"By every conventional measurement - by the unanimous verdict of the polls, by the unanimous outlook of US political pundits with proven track records and by the "popularity" ratings of the candidates - the US mid term elections next Tuesday are an almost foregone conclusion. There is absolutely no doubt about the House of Representatives, the Republicans will lose that. The only remaining doubt is whether they will also lose control of the Senate, where only one-third of the seats are up for grabs".
Gold This Week - November 3, 2006
That's the way it actually worked out. The Democrats won the House handily - and they won the Senate too. After six years of it, the American people finally showed that they have had enough of living in a one party state with the Republicans controlling the Executive and Legislative branches of government and potentially in a position to control the Judicial branch too via future Presidential appointments to the Supreme court.
Much safer to have one party in the White House and the other on Capitol hill. Aussies figured this out a long time ago. That's why when the "conservatives" rule the roost at the national capital in Canberra the "liberals" are in control of most if not all of the State governments - and vice versa.
Pretty well nobody inside or outside the US is unaware that this was not a vote FOR the Democrats, it was a resounding vote AGAINST the Republicans. Many voters were quoted, after having cast their vote, as saying that they didn't know who the Democratic candidate was. All they knew was that he or she was NOT a Republican, so they voted accordingly.
While it is true that the Democrats are no great bargain, there are nonetheless three very hopeful signs which have come out of this election. First and most important, the legitimacy of the entire voting/political process has stood up with the result being even worse for the Republicans than the polls said it would be. The only alternative to change/revolution by ballot being revolution by bullet, as flawed as it is, the voting process remains indespensible.
The second result is, of course, the repudiation of the Bush Administration and its "policies", most notably its push towards making Washington DC the epicentre of a global empire with the grotesque trampling on the individual rights and freedoms of Americans which such a push always employs.
The third result, and the one most encouraging for future US elections, was the bigger than usual turnout combined with the large youth vote and the equally large vote AGAINST the incumbent. The best thing that Americans (and the people of every other nation which still "permits" a vote) can do is to keep voting out incumbents at every opportunity open to them. Keep changing the hands on the levers of power and it is not long before those levers no longer connect and the power starts to wither.
Of course, with the monolith which was the Bush Administration and the Republican-controlled Congress now shattered, the facade of the US as the world's sole "super power" is going to crumble right along with it. In the realm of economics and finance, this means that the days of ANY American government running gargantuan deficits and piling unrepayable paper to the skies through credit creation are severely numbered.
Within 48 hours of the US election, both Australia and the UK had raised their interest rates. The Europeans are all but certain to follow suit next month. On November 10, the yield curve in Europe actually "inverted"" (it has been inverted in the US for most of this year) and the reaction was instant. Europe regards higher interest rates as a necessity. Mr Bernanke and the Fed, of course, stand aghast at any such prospect.
The real shot across the bows, however, was fired by China which attained the "milestone" of a $US 1 TRILLION pile of "foreign reserves" (mostly US Treasury paper) at the beginning of this week. On November 9, the Chinese let it be known that they were actively examining alternatives to "diversify" these reserves. Gold, of course, leaped the best part of $US 20 on that news.
The US Dollar has been sinking slowly ever since the election. Gold has been going up in $US terms for the past five weeks, albeit the gain this week was a mere $US 0.90. The world knows that the Fed dares not raise US rates for fear of choking off the consumer borrowing which is the bulk of what is called US "economic growth". Even if the Fed doesn't raise rates, this borrowing is dying slowly but surely as the air continues to flow out of the US housing bubble. The whole world knows that the US Dollar is a risky proposition and certain to grow more risky, possibly very quickly, in the immediate future.
Please remember, since the beginning of the current Gold bull market, Gold has made new annual highs every year in the November/December period. At its present level of $US 630, Gold is still more than $US 90 below the highs it set in mid-May this year just under $US 70 above the lows it set in mid June and again just over a month ago in early October. If we are going to have another late year high for Gold, its going to start climbing faster towards those May highs over the next two weeks - or three weeks at the outside.
The mid term election is over. The new Congress does not convene until January at which time the Democrats will have no choice but to actually debate the issues facing the US. Meanwhile, the dreams of empire of the Bush Administration and the "neocons" who pull the strings in it lies in ruins. Examine the demise of any historical empire and you will find the demise, or near demise, of the currency of th seat of empire. When that currency is a world reserve currency, as was the British Pound in 1931, the global economic consequences are dire. When that global economic currency has been a fiat paper currency for almost two generations, as has the US Dollar since 1971, the consequences are potentially cataclysmic. As we have said here before, the only way back is, ultimately, a return to Gold as money. But unfortunately, there is going to be a lot of economic and financial pain to go through before that happens.