Risk of consumer debt default, experts advise buying gold

The US economy has shown signs of strength in the first half of 2023, prompting some economists to change their forecasts, ruling out any potential recession. However, some still believe the US economy is on track to weaken by the end of the year.

In a recent interview with Kitco News, Adrian Day, President of Adrian Day Asset Management, commented: Some economists have overestimated the current strength of the US economy and its ability to recover purchasing power.

“We seem to forget that recessions don’t happen overnight. Investors expect things to happen immediately, but it takes time for economic conditions to change,” he said.

Consumers burned through their savings during COVID-19, with credit card debt rising sharply in the second quarter of 2023, Day noted.

Earlier this month, the New York Federal Reserve reported that consumer debt increased by $1 trillion between April and June 2023.

According to Mr. Day, American consumers are not only using debt to cover expenses but also facing higher interest rates due to the Fed's strong tightening policy. These are not signs of a healthy economy.

“Consumers are in pretty good shape thanks to decades-low interest rates and government COVID-19 stimulus money, but that just means there’s a longer way to go before we hit a recession… In a year, consumers have burned through their savings and are now saddled with record debt as interest rates remain extremely high,” the analyst said.

Therefore, it is only a matter of time before American consumers default on their debts. The risk of defaulting on $1,000 billion in debt would pose a significant risk to the world's number one economy.

“In my mind, the U.S. is not out of recession. You can’t raise interest rates from zero to 5 percent without doing serious damage,” said the Asset Management chairman.

He said the longer the Federal Reserve maintains these high interest rates, the greater the risk to the US economy.

The leader expects investors to turn to gold to protect their assets when the economy falls into recession. This is only a matter of time. However, the factor that stimulates gold prices is still the Fed's monetary policy.

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