The Coronavirus has hit the economy hard, with U.S. unemployment claims surging to levels beyond those of the Great Depression. As of May 2020, unemployment claims in the U.S. have surpassed 36 million. With an estimated 157 million Americans composing the U.S. workforce, that number represents close to a quarter of workers (22.9%).
That is a shocking, frightening statistic.
Given these dire circumstances, the question becomes, will interest rates go down in 2020? More importantly, how would you benefit if they do?
Will Interest Rates Go Down During COVID-19?
Interest rates, set in the U.S. by a group called the Federal Open Market Committee (FOMC), are near historic lows, but there is some limited room for them to go lower.
While no one can predict the future, I believe that interest rates are likely to move lower over the next 18-24 months.
This is because our nation—and the world—have a super deflationary event (the pandemic) that has hit the economy with a sledge hammer. Lockdowns have affected more than a third of the planet’s population and unemployment claims are have surged to all-time highs.
While interest rates are likely to stay low and potentially trend lower for two years or so, my hunch is that in three to four years—around 2023 to 2024—the economy will start to stabilize.
Beyond mid-2024 (around four years out), I think there is a reasonable risk of inflation starting to run at a damagingly high of rate—say above 3.5%.
If inflation kicks up like I’m speculating above, we will likely have stagflation. Stagflation is high inflation coupled with low growth in the economy.
Perhaps, we could even start to move into a high inflation environment, which is dangerous and beyond the Fed and government’s ability to deal very well.
Hedging with Gold and Silver
Because of this economic risk, it may make some sense for you to hold physical gold and silver as a hedge against dire times.
Through all cultures and all periods in history, these two widely collected and traded precious metals have acted as monetary instruments—a type of universal money. While gold and silver do fluctuate in price, this is (at least in part) a perceived fluctuation driven by the fluctuating value of reference points—for example, fiat (paper) currencies like the U.S. dollar.
More importantly, as hard assets, gold and silver will always maintain some degree of value and can act as an medium of exchange in any country worldwide—regardless of economic conditions.
3 Types of Money
Furthermore, precious metals such as gold and silver are one of only three types of money.
Most people don’t know that all financial systems worldwide are run on only three types of money. It’s really that simple.
The three types of money that run the entire global economy are:
- Fiat Currencies – These are paper currencies created by government decree (for example, the U.S. dollar, the Euro, or Japanese Yen).
- Gold/Silver – These are best known and most widely traded precious metals. In addition to their practical uses, they function as investments and act as a store of value.
- Cryptocurrency – These are digital or virtual currencies designed to work as a medium of exchange.
To be clear, by money I mean “units of storage” for your wealth.
You can store your wealth in the form of fiat currencies, gold/silver, or cryptocurrencies.
To grow your wealth, you can exchange any of three types money for paper assets or hard assets. Paper assets are representations of something, while hard assets are physical assets with intrinsic value.
Paper Assets vs. Hard Assets
While most people tend to prefer hard assets during recessionary periods, I prefer hard assets during all economic cycles. The reason for this is that the U.S. dollar was taken off the gold standard in 1971 by President Richard Nixon.
Since that time, our money has not had any real value—it is just cotton and linen.
The only value that our dollar has is that which the U.S. government states it has and that which we, the people, believe it to have. Also, no fiat currency has survived in all of history. So, you know, that’s concerning.
Fiat Money = Any paper money created by government decree.
How Will Low Interest Rates Benefit You?
As described, financial indicators suggest that interest rates will stay low for the next couple years, and I would suspect they could trend down some too.
When individuals pay less in interest over time, they have more money to spend, which in theory at least, can create a “ripple effect” of increased spending throughout the economy.
Practically speaking, this means that you will be well-positioned to achieve historically low interest rates on:
- Auto loans
- Refinanced auto loans
- Home mortgages
- Refinanced mortages
- Refinanced student loan debt from private lenders
- Home equity lines of credit (HELOCs)
- Personal loans
- Commercial loans
Additionally, while it will not impact your fixed rate mortgage (unless you refinance), falling interest rates will help you if you have an adjustable-rate mortgage (ARM).
Of course, don’t go acquiring things just because it’s cheap to borrow money.
After all, the key to all financial wealth is to acquire assets (things that put money into your pocket) and limit liability (things that take money out of your pocket).
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