Gold is holding steady Thursday in early morning trading as silver hits a three month high. The U.S. dollar index remains near a four month low as poor U.S. economic data combined with concerns over Greece and European creditors creates uncertainty in global markets. Gold last reported a.m. is $1222.20 and silver is $17.46.
HSBC chief economist Stephen King is warning clients that, “that the world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers.” King further states, “whereas previous recoveries have enabled monetary and fiscal policy makers to replenish their ammunition, this recovery both in the U.S. and elsewhere, has been distinguished by a persistent munitions shortage. This is a major problem.”
King understands that the Fed’s policy of Quantitative Easing has only succeeded in creating massive debt while unemployment remains near record levels and stocks are dangerously overvalued.
Speaking about what events may trigger the next “recession” king says:
Wage growth will hurt corporate earnings and reduce the share of corporate profit contributing to U.S. gross domestic product. In turn, households and business will lose confidence in the economy and the equity bubble will burst with collapsing stock prices.
Non-bank financial systems such as insurance companies and pension funds will increasingly not be able to meet future obligations. This will cause a huge demand for liquid assets, forcing people to rush to sell despite no matching demand, triggering a recession.
King also believes the Fed could cause the next recession by raising interest rates too soon repeating the mistakes made by the ECB in 2011 and the Bank of Japan in 2000.
Global debt is in the area of 200 trillion with about 27 percent of that debt being accumulated since the 2007 financial crisis. The U.S. alone has a national debt of over 18 trillion along with unfunded liabilities of more than 100 trillion. If this sounds like a recipe for disaster, it is. Unbridled debt is deadly.
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