IMF Cut’s Global Growth Forecast
The International Monetary Fund cut it’s global growth forecast for the third time this year, according to an article in Reuters. The concern is coming from Japan, Brazil, and Euro Zone countries.
What is interesting about the Reuters article is that the IMF has cut it’s growth forecast 9 out of 12 times in the last 3 years. This goes to show how inaccurate economists are at economic forecasting.
One of the more problematic developments occurred on Monday when Germany posted the biggest monthly drop in industrial orders since the global financial crisis in 2009 as reported by Reuters.
In addition, according to a story in RT, the World Bank cut it’s growth forecast for China for the next two years citing tighter global monetary conditions. Even the so called stronger recoveries in England and the US face headwinds going into the 4th quarter.
The real problem is that the world has too much debt.
Limitations of Central Banks
The global Central Banks have flooded the world with liquidity since the 2008 financial crisis. While there has been a reflation in equity and real-estate prices, the current situation that the global economy finds itself in demonstrates the limitations of the Central Banks.
Higher equity and real-estate prices have not correlated with other parts of the economy. The average person has not seen their standard of living increase which is a function of the policies of Central Banks.
With interest rates at or near zero in much of the developed world, the central banks are just about out of ammunition to address the problems that face the global economy. So the likely outcome is that there is no way out other than to continue to print money.
It’s a Game of Confidence
Since 2008 professional traders and investors have had a lot of confidence in the Central Banks ability to lead the global economy out of recession. However, the markets are now at a critical juncture.
With growth in much of the world slowing down, the policies that prevented a collapse in 2008 will not likely be able to sustain any real economic improvement. If investors lose confidence in central banks then nothing they do will be effective.
The value of all paper currencies is based on nothing but confidence. That’s why the precious metals are a vital component of a portfolio right now. They represent something of real value.
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