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LAWRIE WILLIAMS: Afghanistan and gold. Stormy times ahead.

The almost overnight withdrawal of U.S. and British forces from Afghanistan and the extremely rapid return to power by the Taliban serves to emphasize the fragility of the current world order.  The role of the USA as the world’s policeman is in tatters and the effects on the leadership of the U.S. on the world stage is hugely diminished   Will anyone be able to trust the U.S. political will to see its actions though ever again.  The same could have been said after the U.S. withdrawal from Vietnam, but the latest events are yet another nail in the coffin of U.S. global influence.

The international power vacuum so created leaves the world open to access for America’s competitors on the world stage – notably China which has to be seeing the military and political disaster of Afghanistan as a huge opportunity to replace American influence with its own.  It could even prompt China to act on its running sore of Taiwan independence in the assumption that the U.S. would not have the political will to intervene in yet another conflict far from its own shores.

The Afghan pullout has been nothing short of a political disaster for President  Biden.  The consequences of the pullout were completely unforeseen by the U.S. Administration and military.  It’s also been something of a political nightmare for Boris Johnson’s Conservative government in the UK, although one has to have some sympathy with the position it found itself in.  There was no way the UK, on its own, could continue to hold back the Taliban advance once the U.S. had pulled out.

The West, to use a broad term, is beset with a seemingly ever-rising coronavirus infection escalation problem, and now its military capability, or will, has been hugely compromised too.  The apparent result could well be that from now on countries will be left alone to fight their own domestic battles without any intervention from the Democratic powers that, so far, rule the West. 

It has been said that a Democratic system on average can only last for around 200 years as self-interest of the electorate ultimately leads to system breakdown as the people will ever increasingly vote for whichever political party offers them the most comfortable existence.  In terms of the financial elements of this, government largesse will overtake a country’s ability to pay, and the system will collapse under an excessive tax burden, followed by a desire for strong, often totalitarian, leadership.  Arguably this has already been happening in the USA – the Trump phenomenon – and we could see it happening all around the world as we know it.  Totalitarian regimes could thus dominate the global political scene as they are beginning to do now.  Western Democracy has had its 200 years, and is now perhaps beginning to wend its way into global political oblivion.

What does this all mean for gold?  The yellow metal has stood the test of time through all kinds of political upheavals as a, perhaps the, primary protector of wealth.  We suspect it will continue in this role, while domestic currencies may well continue to lose their value against it, brought down by ever increasing debt levels and the return of inflation.  We are seeing this play out already in the so-called advanced economies, and once this starts to come into being, it becomes increasingly difficult to counter.

We are already seeing virtually exponential increases in debt levels globally, accelerated by moves to stabilize economies in the face of the coronavirus pandemic.  So far the rising inflation element has perhaps been partially controlled, but it has still started to reach worrying levels, while Central Banks are running out of ammunition to bring it to a halt without inflicting severe damage on their associated economies.  We are thus due a major recession, perhaps the like of which is unprecedented, and this can only lead to calls for government changes, which could lead to the totalitarian option described above in some nations.

The Afghanistan debacle is not itself the trigger that may bring the above scenarios about, but is one of the contributing signs that all is not well with the current global political system, and Democracy in particular.  Whatever governments may try to do to alleviate the problems which appear to be developing, we are in for an increasingly turbulent period – politically and economically.  Investment in gold therefore looks like providing the best answer for hanging on to whatever wealth one has remaining.  Batten down the hatches – there are stormy times ahead!

20 Aug 2021 | Categories: Gold, China, Dollar, US, UK

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