it will happen". We feel
that there may be just a hint of self-interest in these answers. The
shockwaves that will reverberate should some say it is going to happen, or if
the news confirmed that it had started would rattle the markets hugely.
Despite the ability to disseminate news instantly, we have to wait a month
before reliable figures are published to confirm one way or the other that
this is or is not the case. On the other hand a recession or depression has
become a state of mind too. If consumers believe it is coming, it will come
and at the moment that is the mood out there among the consumer. He is saving
because he could become a victim if he hasn't cut debt and save. No doubt the
sight of a neighbor being evicted stimulates thrifty habits. And that's what
is coming from consumers now. They aren't spending. It's becoming a financial
winter out there and we believe consumers minds are bringing on the recession
again. Surely that's bad for gold?
What is happening in the Global Economy?
As we now live in a global economy national economic
climates heavily impact the global scene and particularly the U.S. national
scene. Look from outside in as a foreign investor that doesn't have to invest
there, what would you do? Well China is right there and this is what they're
doing:
- U.S. Treasury data show that China has cut its holdings of Treasury
debt by roughly $100 billion over the past year to $844 billion.
Discreetly, the main surplus countries, China, Japan, and the U.K.
[Mid-East petro-dollars] have been slowing down in the last two years.
In August they bought the least amount of U.S. debt this year.
- China is diversifying as it continues to hold down its currency,
buying record amounts of Japanese, Korean, Thai, and no doubt Latin
American bonds, in place of U.S. Treasuries. It is also 'limit' buying
gold in quantity through the London bullion banks, buying scrap ores or
buying direct from miners such as Coeur d'Alene in Alaska. Excessive
Dollar holdings are also going to more hard assets such as strategic
reserves of oil and coal, and probably industrial metals. State entities
are buying up natural gas reserves in Africa and Central Asia, or oil
sands in Canada, or timber in Guyana.
There are considerably more activities by countries and
institutions that are Dollar diversifying that we don't have enough room to
describe here, but it all leads to an expectation of a falling Dollar. The
trouble is that so many dependant currencies will try to fall with it to
protect their trade relationship [watch the Yen] that the fall will not be
easily apparent in exchange rates, but in the falling buying power of the
Dollar. When we describe this we are not talking about a change in exchange
rates but changes that will bring about structural changes in the current
monetary system based on the U.S. Dollar.
Then what?
Don't think for a moment that the U.S. will follow the
path of Japan. Deflation is not an option for the consumer driven economy of
the U.S. We believe that the path Mr. Bernanke has chosen for the U.S. has to
be followed all the way. Today, he stated that he was ready to act to defeat
deflation, should it arrive. Quantitative Easing will lead to inflation.
Inflation is an acceptable alternative to deflation, because it is easier to
cure inflation than deflation. But the government of the U.S. is likely to
wait until deflation is biting before they act, then
the stimuli will have to be heavy as will consequential inflation. This
prospect is bringing tremendous doubts about the value of Dollar and other
currencies.
U.S. monetary authorities will place U.S. interests
well ahead of any others, so don't expect a globally coordinated policy against
deflation. It will be every nation for himself.
The surplus nations will, as they are doing now, follow
the defensive measures described above. But it may take weeks before this is
accepted. So now is the time to act.
And Gold?
The big picture for the long-term could not be better
for gold, than it is now. Gold has proved capable of performing well in
deflation, in uncertainty, in fear. Internationally it is liquid in all parts
of the world. It is internationally acceptable cash. More than that, it is an
effective counter to the devaluing of currencies through quantitative easing
or currency devaluations.
Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
Is your wealth effectively structured to avoid the
pernicious effects of the regulatory climate that we have moved into? It
should be and we can help you to do so professionally and within the law.
Please contact us for any help regarding this at: gold-authenticmoney@iafrica.com.
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