As we head into the New Year, most of our focus has been on the markets and the showdown between President Trump, the Dems, the Fed, and China thrown into the mix.
These issues seem to be dominating national news. But they also seem to be diverting our attention from a much larger issue on the horizon.
If you’ve been filtering out much of the noise over the past few weeks, you might have noticed that plenty of chatter over global monetary policy has been swirling beneath the surface.
At the center of all this conversation is the International Monetary Fund (IMF).
Why is this a big deal? For starters, the IMF represents one autonomous part of an emerging scheme toward global governance.
The IMF is accountable to only a small group of elite central bankers (the US maintaining its number two guy, David Lipton, the IMF’s deputy head).
So, when the IMF speaks, the world’s top bankers listen.
And lately, the IMF has been sounding the alarm over what appears to be a major threat to the global economy.
Based on what they have to say, we’re convinced that their warning should be taken quite seriously. Perhaps you should too.
IMF Warns: Storm Clouds Are Gathering for Another Global Financial Crisis
The global financial system may be headed toward another crisis for which it may be utterly unprepared.
That, according to the IMF’s David Lipton, is the concerning issue. According to Lipton, “crisis prevention incomplete” from the last meltdown over a decade ago.
Furthermore, individual nations simply lack the means to combat the next recession.
Stating that “We ought to be concerned about the potency of monetary policy,” Lipton is referring to the US Federal Reserve’s (and other central banks’) capacity to cut rates to boost the economy.
In short, all of that firepower has been spent and depleted. There’s hardly anything left, it at all.
Furthermore, the high levels of debt taken on by numerous governments have limited the capacity of any government to cut taxes and boost spending.
The IMF sees the US-China trade war as a key trigger for what may or may not result in a financial disaster of global proportions.
In alignment with the White House position on the matter, Lipton believes that China should lower trade barriers while imposing tougher actions on protecting intellectual property.
Unlike in 2001, when China entered the WTO as a $1 Trillion economy, China is now a $16 Trillion economic superpower.
China’s trade policies that were acceptable then, as a much smaller economy, are certainly not acceptable now.
Should the trade war continue, global growth will undergo a significant slowdown. Not having quite reached that point yet, market volatility has already been exceedingly high. Amidst central bank tightening, these two conditions mark a potential flashpoint in the global economy.
Another factor that the IMF notes are that the total value of global debt (private and public) has reached a record high level of $182 Trillion! If central banks raise borrowing costs, that may cause immense difficulties for governments and businesses.
With all of these factors in play, and with the US-China dispute as its centerpiece, any sustained conflict would likely trigger “far-reaching and long-lasting consequences” impacting the global economy.
If you’ve been following us over the years, we’ve been covering the IMF’s Special Drawing Rights (SDRs), a global currency with which the IMF can flood global economy should it find a need to do so.
Born out of mistrust of the US dollar as a world reserve currency, SDRs hold enough weight to plunge the dollar’s value.
Given the IMF’s outlook, might we be nearing a condition which might warrant such a monetary deployment?
The truth is that we don’t know.
We can’t know.
And when we do know, it will be too late.
Although specific outcomes may be far from certain, what is absolutely certain is the need for investors to begin hedging whatever outcomes may emerge.
Holding physical gold and silver would be a good start.