Gold sits at the center of what is arguably a vote more important to the world than which party runs (ruins?) the U.S. Congress.
On November 30th, Swiss voters will be asked whether they want 20% of their currency, the Swiss franc, backed by physical gold.
The people I talk to here in Zürich are, at best, hopeful that the answer is no. They know that such a plan will cause a world of hurt to the Swiss economy and will hamstring the Swiss central bank and its efforts at managing the franc. They all say confidently that the majority of Swiss voters understand this and will veto the plan.
But you can clearly hear in their tone that worry tints their words. The polls are close. And they know that the Swiss feel their economy is too often manipulated by what happens with the euro and the dollar — and the Swiss are people with a deep independence streak.
Thus, there’s a better-than-good chance that Swiss voters shock the monetary world this weekend with a vote that signals the beginning of the end for modern fiat currencies. That will ripple through our world here in the States. But there are ways to prepare…
The World’s Currencies Teetering on the Edge
Western governments have done a moron’s job of managing the world’s largest, most important currencies — the dollar, the euro, the yen, the pound … and others. Politicians have spent unimaginable sums of money that their economies don’t have in order to give voters undeserved benefits and payoffs. They’ve issued gargantuan sums of debt to do so, and then relied on their central bankers to manipulate the monetary system to delay the reckonings that must happen in order to clear the monetary system of imbalances that the politicians and bankers have fostered.
They’ve been able to do this because the currencies they’re issuing have no tangible value. The currencies are literally just paper that each government says is worth something … just because the government says so.
The Swiss initiative questions the foundation of that belief.
It’s the first real sign that people are losing faith in government fiscal and monetary policies, and are rethinking blind acceptance of fiat currency.
There’s no question that a Yes vote will cause gold to rise. The Swiss central bank will have to buy something on the order of 1,500 tons of gold over five years.
But a Yes vote will also cause massive problems for the Swiss economy. A golden franc will rise in value against other currencies, and the Swiss central bank will have a hell of a time keeping it in check. Swiss exports — the economy’s lifeblood — will be more expensive and, thus, less desirable. The Swiss economy will sputter.
But, to voters, that’s beside the point — and it might even be medicine they’re willing to take to make a point that governments cannot willy-nilly print and print and print more and more and more currency just because they own a printing press.
Every action has an equal and opposite reaction, and the Western world’s citizens who understand the implications of unchecked money printing live in quiet fear of a global currency crisis that destroys the value of every asset they own.
Swiss voters recognize this … and they’re angry.
Their vote is giving voice to the rest of the Western world’s people who are exasperated with monetary policies that, they know, harm the world. If nothing else, we should applaud the Swiss for trying to reacquaint currency and gold after roughly half a century of Monopoly-money policies.
Insurance Against a Currency Crisis
I was talking with my friend, Rob Vrijhof, about all of this over a dinner of perfectly grilled veal at Real, a wonderfully homey Spanish restaurant in Zürich last week. He and I agree that there’s little reason to worry about the long-term health of the Swiss franc. If it’s backed in part by gold, it’s a fundamentally sound currency. And if it’s not, it still one of the world’s best-managed fiat currencies.
The U.S. dollar, however, is a powder keg awaiting a stray spark that could come from any direction. Outside of the Japanese yen, our greenback is, perhaps, the sickliest major currency in the world, despite its current (and temporary) strength. We simply have far too much debt in the system with no way to clear it and no political leadership with any viable solutions.
Rob is one of the solutions.
“This is a major window of opportunity,” Rob told me. “The dollar is expensive. And the whole world understands that it ultimately has to be weaker one day, or else. So that means you absolutely want to trade expensive dollars today for cheaper currencies and gold. Investors who do that now will be rewarded big time.”
He’s absolutely correct. Just as you would buy a refrigerator on sale, now is the chance to use overvalued dollars to buy assets around the world that are effectively on sale in dollar terms. That includes gold and silver, foreign stocks and fundamentally solid currencies such as the Swiss franc.
Every American with any degree of wealth should have some of that wealth outside the U.S. It’s insurance against a dollar crisis, no matter when that crisis might arrive.
This is the time to think about opening an offshore investment account. The fact that the Swiss are voting to back their currency with gold tells you that the state of the world’s fiat currencies — most prominently lead by the dollar — is quickly approaching an abyss.
Until next time, stay Sovereign…