Central Banks


Dangerous Freedom versus Peaceful Slavery

At Global Gold, I am often asked what we would do if, for example, the US were to come out with a confiscation order. My reply is: We would do nothing whatsoever! Why? Quite simply, because no one in Switzerland has the political power to execute such an order! Even if Swiss politicians were to support such a confiscation order, the Swiss people would likely have the final vote. I am confident that any such confiscation order wouldn’t have any chance to be supported by a majority in Switzerland, especially one concerning assets held outside the banking system such as physical precious metals.

Even in the highly unlikely case that it would be accepted, the vote would take at least twelve months, thereby giving the persons affected enough time to move their assets elsewhere. In my view this is the main advantage of a direct democracy, it ensures that the people rather than the politicians in power have sovereignty. The federalist structure of Switzerland moreover guarantees that political power is reduced to a minimum. “Confederation Helvetica” might be the old name for Switzerland, but it is just as valid today as it was in the past.


Burma opposition leader Aung San SuuInside the Curia Confedarationis Helveticae (Swiss Parliament building) in Bern

Photo credit: Sébastien Feval – AFP

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Bonds: A Crowded Trade

In the financial markets, we have been waiting for a crash of U.S. stock prices. And waiting. And waiting. It still hasn’t come.

Last week the spectacular bull market in U.S. stocks that began in March 2009 continued with even more gains. On Friday, the S&P 500 hit another all-time high.

But the real action was in the bond market. Over the last three weeks, about half a trillion dollars has been wiped off the value of global bonds … despite lower than normal trading volumes.

According to Citigroup strategist Mark Schofield, the sell-off is a “stark reminder of just how congested a lot of market positioning has become.” This makes it “increasingly difficult for investors to exit those positions when the time comes to do so.”


piggy bank


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A Failing System

Our monetary system is failing, but explaining that isn’t easy. The most popular argument is that the dollar has falling purchasing power and rising inflation. The problem with this argument is that consumer prices aren’t skyrocketing now. So, of course, people remain skeptical.

Meanwhile, yields across all markets are falling worldwide. This causes the income generated from assets to fall. I wrote about this serious problem last time, introducing the concept of yield purchasing power—which is how much you can buy with the interest on your savings.




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They All Said a Strong Currency is Bad …

We feel absolutely certain that the people running the SNB won’t be convinced by any evidence, whether theoretical or empirical, that puts their misguided assessment of the alleged dangers of “deflation” and a strong currency into doubt. In spite of Switzerland’s reputation as a nation of that holds conservative values in high esteem and is among the economically most free in the world, its central bankers are almost by necessity strong believers in central planning and assorted Keynesian and monetarist shibboleths.

We say “almost by necessity” because admitting to the truth of the matter, namely that the institutions of fiat money and central banks are utterly alien to the market economy and are harming it more than just about any other human invention, would be tantamount to conceding that they themselves are surplus to requirements – which of course they are. Among other things, these walking and talking impediments to prosperity and economic progress continually assert that nations can somehow be made richer if only they devalue their currencies. This is typical Keynesian logic: You can get richer by becoming poorer!


snb - daniel rohr 3Photo credit: Daniel Rohr


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Bernanke Keeps Cashing In – PIMCO Finds Some Use for the Ex-Fed Chairman too

We recently wrote about Ben Bernanke’s deft moves to make some coin from his former position as the US chief central economic planner by getting a job as a consultant for highly leveraged hedge fund Citadel (see “The Courage to Cash In” for details). As we have pointed out on this occasion, it is a virtual certainty that contrary to the press releases on the matter, Citadel didn’t hire Bernanke for his revolutionary economic insights or his forecasting prowess. If that were indeed the reason for employing him, Citadel might as well shoot itself in the head.


atlantic-april-2012-cover-ben-bernankeTwo years ago the Atlantic celebrated Bernanke as the “hero who saved the global economy” by the expedient of printing truckloads of money and suppressing interest rates to zero. Today the WSJ is telling him to “stop blaming others for his mistakes”.


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The Most Non-Surprising FOMC Statement Ever

Kremlinologists were probably a bit baffled by the brevity and complete lack of surprises in yesterday’s press release by the preeminent US central economic planning agency. What else was supposed to happen though?

Readers can compare the statement with the previous one with the help of the WSJ’s trusty statement tracker. Try not to fall asleep while reading it. However, the Fed has taken steps to enable the broadcasting of timely information by testing a new internal teleconference system with reporters. You know, just in case something more interesting happens, like a rate hike. Or an emergency intra-meeting meeting (possibly shortly after the rate hike). Why would there be an emergency you ask? Isn’t everything just hunky-dory? Well…before we get to that, here are the handful of sentences from the statement that are worth knowing:


16 trillion womanWhat, $16 trillion? Is it? My, we seem to have lost count …


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The Tip of the Iceberg

The dollar is always losing value. To measure the decline, people turn to the Consumer Price Index (CPI), or various alternative measures such as Shadow Stats or Billion Prices Project. They measure a basket of goods, and we can see how it changes every year.

However, companies are constantly cutting costs. If we see nominal – i.e. dollar – prices rising, it’s despite this relentless increase in efficiency.


small-dollarPhoto credit: Hirkophoto


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Money From Nowhere

On Friday, the S&P 500 and the Nasdaq closed at record highs. It’s the first time both indexes have done so since December 31, 1999. Why such optimism? High profits, you say. But where do profits come from?

Households have less money to spend than they did 15 years ago. And companies cannot make money just by selling things to each other. The only explanation is that customers – including the US government – continue to borrow and spend.

Corporations borrow money to buy their own shares. Consumers borrow to buy products. Either way, the money comes “out of nowhere” and falls on balance sheets like manna from heaven.


the-us-federal-reserve-board-building-susan-candelarioThe great money temple, from whence fresh pronouncements shall issue today. How long before it floods us with fresh money again?

Photo credit: Susan Candelario


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Banks Increasingly Refuse Cash Withdrawals – Switzerland Joins the Fun

The war on cash is proliferating globally. It appears that the private members of the world’s banking cartels are increasingly joining the fun, even if it means trampling on the rights of their customers.

Yesterday we came across an article at Zerohedge, in which Dr. Salerno of the Mises Institute notes that JP Morgan Chase has apparently joined the “war on cash”, by “restricting the use of cash in selected markets, restricting borrowers from making cash payments on credit cards, mortgages, equity lines and auto loans, as well as prohibiting storage of cash in safe deposit boxes”.

This reminded us immediately that we have just come across another small article in the local European press (courtesy of Dan Popescu), in which a Swiss pension fund manager discusses his plight with the SNB’s bizarre negative interest rate policy. In Switzerland this policy has long ago led to negative deposit rates at the commercial banks as well. The difference to other jurisdictions is however that negative interest rates have become so pronounced, that it is by now worth it to simply withdraw one’s cash and put it into an insured vault.

Having realized this, said pension fund manager, after calculating that he would save at least 25,000 CHF per year on every CHF 10 m. deposit by putting the cash into a vault, told his bank that he was about to make a rather big withdrawal very soon. After all, as a pension fund manager he has a fiduciary duty to his clients, and if he can save money based on a technicality, he has to do it.



Swiss National Bank headquarters

Photo credit: Daniel Rohr


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Yet Another Delusional Bubble Blower

Canada is home to one of the most egregious housing and credit bubbles in the world – a legacy of its former central bank governor Mark Carney, who is now blowing a similarly dangerous bubble in the UK as governor of the Bank of England. For some background information on this, see:

Carney’s Legacy: Canada’s Credit and Housing Bubble

Mark Carney: If There is a Bubble, It’s Not Our Fault

A Tale of Two Bubbles



Stephen Poloz, the new bubble blower at the helm of the Bank of Canada. He does look a bit loopy actually.

Photo via vida.org


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