Last Friday the Bank of Japan (BOJ), Japan’s central bank, surprised the markets and enacted a negative interest rate policy. This stunning action follows on the heels of the European Central Bank (ECB), which took similar actions last year. Both regions, along with most of the world’ s leading economies, are dealing with excessive debt loads, anemic economic growth and falling productivity growth. Faced with the growing risk of deflation and default, they have decided to keep playing the game and pray that more debt is the answer to their debt problem. It isn’t!
In 2015, we recommended gold as an asset that investors should hold. We wrote two articles, linked below, which discussed its value and history as an insurance policy against economic and currency mischievousness. On the heels of the BOJ’s actions we believe it is appropriate to remind our clients that monetary policy is broken and, in such times, financial insurance should be considered. You do not have to have a PHD in economics to understand that when negative interest rates are required to help generate economic growth something is wrong.
Growth of Central Bank Balance Sheets