Steady as she goes

Most leading economies are struggling to escape stagnation. The US economy grew at an annualized 2.8% in the second quarter of 2024, double that of the first quarter, which caused a brief burst of euphoria. China's Q2 growth was 4.7%, which was seen as disappointing because it was slower than Beijing's aim of 5% and Q1's 5.3%. The Eurozone and the UK are underwhelming - the former growing by just 0.3% and the latter by 0.7% in Q1. Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), says the "global economy is stuck in low gear"; the IMF expects global growth to reach 3.2% this year, 3.3% in 2025. That seems sluggish but average growth between 1820 and 1950 was just 1.6% and from 1500 to 1820 was even smaller, at 0.3%. Georgieva fears a "prolonged period of anemic growth". If there was a 'golden age' when growth was relatively strong it was the period 1950-1973, when all regions of the world registered gross domestic product (GDP) growth of more than 4%/year, and Japan more than 9%, according to the OECD (Organisation for Economic Co-operation and Development). If we need evidence that the golden age is over Japan's story is compelling; in Q1 2024 the Japanese economy shrank by an annualized 2%.

How strong is the US economy right now? There is contradictory evidence.

There are claims that under President Biden 15 million jobs have been created, and that inflation has been tamed. Yet consumers have probably exhausted their pandemic-government handouts, which supported US economic growth for the past couple of years. Consumer spending accounts for around 70% of the country's GDP. More than a third of Americans use a physical credit card to pay for their purchases; at the end of 2023 average credit card debt per borrower was $6,360, 10% higher year-on-year and a record high. In total US credit card debt last year was more than $1 trillion, 13% higher than a year previously. It's therefore worrying that credit card delinquencies are the highest since the Federal Reserve Bank of Philadelphia started collecting data 12 years ago. The average FICO (credit rating) score dipped at the end of last year, the first decline in a decade. Americans don't know austerity.

The time lag

Economic data always looks backwards; what counts is what will happen, not what has happened. And on this score various indicators relevant to the US economy are starting to look weaker. Jobs growth slowed in June, although the number of jobs added exceeded expectations. Consumer confidence (as measured by the University of Michigan) fell in July this year, the fourth successive month of decline. Almost half of those who took part in the same survey said they were still bothered by high prices (home prices has risen by more than 50% since 2019) and persistent economic uncertainty in the context of a looming Presidential election.

With about 100 days to go before voters choose their next President there is little hard evidence from either of the two main contenders about what their economic policies might be. With Donald Trump there has been a lot of talk of high tariffs against imports, deporting millions of undocumented workers, a weaker Dollar - all of which would spark a resurgence of inflation. Kamala Harris - if she proves to be the choice of the Democrats - we can only look back to her bid to win the Presidency in 2020. Among other ideas, she backed a refundable tax credit to middle-class and working-class families of up to $6,000/year, which was estimated to cost $3 trillion over 10 years.

Tax and spend

Like the US, the UK faces a fiscal crunch - the inability to fund public spending from tax revenues. Unlike the US however the UK cannot simply borrow more. The new UK Chancellor, Rachel Reeves, is softening up public opinion to announce as early as next week a tax-raising effort that could take from the public as much as £25 billion. She has ruled out higher income tax, national insurance, VAT or corporation tax. Which leaves only a few levers for her to pull, including capital gains and inheritance taxes. The Labour Party is now in government partly because the British public had enough of penny-pinching poor public services. Time for government spending - if it can raise the cash.

On both sides of the Atlantic the coming months will be turbulent. Cryptocurrency fans are lauding the prospect of a Trump + J.D. Vance victory in November and certainly current betting favors Trump. But given the unknown position of the Democrats and the whimsicality of Donald Trump, nothing is certain. Apart that is from gold. Most analysts forecast an even higher price for gold in the final quarter of 2024. Which is far from certain - but it could be more certain than the words of politicians. Steady as she goes.

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.