Has Monetary Policy Reached its Limits?
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European Central Bank official Robert Holzmann claims that monetary policy is quickly reaching its limit.
According to Holzmann, reducing interest rates isn’t an effective way of increasing output and managing inflation. He believes the government should have greater involvement in the economy in the form of Fiscal policy.
Fiscal policy refers to when the government adjusts its spending and the tax rates to improve a nation’s economy.
Holzmann isn’t the first to speak in favor of higher fiscal spending; former President Matio Draghi and Christine Lagarde have also reiterated the same thing.
Holzmann says that governments need to focus on increasing public expenditure and enriching young people. Investments in information technology and artificial intelligence need to increase.
Signs of Upcoming Financial Crisis
At the end of 2018, Germany slid into a technical recession due to which its manufacturing sector has taken a hit. A year later, Germany is still struggling to crawl out of the slump, which in turn has led to slowing down of the European economy.
Other than Germany, the US-China trade war and the no-deal Brexit is also dragging down the global economy. The looming trade way between China and the US will be the biggest contributor to a global financial crisis according to economists; it will impact the economy for years.
Protecting Yourself During a Financial Crisis
There is a lot of talk about the warning signs of another global financial crisis in the next couple of years. Knowing how devastating the last financial crisis was for people, it makes sense to start preparing for the crisis today to cushion the blow.
Using gold as a hedge is the simplest way to protect yourself in a global financial crisis. A hedge refers to investments that counterbalance financial losses incurred by another asset class. For most investors, the other asset class is US dollars.
The cost of imports rises as the value of a currency drops, which leads to inflation. When inflation is high, the price of gold also increases which is why it’s best to buy gold before a financial crisis is expected.
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