A change in monetary, fiscal, and regulatory policy is necessary to beat back the forces of recession and deflation. If the messages of falling gold prices and falling interest rates are not enough to gain the attention of policy makers, I suspect that the specter of future falling stock prices throughout the world will be. That is what is in store for us if the recessionary/deflationary bias in the world economy that gold and bonds are signaling, reasserts itself.
The above are edited excerpts from an article* by Paul Nathan (paulnathan.biz) as posted on SeekingAlpha.com under the title What Falling Interest Rates And Falling Gold Prices Have In Common.
The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.
Nathan goes on to say in further edited excerpts:
Central bankers and government leaders should take notice..[that] the market is warning central banks that monetary policy is too tight. In spite of all their efforts, money is not easy to come by, it’s difficult to get. The increase in money supply and the velocity of money, both of which are turning lower, testify to this fact. So does the fact that it’s difficult to find a job, get a loan, make a return on an investment, or expand a business.
Political leaders that claim that they are doing everything in their power to make things better have only made things worse. They have:
- increased regulations,
- increased taxes and fees,
- fostered confusion, and
- instituted spending programs that can only be described as fiscally irresponsible.
It should be obvious that the present policies are not working as we see unemployment rates rise in Germany and France. Here in the United States the only reason the unemployment rate is as “low” as it is, is not due to anything government has done, but due to the private sectors efforts in the energy sector that created the energy boom. Without the additional employment created in the energy sector, unemployment would be substantially higher than it is today…
If gold and interest rates continue to fall they will likely be signaling a possible slowdown in both growth and inflation once again in the second half of the year — the exact opposite of what I expected at the beginning of the year. The boomlet we’re experiencing today may be ending sooner than anyone expected. For sure, this is NOT what the Fed, the stock market, or most economists are expecting.
This can all change of course. Nothing is written in stone. New factors can intercede and change a trend-in-the-making, on a dime. Geopolitical events, a financial crisis, currency movements, etc, all have the potential of affecting the direction of markets.
The move down in gold and interest rates can’t be taken lightly. If the trend doesn’t change by July, I would say we are in for a distinct economic slowdown in the second half of the year rather than the rebound that had been forming.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Let me explain. Read More »