Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

On the Swiss Gold Referendum

Commodities / Gold and Silver 2014 Dec 02, 2014 - 10:54 AM GMT

By: Frank_Hollenbeck

Commodities

The Swiss gold initiative has come and gone. It can be summarized as much ado about nothing. Even if it had passed, the initiative would have had no real impact on the Swiss National Bank’s ability to print money or conduct monetary policy.

The central bank is currently defending a 1.2 Swiss franc to the euro floor. By pegging its currency, the Swiss central bank has basically opted to follow its neighbor’s excessively easy monetary policy. To keep the peg, the central bank has been purchasing euros by printing Swiss francs. The central bank then returns the euros to the Euro money supply by purchasing European government bonds. It could have just as easily used those euros to buy dollars for gold. In either case, the euros or dollars are returned to the market, and therefore the Swiss action does not influence the respective Euro or US money supplies. We must remember that exchange rates are determined by differences in monetary growth rates and anticipation of what those differences will be in the future.


The Swiss government and Swiss central bank opposed the initiative. This should not be surprising. It is standard government policy to use fear tactics to justify continued government theft.

The Swiss central bank said that the initiative would crimp its flexibility to deal with a liquidity crisis or runaway inflation. Since the central bank could not sell its gold, it claims it would be hard-pressed to provide liquidity in the event of a banking crisis. Of course this assumes that the central bank would keep its balance sheet from expanding, which is nonsense. There is nothing stopping the central bank from printing Swiss francs for liquidity and print even more Swiss francs to buy gold.

It also claims that if it had to conduct open market sales of its assets to combat inflation, the inability to sell 20% of its assets would limit its maneuvering room. This is less than ingenious. There is nothing in the initiative that would limit the central bank’s ability to sell 80% of its non-gold assets. The 20% is a floor not a ceiling! Also we must never forget that inflation is a monetary phenomenon. The central bank is asking for flexibility to handle a problem created by giving the central bank flexibility in the first place.

Also, Switzerland held 40% of its assets in gold between 1936 and the year 2000. Did this more binding constraint in any shape or form limit the central bank’s ability to print money? Relative to gold, the Swiss franc has lost 90% of its value since 1914. Did it in any way seriously limit the central bank’s policy maneuvering room? A cursory reading of the financial press during this period clearly shows it did not.

Despite all the noise, this would not have been Switzerland returning to a gold standard. A true gold standard would constrain a government from using the printing presses to finance government expenditures. A key feature of any true gold standard is convertibly by the general public at a fixed price. Without this feature, we get the watered down Bretton Woods system that quickly failed as a monetary system because it did not constrain the government from creating more claims than available gold.

Although the initiative would have done little to constrain central banking, it is a step in the right direction: similar to Ron Paul’s attempt to audit the Federal Reserve. What the initiate does highlight is the general public feeling that something is rotten in Denmark! Every dollar, euro, yen, that the central bank prints is a tax on cash balances. A tax no one has voted for. It is theft while you sleep. Although central bankers may attend fancy lunches in $1000 Armani suits, it does not diminish the reality that they are nothing more than counterfeiters. The only difference between them and the guy printing currency in his basement is they do not fear the police breaking down their doors.

“By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.” – John Maynard Keynes

Instead of the police, a crowd with tar and feathers may start the much needed banking revolution.

Frank Hollenbeck, PhD, teaches at the International University of Geneva. See Frank Hollenbeck's article archives.

You can subscribe to future articles by Frank Hollenbeck via this RSS feed..

© 2014 Copyright Frank Hollenbeck - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in