The governors of both California and New York announced statewide lockdowns this morning. Entire countries are going into hibernation. Outside my window, the beaches are empty and the streets are silent. We’re witnessing an historic event: the human tragedy is deepening, and the economic engine of the world is stopping.
Millions of people are being asked or ordered not to work. This isn’t a measured downturn. It’s not a sudden slowdown. It’s a screeching halt.
We’re seeing the nonfiction equivalent of John Galt’s worldwide strike.
Goldman Sachs now says the US economy could contract—contract—24% next quarter. Just four days ago, it was 5%. I don’t see how anyone can do more than guess in such an unprecedented situation.
My guess is that they’re being way too optimistic.
Even elected politicians around the world are now admitting this is inevitable.
I think it’s not only inevitable, it’s happening now.
That makes the big question: how bad will it get?
More specifically: is the world likely to face a brief recession, as many pundits and politicians are saying, or will this crisis push the global financial system over the edge into a major, enduring collapse?
Donald Trump keeps saying that the US economy was in great shape before the outbreak and that it will snap back quickly—and quickly rise to new heights.
I’m skeptical.
It might be a one-off hit that the US can shrug off if people stay home for a couple weeks and the danger passes. But while two weeks appear to be enough to find out whether one is contagious or not, the experts are saying that even if all goes well, this first wave of the outbreak won’t be over until summer.
We’re also seeing new outbreaks in warm countries like Thailand, which cast doubt on the idea that Northern Hemisphere spring and summer will have any impact on the spread at all.
The medical issue aside, no one really knows how many businesses that have seen revenue disappear almost overnight can survive—even with massive bailouts. Perhaps more important, no one knows what permanent changes in consumer choices, supply chains, business practices, and government policies will do to the economy.
And it’s a critical point that the US is going into this recession—if that’s all it is—with nominal interest rates already down to zero.
I also have to say that as much as I love tax cuts, I don’t see how the US can slash taxes and increase spending by trillions at the same time without causing huge problems. We’re looking at money-printing like we’ve never seen before, and that will have consequences.
But let’s say Trump is right and America reaches deep into its collective soul to find the strength to pull through the epidemic quickly and with little lasting economic harm. Fine. But the rest of the world wasn’t in great shape before the outbreak.
The global economy is deeply interconnected, and no economy can remain unaffected if its trading partners fall into depression.
And that’s not even considering how fragile the whole system—including the US—is and has been since 2008. It’s my view that while politicians succeeded at postponing judgment day in 2008, none of their policies fixed the problems that caused 2008. If anything, they’ve made them worse.
And that makes the US and the entire world vulnerable to much greater economic harm than the current crisis alone may cause.
But let’s say I’m wrong about that. Let’s even suppose that the US and the world rebound quickly and all the massive stimulus programs initiate another reflationary boom.
This implies trillions and trillions in money-printing all around the world. This has already started in the US, Europe, and China.
Central banks in more than 50 countries have already responded to the outbreak with lower interest rates.
The easy money is not just certain, it’s in our faces today.
That’s extremely bullish for monetary metals: gold and silver.
And if I’m right about the US and global economies being more fragile than the powers that be are letting on, we’ll see even more economic and social chaos.
That’s extremely bullish for safe-haven assets like gold and silver.
Either way, I don’t see a path forward that does not include much higher gold and silver prices.
That’s true whatever fluctuations there may be in the near term.
How high could gold and silver go?
I don’t want to make silly predictions. New nominal highs are easily in reach. Much higher prices are no stretch of the imagination. But we don’t need a number; simply getting the direction right is enough.
One more thing…
I am personally very sorry for the tidal wave of human misery this virus and the human response to it are causing.
In my view, this makes it all the more important to watch these trends as they unfold and act accordingly. Blindly allowing ourselves to be destroyed financially or physically doesn’t do us or our loved ones any good.
We have a duty to ourselves and others who depend on us to make the best of a terrible situation.
That’s exactly what I intend to do—and to help my readers do.
Sincerely,
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