Gordon Brown - 2007 General Election & Gold
Writing this at the height of election speculation in early October 2007, we would advise the Prime Minister Gordon Brown to call an early election before things get worse, and the electorate wakes up to reality.
We try to avoid getting political in the pages of our websites, but politics do impinge on our business, on the value of currencies, therefore on the price of gold bullion, and other hard commodities such as silver, platinum and palladium. Much of this website is devoted to investment gold.
Whilst we do have our own political views, we restrain ourselves from taking sides, but at times, and this appears to be one of them, we feel that what happens on the British political scene may have a very important effect on the value of the pound sterling, and therefore on gold.
Booming UK Economy?
We fear that if Gordon Brown, and the current Labour government remains in power, the value of the pound will be eroded. It may even be too late already, as we feel much damage has been done to the British economy, and confidence in our currency may have taken too many knocks, for it to maintain the illusion as a safe haven for hot money.
The world economy has hit the buffers, and may yet crash into a full recession. If the British economy has indeed been buoyant in recent years, as repeatedly claimed by Tony Blair, Gordon Brown and the Labour government, it may not be because of Brown's good management during his stint as Chancellor of the Exchequer, but despite it.
At the time of the Bank of England Gold Sales, we gave Brown the benefit of the doubt. We were wrong. Brown explained that it was part of modernising our currency reserve strategies. We now think it was a quick way to obtain large amounts of money to squander on strategies and expenditure which may or may not have had admirable aims and intentions, but which we now believe were naive, and badly implemented. These gold auctions earned him the nickname Golden Brown.
Successful Tax Policy
It remains a truism that to collect tax effectively, it helps if people do not realise they are paying it. On this measure, Brown has been an excellent Chancellor. Stealth taxation appears to have borrowed technology from the stealth bomber. New taxes have appeared, old tax thresholds have been eroded, bringing the majority into the higher tax bands, inheritance tax bands, property stamp duty bands. The wealth-creating working classes in Britain are all paying higher taxes in real and percentage terms than before, and we suspect Gordon will keep squeezing until not only will the pips squeak, but the juice will run out. Rather the juice will cease to flow because it has all been squeezed dry.
Spin, Damned Spin, and Statistics
The old fashioned word for spin was propaganda, we think it should now be redefined as lies, deceit and dishonesty.
It appears that the Blair government, which is 99% the same as the Brown government, took Britain into the Iraq war on the basis on highly questionable intelligence. As Chancellor, Brown appears to have condoned the expenditure on it, but is now trying to pretend it was nothing to do with him. We believe this is totally dishonest, unless he is so delusional that he believes he has always opposed the Iraq war, in which case we must regard him as a dangerous psychotic.
Time after time, we have heard serious announcements, from both Blair and Brown, about billions of extra funding or investment in education, health, welfare, etc. Shortly after each triumphant announcement, informed analysis had appeared showing that the stated increase included previously announced increases. Some of these have later been cancelled, revoked, or delayed, showing the announced increases to be little more than a cynical charade, reminiscent of the Roman Games announced to keep the moronic masses and the pitiable plebs quaintly quiescent.
Government by Press Release
It seems to work, that whenever something nasty happens to offend and outrage public opinion, one quick fix is to make a press announcement about it. This should include an immediate Official Enquiry. Later you could make another announcement that new laws will be drafted which will make whatever happened illegal (even if it was already covered by existing legislation). The majority of the public will believe most of what they are told. It might take 5 or 10 years before the courts find that the legislation is flawed because of faulty drafting, or because it falls foul of EU Human Rights Acts, or fails on some other technicality. No problem for this government, blame the judiciary, and announce further legislation, amendments, and so on...
Grin or Grimace
The writer has, on a number of occasions, admired Tony Blair's apparent resolution and tenacity in some matters. I found myself admiring his apparent sincerity when carrying through with policies which had proved to be unpopular. Perhaps he is an honest and sincere man despite his chosen profession as politician (I have come to wonder whether all politicians are dishonest). During the last year of his Presidency, I came more and more to distrust his cheesy smile, and the heart-pulling hand gestures. I started to imagine Rory Bremner in his place. When his Party finally ousted him from its nest, I believed it was none too soon.
Perhaps I spoke too soon.
Now that Brown is Prime Minister, I have already started to distrust his serious and humourless expression more than I did Blair's smile. When he does make a joke, and smile, I cannot help thinking it is false and smug, and totally mirthless.
From the above, most readers will be able to correctly deduce that I have lost any respect and trust I previously held for Blair, Brown, or the rest of this Labour government. What I find hard to understand is why it seems to be taking the rest of the UK so long to get round to the same thinking.
Actually, it might be happening. In today's Daily Telegraph, we read a report that HSBC Bank warns that "Britain faces a stark "de-rating" by investors", and "It expects the pound to fall from around $2.04 to $1.76 against the dollar over the next eighteen months, even though the dollar itself is in danger of losing its status as the world's "anchor currency". That means an effective 14% devaluation against the dollar, which itself may get similar treatment.
There is another Telegraph article "Gordon Brown's figures don't add up", by Jeff Randall.
Back to the Point
The whole point of the above digression was to make the point that the future value of the pound sterling looks bearish. So also does the dollar (see the book called "Wake Up"), which we heralded about two years ago.
It is difficult to think of any solid secure currency or hard defensive asset apart from gold.
Since Brown's Big Gold Sale, the value of gold, measured in British pounds, has more than doubled (increased from £157 to over £360 = 129% increase). The other way of looking at this is that measured against gold, the pound sterling has lost over 56% of its value in the 8 years since 1999, standing now at only 44% of its former value.
We never noticed HSBC shouting about it in 1999, and it is possible they have underestimated the impending potential devaluation.
If Brown calls a snap election and wins, we believe it would be the worst outcome for this country. The second-worst scenario would be for him to hang on for the remainder of the government's term, and the best would be for him to lose in a snap election.
From a self interest point of view, we believe the first of these outcomes would be the best for our own business, in that the demand for investment gold would become huge as the pound slid, the second outcome would be next best, while the third possible outcome might just spoil our fun.
At the end of the day, it is unlikely that anything we do or say will effect the outcome, and we would do best just to plan for any of the three contingencies, then wait to see what happens.
You may wish to read more articles in our market news section.