Inflationomics

The Most Important Election of the Year

I realize everyone is focused on the U.S. election results with the Republican victories, but what difference will it really bring? Will the Republicans eliminate the Fed or the federal debts? Will they reduce taxes? None, no, and no. So what difference will it make? Not much, in the long run.

But there is another election coming up on November 30 that could make a big difference in the long run. The election is in Switzerland and it has to do with the Swiss National Bank and its mishandling of Swiss gold. You see, there will be a vote, a referendum by the Swiss people about their country’s gold holdings (among other initiatives).

The referendum has three parts to it: 1. No more gold sales; 2. All gold reserves shall henceforth be kept in Switzerland; and 3. The Swiss National Bank (SNB) will be required to maintain at least a 20% backing of gold for the Swiss Franc.

Since 2000, 1550 tons of gold were sold by the Swiss National Bank at some of the lowest prices seen in recent years, displaying typical poor judgment on their part. This was made possible because of an amendment to the Swiss constitution, which, until 1996 required that the Swiss franc be backed by a minimum of 40% of gold. It was due to pressure by the International Monetary Fund and various profligate governments that the SNB sell its gold. If the referendum passes, however, no more gold will be sold, and, in fact, the SNB will be required to purchase enough gold to bring the Swiss Franc’s backing up to 20%.

SNB President Thomas Jordan said in an Oct. 1 interview with Frankfurter Allgemeine Zeitung “The initiative has the potential to limit the central bank’s ability to act.” Of course, he’s like all other central bankers…he fails to see that the SNB won’t need to “act” if Switzerland has sound money and that gold is the best money out there! He’s simply trying to justify his playing with Switzerland’s money and playing on Swiss fears…what will the central bank have to do if it has sound money, i.e. gold? Not much! With a strong currency, the Swiss will be the envy of the world and they would be able to buy things from around the world relatively cheaply. Hopefully, the people will see what central bankers fail to see and that is that gold is money. Always has been, will be for the foreseeable future. Any other use of gold has been insignificant.

The Swiss don’t have far to look to see what happens when a country leaves its currency to the poor judgement of central bankers who debase their currency over time…they need only look at the United States and its currency. Since the Federal Reserve Bank took over the job of assuring “price stability” in 1914, the value of the U.S. dollar has dropped to about four cents. In other words, a dollar today can only purchase about what 4 cents purchased back in 1914, when the dollar was backed by gold. Price stability to a central banker means an ever decreasing purchasing power for his/her currency. It’s the slow way, but a sure way for currency holders to become poor in the long run and for the money printers to become rich in the short run. It’s an opportunity for government bureaucrats and politicians to bankrupt a country. And why not? They are spending someone else’s money! Is that what the Swiss want for their currency and country? Hopefully not.

The SNB bankers also objected to keeping all Swiss gold in Switzerland. They want to keep some of it elsewhere, like Ottawa, Canada, and London, England. Why? So it can be sold quickly? Because if it is out of sight, it will be out of mind? Consider the plight of the Germans who requested that the Bank of New York return their gold. The Bank of New York told them that they would get part of it back during the next seven years and they didn’t even get back what was promised. Will they ever get it back? Who knows?! Not likely, in my opinion.

By the way, what safer place to store one’s gold than in Switzerland? The country hasn’t been invaded and occupied by a foreign military since 1803: this in spite of several European wars and two world wars. People have been storing valuables there for generations. Why shouldn’t the SNB do so as well?

The bottom line is that central bankers have poor judgment when it comes to managing money and/or currency. Gold has maintained its value against numerous fiat currencies throughout history and barring occasional price manipulations by central bankers, gold will maintain its value. That’s why the Chinese, Russians, and Indians, to name a few, are accumulating gold and silver at quickly as they can. Hopefully the Swiss people will see the sense in keeping their franc as strong as gold, starting on November 30, 2014.

Robert Jackson Smith

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