Mervyn King’s Crisis Wake Up Call!

The American investor appears to be in the thralls of a catatonic stupor, after being bombarded incessantly by news stories talking about the soon-to-come China trade deal, the strong dollar, and the growing U.S. economy.  Meanwhile, the Fed is battling to save at least one arrow in their quiver, by holding off as long as possible between interest rate decreases. In spite of that, President Trump wants zero interest rates as quickly as possible, because any interest results in a faster-growing national debt and lower interest rates foster increased spending, which in turn ‘fuels the economy.’ All of these things allow investors to believe that the stock market is simply taking a well-deserved pause from its breakneck race to new highs. And while there was a great deal of honest economic discussion and evaluation at the International Monetary Fund’s (IMF) meeting last week in Washington D.C., it was Mervyn King, former governor of the Bank of England, who truly focused the spotlight on the most important and pressing economic conditions.

Utilizing his experience as a policymaker, King attempted to wake up current officials, by suggesting they ‘escape’ old ideas that have put the globe at risk. Following numerous IMF closed-door sessions throughout the week where, among other things, previously projected global growth forecasts had been slashed, due to the ongoing U.S./China trade standoff. The meetings further suggested that far more dire consequences would be realized and in rather short order if the two parties failed to come to terms. In a public speech, at the end of the week’s IMF gathering, King announced that ‘Another economic and financial crisis would be devastating to the legitimacy of a democratic market system. By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe we are sleepwalking toward that crisis.’

Specifically, King said that there are two major policy areas where there appears to be an intellectual and political unwillingness to face the facts and challenge conventional wisdom. First, policymakers are unwilling to acknowledge that the global economy has entered a period of ‘secular stagnation.’ That’s a term used by former Treasury Secretary Larry Summers to describe an increase in savings and reduction in investments, which reduces inflationary pressure and interest rates. The action is beneficial during inflationary times but can be detrimental in recessionary periods. The second policy problem centers on the central bank’s belief in ‘tweaking’ interest rates. He insists that a much deeper reform is needed. ‘To escape permanently from a low growth trap involves a reallocation of resources from one component of demand to another, from one sector to another, and from one firm to another…The answer goes well beyond monetary and physical policies to include exchange rates, supply-side reforms, and measures to correct unsustainable national saving rates.’ Without such dramatic corrections, he suggests we’re on a collision course with an economic crisis once again.

Hopefully, elected officials will awaken from their ‘sleepwalking’ stupors in time to respond, but savvy investors should read the writing on the wall and take their own immediate action, to at least subsidize government/banking action or inaction. History clearly shows physical precious metals to be one of the best means to protect assets, families, and legacies.

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.