It doesn’t matter who is in charge – buy gold

America's politicians have indulged in unedifying squabbling over the US debt ceiling. But when it comes to borrowing, Britain's politicians are hardly models of responsibility. It's up to the markets to regulate government spending – which explains the bull market in gold, says Bengt Saelensminde.

I'd love to be a fly on the wall of Capitol Hill this weekend. The politically charged fight to lift the US debt ceiling is going to have big repercussions for the markets next week.

What's going to happen? Well I think the threat of a market blacklash will keep the politicans in line.

But for how long?

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Today, I'd like to explain how politicians got us into this mess. How they will fail to get us out of it and what that means for the bull run in gold.

Why do we let them get away with it?

If there is one thing that we would like our politicians to do, it is to look after our financial interests. Bill Clinton put it succinctly: "It's the economy, stupid!"

In that sense politicians are just like company management. They both look after our economic interests. And crucially, they both borrow money on our behalf.

There are three reasons we allow politicians to do that.

First, there's the classic case of raising debt for investment. A business may go £5m into the red with the hope of making £100m over the next ten years. Sounds good And the same idea attracts the politicos. Gordon Brown said: "We will only borrow to invest." They'd invest in upgrading hospitals, police forces, the NHS, etc. The aim was to bring on wonderful efficiency gains.

The second reason to borrow is to get out of trouble. Businesses borrow to pull themselves out of a quagmire. Maybe they've lost a major contract, or the economy turns down, or maybe they just made a hash of the business.

And that's exactly what the government does too. Ever since the credit crunch showed up, they've chucked money at car scrappage, boiler scrappage, even VAT scrappage! Anything to kick-start the economy.

But it's the third reason that is the most relevant to us now borrowing just to keep up repayments on debt. It's sad to see a business reach these depths and I try to make sure I'm out of it well before that.

It's altogether more galling to see a government heading down this track. Yet that's exactly what's happening in Japan, the States and certain members of the eurozone.

Of course the politicians, like company managers, are adept at spinning a yarn when describing the reasons for raising debt. And that's what we need to look out for.

It's easy to think that this is party political. But it isn't. I reckon we would have got here whatever politicos had been in charge.

Red, blue, left, or right. So what!

The Democrats (left of centre) want to borrow more to keep the economy out of trouble. While the Republicans (right-ish) will only agree to more borrowing so long as spending is brought under control.

I know what you're thinking. This is just like in the UK. The reds spend and the blues come back to mop up the mess.

But I'm not sure that's entirely fair. When the supposedly conservative Bush was in charge, he piled on the debt like nobody's business. Wars in foreign lands, bailouts for banks and a welfare state, the size of which had never been seen before.

If you think our Conservatives were any different, then think again. If you cast your mind back to the mid-noughties, you may remember Cameron promising to match Labour's spending plans. Yes, in a bid for public opinion, they were going to spend, spend, spend too.

And sure Gordon Brown sold gold at the bottom. But would the Tories have done any different? If you don't Get gold' then you don't get it. Why wouldn't the Tories have bailed out of the barbarous old relic?

And what about the wars? I don't remember much opposition (save the yellows) as they all lined up for war.

No sir. UK politicians are cut from the same cloth as the guys driving the States to the brink.

Only the financial markets can regulate these cowboys

As with company management, the politicos borrow money right up until the markets say "Enough!" Equity and bond markets are the only things that are effective against these guys.

The point is, when it comes to politicians we have to be just as sceptical as we are when dealing with company management. Their political bent doesn't seem to make any discernable difference.

If the markets are in a mood to let you borrow enough rope to hang yourself, then that's what they'll do. And when the markets say enough, then companies, individuals and even politicians have to cut debt, or go bust.

Raising debt to pay down debt is the worst of all reasons for borrowing. It looks like these politicians are on a dangerously slippy slope.

How long can it go on for? Well the Japanese have been at it for well over a decade. And who is to say our politicians won't get away with it for that long too?

For me that means no end to the gold bull. The markets are in control here. And the market to watch is gold.

In the meantime, read Dominic Frisby's Gold Profit Plan. He has some very exciting plays on the escalating gold price 5 gold miners that could deliver huge gains while the politicians dither. You can read the report here.

This article is taken from the free investment email The Right side. Sign up to The Right Side here.

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Bengt graduated from Reading University in 1994 and followed up with a master's degree in business economics.


He started stock market investing at the age of 13, and this eventually led to a job in the City of London in 1995. He started on a bond desk at Cantor Fitzgerald and ended up running a desk at stockbroker's Cazenove.


Bengt left the City in 2000 to start up his own import and beauty products business which he still runs today.


Bengt also writes our free email, The Right Side, an aid for free-thinkers on how to make money across financial markets.