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Weekly Touchpoint: Erasing Student Loans Potentially Devastating

Posted By Isaac Nuriani |

 

One of the biggest concerns about America’s economic future has to do with recent generations’ changing sociopolitical perspective. Credible polls show a significant number of Americans are now in favor of collectivist political ideologies that call for publicly funding things such as health care and higher education for everyone. The implications of this are vast. For one thing, it suggests society no longer expects either personal or national financial prudence. In this week’s Touchpoint for retirement savers, we begin with a look at a potentially destructive consequence of one of the most popular narratives emerging from the recent shift toward progressivism in the U.S.: the government-funded (taxpayer-funded) cancelation of student debt. Fortunately, we also cover how diversification through gold could help savers overcome those consequences.

  • The current total education debt load being lugged around collectively by Americans is a whopping $1.5 trillion. Student debt is often cited as the reason some U.S. citizens can’t make a more meaningful contribution to the economy. However, according to analysis by Moody’s, the government’s cancelation of all that debt would provide no more than “a modest increase in household consumption and investment.” The bigger issue, says Moody’s, is that such a drastic move “could … increase the risk of moral hazard and the accumulation of even higher student debt burdens.” In other words, reckless borrowing on a massive scale could be encouraged if future borrowers believe taxpayer-funded debt forgiveness is now de facto public policy. CNBC.com offers more about this
  • Danish banks are so strapped after a seven-year-long negative interest rate climate that some of that nation’s largest institutions now plan to hit retail customers with negative rates. Normally, when central banks go negative, the negative rate is absorbed by commercial banks; retail customers tend to be spared the most direct effects. This next step (negative retail rates) is a nightmare come to life for retail bank depositors, and it’s a good lesson for those who don’t believe things really can go from bad to worse with respect to monetary policy. As Sydbank A/S Chief Executive Officer Karen Frosig put it to Business Times, “If you’d asked me five years ago whether we would have negative rates on deposits in Denmark, I wouldn’t have been able to imagine reaching that point.” How long until retail depositors in America are saying the same thing?
  • According to the World Gold Council (WGC), those who’ve looked traditionally to bonds for portfolio diversification may be better served by relying on gold instead. The WGC says the current climate of “negative yielding debt” suggests gold is now a “more effective diversifier” than bonds. The council also points out that gold could be preferential to other popular alternative assets such as hedge funds, real estate and private equity due to the “historically higher volatility” standard with these other options. Additionally, says the WGC, “an increasing set of geopolitical concerns, including trade tensions, Brexit and Middle East turmoil” make gold, as a true safe-haven asset, uniquely positioned to be a portfolio’s diversifier of choice.
  • Get ready for the U.S. dollar to weaken considerably, says Mohammed Apabhai, head of Asia Pacific trading strategies group at Citi. Speaking recently to CNBC.com, Apabhai said he expects the dollar index to drop to as low as 85 as the Federal Reserve prepares to expand its balance sheet by engaging in a flurry of bond buying. Some consider this to be a fourth round of quantitative easing. Although the Fed noted it would be heading into a sort of “pause” mode after its most recent rate cut, Apabhai says that won’t really matter when it comes to the massive infusion of cash into the market. “For us, the fact that the Fed has gone into pause mode is not really as significant as the fact that the balance sheet of the Fed is going to expand,” he said. “We’re basically looking at substantially weaker levels on the dollar.”

If the dollar is expected to experience a significant weakening on the basis of another round of quantitative easing, the mind reels at just how low it could go if the government begins picking up the tab for everyone’s health care, canceling student debt and more. It’s hard to imagine the money-printing presses ever stopping after that. Prudent retirement savers recognize the danger posed by the continuous and potentially permanent erosion of the true value of their dollar-denominated assets. And they look for ways to protect their money. One option is diversification through gold and silver.

To learn more, call Augusta Precious Metals at 800-700-1008.

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