A gold standard red herring

November 10, 2014

A vote this November features an increasingly right-leaning agenda with a soupçon of agitation for the gold standard.

No, we aren’t talking about last week’s damage to the Democrats in the U.S. midterm elections. Rather, at issue is the Swiss People’s Party effort to enact a version of the gold standard if they have their way on November 30.

If successful,  the “Save Our Swiss Gold” referendum would require the country’s National Bank to add 1,500 to 1,800 tons of gold bullion to its holdings by 2019, in order to bring the percentage of gold in its holdings to 20 percent from the current eight. The initiative has been polling poorly, and Thomas Jordan, the chairman of the Swiss National Bank, has called the plan “disastrous,” but it is still being taken seriously enough for investors to hedge on Swiss franc in  case the plan passes.

Bloomberg points out, “Those purchases, equal to about 7 percent of annual global demand, would trigger an 18 percent rally, giving a lift to gold bulls who’ve suffered 32 percent losses in the past two years, Bank of America Corp. estimates.”

Gold is no stranger to the effects of geopolitical shenanigans—with some of the usual suspects. The latest financial crisis saw prices reach heights gold hadn’t seen since 1980, when Iran was holding American hostages and the Soviets were invading a country to their southAs this Reuters graphic shows, gold prices have exploded since the onset of the Great Recession, dramatically so when compared to historical prices since President Nixon moved the U.S. away from the gold standard in 1971. And as this Reuters graphic shows, gold already has a cadre of demands; the addition of five years of Swiss demand would certainly prop up prices.

Fortunately, Swiss voters seems wise to the plan, which many analysts see as part of a thinly disguised nationalist agenda, one of many currently in play in Europe. As they say, elections have consequences. To that end, the next few months should prove interesting, both in the U.S. and abroad.

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6 comments

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A little more objectivity in your reporting please, Reuters.

In fact, a lot more objectivity.

Posted by pungwe | Report as abusive

The industrial value of gold is a fraction of the current trading price. The only value in the stuff at this level is the fact that people crave it and like to look at it, i.e. it’s a very very long running consumer fad. I cannot imagine a fiscally responsible organization putting savings into an investment with no support other than emotional.

Posted by WCTopp | Report as abusive

http://www.zerohedge.com/news/2014-11-13  /what-financial-system-will-look-future

Posted by Geezer21 | Report as abusive

Central bankers are robbing Swiss peoples as central bankers are doing in many countries.

Gold and silver meets all the attributes for a sound medium of trade (money) which is why it has been used as a medium of exchange for centuries while paper currencies have been inflated away to nothing.

Gold maintains its value, it cannot be counterfeited, it is divisible (its density means small amounts can function as large monetary denominations), it is durable, it is easily transportable, it has valued utility in art and jewelry, and its rarity requiring substantial effort and investment to obtain gives it recognized integral value.

Gold’s value made it dangerous to carry around and created a need to secure it, as with any other valuable, but still retain its utility as a medium of exchange without actually needing physical gold. Gold smiths offered a solution. For a fee they would store gold and issue a certificate that would be redeemable for the amount of gold put on deposit. With the gold secure in the gold smith’s safe the certificates themselves became tradable.

With gold assets sitting in their vaults came an opportunity for corruption. It was an opportunity for the gold smiths-cum-bankers to utilize the depositor’s gold as security for certificates a banker would print to loan for interest for which there had been no gold deposits. It was possible for bankers to do this because gold certificates would remain out in circulation and not everyone at once would ask to redeem certificates.

The crux of the corruption is bankers put the gold on deposit at risk. The contract was for the banker to keep the gold safe. They violated their contract with the public to provide security of assets.

Gold on deposit, in reserve, was backing not just one certificate but multiple certificates. The temptation to print as many certificates as possible and have as many indebted people paying interest to a bank was enticing to say the least and lead to runs on many banks when it became known there was insufficient gold to redeem certificates.

This is the origin of corrupt reserve banking that has morphed into a global crisis where bank notes are no longer backed by gold freeing bankers from a discipline gold imposes. Globally central banker printing of paper notes is skyrocketing out of control.

Untied States President Richard Nixon reneged on redeeming U.S. Federal Reserve notes for gold in 1971 to stop the drain on U.S. gold reserves. U.S. gold reserves had dropped from over 20 thousand tons to over 8 thousand tons. There was a run on U.S. gold. Confidence in the United States dollar was declining with excessive printing and government deficits. Since 1950 the U.S. dollar has lost 90% of its purchasing value.

Central bank notes are now backed by the strength of an economy behind them. With economies competing on a global scale currency war has broken out to debase currencies for competitive advantage. In short, countries are printing paper notes to leverage whole economies in a race to debase in the same way bankers issued more notes then what they had in gold backing.

The bankers were leveraging the gold and silver to create more debt instruments upon which they made interest. Bank leveraging allowed the bankers to print a large portion of their notes out of thin air without backing. In a run on a bank where people lost confidence in bank notes, if the first 10 percent let us say redeemed their notes for gold there would be no gold left for the 90% who came later. The 90% would be left holding worthless paper.

There have been many historical examples of this happening. Germany being one of the more famous examples in recent history.

The world is becoming financialized. Central banks are printing piles of paper money far beyond what is required for normal economic operations. As a result backing for all these paper debt instruments is declining. This is what real inflation is. It is the piling on of debt. All these central bank notes (Swiss Franks, USD, Pound, Euro, Yen, etc.) are nothing more than insufficiently secured I.O.U.s. Financial systems are becoming ever more fragile and heading for a crash as real tangible economic assets backing currencies are becoming ever smaller in reserve at a time when the world real resources are being maxed out making it unlikely economies will be able to grow their way out of mounting debt loads.

Debt is not a way to grow an economy. Economies are grown from savings and investment in production and innovation.

Financial leverage is increasing and dominating over substantive economic activities. In short, central banks are leveraging global economies the same way fractional banking originally started by leveraging gold.

For the Swiss, the Swiss National Bank is putting the Swiss economy at risk as they leverage it ever more. This is the real risk for Switzerland that the Swiss National Bank and the Swiss government is not revealing to its citizens. They are not revealing this because they ignore the dangers of over leveraging the Swiss economy to maintain elites growing financial assets. They are Keynesian monetarist believing spending is the path to growth and prosperity

Posted by Geezer21 | Report as abusive

” The real purpose of franc devaluation is to shield the Swiss banks
from euro devaluation,” Keith Weiner said, www.acting-man.com, 21 November
2014.

http://www.acting-man.com/?p=34352

The Swiss National Bank has a conflict of interest and it is the Swiss people who get robbed as their currency devalues and pays savers little or no interest.

Posted by Geezer21 | Report as abusive

The Swiss would be wise to vote yes and here is why:
http://goldsilverworlds.com/physical-mar ket/the-swiss-referendum-on-gold-whats-m issing-from-the-debate/

Posted by Geezer21 | Report as abusive