Back just over a decade ago, The Global Financial Crisis of 2008 was in full swing. To combat the devastation caused by the international financial system nearly collapsing, the U.S. Federal Reserve chose to slash American interest rates all the way to zero percent and to print out literally trillions of dollars to grease the system.
The results became readily apparent as an unprecedented 10 year long bull market resulted in every asset class imaginable from stocks and bonds to real estate and cryptocurrencies. Some observers claimed that they went too far in their prescribed cures to save the economy.
Yet now it seems that with another slowdown on the way, several key players at the Federal Reserve feel in retrospect that they did not do enough. A recently released paper from the San Francisco Federal Reserve Bank claims that the previous policy should have focused on negative interest rates (specifically at -.75 percent) in order to engineer a stronger and quicker recovery.
This means that the SF Fed is advocating alienating American savers even further than they did before in order to jump start the financial system. It would create even larger bubbles than the disastrous ones the economy is struggling with now.
Worse still, the San Francisco Fed is not alone in these sentiments. Only last week, the respected St. Louis Federal Reserve Bank President James Bullard claimed that today’s monetary policy is proving to be too restrictive. So he is now out officially touting lowering interest rates as future monetary policy.
Internationally, this monetary policy trend is already in agreement with these rising voices in the Fed. The Bank of Japan and the European Central Bank have been in easing mode until recently, claiming that they would begin to tighten up their policy in 2019. Yet they have now decided to stay neutral and potentially cut rates again still more into negative territory. Meanwhile India and China continue to ease. This graph below shows the long-term global interest rate trend:
And the Federal Reserve now appears to be back on board the preferred global monetary policy trend as they are now softening their rate hike language for the future in the wake of the December rate hike that crushed markets around the U.S. and the globe.
What does this mean for the financial future of the U.S.? Additional interest rate cuts to attempt to cushion the blow of the next global slowdown are already in the works at the important Federal Reserve banks. Several influential members are already out touting negative interest rates in the U.S. It would be the first time that the Feds have actually rolled these out in the United States.
The negative interest rates would be long-term damaging enough economically. Yet according to highly regarded Society Generale Financial Analyst Albert Edwards, the next crisis will see more than just such sub-zero interest rates, it will involve government-mandated helicopter money. As Edwards mentioned in his latest report on the subject:
“As central banks thrash around for new tools, I have long thought the next recession would trigger the adoption of helicopter money and deeply negative Fed Funds. Clients have been skeptical of the latter because of the negative impact on bank margins, but now I am more convinced than ever that we will see negative Fed Funds.”
This trend will only accelerate and be exacerbated by the success of socialist politicians who are vying to gain control of Washington. This would spell still additional government spending for creating jobs, expanding the economy, and providing free universal higher education. They are all noble goals, but hopelessly not affordable ones for a government that is more than $21 trillion in debt.
Is Your Retirement Portfolio Prepared for the Arrival of Negative Interest Rates in the U.S?
The sad truth is that when the important international central banks attempted raising interest rates, the key economies of the world could not handle it. This was while global economies were supposedly roaring too. What will happen when the next recession hits? At the end of the artificially manipulated golden bull market, where will policy makers turn then?
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