Disclosure: Our content does not constitute financial advice. Speak to your financial advisor. We may earn money from companies reviewed. Learn more
Last Updated on: 4th October 2023, 03:00 pm
Autumn is officially upon us. As the leaves are beginning to fall, so too is investor confidence. All around us, macro-level indicators are not looking good. It was reported earlier today that the 10-year Treasury yield, a key barometer of investor confidence, has surged to its highest level since August 15, 2007—right before the global financial crisis.
The latest reactions from credit rating agencies appear to align with investor sentiment. Fitch and Standard and Poor’s have already downgraded the U.S. bond rating from “AAA” to “AA”, and Moody’s is ready to follow suit.
By some reports, Washington is currently headed toward an unsustainable debt crisis unparalleled in modern history. Over the past 30 years, the U.S. federal government raised public debt from $5 trillion to $25 trillion after taking advantage of falling interest rates.
However, mounting debts are now finally coming home to roost. Soon, the U.S. national debt is expected to surpass 200% of the size of the country’s economy. At this point, interest payments alone would consume over a third of all federal tax revenues.
Washington’s spending spree was predicated on interest rates never surpassing 4%. That is, the Congressional Budget Office estimated that continually mounting debts could be serviced as long as the federal government could borrow at a rate of 4% or less—a rate which is already far in the rear-view, with the current 10-year bond at 4.7%.
And with 28 million Americans back on the hook for repaying their student loans, our economic outbreak isn’t bright. Americans currently hold record levels of credit card debt, in addition to other high-interest debts, that are funneling money out of circulation and reducing the discretionary spending of families across the country.
Market Snapshot: October 3, 2023
- Inflation Rate: 3.7%
- Fed Rate: 5.25% to 5.5%
- Gold Price: US$1,825/oz.
- Silver Price: $21.12/oz.
- Bitcoin Price: US$27,347
- Ethereum Price: US$1,649
With debts rising faster than Americans (or their elected representatives) can service them, many are starting to worry. One especially critical voice is Jamie Dimon, the Chairman and CEO of JPMorgan, who foresees rates potentially eclipsing 7%. At present, the Federal Reserve has signalled that they’re ready for a final rate hike before the end of the year, which would bring the federal funds rate up to 5.75%.
As debts rise, consumer confidence falls, and spending is stymied, more and more economists and financial commentators are discussing the mounting prospects of a recession. Although it may still be premature to forecast a recession, it stands to reason that a painful economic slowdown may be imminent.
The good news is that time is on your side. Investors can take action to potentially protect their portfolio by diversifying their holdings in alternative assets that have historically tended to perform well during recessions—notably, bonds and physical assets such as precious metals.
Currently, gold is trading about 6.5-7.5% lower than it was at this time last month. Those interested in taking a position in gold to hedge against recession fears may want to capitalize on discounted prices. To do so, consider opening a low-fee account with one of America’s most trusted gold IRA companies today.