If a deep recession were imminent, the wisdom of sheltering a sizable chunk of your wealth in gold investments would be self-evident. Likewise, a plausible threat of recession warrants hedging traditional assets with gold. However, making an informed decision about the seriousness of the threat – or whether it even exists – can be vexing amid the endless barrage of conflicting hype.
Truth is seldom found in the extremes, and those who believe that truth lies somewhere in between are rare. Yet a few are willing to set ideology aside and come to the defense of reason.
Martin Feldstein, a Harvard professor of economics, is the epitome of the Keynesian school. He led Ronald Reagan’s White House economic team and is the current president emeritus of the National Bureau of Economic Research (NBER), the agency that determines the beginning and end of recessions.
In an interview with Bloomberg, Mr. Feldstein assessed the current state of our economy.
“We are not doing very well,” Feldstein said. “The economy is just coming along at a snail’s pace.” Calling the 2.2% first quarter growth in GDP disappointing, he pointed out that “it was all automobiles. 1.6 out of the 2.2 was motor vehicle production … people were catching up after not being able to buy them the year before.”
Feldstein sees real danger in the seemingly contradictory performance of the stock market, which he believes “is a bubble … created by low long-term interest rates … The danger is you get a market that is not with the reality of what is happening in the economy.”
Does all that suggest a pending recession? Noting that these are his personal views and not those of the NBER, Feldstein said he thinks the probability is low – for the moment. But that all could change very quickly.
“There are a number of negatives out there,” Feldstein said, “The economy is slow and weak,” and with 11 European nations now in recession, “that is going to hurt our exports.”
The biggest threat, however, is the risk that Congress will not ward off the $5 trillion tax increase mandated for next year. “If we are going to see that jump in taxes,” Feldstein said, “that is going to push the economy next year into a serious recession.”
Feldstein’s remarks underscore the uncertainty that pervades today’s markets and suggest the prudence of protecting your portfolio with a sound gold investment.