This past week saw British Prime Minister May suffer yet another embarrassing setback of her goals to trigger Brexit Article 50 in March. The House of Lords rejected her Brexit bill and amended it for the second time in a week. The PM has vowed to overturn their stalling tactics in the House of Commons in the coming week.
Meanwhile in Russia, the country has been celebrating news that despite crippling sanctions from the United States and European Union, their economy has managed to pull out of its longest recession for two decades considerably earlier than anyone expected possible.
Even as the Russian economy is growing, the OECD is warning in a new report that global growth is in danger of being upended by political and electoral instability in Europe, by threats of trade protectionism in the U.S. and Britain, and by interest rate hikes in the United States. All of these are good motivations for including gold in your IRA that offers insurance and protection during market turbulence.
British PM May Suffers Fresh Blow to Her Brexit Plans
Even though the British people voted in the majority to leave the European Union and forge ahead with their own destiny and reclaimed sovereignty, the anti-Brexit forces continue to stall U.K. Prime Minister Theresa May whenever and wherever they possibly can. The latest example of this is in the British House of Lords, the upper chamber of the world’s first and model Parliament.
This week, rebellious forces in Prime Minister May’s Conservative Party teamed up with the opposition Labour and Lib Dem members in the prestigious (but unelected) upper chamber of Parliament to oppose and defeat the prime minister. This is now the second time in a week they have managed to defy the nation’s prime minister and will of the majority of the British people by inserting amendments into her Brexit bill. This bill will allow her the full authority she needs to trigger Article 50 of the Lisbon Treaty and to pursue official withdrawal negotiations from the single market.
Former Conservative Party minister Douglas Hogg expressed the position of the majority of the lords:
“This country’s future should rest with Parliament and not with ministers. Last year’s referendum vote to leave the EU was an instruction to government ministers to negotiate exit on the best terms they can get, not to leave whatever the cost.”
Despite this second setback from the House of Lords, it will not stop May. Assuming that the House of Commons (where she has the comfortable majority) will again back her, she will be able to overturn the latest lords’ amendment.
The Prime Minister has effectively argued that such an amendment which requires Parliamentary approval of any final deal or which takes away her authority to Brexit without a deal with the EU at all would massively weaken her negotiating position with the block. The EU has already demonstrated a vindictive desire to punish Britain as an example and warning to other EU members who wish to similarly withdraw or renegotiate their membership terms.
Though May has not yet named her final date for triggering Article 50, conflicting reports have suggested it could be anywhere from March 15th to March 31st. May has repeatedly threatened to simply walk away from the EU in the hardest imaginable Brexit of all if she can not secure a reasonable and fair deal from the EU negotiating team. Initial demands from the likes of the Austrian Prime Minister and higher placed EU officials have been for a 60 billion euros “divorce” bill. The British have already dismissed this figure as utterly ridiculous.
This is a crucial simmering conflict to watch. It is entirely possible that Prime Minister May will reject the attempts to punish Great Britain, walk away from the EU altogether, and throw European and international trade, finance, and financial markets into chaos over the coming one to two years. Brexit threatens material harm to EU member states. This is why you should own gold in times of financial crisis and chaos.
Despite Ongoing Sanctions, Russia’s Economy Escapes from Long Term Recession
For several years now, the cadre of Russian officials have maintained a unified party line that their country is now used to the Western world’s deep and biting sanctions and can move forward without problems. Newly released data shows that they appear to be correct with this assertion.
Despite the fact that both the European Union and United States put into place limitations on Russian access to Western trade, technologies, and capital (because of the Russian annexation of Crimea and material supporting of Eastern Ukrainian separatists), the enormous country has actually escaped from its longest-lasting recession in two decades several quarters earlier than anticipated.
The Bank of Russia’s forecasting and research department has revised the calculations of the Russian GDP. The central bank believed that the positive turn in quarterly growth only occurred in the last six months of 2016. New data revealed this week shows that they were positive in their GDP growth from the first three months of 2016.
It was not merely a rebound in the price of oil that led to this dramatic turnaround either. Military spending has recently been reclassified to show more impact on GDP from the recent two digit percentage rise in weapons systems spending. Russian President Putin is in the middle of the largest increase in Russian military spending since the cold war ended.
One significant help for Russia has been the rising prices of oil. These have been on the rebound since the OPEC output reduction agreement of 2016. Thanks to Russia joining forces with OPEC, the new world’s largest producer of crude oil Russia has enjoyed an average price of $53.32 for its Urals export blend of crude during the first two months of 2017. In 2016, gas and oil made up 40 percent of the budget revenue for the Russian government.
As the chart below shows, this is not the only sector in the Russian economy growing today though:
ING Groep NV’s Economist for Russia Dmitry Polevoy wrote in a recent report:
“The first monthly data of this year showed more signs that Russia is expected to enjoy a broad macro recovery in 2017. A significant improvement of activity in January probably related to the stronger ruble, lower inflation, and improving domestic demand.”
This recovery bears watching. A stronger Russia economically means that it will have ability to meddle even more in international geopolitical affairs and events. It is a good reason for why to invest in gold.
OECD Warns Political Uncertainty, Protectionism, and Rate Hikes May Upend Global Growth
Even as Russia has shown better than anticipated growth for the past few quarters, the OECD is now warning that a combination of political uncertainty, protectionism, and rate hikes may combine in a perfect storm to derail global growth. The global economic engine grew by three percent for 2016. It is still anticipated to grow about 3.5 percent for 2018. This is by no means certain, per the latest economic outlook report from the OECD this past week:
“Disconnect between financial markets and fundamentals, potential market volatility, financial vulnerabilities, and policy uncertainties could, however derail the modest recovery. Uncertainties in many countries about future policy actions and the direction of politics are high. Many countries have new governments, face elections this year, or rely on coalition or minority governments. More generally, falling trust in national governments and lower confidence by voters in the political systems of many countries can make it more difficult for governments to pursue and sustain the policy agenda required to achieve strong and inclusive growth.”
The OECD is right to be concerned about instability from populist-led elections throughout especially Europe. On just the continent this year, there are major national elections being held in first the Netherlands, then France, Germany, and likely Italy too. These are four of the most important core members of the European Union and four out of the five largest eurozone economies (Spain is fourth by GDP). This chart shows the best case growth scenarios for the major economies of the world from this OECD report:
It is not only political instability and potentially old order-upsetting elections which concern the OECD and threaten global growth rates. Central banks are talking about increasing interest rates. This will most likely occur first in the United States with a March rate hike. It is only the first of several such hikes in the U.S. that markets anticipate for 2017. It will likely cause higher volatility in internationally important exchange rates. This causes a greater and broader level of financial upheaval.
The world economic growth is finally threatened by the newly protectionist policies brought on by election upsets and new administrations in the United States and Great Britain. More of these could be in the cards, especially if French ultra-nationalist candidate Marine Le Pen triumphs in France and the Five Star Movement of Beppe Grillo gains control of Italy’s government later this year. There is even the possibility that the success of these politicians will lead to a potential breakup of the euro.
It is not only the U.S. withdrawing from trade deals in an effort to bring back and keep a greater number of jobs at home. Critics often describe Brexit as the same ideology in disguise. Marine Le Pen’s warning in France this past week that “My job is not to create jobs in China” is a harbinger of more trade protectionism to come. Do not let anyone talk you out of your Gold IRA accounts.