I
think I know some lab mice that have received less examination than the 2012
Republican primary candidates. It seems with each passing cycle, the
campaigning starts earlier, there are more debates, and the media frenzy gets
more intense.
Yet,
with all the pyrotechnics and pageantry, it becomes difficult to figure out
what these tricksters actually think when they're behind the curtain. Since
the gold price is inextricably linked to the long-term fate of the US dollar,
it's rather important for gold investors to be able to forecast how each
candidate, if elected, would conduct his/her monetary policy.
Monetary
policy is not nearly discussed enough in debates or television appearances -
partly because too few viewers care about it, and partly because most
candidates simply don't understand the subject. The most common monetary
policy platform amounts to little more than, "I'm opposed to China's
currency manipulation, and America needs a strong dollar!" (Little do
they know that these two goals are right now in opposition.)
As
we examine three frontrunners, it's important to remember that their future
policies can be difficult to distil, but that their past records are likely
to be a more effective indicator than their present rhetoric.
HERMAN CAIN: THE FED CHAIRMAN
Cain's
lucky he's known as "The Guy Who Makes Pizza" instead of "The
Guy Who Prints Money."
Herman
Cain was Chairman of the Federal Reserve Bank of Kansas City from '95 - '96,
and held the positions of Deputy Chairman and Board Member during the
preceding six years. This was the heyday of Alan Greenspan's bubble economy,
and there is little record of Cain dissenting. While some have remarked that
Cain knew little about economics when he joined the board, he has had ample
time to learn. Yet, when challenged to name his favorite Fed Chairman at this
year's debates, Cain still chose Greenspan!
Cain's
flagship "9-9-9 Tax Plan" is drawing headlines, but it contains no
in-depth discussion of monetary policy, other than brief allusions to a
"strong dollar." No mention of quantitative easing or the money
supply. No condemnation of artificially-low interest rates.
Even
if Cain were able to reduce taxes considerably, the spending would continue.
Like many Republicans, Cain talks generally about spending cuts, but does not
specifically target any budget items. We can assume any actual cuts he gets
through Congress would be of the "slow the growth of future
spending" variety.
With
continued spending and record of inflation tolerance, Cain will most likely
turn to the Fed to monetize the extra debt. This means a Cain presidency is
likely to be very bullish for gold - with the mitigating factor that if given
free reign, Cain might at least try to move the country back on a sustainable
path.
Cain
Presidency:
* Bullish for gold
* Bearish for USD
MITT ROMNEY: THE CLOSET DEMOCRAT
Consider
the following quote: "My experience tells me that we were on the
precipice, and we could have had a complete meltdown of our entire financial
system, wiping out all the savings of the American people. So action had to
be taken."
It
sounds like Tim Geithner, Ben Bernanke, or Paul Krugman.
President Obama himself has said exactly the same thing countless times. Yet,
this quote comes from Mitt Romney at a recent Republican debate.
Romney
supported the TARP bailouts. Romney defends the Federal Reserve. Romney even
implemented socialized medicine as Governor of Massachusetts. He says he
would conduct monetary and fiscal policy "differently" than Obama,
but when you're car is headed over a cliff, it doesn't much matter whether
you drive on the right or left side of the road!
Just
as with Cain, Romney still does not understand the terrible precedent set by
the bailouts, and the devastating consequences loose monetary policy has on
the US dollar and global economy. Worse yet, Romney hasn't even offered a
credible plan to reduce government involvement in the economy. Romney's
campaign slogan might as well be, "A New Face for the Status Quo."
And the status quo is a collapsing dollar and skyrocketing gold.
Romney
Presidency:
* Very bullish for gold
* Very bearish for USD
RON PAUL: THE GOLD STANDARD
If
Ron Paul were elected President, he would immediately move to cut spending drastically.
This is clear based on his 35-year record of acting on his promises, and his
recent campaign pledge to cut $1 trillion from his first proposed budget. He
would face stiff resistance from both parties, for sure, but such a move
would change the entire direction of public discourse.
Now,
it's important to remember that $1 trillion is only two-thirds of the 2011
deficit. So, even if President Paul got his entire budget approved, we still
would be facing a growing debt of around $16 trillion at that point. While
President Paul could order the Treasury to begin selling its toxic assets
that are impeding economic recovery, he wouldn't have direct control over the
Fed - which, under Bernanke, would likely announce even more money-printing
to counteract the President's tough medicine.
But
President Paul's real silver bullet would come two years into his term when
he would get the opportunity to nominate a new Fed Chairman. As someone who
entered public life in response to the end of the gold standard under Nixon,
Paul is certain to appoint the most hawkish Fed Chairman the country has ever
seen. This would immediately reverse the misfortunes of the US dollar and
could impact gold's rise.
But
remember, even in this pie-in-the-sky scenario, it will still take years for
Bernanke's devaluation damage to fully circulate around the global economy.
That means gold could still appreciate well into a Paul presidency.
Ultimately,
a Paul presidency could also lead toward a gold standard monetary system. In
such a case, gold is likely to carry an even higher value as the premium for
serving as the international reserve asset.
Paul
Presidency:
* Bullish for gold
* Bullish for USD
RICK PERRY: THE BIG SPENDER
Rick
Perry is a career politician now in his 11th year as Governor of Texas. He
claims to be a tax-fighter, but he has signed several tax increases as
Governor. To the extent that he has held the line on taxes, he's overseen a
more than doubling of Texas state debt. And not all of this money was going
to pay for schools and roads. For instance, he created the $435 million Texas
Enterprise Fund to subsidize politically connected businesses.
As
a candidate, Perry has adopted Ron Paul's rhetoric being critical of the
Fed's quantitative easing programs. He's even gone as far as accusing
Bernanke of "treason." But he doesn't show a deep understanding of
what makes the Fed's policies so destructive, and his campaign website makes
no mention of monetary policy at all.
Still,
Perry at least knows which way the wind is blowing, and he does have a record
of vetoing expensive legislation. Overall, it's hard to tell what kind of
President he would be - a lot like it was for the last Texas Governor that become President. In the latter case, President George W.
Bush claimed to be for small government and a humble foreign policy, but went
the exact opposite way once elected.
Perry
might make an attempt to change Washington's direction, but he has neither
the depth nor the steadfastness to really make it happen. Thus, the current
gold/dollar dynamic would be likely to continue.
Perry
Presidency:
* Bullish for gold
* Bearish for USD
NEWT GINGRICH: THE BENEDICT ARNOLD
In
the mid-'90s, Newt Gingrich gained a reputation as a radical reformer after
he led the Republicans to their first House majority in 40 years. He wrote a
Contract with America, and made a good faith attempt to pass all of its
provisions. This movement could be credited with stopping Hillarycare,
enacting welfare reform, and reducing certain key taxes.
But
in the years since, he has vocally supported programs like the costly
Medicare Part D, teamed up with Hillary Clinton on healthcare, and supported
mainstream Republican candidates over Tea Party challengers.
What
happened? Clearly, Gingrich has been building bridges in order to be seen as
a moderate candidate for his Presidential run.
If
only he had kept to his original firebrand style, he might have had a shot at
getting something done in the White House. Unfortunately, trying to become
part of the establishment is a game with no end, and therefore Gingrich is
likely to continue "reaching across the aisle" to author costly
legislation. If he announces a Contract with Austerity, maybe I'll change my
tune.
Gingrich
Presidency:
* Bullish for gold
* Very bearish for USD
HOW IMPORTANT IS THE PRESIDENT?
Despite
what the media would have you believe, the President is not all-powerful. In
fact, a President only has limited powers compared to Congress. Without the
support of Congress and the American People, a President can be rendered a
lame duck early on - like Jimmy Carter was.
The
direction of gold under most candidates is fairly easy to predict - it will
continue appreciating against the falling US dollar. This is simply because
these candidates will not even attempt to address the disastrous fiscal and
monetary policies that have brought us to this point.
The
price direction under Ron Paul (and also Gary Johnson), however, would be
less predictable. I believe both men would try their best to reverse the US
decline that my strategy is insulating against.
In
any case, even an authentic campaigner who understood the calamities of
money-printing would be hard-pressed to actually save the dollar at this
point. The history of fiat currencies has few - if any - examples of monetary
debasement being reversed before the currency falls
apart - and many cases of gold proving the superior asset.
BARACK OBAMA: THE WORST-CASE SCENARIO
There
is one candidate in 2012 that we can be sure won't even try to save the
dollar, and that is President Obama. From his doubling down on the bailouts
to his faithful support of Chairman Bernanke, Obama has done almost
everything in a President's power to hasten the dollar's demise.
If
he is re-elected, which still seems like a possibility, then
you better put on your mining hats because the gold rush is on!
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