Looking Back at 2014

2014 was quite an eventful year for global markets: Janet Yellen became the new Chairman of the Federal Reserve; we were on the brink of war in Crimea, and Germany won its fourth world cup title. Many countries around the world held elections, the Scotts and the Swiss had referendums and both of them decided to maintain the status quo, whether it was against Scottish independence or the Gold initiative.

I wouldn’t describe this year as a tough one for gold, considering that it is ending the year close to where it left off end-2013. While some may perceive this negatively and against the rationale for holding physical gold, I find it more relevant than ever, like I said last year. The main reason why gold did not move against the tide this year is, in my opinion, because appearances have a stronger influence on the minds of the people than the facts presented by reality.


libertyImage credit: Glenna Goodacre


The global debt situation is much worse than a few years ago and real economic growth is near zero. Income inequality is rising faster than ever before. The Federal Reserve’s balance sheet expanded from about USD 890 billion to more than USD 4.5 trillion since end-2007 and the only outcome so far has been an artificial spike in different asset classes and an expansion of the welfare-warfare state. The fact is that a fiat-money system always results in massive centralization, in terms of the economic landscape, “wealth-accumulation” and an ever-expanding state apparatus. The accumulation of debt is part and parcel of this mechanism. No necessary reforms or structural changes have taken place, which would allow a more positive outlook for 2015.


Fed AssetsThe vast expansion in the Fed’s balance sheet – click to enlarge.


More and more people feel that something is going completely wrong because they understand that it is not possible to fight over-indebtedness by piling up even more and more debt. The majority of the public, I believe, understands they need to sacrifice the present for the future. However, they suppress their conclusion. Most of them want to believe in a miracle and live in the hope that only others will be affected by the negative consequences of today’s system, which my friend Prof. Dr. Thorsten Polleit calls a system of “collective corruption”.

Men refuse to think about the rational outcome of our unsustainable system and prefer to believe in the lie they have been told a hundred times rather than a new truth which is based on the facts. However, we can’t hide from the future or as Herbert Stein used to say: “if something cannot go on forever, it will stop”. The Soviet Union did not collapse because ist citizens finally changed their minds and opposed communism; the USSR collapsed because it could no longer be funded.

The only achievement since the global financial crisis is that central banks purchased time financed by “money” that we simply don’t have. According to the Bank of International Settlements, total non-financial debt in advanced economies rose by 37 percentage points to 279% of GDP since the global financial crisis! Even emerging markets, which managed to somehow resist the pileup of debt in the past, have now reached a debt level of 157% of GDP. Instead of cutting the cord and putting an end to this dependence on additional credit, the western economies seek to solve their problems by printing more money and accumulating more debt! Mario Draghi believes that the way out is for the ECB to buy corporate bonds and asset-backed securities amongst other assets, dreaming of increasing the ECB balance sheet by EUR 1 trillion to reach around EUR 3 trillion!


ECB assetsThe ECB plans to expand its balance sheet back to the highs of 2012 – click to enlarge.


Also Japan, which has been in a QE mindset for years plans to address any prospect of a recession with even more asset purchases! How valuable can money be if all central banks just want to print more of it? Money is no longer a property title, instead it became an I-owe-something, the Dollar and every other paper money we hold today are simply IOUs. Due to this debt-based system, we need more and more money so that the system does not collapse, because as we all know, loans need to be repaid with interest. This constant increase in the money supply reduces its purchasing power. As long as governments and central banks can redistribute wealth from the middle class, they will continue to do so – the outcome of which will be impoverishment on a wide scale and the destruction of our society.


BoJ assetsBoJ assets: QE in overdrive – click to enlarge.


Let’s have a closer look on what has been going on in the physical gold market. Physical demand is very strong and the refineries are again working 24 hours straight to meet demand but mining supply as well as scrap gold seems to be tightening. The Swiss Customs released import/export data showing another strong month of gold exports in November. Exports totaled 232 tons, stronger than the already good month of October with 200.8 tons. India was the main export destination with 77 tons, followed by 34.7 tons to China, 34.2 tons to Hong Kong, 22.8 tons to Turkey and 16.4 tons to Singapore. The Gold Offered Forward Rate (GOFO) has recently turned negative. When the GOFO rate becomes negative, it implies that the demand for physical gold in the spot market is high and market participants are willing to pay a premium to get immediate delivery of gold. The last time we saw such a development was back in 2009 when we witnessed a substantial increase in gold prices for several years. So, in this situation particularly with a shortening in the physical supply, we just don’t feel that comfortable about the future.


Gold in dollar and euro termsGold over the past year, in dollar and euro terms. In euro terms a new bull market seems to be underway already – click to enlarge.


Paper Money Destroys the Values Allowing us to Coexist Peacefully

With low or even negative interest rates associated with the debasement of the purchasing power of money itself, every saver appears to be a fool. This process has a strong impact on us, because saving does not make sense and therefore people end up buying things they don’t need or they even can’t afford. This imbalance in which consumption and debt carry bigger weight compared to savings leads to the moral degeneration of society. Excessive consumerism stands for absolute contemporary fixation – a devil-may-care attitude. Because money becomes worth less and less, people start running after yields to compensate for the loss of purchasing power. The ways we think and act adjust according to our short-term problems and goals, ignoring the long-term ramifications.

I believe that as a result of this, we lack time to reflect, to discuss, to care for the family but also to think about the values and ideals of our society. State activism and an inflationary monetary system are destroying our understanding of a “traditional family”. It loosens the ties between parents, reduces the attraction to bring children into the world and particularly to rear children in the best proper way so as to pass on these values to future generations.

It is therefore that I firmly believe that state activism undermines the respect for all non-state authorities and is therefore destructive to our cultural and traditional values. Wilhelm Röpke, a German economist, once said in this regards, that “Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms — all of these are things which people must possess before they go to market and compete with each other. These are the indispensable supports which preserve both market and competition from degeneration.”

In our Las Vegas conference back in September I expressed my strong opinion how liberty has been slowly dying since 9/11. Governments have expanded their infrastructures to increase their infiltration into societies and intensify their control to curb civil liberty, ironically, in the name of protecting liberty. I particularly like to share a quote by Henry Hazlitt from an article he wrote back in 1956, saying “that the greatest threat to American liberty today comes from within. It is the treat of a growing and spreading totalitarian ideology.”

There are three ways or tenets whereby a society drifts into totalitarianism, but it all starts with increasing government regulation of every sphere of life, whether social, economic or cultural – you constantly have to ask the government for permission. The more the government spends the more far-reaching the government intervention becomes. I also believe the increase in government regulation is indicative of a lack of trust the elites have towards individuals.

The government doesn’t trust us with our choices, but how can we be confident that the government will make the right choice for us? It is evident that the political and economic spheres of government reinforce each other towards this objective, and in the end it is our liberty that we lose. Here in Switzerland, an already established state endorsing deregulation of government, I was optimistic that the Gold Initiative would pass. And though it didn’t, I am convinced it succeeded in making the public question the system that regulates their financial and economic interests. And therefore I am optimistic we will have interesting discussions to witness in Switzerland.


The East knows better!

The ongoing geopolitical power shift from West to East has become crystal clear this year. History has shown us that currencies rise and fall with the rise and fall of their empires. It is obvious that the current currency system is at war. Demographics in the western world are unfavorable. The East, as we all know, is highly motivated to increase their productivity and aim for better standards of living and quality of life. At the same time they don’t have a gigantic welfare-state in place and their hunger for gold is unstoppable. They know all too well that the tides will turn at some point and they want to make sure they have the support to protect them from the damage that we’ll see when the system breaks down.


Whom can we trust?

We cannot take the media at face value. With about six companies in the US controlling the media landscape – how can we guarantee objectivity or that there isn’t a certain bias or agenda at play? Edward Bernays, the father of propaganda, once said, “[t]he conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in a democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government, which is the true ruling power of our country [… ] we are dominated by the relatively small number of persons […] who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind”.

And though there is a strong force promoting government agendas I believe there is an opposing current in the Internet questioning the media and the ideas they are promoting. I would like to take this opportunity to ask you to read the article written by my friend Marco Ricca that explains how the Internet is helping to make the world a freer place (please refer to the abstract and link in this Outlook). The exponential growth rate that for example the Austrian School and its proponents are witnessing, particularly since the crisis in 2007, is a strong indicator of this.


Nothing can Protect You Better than Gold

If we review the events of 2014, it seems the situation has intensified: governments are still overwhelmed with debt, our fiat money system is unsupported, our central banks insist on accumulating debt and making money valueless. It doesn’t look all too good. Or does it? Will someone realize we have to pull the plug? And when we do, because it will happen whether we want it or not, how can we hedge against the damage that we will all be exposed to? I am a strong advocate of physical gold and can’t stress enough the importance of owning physical precious metals stored outside the banking system. It is a proven and essential form of monetary insurance against the uncertainties and negative surprises we see in our world today.

Let me close with the freedom train metaphor for building a movement that I heard from Jeff Deist, President of the Mises Institute, a few weeks ago. “If you want more freedom, join us. Get on the train. You can get off whenever you like. Maybe you favor 60 percent of our ideas, or 80 percent or 90 percent, or whatever. Just join us and go as far as you like, get off when you like. As I said earlier, we are so far from what we could consider a free society that we hardly should concern ourselves about it now. Let’s just get the train moving in the right direction!”

Great change has always come from the bottom upward and not the other way round. I recall the words of Mahatma Gandhi: “Be the change that you wish to see in the world.” Like Gandhi, I firmly believe change stems from the individual – but the individual needs to believe in his power and potential to create it.


This article appeared in the newest Global Gold Outlook Report. Subscribe for future updates on http://www.globalgold.ch/


To read more about holding physical gold outside the banking system and the available solutions offered by Global Gold, please visit Global Gold and request an investor kit for free.


Charts by: St. Louis Fed, StockCharts


By Claudio Grass, a passionate advocate of free-market thinking and libertarian philosophy. Following the teachings of the Austrian School of Economics, Claudio Grass is convinced that sound money and human freedom are inextricably linked with each other.



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One Response to “Money, Gold and Liberty in 2015 and Beyond”

  • “Money is no longer a property title, instead it became an I-owe-something, the Dollar and every other paper money we hold today are simply IOUs.”

    As far as I can tell, from the legal point of view, money does not belong to the person that receives it in exchange for his/her labor and ideas.

    So, it is not a case that “money is no longer a property title”. In this monetary system, it was never meant to be.

    To understand the ramifications of this arithmetical reality, one must understand the following:

    – Individuals are obligated under penalty of law to make use of one arbitrary medium of exchange

    – The owner of the medium of exchange however, has no reciprocal obligation to guarantee the exchange value of same

    The owner of the currency therefore merely lends to society the use of money at interest.

    But with no reciprocal obligation to guarantee the exchange value of the currency, suddenly, the arithmetical reality is therefore, that regardless the state of the economy or the persuasion of the incumbent government, the owner of the currency will always and everywhere expand the monetary base and credit.

    In so doing, over time, “title” is ineluctably channeled into the hands of the owner of the currency.

    Is there evidence that title has been transferred towards the owner of the currency? There is certainly some evidence here:


    This is, as far as I can deduce, the arithmetical reality that results in government becoming the largest actor in the economy, thus bringing about the monopolisation of industry and business, thus making fiscality progressively more onerous, which results in more complex regulation thus stifling enterprise, driving off-offshoring and finally making the population ever more unemployable.


    The corollary to this arithmetical reality is that the political persuasion of successive governments or the right, the centre or the left, is mere theatre, because despite differences in style along the way, the result can only be the transfer of wealth.

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