More guns, less butter

Who said "we can do without butter but, despite all our love of peace, not without arms"? Answer at the end. For the past 80 years Europe has prioritized buying itself a welfare cushion, and doing its best to spread that cushion around the world, over paying the price of military strength.

Under pressure from President Trump the 'long peace', as the distinguished American Cold War scholar John Lewis Gaddis termed it in 1986, has shuddered to a halt. Not that the President is a war monger, but his transactional mind - what do I get in return for doing what you want? - will snuff out the welfarist inclinations of European states.

Two days before he arrived in the US to meet President Trump, the UK Prime Minister, Sir Keir Starmer, told Britain that his government would cut the country's aid budget from 0.5% of gross domestic product (GDP) to 0.3% by 2027, in order partially to fund an increase in the defense budget from 2.3% of GDP to 2.5%. It's estimated that this increase will add £6 billion (almost $8 billion) to the defense budget. That's a drop in the bucket when it comes to armaments. President Trump is fed up with spending so much money on Europe's defense - and he has a point. Despite all the protestations the West is being 'encouraged' to give up some butter in order to buy some guns; in the case of some Nato members, to remedy years of neglect of armed forces.

America's getting poorer

America's fiscal deficit - the gap between what the federal government receives in taxes and what it spends- was more than $800 billion at the end of January, almost a quarter bigger than this time last year. The Congressional Budget Office, a non-partisan entity, estimates the deficit for this fiscal year will be almost $2 trillion, rising to almost $3 trillion by 2035, which will be more than 6% of America's GDP. For most of the 'long peace' the deficit has averaged 3.8% of GDP.

That estimate did not take into account President Trump's proposed $4.5 trillion tax cut and border security agenda, which has just been passed by the House of Representatives. The US has steadily been spending more of less. America's national debt just keeps climbing, currently more than $36.5 trillion (almost £29 trillion), which is more than 120% of the entire economy. The same budget resolution will raise the debt ceiling by $4 trillion, which is probably enough to postpone legislative scrapping over exceeding the national debt limit. Britain's debt is almost 100% of its GDP. Interest paid on the US national debt is now $1 trillion annually.

President Trump has decided that charity needs to start at home.

America's gold

The US federal administration says it will now audit the country's gold reserves, held at the bullion depository at Fort Knox. There is much silly speculation that the 8,133.5 tonnes of gold isn't there. But if all or some of the gold is missing that would rock financial markets throughout the world.

There's considerable speculation right now that the federal administration may be about to revalue the US gold reserve. That would be interesting and might stimulate higher gold prices in the market, but it wouldn't solve America's debt problem. The US gold reserve has remained stuck at a valuation of $42/ounce since 1973, putting its total value at some $1 billion. That's clearly an absurd valuation when gold is around $2,900/ounce.

If the gold were to be revalued at the current market price it would overnight be worth $760 billion. A nice windfall for the US Treasury but it would probably have little significance beyond that. Unless, that is, the gold price rose considerably higher, when the potential windfall could make a serious dent in the nation's debts - it could mean the Treasury didn't need to issue so many bonds. The administration clearly has an incentive to massage gold prices much higher - before the national debt changes from being a headache to a catastrophe.

All bets are off

The world today is unrecognizable from November 2024. When the Financial Times can print an article headlined "the US is now the enemy of the west", and the US President and his wife can profit from silly digital 'coins' that rise on a tide of euphoric expectations only to slump days later, 'uncertainty' no longer seems adequate. We all need to hold onto our hats, and make sure we preserve our assets as best as we can. You will not be surprised to hear that at Glint we believe that means holding onto, buying more gold, and using it in our transactions. It looks like a much better bet than getting into Bitcoin (or other cryptocurrencies), which over the past month has lost 15%. As for the guns or butter quote, it was of course that notorious propagandist Joseph Goebbels, in 1936, although it feels eerily contemporary.

For UK/RoW clients: At Glint, we make every effort to demonstrate a balanced conversation between gold, silver, 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.

For US clients: Graphic representations of value are for illustrative purposes only. The Glint debit card is issued by Sutton Bank, member FDIC. The sale, purchase and storage of precious metals are offered by Glint and not Sutton Bank. Your investment in precious metals through Glint is

·        Not insured by the FDIC.

·        Not a deposit or other obligation of, or guaranteed by, Sutton Bank.

·        Subject to investment risks, including the possible risk of loss of the principal amount invested.

All investments involve risk, including possible loss of principal. The value of precious metals is affected by many economic factors, including but not limited to the current market price, demand, perceived scarcity, and quality of the precious metal. Precious metals can increase or decrease in value. Past performance is not a guarantee of future results. As such, investing in precious metals may not be suitable for everyone.