by Simon Popple
Posted 22nd September 2016
With Ben away, he’s kindly offered me a guest spot on the Daily Reckoning.
Over many years, interest rates have been a major tool for managing the global economy. Not just ours – but every economy in the world.
Perception and reality largely working in tandem. When the market was overheating – or there was a perception it was about to – interest rates would rise and take some of the steam out of it.
Similarly, when it was struggling, they could be lowered. Removing some of the interest burden and help it recover.
But that was then and this is now.
With interest rates at rock bottom levels the global economy does not seem to be in great shape. I think it’s fair to say there is a perception that it’s struggling – probably largely due to the massive debt burden so many countries are facing.
Traditionally, this would be a time to cut rather than increase interest rates.
The problem being we can’t.
It’s vital that trust is not lost and the perception is that all is well with the world – which is why there has been talk about increasing interest rates.
If that is true, then great. Rates can move back to more normal levels and everyone breathes a sigh of relief. Perception and reality are as one – hip hip hooray.
But if that’s not the case then Houston, we have a problem.
There’s only so long the central bankers can tell the markets everything is fine if it isn’t. Mr Market will expect interest rates to go up and if they don’t he might panic.
Similarly, if interest rates go up and they shouldn’t – because the economy is so weak, that could be even worse.
Oh what to do?
It could lead to panic. And as the fiat currency system is all about trust, that would be a disaster.
Still with me?
Hopefully you’re not reaching for the gin bottle.
All of this leads me to my favourite investments today which are real things. Such as gold and silver (but there are many more).
There could well be a simple policy solution to where we find ourselves, but I don’t know what it is. So I would rather invest in real things for now.
Such as shares in gold and silver mining companies, which right now look very attractive. At least to me.
Should you do the same? I don’t know.
But I would urge you to take a moment and think about where we are. This time it MAY be different and so having at least a small proportion of your portfolio in something different to your usual investment may make sense.
Earlier in the summer I sat down with Jim Rickards, best-selling author of the books Currency Wars and The Death Of Money to discuss this very subject.
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