Stagflation! What’s Now In Store for Our Economy?

Stagflation has been rearing its ugly head lately. In a stagflation-ravaged economy, costs tend to rise, but actual growth becomes inhibited. Back in April, Jim Paulsen, chief investment strategist and economist at Wells Capital Management, wrote in a report to his clients, “While the U.S. is not facing runaway inflation, the concept of stagflation… has become much more noticeable.”
 
We experienced stagflation in the 1970s when Fed Chair Paul Volcker pushed the economy into recession by raising interest rates. Now financial experts continue to admonish that the U.S. is due for another bout with recession.
 
In a TV interview with CNBC on Wednesday, October 19, 2016, Hayman Capital Management founder Kyle Bass observed that “2017 is the year of increasing inflation and the economy lagging….” As evidence for his claim, Bass cites rising consumer prices along with climbing wages and real estate prices.
 
By far, though, the most insightful observer of the effects of stagflation has been Harvard economist and former Secretary of the Treasury Lawrence Summers. In a February 16 article in Foreign Affairs republished on his website, Summers mentions that had the Congressional Budget Office’s August 2009 prediction for the U.S. economy been correct, our gross domestic product (GDP) would be $1.3 trillion higher than it is today.
 
Summers goes on to explain that the concept of secular stagnation was first articulated in the 1930s by the economist Alvin Hansen. According to this concept, industrial economies encounter an “imbalance” that arises from an increasing tendency to save and a decreasing tendency to invest.
 
As a result, excessive saving retards demand and reduces growth and inflation. And this imbalance holds back real interest rates. In such an economic environment, any discernible growth, then, stems from hazardous levels of borrowing. The U.S. saw the fallout from unleashed borrowing in the housing bubble that gave rise to the Great Recession.
 
Once more, we find ourselves stuck with lagging interest rates. Here in the States, we’re strapped with a yield of less than 2% on a ten-year government bond. In Europe and Japan, it’s even worse.
 
What can one say when Bill Gross of Janus Capital Group, Inc. declares that bonds “aren’t worth the risk”?
 
Make no mistake. It’s not simply an offhand remark when the Bond King says “I don’t like most stocks, but I like gold.”
 
Stagflation has effectively arrested our economy’s continued growth. If you’re looking to build personal wealth, stocking up on paper assets like stocks and bonds, and failing to hedge with physical gold, is not a wise strategy.
 
Doesn’t it make sense to pick up some physical gold during the current market correction?
 
For more information, call 800-777-6177 now, and ask to speak to a Fortress Gold Group representative.

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