From Birch Gold Group
The latest COVID-19 spectacle features a new rise in cases that has generated yet another wave of economic uncertainty in the markets.
According to a CNBC piece, stocks have dropped this week due to concerns over a rise in coronavirus cases and how it may affect the economy.
The recent trend of falling stocks actually started a couple weeks ago on October 12, which you can see on the chart below:
You can also see in the chart how much of a roller-coaster ride that the Dow has taken since August. As usual, since this is an election year, mainstream media coverage is driving at least some of the uncertainty.
But some of the uncertainty also seems to come from local governments’ response to the latest rise in cases. According to the same CNBC piece:
The recent uptick in Covid cases has led some countries to reinstate certain social distancing measures. In the U.S., the state of Illinois has ordered Chicago to shut down indoor dining. In Europe, German officials agreed to a four-week partial lockdown, while the French government imposed new nationwide restrictions until Dec. 1.
“I think there’s going to be a call for lockdowns the likes of which we’ve seen in Chicago,” CNBC’s Jim Cramer said Wednesday.
That’s where we are today. But after election day, the coronavirus plus at least three other factors could come together to create even more uncertainty.
Fed, Deficit & Unemployment Add to Potential Post-Election Chaos
Federal Reserve officials have been pressing Congress to provide more fiscal help to the U.S. economy, and with good reason: The central bank is running out of ways it can help.
And Congress delaying CARES-related stimulus talks until after the election might also contribute to the uncertainty. But according to the same article: “Chairman Jerome Powell and other officials rarely miss an opportunity to egg on Congress for more aid.”
That sure seems like politicians could be playing political games rather than looking for solutions to improve the economic wellbeing of the country.
And after December, unless new stimulus is issued, 13.5 million people will lose certain unemployment benefits mandated by the CARES Act.
If consumers don’t even have the money to spend on necessary items, even big retailers like Amazon could take a hit.
But while response to rising coronavirus cases continues, all of this monetary stimulus is brewing another potential post-election catastrophe — a major deficit crisis.
According to Agora Financial, “The official budget deficit totaled $3.1 trillion — ‘more than triple last year’s shortfall of $984 billion and double the previous record of $1.4 trillion in 2009.'”
You can see how 2020’s budget deficit stacks up against previous years in the chart below, and it doesn’t look good at all:
Jim Rickards thinks that the debt-to-GDP ratio “will soon reach 135%,” and ended his dire outlook with the following potential outcome:
The only ways out of this debt death spiral are default, inflation or confiscatory tax rates that hurt growth even more. In anticipation of these outcomes, citizens spend less and save more. That kills consumption and growth. In short, Congress will not be able to borrow and spend their way out of the new depression.
No matter how you look at it, government stimulus to the coronavirus seems to have created enough economic uncertainty to last well into 2021.
Gold and Silver Have Never Looked Better
Jim Rickards lent his insight on what he thinks is the Fed’s need to keep lending rates low for quite a while, stating one thing as “certain”:
That will destroy traditional fixed-income investments. The institutional investors who rely on those assets the most — pension funds, insurance companies, university endowments — will inevitably turn to gold as an alternative.
If institutional investors will eventually turn to gold, then now is a good time for you to consider whether or not following their lead would be a good idea.
Holding assets such as physical gold and silver can help provide a hedge against uncertain economic conditions.