The United States’ DELEVERAGING

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The current state of the United States economy is called “deleveraging.” As we as a nation traverse a series of severe economic events, namely, as a result of an unexpected worldwide Covid-19 virus pandemic, it is essential to note this position is also a result of repeated economic cycles. There are several periods in history in which the US was forced to deleverage. To realize the US’s current financial state, it helps to understand the inner workings of our economic system.

 

Forces That Drive Our Economy 

Our economic system is logical and based on common sense principles, but not all Americans realize how our cyclical financial system performs. The economic cycle is generally straightforward, but impactful factors can change what history has usually proven to be true. Ray Dalio, Author, Entrepreneur, and Hedge Fund Manager, shared a video entitled How The Economic Machine Works. He states, “the economy works like a simple machine, but many people don’t understand it or don’t agree on how it works…” Dalio believes in an economic template for dealing with the global financial crisis.

Oxford Languages defines economy as: “the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.” Dalio describes the economy as transactions generated by human nature. He says three primary forces drive our economy: 1) productivity growth, 2) short-term debt cycle, and 3) long-term debt cycle. He believes buyer and seller “transactions” are the foundation of our economic system.

How Transactions Are Constructed 

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The economy is based on buyer and seller transactions performed with money or credit, usually for goods, services, or financial assets. When you add credit to money spent, the result is total spending, which drives our economy. There are markets for everything we buy and sell. Therefore, the economy is made up of all transactions in all markets. Dalio says the largest buyers and sellers include the central government and the central bank. These entities have a great deal of control in tax collecting, spending money, and controlling cash and credit, making up the economy. Keep in mind that the central banks have control of interest rates and the printing of money along with the credit.

The Key Role of Credit 

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Most people do not realize that credit is one of the most critical yet volatile factors of the economy. Lenders and borrowers are behind the credit cycle in which principal and interest payments are significant. For example, once the credit is created in the form of a loan, it is called a “debt.” While Debt is considered a liability to a borrower, it is viewed as an asset to a lender. Credit transactions result in spending—which we know drives the economy. Credit patterns ultimately lead to these economic cycles: productivity growth, short-term Debt, and long-term Debt. The periods for debt swings generally range from 5-8 years and 75-100 years. Dalio explains that an economy without credit (Debt) is not feasible and that borrowing helps with spending and allows time for advancing productivity, thus the cycles.

 

Pros and Cons of Credit 

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The amount of credit in the economy far outweighs the actual amount of money. Credit allows income to rise and increase spending, creating growth, while borrowing creates cycles. Dalio states, “In an economy without credit, the only way to increase spending is to produce more – but in an economy, with confidence, you can increase credit by borrowing. “If borrowing money is done with purpose, it can help people and the economy (as long as it can be paid back). A pattern is created called a short-term debt cycle. Here we see expansion–increased spending fueled by credit, rising prices, leading to inflation. Then the central bank raises interest rates, so less borrowing is possible. Spending slows, incomes drop, and prices go down, which ultimately leads to a recession. When the central bank lowers interest rates, debts are reduced, and borrowing picks up. More simply, credit provides for economic expansion.A long-term debt cycle takes place when debts rise faster than incomes. Lenders continue to lend when revenues are rising, assets become more valuable, and the stock market increases. Borrowing continues leading to a bubble. Prices continue to go up and lead to more massive debts over time. Finally, people stop spending, incomes, and borrowing decreases, and liabilities increase. Debt burden becomes too high (as we experienced in both 2008 and 1929). Dalio states, “The economy begins “deleveraging” – people cut spending, incomes fall, credit disappears, assets prices drop, banks get squeezed, the stock market crashes, social tension rises…” He says borrowers can no longer borrow enough, and they rush to sell assets. Spending falls, real estate markets fall, resulting in “less spending, less income, less wealth, less credit, and less borrowing – a vicious cycle.” At this point, the only reason we are in a recession is that the interest rates are already at their lowest point (the 1930s and 2008). We find ourselves in a non-credit worthy economy.

What Happens in Deleveraging

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According to Dalio, when deleveraging occurs, the steps to resolve high debt burdens require the government to:

  • Cut Spending — people businesses, and governments cut their spending
  • Reduce Debt — debts are reduced through defaults and restructuring
  • Redistribute Wealth — wealth is redistributed from the haves to the have-nots
  • Print Money — the Central Banks print new money
  • Create Stimulus Plans – the government offers stimulus funds to the people

Deleveraging has occurred in the US and many other countries experiencing deflation, depression, debt restructuring, tension, and political pressures. These steps were effective in the US during the 1930s, England in the 1950s, Japan in the 1990s, and Spain and Italy in the 2010s.Dalio explains that the central government can buy goods and services to support the people, but they cannot print money while the central bank can print money but buy only financial assets. He says to stimulate the economy, the central bank and central government need to work together. “The central bank buys government bonds, lending money to the government to run a deficit and increase spending on goods and services through a stimulus program, and through unemployment benefits.” These increases in consumer income are expected to add balance and stability for a positive deleveraging effort. Finding balance is significant in a deleveraging success.

Economic Cycle Takeaways 

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Dalio leaves his How The Economic Machine Works video audience with three takeaways:

  1. Don’t have debt rise faster than income (your debt burdens will crush you)
  2. Don’t have income rise more quickly than productivity (you will eventually become uncompetitive)
  3. Do all that you can to raise your productivity (it matters most)

When you consider how the economy operates, and the historically cyclical processes involving productivity, short-term, and long-term Debt, the current state of the economy makes sense. In this case, it gives Americans peace of mind for the present and hopes for the future as we move through our economic deleveraging state to better times.

 

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Learn how a Gold, Silver, & Precious Metals IRA can help you hedge against inflation

Inflation is likely to continue after the election – what YOU can do about it

We’re in the final stretch of a hugely stressful election season. It feels like the results will be existentially important; like everything could change in one night. Some say there will be violent riots no matter what the result – or nonresult! Some say WWIII could start. Many are convinced the other half of the country is evil and hateful because of who they are voting for. It is truly sad to see the country so divided and we certainly pray for a peaceful outcome.

One thing we think will not change, in spite of best intentions and best possible management, is inflation. There are many reasons to think that inflation will only increase in the coming years. Here are our top 5 –

1. Supply Chain Disruptions:

o The COVID-19 pandemic exposed vulnerabilities in global supply chains, leading to delays and shortages. These disruptions can persist due to factors like ongoing labor shortages, transportation bottlenecks, and increased regulation in key industries. If manufacturers and suppliers continue to struggle to meet demand in face of lagging supply, prices for essential goods and services may rise as competition for limited resources intensifies.

2. Increased Demand:

o As economies continue to bounce back from lockdowns, consumers have been eager to spend, leading to a surge in demand for goods and services. This increased consumption can outstrip supply, particularly if production capacity has not fully recovered. Industries like travel, hospitality, and entertainment may see sharp increases in demand, driving prices higher as businesses attempt to capitalize on the renewed interest.

3. Rising Energy Prices:

o Energy costs are a critical component of overall inflation, influencing everything from transportation to manufacturing. Geopolitical tensions (e.g., conflicts involving major oil-producing countries) can lead to spikes in oil and gas prices. Additionally, efforts to transition to renewable energy can lead to short-term volatility in fossil fuel prices, which can further affect inflation if available alternatives aren’t as efficient or functional yet.

4. Wage Growth:

o As labor markets tighten, companies may be compelled to raise wages to attract and retain employees. While higher wages can improve living standards, they can also lead to increased costs for businesses. To maintain profit margins, companies may pass these costs onto consumers through higher prices, contributing to inflation. Additionally, if inflation expectations become ingrained in wage negotiations, it can create a vicious cycle of anticipated inflation and higher wage demands to keep up.

5. Monetary Policy:

o Central banks, like the Federal Reserve, may adopt accommodative monetary policies to stimulate growth, especially during downturns. The Fed is in the process of cutting rates again. Prolonged low-interest rates and measures like quantitative easing increase the money supply, which can lead to inflation if it outpaces economic growth. If central banks are slow to react to rising inflation or feel pressured to maintain supportive policies, it could exacerbate inflationary pressures over time.

These factors combined could create a complex economic environment where inflation persists or accelerates in the coming years, challenging policymakers and consumers alike.

How will your retirement savings hold up in the face of rising inflation? Are you in greater danger of outliving your money if prices continue to skyrocket?

We have good news! Owning physical gold can help preserve your purchasing power in several ways:

1. Inflation Hedge: Gold is often viewed as a hedge against inflation. As the cost of living rises and currency values decline due to inflation, gold typically retains its value. Historically, gold prices tend to increase during inflationary periods, helping investors maintain their purchasing power.

2. Intrinsic Value: Unlike fiat currencies, which can be printed in unlimited quantities, gold has a finite supply. This intrinsic value can make it a more stable store of wealth over time. When economic uncertainty arises, people often turn to gold as a safe haven, driving its value up.

3. Diversification: Including physical gold in an investment portfolio can provide diversification. Gold often has a low correlation with other assets like stocks and bonds, meaning that when these markets are volatile, gold may hold or increase its value, thereby helping to stabilize overall portfolio performance.

4. Crisis Resilience: In times of economic or geopolitical instability, gold is considered a reliable asset. During financial crises or when trust in currency systems wanes, gold can serve as a refuge for preserving wealth, as people turn to tangible assets.

5. Global Acceptance: Gold is recognized and valued worldwide, making it a liquid asset that can be easily bought, sold, or traded. This universal acceptance enhances its potential as a means to preserve purchasing power, as it can be converted into currency in various markets, regardless of local economic conditions.

By providing a safeguard against inflation, economic instability, and currency fluctuations, physical gold can be an effective tool for preserving purchasing power over time. Don’t wait! Add gold to your portfolio and protect your purchasing power against the ravages of inflation today! Call us!

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Top 10 Reasons to Invest in Gold No Matter What Happens on Election Night

With less than 2 weeks to go before Election Day, investors are on edge, nervous about which way things will go and how the next 4 years will look. Early voting has begun in many states, pollsters are burning up the phone lines every waking minute. Bets are even being placed on the outcome.

Let us take a moment to remind you that no matter what happens on Election Night – and after, there are many timeless reasons to start a precious metals backed IRA or buy some gold for your home safe.

Don’t have a safe at home? Read to the end of this post for a code to get one on us with a qualifying gold purchase!
Here are the top 10 reasons why people may consider converting a traditional IRA into a precious metals-backed IRA:

1. Hedge Against Inflation
Precious metals, especially gold and silver, tend to retain value over time. They can act as a hedge against inflation when paper currencies lose purchasing power.

2. Diversification of Portfolio
Holding physical gold, silver, platinum, or palladium in an IRA adds diversification to a retirement portfolio, which can help mitigate risk associated with market fluctuations in stocks and bonds.

3. Protection Against Economic Uncertainty
Precious metals often perform well during periods of economic uncertainty or market volatility, offering a safeguard during times of crisis.

4. Tax Advantages
Just like a traditional IRA, a precious metals IRA offers tax-deferred growth. The conversion process does not trigger immediate taxation, allowing for potential growth without taxes until withdrawal.

5. Tangible Asset
Unlike stocks and bonds, precious metals are physical assets with intrinsic value. They are not subject to default or bankruptcy risks associated with companies or governments.

6. Potential for Long-Term Growth
Over the long term, precious metals have historically increased in value. Some investors view this growth as a stable means to build wealth in retirement.

7. Global Demand for Precious Metals
Gold, silver, and other metals are in demand worldwide, both for industrial uses and as financial instruments. This global demand can enhance their value and liquidity over time.

8. No Counterparty Risk
Owning precious metals directly eliminates counterparty risk, which exists when an investment relies on the solvency of another party, such as a company or financial institution.

9. Protection from Currency Devaluation
If a nation’s currency weakens, precious metals can act as a store of value since their worth is not tied to any specific currency. This is especially appealing for those worried about future currency devaluation.

10. Control Over Investment
With a self-directed IRA, the investor has more control over their investment choices, including deciding to invest in precious metals, which provides more personalized and targeted asset protection.
These reasons appeal to investors looking for security and stability as part of their retirement strategy. If these make sense to you, or you still have questions, call us today? And mention code HOMESAFE24 and we will send you a safe with a qualifying purchase! Call now for details.

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Post-Election Inflation Risks: Who would be worse?

The 2024 U.S. presidential election brings significant economic uncertainty, and many economists warn that inflation is likely to rise regardless of who wins. Both candidates face challenges that could fuel inflation, including increased government spending, geopolitical instability, and labor market pressures.

Betting Markets Favor Trump, but Risks Remain

Ever since the ban on betting on elections was lifted, betting markets have slightly favored Donald Trump. Still, many economists believe his policies could create economic instability. During his previous term, Trump’s tax cuts, trade tariffs, and deregulation stimulated short-term growth but widened deficits and created volatility. If re-elected, renewed trade wars, increased deficits, and unpredictable policies could improve the economy, or could accelerate inflation. It remains to be seen.

However, no matter who wins, the next administration will likely face persistent inflation risks due to spending programs and global economic disruptions.

Precious Metals: A Hedge Against Inflation

In uncertain economic times, gold and silver provide a reliable hedge against inflation by maintaining their value when fiat currencies lose purchasing power. Here’s why these metals are effective in an inflationary environment:

Intrinsic Value: Gold and silver have held their worth across centuries.

Limited Supply: Unlike printed money, their supply is finite.

Inverse Relationship with the Dollar: Precious metals tend to rise in value when the dollar weakens.

Industrial Demand for Silver: Silver benefits from both investment and industrial applications, adding to its long-term potential.

A Smart Investment Strategy

With inflation likely to remain a challenge no matter who wins the election, adding 5-10% of your portfolio to gold and silver is a wise move. These metals provide insurance during economic instability and serve as a buffer against rising prices.

Which should you choose? Gold or Silver?

It depends on which you value more:

Gold: A stable, long-term hedge during market downturns.

Silver: More volatile but with higher growth potential due to industrial demand.

Why not get some of both? And remember – you can invest in precious metals through physical bullion or IRAs!

Call us for more information!

The post-election economy is expected to be turbulent, with inflation risks looming regardless of who takes office. Betting markets favor Trump, but many experts believe his policies could exacerbate economic challenges. But does Kamala Harris have all the answers? What do you think?

In this climate, precious metals offer a safe haven to protect your wealth. By adding gold and silver to your portfolio, you can hedge against inflation and build financial resilience no matter what the future holds.

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