IMF: U.S. Needs a Disaster Plan

The IMF last week published a report confirming the global economy remains “highly vulnerable” to financial shocks, begging the question, “With crashing oil prices and non-stop market volatility, are there anything but shocks in the global economy?”

The report then went on to call for the U.S. and other major economies to implement contingency plans in case global growth slows even further.

The report stresses the global economy has experienced a “fragile” recovery as financial markets continue to falter, and cites slipping oil prices and inhibited growth in China and other emerging-market nations.

Since the IMF issued the report to be delivered at the February 26-27 meeting of G-20 finance officials, one might, if one were the skeptical type, assume the lending agency was trying to preempt member nations’ requests for new loans. After all, a sudden appeal for larger nations to bring about quick growth on the heels of reduced international demand for commodities comes across as a very tall order.  Still, it’s troubling the IMF has downgraded its economic forecast for global growth for both 2016 and 2017, and will most likely publicize another reduced forecast in April.

Another pending economic headache abroad is the possibility Britain might exit the European Union.  Unless it’s postponed, a June referendum could decide the “Brexit” as early as June.  Since London is the financial center of Europe, EU member nations stand to suffer repercussions if voters ultimately decide in favor of Britain’s leave-taking.  The value of the euro is also likely to take a body blow from such a move.

Will all this economic turmoil abroad hurt our own economy? In a February 25 op-ed in Time, writer Jeffrey E. Garten offers a compelling answer:

“For at least a generation now, the line between what happens in the American economy and the world outside has been disappearing. Now it’s virtually gone. Economic growth, good jobs, wage inequality, the shaky condition of our banks, the size and ethnic composition of our population, contagious diseases, pressures on our schools and universities—these are just some aspects of our lives that are affected by international trade, foreign currency gyrations and the state of economies abroad.”

Most of us can testify to the truth of Garten’s observation by naming friends who, ten years ago, were swearing they’d only drive American cars, and who are now driving Toyotas or Subarus.  And if we take a closer look at some of the clothing hanging in our closets, like it or not, we’ll probably notice more “Made in China” labels than we bargained for.

The fact that the U.S. economy remains the world’s largest by Gross Domestic Product (GDP) should not be cause for complacency about our personal wealth and resources which, as we recall from 2008, can evaporate in a heartbeat. From that standpoint, Europeans and Asians have a psychological advantage over many Americans.  They’re not as blind to the vulnerability of their own fiat currencies as we are when it comes to the dollar.  They’ve experienced war in their own countries, formal currency devaluations and destruction of their infrastructures that make them well-acquainted with the folly of depending on anyone but themselves.  Europe and Asia discovered gold – and its crucial role as real money – long before we did.

While there’s little each of us can do about the weak global economy, lack of foreign demand for our products and a dollar riding for a fall, we can fortify our personal resources, and certainly protect our retirement with physical gold.  One thing is certain: the value of our personal gold reserves has a much higher potential growth rate than the IMF envisions for the current world economy. So whether or not the U.S. government develops an emergency plan in case of global financial disaster, it’d be sheer folly if you don’t.