The Volatile Global Economy and How U.S. Money Reserve Could Help

The world’s economy looks to be slowing down. After making gains in 2017 and 2018 global economic growth began braking in 2019. Now worldwide economic growth has slowed to the kinds of levels last seen during the financial crisis of 2008.  The Organisation for Economic Cooperation and Development (OECD) has cut all its growth forecasts and now predicts global economic growth to slow down to just 2.9 percent.

So, what is causing the slowdown? Global trade tensions, Brexit and protectionism are the traditional subjects to blame. But these days warnings about manufacturing ratios, employment trends and consumer spending are all contributing to the decline. The OECD also believes governments should do more to boost business and investor confidence in the economy.

Traditionally, it has been the job of Central Banks to not only manage the money supply and set interest rates, but to jumpstart investments, fuel the financial markets, stimulate economic growth and reduce volatility. In the book The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse, author Mohamed El-Erian, a businessman and economic advisor, writes that since the financial crisis of 2008, central banks began experimenting with unconventional monetary policies. Those policies included cutting interest rates, interfering with the markets and manipulating investor expectations and portfolio decisions. El-Erian adds that those tactics caused market bubbles, excessive debt, dragged down real growth and undermined financial stability. A recent Bloomberg report summarized that these risky behaviors, including cutting interest rates in an already weak global economy may lead to asset bubbles that can burst.

Some economists wonder if the central banks are propping up weak economies or unnaturally extending already lengthy recoveries and if that makes the world more vulnerable and less prepared for the next economic downturn.

The trade war between the United States and China is having an impact all across the global economy. The U.S. has added tariffs to all kinds of products made in China and China has retaliated by doing the same. These trade troubles have impacted the manufacturing, retailing, ranching and agribusiness sectors. But the trade war fallout goes deeper and impacts the stock market, the bond market and the U.S. Industrial sector. And that in turn impacts supply chains and currencies around the world.

During the financial crisis of 2008 the world recorded its first-ever drop in the global GDP. As the world is confronted with another economic slowdown what currency is safe? During 2008 gold was very resilient. The price of gold remained strong and by 2011 it had risen to an all-time high.  Gold isn’t tied to any particular country or economy or currency. It tends to perform well when other indicators are down. In times of economic downturn, gold might be a solid strategy.

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