The election is being analyzed ad nauseam, so this author will add only a little to the din. Suffice it to say that democracy (which our founders distrusted and avoided) always creates a sellers’ market—the sellers being people who can vote when suffrage is extended to them but are not inclined to do so due to ignorance or apathy. They can sell their votes for promises.
The buyers, of course, are candidates for office who buy votes with OPM—other people’s money—in the form of government funds or benefits. As A. F. Tytler taught us, democracy “can only exist until the voters discover that they can vote themselves largesse from the public treasury.” This process, of course, destroys the economy, and cannot be resolved via the democratic system that caused the destruction. A strongman takes over, solves the problem, and usually creates many more.
Was the vote for Trump a reaction against this vote-buying dynamic? If the Democrats are to be believed, he’s the dictator Tytler warned about. More likely, he’s either a check on the insanity or just another form of it. After all, it’s not as if Trump didn’t promise things in 2016 that he didn’t deliver. Crooked Hillary didn’t go to jail, Obamacare wasn’t abolished, the swamp wasn’t drained, and Mexico didn’t pay for even the portion of the wall that was built. This year, however, it appears that the winning promise was more one of relief from insane policies than any promise of better policies to come (though both were made). Such a promise has a higher likelihood of being realized.
Still, though Trump is on speaking terms with reality—in fairly sharp contrast with Harris—there’s no telling how his second term will go. This author is convinced that his intentions are good and many of his actions will be needed purgatives of existing harmful policies. He accomplished many unexpected, good things in his first term. However, the challenges he now faces are astronomical—particularly the nation’s debt and promises to pay, but also the potential for war externally and strife internally.
The combination of uncertainty and high threat levels equals risk, and many countries and/or investors in the world are tailoring their economies, reserves, and/or investments accordingly. If you’ve noticed the price of gold in dollars lately, you’ll have a good clue as to how they’re doing that. Investors and citizens alike will do well to heed the clue.
Key Takeaways:
- Who understands the times? Everybody but US
- Will markets get what they need under Trump?
- Is the government waking up to the fact that it’s broke?
- Other countries are planning for a post-dollar world
The McAlvany Weekly Commentary: Dollar Recycling Being Replaced By Gold
This week David conducts a short interview of Morgan Lewis, Investment Strategist and Co-Portfolio Manager at McAlvany Wealth Management. Morgan has researched the hard asset category extensively, and has deep insights on the subject at this critical point in its development. He has discussed for some time now the sharp dividing line between Western investors and the rest of the world in regard to attitudes toward gold. While Western markets tend to be more sophisticated and developed than other world markets, the former have missed the massive and building case for gold. The BRICS countries and others have not been so complacent, but the sharp increase in gold price—even against a strong dollar—has largely caught Westerners by surprise. Following the interview, David and Kevin also discuss the great need for human connection and truth in media and science—all of which are in short supply today.
Credit Bubble Bulletin: Paradigm Shifts
Doug analyzes the election agnostically this week, acknowledging the current administration’s economic profligacy but also the bipartisan spending binge that has a very long history. He quotes Fed Chair Powell at length, to wit that Fed policy will not change in response to the election outcome. Powell considers Fed policy to still be restrictive, contrary to indications on the ground. This view justifies, in Powell’s mind, recent decreases in the fed funds rate, and presumably lays the groundwork for possible future cuts. Doug quotes from media reports regarding China’s response to the US election before writing: “With Tuesday’s earthquake, I see an unfolding battle of paradigm shifts. Indeed, I expect the election to only hasten the bond market’s newfound focus on debt and deficits. Peak Bubble excess today beckons for a desperately needed dose of market discipline.” He then provides a bevy of headlines that reveal widespread investor anticipation of relaxed discipline under a Trump administration.
Hard Asset Insights: A Big Deal Going Forward
After briefly touching on likely Fed policy in light of the election outcome, Morgan turns to two less salient news items: “a very revealing Inter-Agency Working Group (IAWG) report released by the Treasury Department…and a standout clarifying interview with BlackRock’s Rick Rieder on Bloomberg.” Given that the IAWG was comprised of members from a wide swath of government agencies and the Fed, its report is “very strong evidence that…the U.S. government knows it has an acute and accelerating fiscal problem.” That problem is essentially that the government is issuing far more debt than there is any demand for. Said another way, the government is finding it increasingly hard to borrow money. Given that the US has a debt-based economy, that development is huge. The Rieder interview is similarly momentous. In it, a high-placed establishment figure (Rieder) acknowledges the importance of hard assets at a time when America’s debt is exploding. This view, Morgan asserts, will likely become Wall Street consensus, and then the view of the average Western investor—in time.
Golden Rule Radio: Looking Past the Short Term
Miles’ kickoff of the program with chart action shows precious metals down across the board following the election. Tory puts this development in historical perspective as an expected outcome following a Republican electoral victory. Similarly, equities typically do well with such an outcome, as they have in the wake of this election. The hosts then welcome John Loeffler to the studio. John is a longtime broadcaster with a distinguished résumé who, with his wife, Carol, regularly aids in the production of the McAlvany Weekly Commentary and Golden Rule Radio. Miles asks John what he expects with the emphasis on gold by the BRICS countries and others. John responds that fiat currencies such as the dollar usually survive only 200–250 years. Much of the world is now discussing what will happen and what they will do in a post-dollar world, which is highly significant. However, the political establishments and media in North America and Europe are ignoring this development. There is much more to the interview, including what individuals can do in such times as these.
