A recent survey by bankrate.com reveals the credit card debt of one in four Americans exceeds the amount of money they’ve socked away for an emergency. This is especially unsettling because those who are short on both available credit and emergency funds will be scrambling should an emergency arise—and one always arises. Bankrate.com financial analyst George McBride says Americans caught in such a bind are “teetering on the edge of financial disaster.”
When considered alongside a 2014 survey by American Express that found almost half of all Americans had encountered either an unforeseen healthcare expense or car repair bill in the last year, the bankrate.com survey illuminates a serious socio-economic problem. Moreover, this bleak news for Americans of modest means couldn’t come at a worse time.
A February 5 Bloomberg article by financial journalist Alexandra Scaggs suggests U.S. banks may embrace negative interest rates in the not-too-distant future. Japan has just joined the EU, Switzerland, Denmark and Sweden in implementing such rates. Now some observers feel there’s a good chance the Federal Reserve could impose negative rates in a last-ditch move to stimulate our economy.
The official (and desperate) thinking is if banks are going to charge us for the privilege of depositing cash, we’ll be more inclined to spend our money than save it. In yet another case of government agendas colliding with our individual interests, need we point out that while consumer spending is great for the economy as a whole, it’s terrible for each of us personally. As both the bankrate and American Express surveys illustrate, we’d be far better off saving than spending.
Moreover, for those Americans already burdened with excessive credit card debt and unable to salt away sufficient emergency funds, any negative interest stimulus could help wipe them out.
But negative interest rates could also injure the financial health of those Americans not even close to the poverty line. Why would any of us want to keep money in the bank if we’re going to be penalized for doing so? If all this negative interest rate talk is good for one thing, it’s to once again get us thinking about what our alternatives are.
My favorite way to buck the system is to invest in physical gold. Investors and traders tend to move money into gold when interest incentives for cash are reduced or eliminated. And right now, with a sixteen-percent price gain, Bloomberg points out that gold’s the best-performing asset of 2016. The yellow metal has outdistanced high-yield and investment grade bonds, all currencies and major stock indexes in developing and emerging countries.
Gold’s jump in price has even led Georgette Boele, a strategist at ABN AMRO Group NV, to publicly reverse her negative call on gold. She has now gone from a nine-hundred-dollar year-end forecast to a thirteen-hundred-dollar year-end forecast. Since it’s just the beginning of March, and gold’s already hovering in the $1230-1240 range, it could conceivably overtake Boele’s thirteen-hundred-dollar mark long before the end of the year. In the same article in Bloomberg, Oversea-Chinese Banking Corp. economist Barnabas Gan says it could reach $1400 – and Gan is, according to author Luzi-Ann Javier, “the most accurate precious-metals forecaster tracked by Bloomberg last year.”
So, yes, make sure you have adequate cash on hand for an emergency, and by all means pay down your credit card debt. But you’d be remiss right now if you don’t accumulate gold coins, and hedge your retirement funds in the same way. You’ll have invested in a hard asset which, unlike your dollars, a bank can’t suck away with negative interest.