Daily Gains Letter (www.DailyGainsLetter.com), an e-letter of Lombardi Publishing Corporation, a 28-year-old consumer publisher that has served over one million customers in 141 countries, is warning that global debt of more than $100 trillion is threatening the retirement portfolios of America’s baby boomer generation.
According to recent research, the total amount of global debt has surpassed $100 trillion, a jump of 40% over the last six years. This $30.0-trillion increase from $70.0 trillion in 2007 to 2013 compares with a $3.86-trillion drop in the value of equities to $53.8 trillion during the same time frame. (Source: Glover, J., “Global Debt Exceeds $100 Trillion as Governments Binge, BIS Says,” Bloomberg web site, March 9, 2014; www.bloomberg.com/news/2014-03-09/global-debt-exceeds-100-trillion-as-governments-binge-bis-says.html.)
“The Bank for International Settlements, which is run by 60 central banks, found that since the financial crisis began, the majority of the $100 trillion in debt has been issued by governments and nonfinancial corporations,” says Daily Gains Letter financial analyst Sasha Cekerevac. “One would think that with such a huge amount being issued, it would drive interest rates higher amid a debt crisis. However, the exact opposite has occurred, with interest rates still near historic lows.”
Cekerevac observes that even though governments and corporations have borrowed and pumped out a massive amount of money, the global economy has barely moved. On top of that, if high levels of debt fueled the previous debt crisis, it seems unlikely the current problems could be solved with even more debt.
“The real question for investors allocating capital to these markets is if they’re suitable for long-term investors, or should we even consider if a debt crisis is possible?” he adds. “With the official U.S. debt now well over $17.0 trillion, the unfunded liabilities for America are much higher.”
Long-term interest rates have begun to creep higher as investors begin to anticipate the arrival of higher interest rates. But how will investors react? While U.S. interest rates are not expected to surge anytime soon, they will continue to rise at a steady rate. As a result, Cekerevac maintains that investors might want to avoid long-term fixed-income products.
“We are coming to a point where inflation is about to begin to increase in the U.S. However, it’s a fine line between somewhat-manageable inflation and an outright debt crisis. If things get out of hand and long-term interest rates begin rising, this will severely affect the economy,” he concludes. “As long as interest rates remain low, the rise in the stock market will continue. However, investors might want to begin taking precautions by adding gold bullion to a well-diversified portfolio.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Daily Gains Letter, visit www.lombardipublishing.com.
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