"We must be honest"

In her Budget on Wednesday this week Rachel Reeves - Britain's first woman Chancellor (Finance minister) - said the Labour government "must be honest". Reeves is part of a government that has pledged to protect 'working people', an elastic definition that has confused many. And many more might be further confused by her 'honesty' declaration. For she delivered a range of complex measures that ultimately will see millions of individuals paying more taxes in future years - a blatant disregard of her earlier promise to protect 'working people'.

For however a working person is defined, millions of them will find that the $40 billion ($52 billion) in tax rises will leave them with less in their pockets. And although greater economic growth is supposedly the government's aim, the higher taxes of business could jeopardize that. Perhaps the most damaging to the overall economy is the costs to businesses: a rise in the national insurance (NI) tax (intended to pay for state benefits and the State pension); a lowering of the threshold at which this tax will be paid, from £9,100 to £5,000 (from $11,800 to $6,500); a cut from 75% to 40% in relief of business rates, meaning hundreds of thousands of businesses will find their rates more than double; and the minimum wage will rise by more than 6% early next year. In future employing someone on £30,000/year will see the employer's NI tax increase by 30%.

But the real dishonesty looms large ahead. The demographic in receipt of most of the State pension and benefits, and which uses the health and social services most, is currently growing by more than 11%/year, while the number of taxpayers is increasing by less than 1%/year. How will governments afford to pay state benefits in the long run? The Budget was designed, according to Reeves, to get economic growth started. But it is a classic socialist error to believe that such growth can be obtained by pumping borrowed money into the public sector. The private sector - which will be damaged by this Budget - pays the taxes.

Next week

Much more momentous than a UK Budget is next week's US Presidential election. Whichever way the vote goes the world can expect serous reverberations. Taxes and public services will also be at the forefront of this election. The candidates have spent much of the recent weeks lobbing dubious insults - 'facist' and 'garbage' - at each other, whereas voters care more about their incomes and making them stretch across competing bills.

Inflation may have returned to close what the Federal Reserve wants, but prices in the US have risen by almost 25% since 2019. The poorest Americans, who account for a large portion of undecided voters, have endured higher inflation relative to the richest households since 2019. Poorer households are more likely to rent than own their accommodation and rents on average are about 30% higher than they were in 2019. In Atlanta, in Georgia, one of the key swing states in the election, rent costs have gone up by more than 40% since five years ago.

Yet the American economy is doing well. In the 3rd quarter of this year gross domestic product (GDP) grew by 2.8% and unemployment is relatively low, around 4%. The big picture is that it seems as though the US has achieved a low-inflation, full employment economy - the much-desired 'soft landing'.

As in the UK, creating higher economic growth is the elusive aim of both candidates, but as yet they have campaigned via insult rather than economics. Many Americans probably long for a dose of honesty, about the grotesquely large national debt, about spiraling fiscal deficits, and future federal spending plans. Instead they get personality cults.

US Federal debt as percentage of GDP

Uncertainty is the winner

The Presidential election will be an extremely close race, everyone agrees. There's no indication however that either of the candidates has anything more to offer the voter than a Band-Aid for the deep wounds at the heart of the US economy. If a threat to democracy exists, it's due to the profligate borrowing and spending by central government in both the UK and US. What voters care most about on both sides of the Atlantic is how they can pay the bills and save a little for their children. Greater honesty by their political leaders might imply a lengthy period of austerity - belt-tightening - if the structural problems that inevitably lie ahead are to be avoided. Understandably this honesty isn't wanted by voters. But it's what needed. Those problems will, if they come to pass, necessitate radical devaluation of fiat currencies. Gold can fend off the dishonesty inherent in all political agendas on offer.

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.