Home » Politics » What the Republican Civil War Means For Gold

What the Republican Civil War Means For Gold

by John Rubino on October 18, 2013 · 45 comments

In one sense, the past couple of weeks’ debt ceiling debate was just one more in a long line of annoying-but-otherwise-pointless pieces of bad political theater. But in another sense it was a turning point, one that may have put the democrats completely in charge. Consider:

In a system with two viable parties, each side has to pretend to be more reasonable than it really is in order to attract just enough moderate votes to win the next election. So democrats pay lip service to fiscal responsibility and deficits – occasionally even signing bills like welfare reform that they find repugnant – when they’d much rather spend their days indiscriminately tossing other people’s money at new entitlement programs. Republicans, meanwhile, pretend to empathize with people they privately view as prey when they’d rather be cutting taxes and invading places that have oil.

We only rarely get to see the major parties’ true selves because the 20% of voters in the middle are turned off by displays of naked avarice, and in a two-party system elections go to whoever carries a majority of that block.

That’s why the latest debt ceiling debacle is such a big deal. Government shutdowns and related turmoil have become a standard bargaining chip lately, without affecting the make-up of either party. But this time the main conflict was not between republicans and democrats, but between mainstream, log-rolling, back-scratching, career-politician republicans and a handful of representatives and senators elected with Tea Party – i.e., highly ideological – support. The latter have no interest in raising the debt ceiling under any circumstances and see a government shutdown as a positive end in itself. Defunding Obamacare was just the excuse.

They got rolled, of course, as regular republicans chose to raise the debt ceiling without condition (as everyone always knew they would). But the cost of reopening the government is a republican civil war with only two likely outcomes: 1) The two groups stay in the big tent but challenge each other in primaries and intrigue over committee seats, etc., making a united, coherent policy front impossible and handing the next few elections to the democrats. 2) The Tea Party/libertarian republicans leave and either join the existing libertarian party or start one of their own, siphoning just enough votes from republicans in future elections to keep the democrats in charge.

Already, it has started. See this from today’s Bloomberg:

Republican Civil War Erupts: Business Groups v. Tea Party

A battle for control of the Republican Party erupted today as an emboldened Tea Party is moving to oust senators who voted to reopen the government, and business groups began mobilizing to defeat allies of the small-government movement.

“We are going to get engaged,” said Scott Reed, senior political strategist for the U.S. Chamber of Commerce. “The need is now more than ever to elect people who understand the free market and not silliness.” The chamber spent $35.7 million on federal elections in 2012, according to the Center for Responsive Politics, a Washington-based group that tracks campaign spending.

Meanwhile, two Washington-based groups that finance Tea Party-backed candidates said today they’re supporting efforts to defeat Mississippi Senator Thad Cochran, who voted this week for the measure ending the 16-day shutdown and avoiding a government debt default. Cochran, a Republican seeking a seventh term next year, faces a challenge in his party’s primary by Chris McDaniel, a state legislator.

McDaniel, who announced his candidacy today, “is not part of the Washington establishment and he has the courage to stand up to the big spenders in both parties,” Matt Hoskins, executive director of the Senate Conservatives Fund, said in a statement supporting him. Read more


Once the civil war costs the republicans control of the House of Representatives (November 4, 2014), the democrats will be relieved of the need to fool the middle about their commitment to fiscal sanity. The incoming Clinton administration and its congressional majorities will ramp up domestic spending and finance it with higher taxes, more borrowing and way more money printing. Janet Yellen (the perfect Fed chair for this transition) will expand QE and make it permanent. The Fed’s balance sheet will grow in trillion-dollar chunks as it buys up all the bonds issued by the government and the mortgage packagers and pretty much anybody else with paper to sell.

The resulting tidal wave of hot money will swamp emerging markets and drive Europe and Japan crazy, but the democrats won’t care because they’ll be favored by 20 points in the polls and in any event will be too busy hiring more staff to handle the upcoming legislative season to listen to non-believers. Oh, and they’ll counter any dissent with capital controls and stepped-up surveillance.

Could there be a better environment for gold? Not at first glance. But then almost the same could have been said two years ago when the Fed started buying $85 billion of bonds each month and bubbles began to form in stocks and houses. Some of that cash certainly should have found its way into precious metals. Instead the result was an epic correction. So logic isn’t necessarily our best guide here.

Still, the republican implosion/democrat ascendance comes after a two-year precious metals correction (during which China, India, and Russia bought something like 4,000 tons of gold, an amount greater than Germany’s entire gold reserves). So coming when it does, the combination of democrat dominance, an even more accommodating Fed and a growing shortage of Western gold to be shipped East…well, at the risk of being wrong again, this really does look like precious metals paradise.

  • ditkofan

    Don’t count on the Democrats winning any more national elections anytime soon. Mr. Rubino fails to mention Obamacare which all Republicans agree must be repealed. The Obamacare train wreck has just started and has until November 2014 to infuriate enough voters to give the Republicans the Senate in 2014. The majority of the American people hate Obamacare and will vote Republican in the 2014 Congressional elections and the 2016 Presidential elections since that is the only way to get Obamacare repealed. Squabbling among traditional Republicans and Tea Party Republicans isn’t going to prevent both types of Republicans from running against Obamacare. The Democrats own Obamacare and will be forced to defend this monstrous program that is daily destroying jobs and driving up health care costs.

    If I’m wrong and Mr. Rubino is right about the Democrats becoming a permanent majority party what good is gold going to do you anyway? With the Dems in control America will be a socialist welfare state where anybody who makes to much money from investments will be taxed at an ruinous rate like people are in France and other European welfare states. With the Dems in charge anybody who makes any big profits in America from precious metals will have to leave the country if he wants to keep his profits.

    The Tea Party isn’t stupid enough to form a separate party for the reason Mr. Rubino noted. Instead, it will try to take over the GOP. There is a reasonable chance that the Tea Party in the coming years can purge the old boy network RINO Republicans and return America back into a Constitutional Republic. There is precedence for large scale purging and transformation of political parties in American politics. In the 1860s the new Republican Party replaced the obsolete Whigs. In the 1970s the far Left George McGovernite Democrats purged the traditional Democrats which turned the party of FDR, Harry Truman and JFK into the European socialist style party the Democratic Party is today. If the Tea Party can do too McConnell, Boehner, McCain et al what the 1860 Republicans did top the Whigs, America will have a new lease on life. If the RINOs remain in charge of the GOP or the Dems become the new majority party forever America is finished as a leading power in the world. We’ll be a welfare state like France or Italy at best. If we get another Obama type elected in 2016 we can even be a basket case banana republic like Venezuela or Argentina.

    Lewis Forro
    Virginia Beach, VA

    • Bruce C.

      I mostly agree with your analysis but it all depends upon how many votes more Tea Party type candidates get. What troubled me most about this latest partial government “shut down” was that it showed how little sacrifice people are willing to make to force political change. It’s unfortunate that the financial markets are so craven because it gives everyone a false sense of security. Other than the Tea Party types, most politicians will not act preemptively until there is a crisis, and evidently most citizens don’t want them to either so candidates who will want to make changes “before it’s too late” may not get many votes.

  • http://theartofchart.wordpress.com/ Chartizt
    • pipefit9

      I don’t know, chartizt. For almost all of 2012 and the first 8 months of 2013, AU horribly underperformed gdx (hui), which is devastating, because the hui vastly underperformed the underlying asset, gold. And of course gold has not done too well either.

      So you are hyping a stock that has dropped from 47 to 12, and then recently bounced up to 15. So for the last two months, you are correct, the chart is starting to look good. But, do you have any fundamental data to indicate that this is something other than a dead cat bounce?

      We’re entering an era when you will want to be overweight physical stuff, and underweight paper stuff, and you are advocating the ownership of a particular brand of paper. I would think one would need far more than technical analysis going for you to click that ‘buy’ button.

      • http://theartofchart.wordpress.com/ Chartizt

        @pipefit9:disqus The only thing I am advocating is going long AU if the neckline (a key chart point) is penetrated. Will I become a Bullish, No!, Is the target a forecast or prediction? Of course Not! Its simply what the chart implies..

        • pipefit9

          @chartizt—I understand, and agree, with your TA. The thing that has me concerned is that if we get a huge market meltdown, that gold stocks will get creamed, even if gold itself is up.

  • john cummins

    Last I knew Germany could not find her gold reserves…

    • pipefit9

      “Germany could not find her gold reserves…”

      You, I, and Germany know quite well that Godot will show up long before these so called ‘gold reserves’ do. That is why they set the rock solid DEADLINE of 6 years (or whatever it was) to get 1/6 of them back, lol.

    • whateverdude

      Germans refer to their country as fatherland according to Wikipedia. I’d rather that the people owned the gold outright instead of having the government bullies holding the gold.

  • WorkingClass

    The Oligarchy will not relinquish control of Imperial Washington to a bunch of Yahoos. And as long as they remain in control gold will remain suppressed. PM’s will be liberated only AFTER the inevitable collapse of the dollar and thus of Western Capitalism. Sorry about stating my opinions as fact. It saves time.

    • pipefit9

      I pretty much agree. However, it looks like the ‘inevitable collapse of the dollar and thus of Western Capitalism’, to use your phrase, is already well under way.

      I find it a bit curious that you think ‘Oligarchy’ and ‘capitalism’ are not mutually exclusive. Wouldn’t it be more accurate to say that the demise of a socialist cartel will eventually usher in a new era where capitalism might be given a fair chance?

      • DAVE2791

        If everything collapse in the next ten years, it will be on the dems watch. For the average entitled, sensitive and clueless american citizen, ideology isn’t realized until it is felt. And it will be felt. The trick is surviving the next 10 years. Protect you money and health. Educate and protect. Vote for the right this but understand, right, is not the american way right now.

      • Robert

        You are right. Western Elites have hated capitalism since the days of JP Morgan. But the system in the West is not socialism either.

        It is crony capitalist which is actually the economic component of Fascism.

        It is worse than capitalism because markets are rigged in favor of a small group of mega corps and banks. And it is worse than socialism because the out-sized profits from these markets go to a tiny group of the privileged as opposed to public coffers, which would then ostensibly lower taxes on the rest of us.

        • WorkingClass

          Thanks Robert. It was deregulation in my opinion that opened the door to “Crony Capitalism” which is indeed the economic component of Fascism. Or, taking a step further back in the chain of causality, we find the seeds of our destruction in the creation of the Federal Reserve Bank whereby our political and financial institutions were joined at the hip. Jefferson and Jackson fought against the banking cartel. Wilson was seduced by it.

        • Sueychop

          In socialism you also have “out-sized profits from these markets go to a tiny group of the privileged as opposed to public coffers, which…” is why they go bankrupt every time.

      • WorkingClass

        Since 1913 and especially since 1971 the pillar, the center pole, of Western Capitalism has been debt money issued by Central Banks. The Fed is a banking cartel sanctioned by the government. It is not a socialist institution. The printing press is the source of power for both the cartel and the government. I suspect it is the later which you characterize as socialist. And yes, the collapse is well under way. And yes, in post imperial America, Capitalism might be “given a fair chance”. This would require sound money and well considered labor law together with anti-trust enforcement. Capitalism is an engine for prosperity but it needs a steering wheel and brakes. The invisible hand is a useful abstraction. It is regulated capitalism that delivers the goods.

    • Sueychop

      …looks like inevitable is in the next six months:


  • silverbug

    Does it matter? Both parties are doomed and addicted to Debt. Socialism/marxism never worked. Attacking the rich at $250 g’s household income, ruins the economy. Chasing taxes from here to Lichtenstein is just plain stupid. So when the Dems are in charge and collapse from all the Debt,can we finally get a Third party?

    • Sueychop

      you mean after the war?

  • Robert

    None of what you wrote about will have anything to do with the POG, except perhaps very short term. If you want to know about the direction of the POG you look to Chindia, are they growing? If so how fast? Are they buying gold? How much?

    The Americans only buy about 7% of annual gold production, while Chindia buys over 50%. The amount of gold in private hands worldwide, has similar percentages. The Americans own little gold. They own paper.

    As the Americans continue to trash the POG, all that is happening is that they are sending more and more of the little gold they own to Chindia.

    The debt ceiling and government shutdown nonsense is a stupid pillow fight between tweedle dee and tweedle dum parties for the internal consumption of the rubes. It is posturing to position candidates for the next election, or who gets to make endless money screwing the American people. Wall Street treats it correctly with a yawn.

    If anything ever got serious the people who control Wall Street will phone their Domopublican flunkies and a deal would be closed in minutes.

  • hellbentgerbils

    you forgot to mention in this scenario……….drum roll…….CONFISCATION AND PROHIBITION.

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  • Tom

    Is Obamacare a negative for Democrats. I very much doubt it.

    I’m retired but pay for my own insurance. I just got my projected bill for 2014. For the wife and I it will cost $14,000. We can get an Ocare gold plan policy for around $8k. That’s $500/mo in my pocket.

    On the surface there’s lots of negatives to Ocare; employers going to part-time jobs, small business costs, etc. But, how many people can afford $14k for insurance? Very few. Insurance is driving retirees into poverty.

    Will Ocare create a more competitive insurance market with lower costs? I think it will. Consumers will be in charge of selecting their plans and companies will have to compete for the business. Will the subsidies increase gov’t deficits? I believe the answer is yes.

    The Rs hate Ocare but offer no ideas whatsoever to help the uninsured, retirees, and the middle class or to even control costs. They just don’t care about that demographic. That’s why they lost the recent budget battle and why they will lose big in the next two election cycles. That skinny black guy is changing the system.

    America is aging and the middle class is going backwards. Half of Americans pay little in taxes. The Ds are riding a horse named Give Away. The Rs are riding one called War Spending. We’ve seen that show already and no thank you. So, I agree with John. The Ds win the horse race and they’ll worry about the fiscal mess later. Good for gold? The money spigots will be open and the Fed wants inflation. Probably can’t hurt.

    • Just

      congrats for taking advantage of a new plan to steal from the young ones’ future. obviously you don’t care; you’re retired and won’t be around in 20 or 30 years, right? the economy can go down in a hand basket and deficits can soar by then who cares, right?

      • Dan

        The costs of insurance has slowed for a while but the insurance industry is a monopoly, just like the military industrial complex, and must be regulated to bring down costs of drugs and the equipment used. Making them smaller or regulating costs, or both will have to reign them in. Getting rid of the antitrust exemption would be a starting point.

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  • Robert

    For you Americans who take the Tea Party seriously and think isn’t it great that they want fiscally responsible government, you are 100 years too late.

    The debtor society was signed sealed and delivered with the Federal Reserve act, the Income Tax amendment and fractional reserve banking. The American people are debt junkies and it is way too late to change that.

    Not only does the Tea Party want to close the barn door after the horses have all left. Those horses have been dead for generations.

    Americans have no choice but to vote to fund endless military expansion, because no matter whom they vote for in the DemoPublican party that is what they will get.

    Their crony capitalist economy also INSURES that the rich will get richer, while the middle class will continue to wilt away.

    The result of this is that about 50% of the population need a government check in order not to fall into poverty or at least abject poverty.

    Now write this down and remember it. No one is going to vote to trash the money they get from Washington. And the 50% of the population who can still afford to pay taxes are not going to pay anymore.

    So what Americans are going to do is what they have always done. They are going to put it on the tab so their children and grandchildren will have to pay for their profligacy.

    Only the most backward ideologue amongst the Tea Party has to know this. So all we are talking about here is political posturing for coming elections. As I wrote in my other post Wall just laughs at these clowns.

  • Dixiebrick

    Capitalism! What capitalism? You mean the one where only you and me play by the rules and the bank boys get a Get Out Of Bankruptcy Free Card. Good luck with that brand of capitalism. Rules and Laws are for the uneducated.

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  • Bruce C.

    I can certainly relate to JR’s cynical catharsis about what seems like an inevitable path of US politics and policies, and if it happens it probably will be good for gold. Unfortunately, though, things may suck so much that it won’t matter.

  • Chris

    The big move in gold will come when Central Bankers start to worry about whether US bonds are risk free. Bonds trounced gold when it is earning interest, risk free, highly liquid, convenient and secure storage of wealth. All these attributes had evaporated in recent times and an alternative or parallel alternative had to be found. Gold would be the best alternative/parallel alternative. It is an insurance against any drastic downside risk in US bonds. Any sensible Central Banker would have considered holding some gold as reserves. Due to the liquidity pump by Greenspan and Bernanke during every recession since 1987, asset prices were never allowed to reset to the right level. Debts were rolled over, helped by the liquidity pump and new debts were added with the subsequent recovery. Therefore all assets prices are at their extreme high. Someone’s debt is another’s asset. So far the world got richer by getting more indebted. Bonds are debt and asset at the same time. At what point in time is the debt going to be rejected. This is the counter party risk that bond holders are subjected to and gold has no counter party risk. Now every Central Banker is watching each other and whoever gets the gold first will get it cheaper. When the trickle turns to a torrent, it will be hard to get. I believe the rush will happen when inflation becomes intolerable as it is being ignored at present.

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  • dassa0069


  • dassa0069

    If the truth be told, both party raiders are after our Social Security and Medicare. They sold out our manufacturing base to Asia, now there’s no means of growth. The previous are the only funds they think are available to confiscate.

    We should be reducing the defense budget instead.

    Any potential invader would be deterred by the massive expenses that would need paying.

  • Anthony Sanders

    Look at the dollar. It collapse (or “devalued”) from 2002-2008, then the Fed stepped in with Ben’s helicopter that “stabilized” the dollar in a small range. But what happens when The Fed pulls out? http://confoundedinterest.wordpress.com/2013/10/19/us-dollar-hits-8-12-month-low-but-nothing-next-to-2002-2008-dollar-collapse/

  • wootendw

    “Once the civil war costs the republicans control of the House of Representatives (November 4, 2014)…”

    Whatever the level of ‘civil war’, it is highly unlikely that Republicans will lose control of the House in 2014 unless they split into two parties. The average midterm election produces a 31-seat loss in the House and a 4-seat loss in the Senate – for the President’s party. Even in the fluke midterm in 1998 when Newt Gingrich raised the profile of the Speaker much higher than normal (few Americans know who Boehner is) did the President’s (Clinton’s) party only gained five (open) seats. Generally, the only people who vote in midterms are those who are mad at the President – whose name will not be on the ballot. There is little case to rest such a prediction in an election over a year away.

  • dnpt

    You can not borrow indefinitely. 5 months, foreign investors sold more government bonds than buy ( http://crisismir.com/analiticheskie-materialy/ekonomika/110-padenie-ekonomicheskix-indeksov-rezultat-gubitelnoj-ekonomicheskoj-politiki.html ). In fact, they refuse to finance the deficit.

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  • fallingman

    Not to be dismissive, as I think you’re a swell guy, and I like getting your missives. They’re very well done…

    But, you don’t seem to understand the dynamics of congressional districting very well or maybe at all. Due to the way the various state legislatures draw the electoral maps, there are precious few competitive districts anymore. 90+% or districts are either safe Republican or safe Democrats seats. This is why you’re seeing more hardening of positions…finally…thank god. And with the Republicans winning several state house legislatures for the first time since reconstruction, such as in NC, my state, Republicans are being protected like never before.

    Given this reality, the politician who is a moderate…moderately principled, moderately convicted…can be challenged by the true small government crusaders and the result won’t be a schism large enough to elect a Democrat.

    Your calculus assumes a more or less fluid electorate, with a great enough percentage willing to change allegiances to swing elections. That isn’t true in the great majority of districts, and with the Republicans having entrenched themselves more deeply in safe districts in the south and having been largely purged in the Northeast, from which districts will the losses come?

    You haven’t done your homework on this. Yours is a sweeping argument painted with a very broad brush when electoral majorities are built district by district.

  • Sueychop

    None of this matters because the Fed will print no matter who is in charge.

    Weimar, here we come!

  • Sueychop

    Regardless of who is “in charge” the Fed will print.

    Weimar here we come.

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