Please, Sir, May I Have Some More?
Before the Coronavirus pandemic put the world’s largest economy behind bars, surveys revealed that anywhere from a fifth to one-third of Americans were living paycheck to paycheck. The polls discovered that many U.S. households were one financial emergency away from ruin, or a lot of consumers could not find $300 to cover an unforeseen circumstance. And this was in one of the greatest bull markets in modern history. Now that the country has been shut down for more than a month and millions have lost their jobs, it is difficult to make ends meet and maintain a basic living standard. The federal government tried to remedy the situation by cutting most people a check. But is $1,200 enough?
According to the results of a new WalletHub study, 84% of Americans want a second round of stimulus checks. The site’s “Coronavirus Relief Survey” essentially serves as an assessment on the state of the union in a time of COVID-19, and it offers some interesting insights into Americans’ perspectives on what is happening.
Researchers discovered that 63% of Americans are less than three months away from running out of cash. But millions of others are coping with the madness differently. Ten percent of Americans will feed their addictions (alcohol, drugs, or tobacco), while one-third say that they will donate at least a portion of their relief funds to those in need. Most will be covering their rent or mortgage payments.
Opinions on how the money should be allocated vary. A little more than half of Americans do not believe people’s unemployment income should be more than their previous earnings. Seventy percent of survey respondents think only businesses impacted by the outbreak should receive aid. Millennials are 25% more likely than Baby Boomers to argue that stimulus checks should only be granted to individuals suffering a loss of income. In the end, 62% of respondents agree that all workers should receive a stimulus check, regardless of income or job status.
Will the nationwide shutdown persist, or will the country reopen only for a second wave of the outbreak to force a coast-to-coast closure sequel? In either case, Washington would have no other alternative but to send out additional relief checks to citizens. Indeed, $1,200 may be a temporary lifeline. Still, for low-income unemployed Americans, the money might only act as financial relief for a month after the rent has been paid and food has been stocked up in the refrigerator. Will the plight of the average worker be enough to reopen the country? As the old saying goes, time will tell.
Japan Goes Fed
In its recent semi-annual report, the Bank of Japan (BoJ) warned that there were three threats to the financial system: higher credit costs, security investment losses, and foreign currency funding problems. The central bank noted that many vulnerabilities were amassing because of 0% interest rates that the BoJ adopted to stave off a recession and spur economic growth. It has also intervened many times in the marketplace, most prominently by becoming a top shareholder on the Tokyo Stock Exchange. Despite losing billions in the stock market, the BoJ is adding to its positions to help cushion the Nikkei by mirroring the Federal Reserve’s whatever-it-takes approach in the process.
The BoJ is set to unleash quantitative easing infinity by scooping up unlimited Japanese government bonds. It also plans to double its annual acquisitions of corporate debt and commercial paper to assist cash-strapped businesses in response to the pandemiconomy. It is estimated that the central bank would elevate its bond-buying spree to just under $900 billion a year to start.
Governor Haruhiko Kuroda will keep its -0.1% interest rate and guide the 10-year note yield to 0%.
This comes soon after Prime Minister Shinzo Abe announced the largest-ever $1 trillion stimulus package. The relief legislation includes cash handouts to eligible households, business tax deferrals, wage subsidies, and the purchase of Avigan anti-flu drugs for two million people this fiscal year. Tokyo proposes to issue more bonds to fund this massive expenditure, but it appears the only one with an appetite for the left hand’s debt is the right hand.
How did the central banks pump $23.4 trillion into the financial system in a little more than a month? All you need to do is to take a gander at the plethora of actions by central banks Liberty Nation has reported since the outbreak began.
Gold Is Au-Some
Billionaire icon Warren Buffett is not a fan of gold: “[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.” And yet, gold is eyeing $2,000 per ounce because the market places a value on the precious metal.
Even if financial markets return to their record highs in February, the amount of money that has been injected into the system is unprecedented. Central banks have the printing presses working around the clock, trying to stop the bleeding by using fiat money as bandages. No matter what happens, a spike in inflation is inevitable – and this is where gold intervenes.
The Bank of America captured international business headlines when it raised its 18-month gold-price target to $3,000, which would be more than double its existing price record. In a report titled “The Fed Can’t Print Gold,” BofA analysts warned that fiat currencies “could come under pressure” as economic output contracts, fiscal outlays skyrocket, interest rates are cut to 0%, and central bank balance sheets surge. This would be a boon for the yellow metal because investors would seek shelter from the turmoil.
Despite its bullish case for bullion, BofA says gold would need to overcome a strengthening U.S. dollar, reduced volatility, and bearish jewelry demand in China and India to top $3,000 by the end of 2021.
The greenback has been one of the most reliable assets in the coronapocalypse as investors sought shelter from the economic storm. Investors liquidated their accounts to get dollars, elevating the U.S. Dollar Index, which measures the buck against a basket of currencies, to 103.00. The only way the greenback can survive the astronomical money-printing by Jerome Powell and Associates is through market demand. If there is enough demand among investors, hedge funds, money managers, pension funds, and any other entity in this mad, mad, mad, mad world, then the dollar could extend its shelf life. If not, it may be time to fill your basement vault with gold bars, build gold positions in your portfolio, and purchase the former World Championship Wrestling heavyweight title!