Crimping the SNB’s “Flexibility” – It is High Time

The Swiss National Bank (which is run by a bunch of Keynesian dunderheads – not too surprising for a central bank, but somewhat surprising for Switzerland) is trying its best to somehow thwart the upcoming referendum on gold. If the referendum is successful, at least 20% of the SNB’s assets would have to be held in gold – and the gold would have to be kept in Switzerland.

Not surprisingly, the central bankers argue that this would “severely crimp their flexibility”, apparently completely unaware of the irony. Crimping the “flexibility” of central bankers is a good thing after all. They are doing enough damage as it is. We actually are not quite sure what they are complaining about, since they will still be able to create money out of thin air in nigh unlimited quantities.

However, if they once again more than double the money supply as they have done since 2008 – inter alia to buy up foreign exchange in order to manipulate the CHF’s exchange rate – they will be forced to buy gold as well to keep the 20% reserve level intact if the referendum succeeds.

 

Switzerland money supplySwiss monetary aggregates. Monetary inflation in Switzerland has gone hog-wild since 2008 (note especially the more than doubling of M1 which is roughly equivalent to TMS-1). And yet, the people responsible for this printathon are worried about “deflation” (seriously). It is of course no wonder that these inflationist bureaucrats hate gold – click to enlarge.

 

Another argument the SNB is forwarding is that it would no longer be able to remit as much “profit” to the government. First of all, if the gold price were to rise, it could actually make quite a big profit (since then it could sell gold at a profit to keep the size of the reserve at 20%). Secondly, a central bank isn’t supposed to be a “profit center”. Officially, its objective is to maintain the purchasing power of the currency it issues, as laughable as it is to make this the official task of what is after all the very engine of inflation.

A recent article in the press informs us about the SNB’s attempts to “thwart” the referendum:

 

“Switzerland’s central bank (SNB) is stepping up efforts to block a populist motion launched last year that would force the financial institution to almost triple the proportion of reserves held in gold.

The Alpine country will vote on Nov. 30 on the so-called “Save our Swiss Gold” initiative organized by the right-wing People’s Party, or SVP. The motion calls for the central bank to hold at least 20% of its assets in gold, which currently make up about 7.5% of its total assets. In addition it should be prohibited from selling any gold in the future, and all of its reserves of the precious metal must be stored in Switzerland.

The Swiss Federal Council, the seven-member cabinet, as well as both houses of parliament have recommended voters reject the motion.

“The Swiss electorate will vote on an initiative which, paradoxically, would severely constrain the SNB’s room for maneuver in a future crisis,” SNB’s vice president Jean-Pierre Danthine said last week in a speech prepared for delivery at a conference in Martigny.

The proposed ban on future gold sales would have even more serious consequences for the SNB as an increase in gold holdings couldn’t be reversed, Danthine said.

“This would severely restrict our room for maneuver, and furthermore because gold pays no interest or dividends, the SNB’s ability to generate profits and distribute them to the government and cantons would be impaired.” he said.

In other words, it would force the bank to buy gold every time its balance sheet expands and to sell euro every time it contracts. Had the terms of the initiative been in force three years ago, it would have obliged the SNB to buy gold as well as euros in large quantities to defend the currency floor of 1.20 Swiss francs per euro, Danthine added.

The floor was imposed in September 2011 to prevent the Swiss economy tipping into recession and head off the danger of deflation. Since then, the SNB’s foreign currency holdings have ballooned – rising from about 204bn Swiss francs at the end of 2010 to 470bn Swiss francs last August. Despite the difficulty of managing such a rapid increase, the SNB says the minimum exchange rate is still “the key instrument to avoid an undesirable tightening of monetary conditions”.

 

(emphasis added)

We find it incredibly funny that a referendum to increase the SNB’s gold reserve is referred to as populist. Imagine that, the plebs want the currency to become “harder”!

Of course the SNB can “block” absolutely nothing. In Switzerland, referendums are binding, and no-one can keep them from going forward if enough signatures have been collected (as is the case in this instance).

Vice president Danthine is of course not mentioning that any future “crisis” will be the result of the very “maneuvering room” central bankers currently enjoy. If they weren’t printing money like crazy or aiding and abetting credit expansion ex nihilo by commercial banks, there would be no crises.

We already remarked on the central bank as a profit center, but allow us to add here that “deflation” (by which they mean falling prices) is not a danger. It is only dangerous according to the overactive imagination of the Keynesians populating central banks (and unfortunately, much of academe). For nearly everyone else in the economy, falling prices are just fine.

We suspect the main concern is for debtors who have overextended themselves on account of previous central-bank policies. In other words, ultimately the “danger” that the SNB thinks it needs to counter is emanating from itself. What could be better to achieve that than limiting its vaunted “room for maneuver”?

There could be an “undesirable tightening of monetary conditions?” This sentence alone tells us these people have completely lost their mind, not to put too fine a point to it. Switzerland is one of those countries where a great many interest rates have dipped in and out of negative territory in recent years, one even has to pay a penalty for holding cash on deposit with banks. Frankly, much looser monetary conditions than are currently extant in Switzerland can hardly be imagined. The central bank’s balance sheet has blown up like over-ripe carrion due to its unlimited buying of foreign exchange with Swiss francs it created ex nihilo in great gobs (it bought mostly euros, to boot – a currency the survival of which is still in doubt. Gold would be a lot safer, that much is certain), and the money supply has exploded into the blue yonder right along with it.

There are already a sizable real estate and stock market bubbles underway in Switzerland, and if Mr. Danthine really thinks the monetary largesse of recent years will somehow not invite disaster, then he is in for a rude awakening.

 

DanthineSNB vice president Jean-Pierre Danthine

(Photo via deutsche-mittelstands-nachrichten.de)

 

Claudio Grass interviewed by Jeff Deist

In this context, here is an interview of our friend Claudio Grass, the managing director of Global Gold (which is based in Switzerland), by Jeff Deist, the president of the Ludwig von Mises Institute. The interview provides plenty of additional background information on the topic.

 

Claudio Grass, CEO of Global Gold, interviewed by Jeff Deist.

 

Conclusion:

Referendums in Switzerland have often failed recently, but not always. Our impression is that notwithstanding their central bankers, most Swiss citizens are actually quite firmly grounded in that continuum we generally refer to as reality. This means that they tend to reject socialist nonsense like “free basic incomes” and absurdly high minimum wages, but often more conservatively oriented referendums will actually manage to garner a majority. As a result, the unwarranted fear-mongering by the SNB and the government may well be falling on deaf ears. For the long term health of the Swiss currency and economy one can only hope so.

 

Chart by: SNB

 

 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

5 Responses to “Switzerland’s Referendum on Gold”

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • LA5H5981sc
President George W. Bush presents the Presidential Medal of Freedom to Federal Reserve Chairman Alan Greenspan, one of 14 recipients of the 2005 Presidential Medal of Freedom, awarded Wednesday, Nov. 9, 2005 in the East Room of the Whiite House.  White House photo by Shealah CraigheadAlan “Bubbles” Greenspan Returns to Gold
      Faking It   Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961   He was in it for the power and the glory... Alan Greenspan gets presidential bling...
  • Slider-gold-img-1The Gold Situation
      A Growing Bullish Chorus – With Somewhat Muted Enthusiasm A few days ago a well-known mainstream investment house (which shall remain nameless) informed the world that it now expects the gold price to reach “$1,500 by early 2017”. Our first thought was: “Now they tell us!”. You won't be surprised to learn that the same house not too long ago had its eyes firmly fixed in the opposite direction.   Da bling be goin' somewhere, fellow rastas and homies! Photo via...
  • William SimonEnd of an Era: The Rise and Fall of the Petrodollar System
      The Transition   “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul   A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
  • Ulpian (1)European Banks and Europe's Never-Ending Crisis
      Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
  • Vote Early Zombie at Sharpstown High SchoolWriting on the Wall
      Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so.   It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh   We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
  • croesus_av_stater_1Gold – Eerie Pattern Repetition Revisited
      Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise.   A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
  • Toscana_Siena3_tango7174The Central Planning Virus Mutates
      Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination.   A...
  • tokyo whaleDestination Mars
      Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks.  If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical.  But, in certain economies, this is now standard operating procedure.   The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
  • London-City-Scene lo rezFat People for Trump!
      Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot.   The protest vote attractor with the funny hair. Image credit: Liberty Maniacs   Trigger warning: In the following ramble, we make fun of...
  • The-Deep-State-Mike-LofgrenAmerica Has Become a “Parasitocracy”
      Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to.   Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
  • TrumpoYellPlanet Debt
      Low Interest Rate Persons   She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems. — Donald Trump   Two low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will...
  • bristlecone-1000x672Long Term Market Perspectives
      Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world.   Ye olde bristlecone Photo credit: Kosta Konstantinidis   You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com