The stock market is going up. Precious metals are going up. Housing prices are starting to go up. The prices of oil, sugar, coffee, wheat and corn are also going up. There are only two things left to go up in the financial world, and those are inflation and interest rates. Make no mistake; the monetary policy environment is going to experience a dramatic change this decade. If you’re not careful, you just might get sideswiped.
Interest rates in most Western countries are at multi-year lows. They will not stay there forever—not with the kind of money supply growth we’ve seen from most central banks, the worst being the Fed. The whole monetary cycle is getting close to experiencing a reversal and this means that the cost of goods and the cost of money are going to get a lot more expensive. It also means that if you have too much debt, your financial situation is going to change dramatically.
There’s no global conspiracy against consumers and individuals, it’s just that there’s a huge amount of debt in the system and expectations are too high. This is occurring at the individual and country level.
The price of gold is likely to keep ticking higher in anticipation of higher interest rates. But, it might also stabilize next year if the Fed decides to withdraw some stimulus from the economy. I think this will happen and that the forces that be will require the central bank to begin hiking interest rates. This will slow the commodity price cycle that’s priced in U.S. dollars.
Price inflation is a double edged sword. It can help the stock market and the value of your home. But if it’s not kept under control, the consequences are often much higher interest rates. This has proven in the past to kill off any previous gains in the economy, the stock market, and in the value of your home.
So, we’re in a continuing environment of great uncertainty for investors. The burden for individuals and investors is high and it’s mostly due to government policy (and a lack thereof). World-famous hedge fund manager and investor Jim Rogers is correct in his view that central banks actually make economic problems worse as they try to manage the business cycle. It seems reasonable that more effective regulation of the economy would serve individuals better, rather than trying to manage the bubbles and busts created by inflating and deflating money. Allowing the business cycle to correct itself would likely be much quicker than the current way of doing things.
Anyway, the point is that the interest rate cycle is going to reverse sometime soon. In my view, the age of austerity is here and it’s a worthy goal for individuals to pursue. Perhaps it’s my Scottish heritage, but we will all need to protect ourselves going forward, because very soon global financial markets will force central banks to raise interest rates to fight debt and inflation.