Elephants in the room

The great debate has come and gone without discussion of what should be the prime concern for all American voters on 5 November - the ever-expanding national debt, now more than $35 trillion (almost £27 trillion). Failure to address the elephant in the room is infectious. In the UK the government - any government - is set on an "unsustainable" climb in the national debt says the Office for Budget Responsibility (OBR), the official fiscal watchdog. The OBR says that over the next 50 years if public spending continues as projected then debt is on an "unustainable" path and will rise from 45% to more than 60% of gross domestic product (GDP). The UK debt will rise from today's less than 100% of GDP to more than 274%. Of course such long-term projections can be mistaken, as the chart below shows.

Black holes

The UK's relatively new Labour government has been hammering home the idea that there is a £22 billion (almost $29 billion) 'black hole' at the heart of public finances, a hole that it needs to plug by higher taxes and cuts to public spending. Coincidentally US federal government is facing its own 22 black hole - the trustees of the Social Security Administration have reported a $22.6 trillion (£17.32 trillion) in its accounts. Most Americans depend on this fund for their retirement but on the current performance it will run out of cash in 2035. The Committee for a Responsible Federal Budget - a non-partisan non-profit - calculates that the average couple would annually lose $16,500 in benefits were that to happen.

British citizens might be considered lucky, if only because their new government is led by a Prime Minister who seems to recognize that he faces problems. Sir Keir Starmer has said the UK's National Health Service (NHS), which costs taxpayers more than £180 billion ($236 billion) a year and which has been setting records for waiting times for operations, will get "no more money without reform". Spending on the NHS has more than doubled as a percentage of GDP since 1990.

Ageing populations, as well as medical advances on both sides of the Atlantic, are edging us towards an unpalatable crunch. In the US the Medicare program, the federal health insurance for anyone aged 65 or more, is fast heading towards its own black hole. The safety net of the state will soon be stretched to breaking point.

Do nothing...

The Trump-Harris televised 'debate' on 10 September was silent on the national debt, which according to the Congressional Budget Office, will within the next four years - in the period in office of either Harris or Trump - will surpass 106% of annual GDP, higher than at any time since 1946; and it will keep rising if nothing is done. It is shocking that, less than two months before what could be the most momentous presidential election of our lifetimes, the debate seems to be fixated on the alleged eating of pets.

Economic growth and higher productivity are the sirens invoked by all Western governments. Yet fiscal deficits are faced by many - about 5.6% of GDP in France, more than 3% in the UK, probably 7% in the US - even ultra careful Germany will have a fiscal deficit this year. Interest payments on the national debt will have exceeded spending on defense in the US.

...or something

'Grow the economy' was the pre-election mantra of the Labour Party in the UK's general election, though without any concrete details of how this could be done. This empty promise cost nothing. Nevertheless, such was the public's loathing of the previous Conservative government that Labour romped home. Now in office Labour wants to blame its 'black hole' on the previous Conservative government. 'Black holes' exit everywhere - even the holiday paradise Maldives is struggling to avoid defaulting on its sovereign debt. Global public debt reached more than $315 trillion in the first quarter of this year, 333% of GDP, according to the IIF (Institute of International Finance). There are ways out of this precarious debt problem, including growing the economy. But no-one has a clue as to how that growth can be spurred on. The World Bank said in June this year that in 2024-25 "growth is set to underperform its 2010s average in nearly 60% of economies" and that "global risks remain tilted to the downside".

Financial advisors often speak about the optimal holdings of gold in a portfolio as a means of defense against unexpected risk. A figure of around 5% is often spoken of. Some individuals however are opting to put all their savings into gold. One such is a single mother-of-three who was recently interviewed by the British daily The Telegraph. She told the newspaper she now has all her savings in gold, a "bonkers" decision she says "most people" would think. According to the newspaper she said "I didn't feel safe with my money sitting in a bank earning less than nothing...I educated myself on how the banking system actually works...It's debt-based and it's unhealthy, bankrupt and unsustainable." In the current context of fragile fiat currencies, a global debt explosion, and serious wars on different continents, it doesn't seem bonkers at all.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.