What if Central Banks Run out of Ammo?

The average person has likely become all-too familiar with various terms used to describe the state of many monetary policies around the globe. Phrases like low interest rates, zero interest rates, negative interest rates, bond purchases and yield curve have become quite familiar in recent years as global central banks took steps to battle deflationary forces and a potential economic collapse.

Whether or not these policy tools have really been effective remains the subject of debate.

Although the U.S. has ended its QE program, many global central banks remain in the middle of such easing programs. And despite the fact that the U.S. is gearing up for another interest rate hike this December, some analysts seem to believe that the Fed will raise rates only to lower them again later.

Some have even suggested that the Fed will once again have to engage in some form of stimulus measures, as the economy is far from “red hot.”

With ongoing easing being seen in other major economies, however, you have to wonder what might come next if quantitative easing fails to provide the desired effects.

There are, after all, limits to what monetary policy can accomplish.

You could make the argument that central banks could then look to a potentially powerful alternative, fiscal policy.

Helicopter money is another phrase that has been thrown around in recent years. This term is the brainchild of Milton Friedman, who once proposed that the government could defeat deflation by printing money and dropping it from helicopters. The thought behind such a strategy is that household spending would pick up based on this “windfall” and that the economy would be revived in the process.

Some have argued for the use of such an unconventional tool, while others have argued against it. Some would even argue that such a tool has already been used in many developed countries through QE.
Without getting into the complexities of such a fiscal policy tool, we’d prefer to focus on the potential of such a tool to boost demand and fuel inflation.

While it is impossible to say that such a tool would not work, some history would seemingly tell us otherwise.

Consider this:

With interest rates at zero, why is the “recovery” as weak as it is?

If households have more cash, why aren’t they spending it?

What about the sharp declines in gasoline prices that were supposed to help fuel more spending-did that happen?

You could argue that it goes against human nature. During such times, households would seemingly prefer to save the cash rather than spend it. Wages have been stagnant, job growth has been lackluster and overall economic activity remains lousy.

Could a helicopter drop work? Theoretically, yes. Would it work? We have our doubts.

Global central banks could find themselves out of bullets, with little choice but to print even more money.

And we all know that money printing comes with a price…

Hard assets likely physical precious metals could potentially see significant value appreciation during such a scenario. Physical gold and silver have been considered a reliable store of wealth and protector of value for thousands of years. Not only could these metals potentially increase in value, but they could also potentially help preserve your purchasing power as ongoing QE fuels declining currency values.

If you don’t own physical gold, silver or other precious metals, now is the time to begin allocating. Adding these precious metals to your portfolio has never been easier, and these metals can even be acquired using your IRA account.

Speak with an Advantage Gold account executive to learn more about physical gold and silver ownership today. Don’t wait until central banks have run out of options or for paper currency values to decline further. Call us today at 1-800-341-8584 to get started.

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