History continuously repeats

As a Conservative pillar collapses a Socialist one rises to prominence.

The passing this week of Dick Cheney, a pillar of America’s conservative establishment, coincided with the election of Kampala-born socialist Zohran Kwame Mamdani as New York City’s mayor - two moments that capture the country’s widening political contrasts.. Mamdani, who fashions himself as a champion of the working class, symbolizes some of the reasons for gold's continued success.

A member of the Democratic party and the Democratic Socialists of America, Mamdani was elected to the New York State Assembly in 2020 on the Democratic Socialists of America ticket. His electoral campaign promised fare-free city buses, city-owned grocery stores, a rent-freeze on rent-stabilized accommodation, free universal child care, and a $30/hour minimum wage by 2030 among a myriad of other eye-catching teasers.

And the week marked the longest shutdown of the federal government since that of 2019, during President Trump's first term in office. More than a million federal employees have been affected; the US Transportation Secretary has said that 10% of air travel capacity will be cut soon if the shutdown continues.

Polarization intensifies

The financial cost of Mamdani's promises are almost impossible to calculate but may be as high as $10 billion a year. That's around 10% of the city's existing budget. He says the costs of free universal child care for children aged 6 weeks to 5 years, for example, will be covered by raising corporation tax to 11.5% from the current 7.5%. Additionally he would introduce a 2% tax on individuals earning $1 million or more a year. 1% of the city's residents earn more than $1 million a year and account for nearly half of all income tax paid in the city. Mamdani alleges they are not paying their 'fair share'.

New York city gets almost $10 billion/year from the federal government. President Trump, who condemns Mamdani, says he will stop federal funding of New York; but such funding is not simply a Presidential matter - Congress has an important say too.

But whoever one favors, the election of a committed socialist in America's biggest city just a short distance from America's radical President signifies a deepening of the divide.

Paying for things

Alfred Kammer, a senior official at the International Monetary Fund (IMF), delivered a speech this week in which he posed the question 'how can Europe pay for things it cannot afford?' He delivered an answer that should surprise no-one - 'there are no silver bullets' he said.

The lack of silver bullets - or, more directly, the absence of easy answers - is perhaps the biggest reason why we have seen the gold price rise by almost 50% in the past 12 months. All the other answers to the gold bull run - geopolitical risk, a weak Dollar, robust investor demand - drift in comparison to this lack of a silver bullet. Our governments are running out of ways of balancing their budgets while maintaining an expanding welfare state.

Unless they take a grip and cut the demands of welfarists they will never be able to balance the books. Which is why Mamdani and his ilk are doomed. They want to massively increase welfare payments while not bothering to consider how that will be paid for. It won't - can't - be paid for.

Three weeks

In three weeks Britain will face its own welfarist joust. On 26 November Rachel Reeves, the Labour government's Chancellor (money boss) will announce her national budget.

British media has been littered for weeks with tales of what Rachel will do, the latest bizarre story being the imposition of a small tax on how far electric vehicles drive each year. We have been told that banks won't face additional taxes; we have been told income taxes will be raised (for the first time since 1975, when a past Labour government raised them); we have been told property taxes will go up. All of these stories are - naturally - based on unsourced information. Trust none of them.

Amid all this dross there is one certainty. Productivity in the UK remains strapped to a coffin; the government faces a multi-billion fiscal hole. Almost 10 million people claiming welfare payments are of working age. Construction activity in the UK is now in its longest period of decline since the 2008 Global Financial Crash.

Making sense

The US is becoming increasingly divided between extremist political positions. The UK - and Europe generally - is struggling to meet its welfare costs while industrial output stutters. The grim economic prospects for both the US and Europe are being masked by the wayward investment euphoria that's tied to the latest technological burst.

If you ask yourself 'what makes sense in this hocus-pocus' environment?' it would be a huge surprise to hear any response but 'gold'. The gold rally has been remarkable, but its only the third-strongest in terms of the percentage gain in the the past 50 years. Stick around - more is on its way, thanks to the managerial skills (or rather blunders) of political leaderships.

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