Editor’s note: The following is a guest commentary from one of WND’s sponsors, Kevin DeMeritt, president of Lear Financial. If you would like to learn more about investing in precious metals, take advantage of the free information Lear Financial is making available to WND readers.
Since the tragedy of Sept. 11, America’s economic landscape has been altered. Some of the changes, like to the travel industry, have been a direct consequence of the terrorist attack, as has been the battering to the stock market. But not all of the changes can be pinned solely to this historic act of cowardice.
To be sure, the economy suffered an enormous spasm on Sept. 11. How could it not? Imagine administering a nasty cattle prod to a sleepy bull. Terrible consequences resulted. Newly exposed vulnerabilities in the way we do things have humbled us, as have the proposed ultra-expensive fixes to these security lapses. But even as the nation begins recovering from the stiff jolt it took, let’s recall the state of the economy before the terrorists struck.
We were on shaky ground as it was. Sure, it’s no surprise that first-time jobless claims rose by 58,000 to 450,000 last week; 75,000 new claims are coming from New Yorkers alone. New claims are the highest they’ve been in nine years. Nevertheless, at 4.9 percent prior to the incidents, overall unemployment was still at the highest rate in four years.
Consumer and commercial demand was slowing, too. In August, orders for durable goods fell 0.3 percent, led by weaker demand for aircraft, computers and automobiles. The drop followed a revised 1.1 percent decrease in July. The Commerce Department reported that housing was weakening before the attacks, too.
In short, the terrorist attacks gave us a big shove in the direction we were already heading. Most economists now agree that a recession is here. Many believe it could last nine to 12 months before a turnaround is possible. Some, like Tucker Hart Adams, chief economist for U.S. Bank in Denver, have a worst-case scenario that lasts into 2003.
Regardless of how long it lasts, if gold was a good idea before a recession was officially proclaimed, and before our national nightmare happened, it’s certainly even better now. Before Sept. 11, gold was hitting on all of its fundamental cylinders. Now, with our changing landscape, gold looks even more promising.
As what almost always happens when there’s a worldwide crisis of confidence, gold rose. This time, it rose 7.5 percent. Everyday people, not just investors, instinctively know where their safe harbor is. One growing factor will further stimulate more increases. You need to ask yourself, “Where’s all this money coming from to make America more secure?” New taxes are politically impossible. You can only raid Social Security for so long. The answer will come from government printing presses.
Immediately after the disaster, The Federal Reserve said it stood ready to pump extra money into the economy. On Sept. 12, it added an unusually large $38.25 billion in temporary reserves to the U.S. banking system. It said it would add even more reserves as was necessary. That was on top of other extravagant liquidity moves to banks, plus its recent endorsement of a $100 billion dollar aid package for America. And all of that, on top of a steady 13 to 14 percent growth in the money supply (M3) since the beginning of the year.
As you might guess, all of this is inflationary. Hugely inflationary. Could it be as inflationary as the nearly 25 percent inflation of 1979 and 1980, when gold soared to $850 an ounce? Only time will tell.
But if inflation and chaos cause gold to soar to new heights, bear this in mind: Gold was already heading there. And the intensity of the moment shouldn’t alter the way you view the golden metal: as simply an essential part of any portfolio – maybe the most essential part – no matter what the economic landscape.
Special for WND readers, Lear Financial is making available free information on investing in precious metals.
With more than 20 years of industry experience, Kevin DeMeritt is president of Lear Financial, one of today’s fastest growing and most successful precious metals investment firms.
