It is not a secret that elections are a key moment that can change the economy of an entire country. Each election cycle goes along with a new wave of promises, policy changes and market reactions, affecting anything whether it's personal savings or large-scale investment trends.
Understanding how elections affect the economy is like analyzing the value of rare coins. Just as a collector examines factors such as shortages, condition and demand to determine the 1957 D Wheat penny value, economists and investors evaluate political stability, fiscal policy and legislative changes to predict financial outcomes. In both cases, the true value of an asset (coin or currency) depends on various interrelated elements. Taking all the above, we would like to discuss how different political events affect a country's monetary policy.
How Election Promises Impact the Economy
Politicians know that economic concerns are a top priority for voters. That is why they frequently build their campaigns around financial incentives and promise tax cuts, social welfare programs, business subsidies, or healthcare reforms. Of course these promises appeal to the electorate, but their actual implementation often comes with challenges and unintended consequences.
Can election promises be fulfilled? Many ambitious economic promises require significant funding, and it is often unrealistic to fulfill them without increasing public debt or raising taxes. According to research, about 65% of pre-election economic promises are either never fulfilled or significantly changed after the election.
For example, the government may promise to increase the minimum salary, which sounds good in theory. However, without careful economic planning, this could lead to higher inflation, job cuts or increased automation, all of which would make it difficult for small businesses.
Similarly, promises of tax cuts are attractive to middle-class voters, but can lead to budget deficits if not matched with corresponding spending cuts. In such cases, governments often turn to raising indirect taxes or cutting public services to make up for the revenue shortfalls.
How should investors and private parties respond? Understanding the economic viability of campaign promises is essential to making sound financial decisions. If a candidate proposes massive government spending without clear sources of funding, it may mean future inflation or debt accumulation. At the same time, tax breaks and business-friendly policies can stimulate market growth, benefiting certain industries, e.g., technology, energy or real estate.
So what should you ultimately do? Instead of focusing on political rhetoric, analyze economic indicators such as GDP forecasts, inflation trends, and fiscal policy.
Sanctions and Political Crises: How They Reshape Investment Markets
In addition to election promises, geopolitical conflicts, economic sanctions and policy changes can have a significant impact on investment markets. Sanctions imposed on certain countries or industries can cause market instability, lead to changes in capital allocation and alter global trade patterns.
How do sanctions affect national economies?
Sanctions usually target a country's financial institutions, energy sector, or trade agreements, resulting in:
Currency devaluation, as limited access to international markets can weaken a country's currency.
Stock market volatility, as investors withdraw capital from uncertain markets, causing stock prices to fall.
Rising inflation, as restrictions on imports and exports often lead to higher consumer prices.
For example, after the 2014 sanctions against Russia, the ruble lost more than 50% of its value and many businesses faced operational problems due to restricted access to global banking systems. What is more, it also led to an increase in demand for tangible assets (gold, silver and rare collectible coins) as investors sought alternatives to protect their wealth.
How Investors React to Political Crises
During times of economic instability, safe-haven assets become more attractive. Investors move their funds into gold, silver, rare coins, and stable foreign currencies to preserve value and minimize risks.
Example: Following the 2014 sanctions, demand for gold and silver coins surged by over 50%, as investors turned to tangible stores of wealth that were not tied to volatile financial markets.
As demand for rare coins and other alternative investments increases, consequently the risk of counterfeiting increases. Coin ID Scanner becomes a crucial tool for verifying the authenticity of high-value collectible coins. Due to its help investors may ensure that they do not fall victim to fraud.
Tip: If economic uncertainty is rising due to elections or geopolitical crises, consider diversifying your portfolio to include tangible assets like rare coins, which have historically retained value in volatile periods.
Tax Policies: How Government Decisions Affect Personal Finances
One of the most direct ways that elections affect the economy is through tax policy. Politicians often promise to cut taxes to attract voters or propose to raise corporate taxes to fund social programs. But the reality of these changes can have uncertain consequences for all parties.
Invisible Costs of Tax Reforms
Although tax cuts may seem beneficial at first glance, they can sometimes lead to budget deficits, causing governments to cut essential services or impose alternative taxes. For example, if a government reduces income taxes, it may compensate by raising indirect taxes such as VAT (value added tax) or excise taxes on goods like fuel and alcohol.
In contrast, higher corporate taxes can hinder investment due to encouraging businesses to move into regions with more favorable tax conditions, which finally leads to job losses and slower economic growth.
Example: After the 2021 tax reform in the U.S. (which included higher capital gains taxes for wealthy investors), there was a 30 % surge in demand for physical gold and silver. Many investors sought alternative assets to protect their wealth from rising taxation.
So, how do tax changes influence investments? When taxes on stocks or real estate rise, many investors shift their focus to alternative assets. At the same time, tax incentives for retirement savings, real estate investments, or green energy projects can also encourage capital flow into specific industries, changing market trends.
Inflation and Purchasing Power: What Happens Post-Elections?
One of the most serious economic problems that often arises after elections is inflation. At the heart of many political campaigns are promises to increase government spending, be it on social programs, infrastructure projects or stimulus packages. While such policies may benefit the economy in the short term, they often lead to higher inflation due to excessive money supply.
Inflation Its Impact on Everyday Life
Inflation occurs when the purchasing power of money declines, causing prices of goods and services to rise. While moderate inflation is a normal part of economic growth, excessive inflation erodes savings, increases the cost of living, and reduces real wages.
For example, following the 2020 pandemic stimulus measures in the U.S., inflation rose to more than 7% (the highest rate in decades). Finally, rental prices and grocery bills increased, and many people struggled to deal with rising costs.
Thus, to hedge against inflation, investors seek assets that retain or increase in value over time, such as:
Real estate – Property values tend to rise alongside inflation.
Gold and silver – Precious metals have historically been a hedge against currency devaluation.
Rare coins – Limited supply and increasing demand make certain collectible coins valuable investment assets.
Tip: Rather than focusing solely on tangible assets, another effective way to hedge against inflation is to invest in inflation-protected securities and high-yield dividend stocks. Treasury Inflation-Protected Securities (TIPS) adjust to inflation while maintaining purchasing power, while dividend stocks provide steady income that can outpace inflation over time. So, consider combining dividend stocks, inflation-protected bonds, and alternative assets (rare or investment coins) to receive a well-rounded investment strategy.
The Price of Elections: Who Pays
Politics and money are inseparable: every promise made by candidates influences the country's economy that will be felt by everyone, including investors and ordinary citizens. Elections change taxes, inflation and exchange rates, forcing the market to react. But who wins and who pays? The answer is simple: the one who is prepared.