With a lot of discussion as of late regarding whether or not the U.S. government should continue efforts to boost the economy via stimulus, recent news has changed the opinions of many on the topic.
According to Bloomberg, bond buying isn’t looking to slow down quite as soon as many had initially thought. While many members of the Federal Reserve originally supported plans to taper the stimulus and bring things to a halt, the cooling down of inflation and still high rate of joblessness in America are just two factors that may keep bond buying practices going.
Recently, a number of Federal Open Market Committee members expressed belief that the stimulus is still a necessity and that bond buying needs to continue in order to help build the economy.
It’s not as if the federal government hasn’t already been putting quite a bit of stock in spending. The balance sheet is already at a record $3.3 trillion, and this number is likely to increase given the fact that the stimulus will almost certainly be extended.
Another meeting is set to be held next week to further discuss details. While recommendations were originally made to lesson asset buying from $15 billion to $10 billion, it appears as if this isn’t going to be the case after all.
Instead, the federal government could keep things going until the unemployment rate drops from the current 7.6% to 5.2%, which is considered to be the full level of employment.
A Change of Tune
Anyone who has followed the development of the stimulus program knows that there has been a fair amount of dissent over how long spending should continue. With disinflation at the forefront of many peoples’ minds, however, some are looking towards whatever ways possible to bring the economy towards a more stable state.
While the stimulus can’t last forever, it has been shown to be an effective way to bring the economy towards a state of equilibrium; the trick is in determining how long it needs to persist before it creates financial disaster on its own.
America is not the only country in the world that has been experiencing economic issues. Many analysts believe that the world is in the middle of a global recession, affecting some of the largest superpowers on the planet.
China, Japan and Europe are all experiencing economic slowdown, and Japan in particular is getting ready to launch a massive stimulus program in an attempt to fix their economic issues.
It’s important to realize that the economic slowdown in America may be nothing more than a blip on the radar. For a period of time, things were looking up, and many aspects of the American economy (the housing market, for example) are indeed in recovery.
To stop the stimulus now, however, could prove disastrous, potentially sending the economy back into a downward spiral.
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What It Means for Investors
The fact that the stimulus is likely to increase means quite a bit more for investors than many realize. Precious metals, for example, have been in somewhat of a pricing funk as of late, with gold and silver both hitting lows that haven’t been seen in years.
With bond buying likely to continue, however, the case for precious metals is improving dramatically. Many analysts believe that the continuing stimulus will actually help the metal market to recover, although it’s too soon to say whether or not this will be the case.
The stock market could also benefit dramatically from a continuing stimulus. Bond buying can have a strong impact on market moves, causing investors to diversify their portfolios and dramatically impact stock prices.
If the economy can escape the slowdown that has plagued it recently, it should stand to reason that many people will begin making more lofty investments, which could have a strongly positive impact on the stock market.
Whatever happens, it’s clear that the remainder of 2013 will be interesting to follow in terms of economic shifts—for better or worse.
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