Editorial: Gold pivots on Wisconsin vote

The first week of June was a watershed moment in U.S. politics that will likely spill over into how the greenback and gold are valued.

On June 5, public-sector unions suffered a major defeat at the ballot box in lefty Wisconsin, of all places — the state that in 1959 was the first in the U.S. to allow government-worker unions — as voters soundly rejected the recall of Republican Governor Scott Walker.

Elected as a belt-tightening reformer in 2010, Walker had drawn the ire of the union movement across the U.S. for his moves to break the cozy government-union bonds that were bankrupting the state. Walker has reined in union benefits that were far more generous than those enjoyed by ordinary taxpayers; generated large savings in school districts by ending dubious health-insurance contracts; and, perhaps most significantly, made membership in the state’s government-worker unions optional instead of mandatory.

The macroeconomic results of Walker’s reforms have been almost immediate: a large, state-budget deficit was turned into a surplus without raising taxes, and there has been modest improvement in job growth in the state.

Making government-worker union membership optional in Wisconsin has resulted in the state’s second-largest public-sector union — the state chapter of the American Federation of State, County and Municipal Employees union — losing more than half its members in less than a year and the American Federation of Teachers losing over a third of its members.

The political math is clear: Declining union membership in the U.S. means a drying up of dues flowing into union leadership coffers, which translates into reduced union activism and donations to left-leaning politicians and parties such as the Democratic Party.
>Over in Indiana, where government-union members won the right to voluntarily bow out of union membership seven years ago thanks to reforms spearheaded by Republican Governor Mitch Daniels, government-union membership has declined over 90%.

(Public-sector unions in the U.S. reached their high-water mark a couple of years ago, as their membership numbers briefly exceeded private-sector unions for the first time. Today, private-sector unions only account for 7% of American workers, well down from the zenith above 30% in the mid-1950s.)

The Wisconsin recall vote stands in stark contrast to recent electoral results in Europe, where modest austerity moves by reform-minded governments were quashed by an angry electorate in countries such as France, where the new Socialist Party President François Hollande reversed his predecessor’s raising of the retirement age by two years, and put it back to age 60.

With U.S. citizens starting to show far more backbone than Europeans in making the tough calls in dealing with excessive government debt, there is real possibility of a major, multi-year surge in U.S. economic growth with a spinoff rally in U.S. stocks and the greenback. With gold usually trading as the anti-dollar, that may mean a significant pause in the gold rally we’ve been enjoying since 2001.

The U.S. markets showed signs of moving in these directions in the days following the Wisconsin vote: the Dow Jones Industrial Average shot up 3%, the U.S. dollar broadly continued its month-long rally against the euro, and the spot gold price sank US$50 per oz., dipping once again below US$1,600 per oz.

The U.S. citizenry is making baby steps in dealing with the nation’s huge federal and state debts and the vast unfunded liabilities of Medicare, Medicaid and Social Security, but the Wisconsin vote shows a broad-based desire in the electorate to seriously tackle these problems.

Enbridge’s proposed Northern Gateway pipeline, which would have taken oil from Alberta’s oilsands and transported it across B.C. to waiting, Asia-bound ships at Kitimat, B.C., went from being a long-shot project to pure fantasy over the week.

Environmentalists’ vague, amorphous fears about pipelines became a sticky reality in a well-populated area when 3,000 barrels of light sour crude oil were spilled from an old, defective pipeline into Jackson Creek, a tributary of the Red Deer River near Sundre in central Alberta. Clean-up crews tried to stop the crude from flowing into the nearby Gleniffer Lake and reservoir, which supplies drinking water to nearby communities.

The pipeline’s owner, Plains Midstream Canada, said the spill could have been worse, as oil was not being actively pumped through the pipeline at time of the spill. The same area suffered a similar oil spill in 2008.