Axel Merk, October 7th 2003
This article was written by Merk Investments before the Merk Hard Currency Fund was launched.

Tonight, Arnold Schwarzenegger won the California recall election. Just a brief note on this historic event. We do not know how successful Schwarzenegger is going to be. But what is different is the attitude: a successful Republican won because he wants to lower government spending.

This is a message that came across loud and clear and may have a ripple effect across the US. Nothing could be more valuable to the long term health of the US economy than if focus shifted to limiting spending. Bush has never had a campaign pledge that he will cut spending and has created the world's largest budget and current account deficits ever.

It will be interesting to see how this unfolds in the coming months, and to see how much support Bush will get from Schwarzenegger in the presidential election coming up next year. Bush was not invited to help Schwarzenegger be elected. On topics such as fiscal policy or foreign policy, Schwarzenegger does not walk the line of the Bush administration.

Schwarzenegger's election has tremendous symbolic implications. He shows Americans that the American Dream is alive and well. While he will face many challanges, including that a California budget must still be passed with a two thirds parliamentary majority, his election will give California a welcome psychological boost.