Lessons Learned from the Suisse Gold Referendum with Egon von Greyerz
"You can't fight the Elite! When they decide they will beat you, they will beat you -- eventually however they will fail!"
Interview with Egon von Greyerz of Matterhorn Asset Management .. on the recent Swiss Gold Initiative vote:
"The whole of the elite were against us. Now, we thought the people, the Swiss people, would be on our side because the Swiss people understand the importance of gold. They were clearly influenced by the massive campaign of the government and of the central bank. The losses for the Swiss National Bank could have been very serious, and that's why they were quite desperate to stop this initiative."
What are the ramifications now?
"Switzerland now has to print money. The currency is only backed by 7% gold, and now they have a free-for-all to print more money .. this, of course, will be very bullish for gold because it won't be just Switzerland. Virtually, every country in the world will start printing money."
The below memo could have been written by Thomas Jordan, president of the SNB.
Internal Memo National Bank
From: Jomas Thordan, President
To: The Board of Directors
Date: December 1, 2014
I have been quite concerned about the outcome of the Gold Initiative referendum. That is why I have been in the media virtually every day for the last few weeks. I know that the National Bank should not conduct a campaign during a referendum of this kind but since it was a matter of national importance I had no other choice.
As you know, until 1999 we had over 40% gold backing in our balance sheet. At the time it was thought that this amount of gold was critical for the stability of the National Bank and our national currency. But fortunately we managed to change the constitution which allowed us to sell more than half of the nation's gold at the bottom of the market. We have been bloody lucky fortunate that the Bank's reputation was intact after this decision which cost our nation 30 Billion. It was clearly incompetent unlucky to sell the gold at the lows but market timing has never been our strong point.
I am extremely pleased that 77% of the voters agreed with my propaganda statements that gold plays no role in modern banking. Gold is a relic of the past. We can't print gold and that is a major disadvantage when we want to manipulate manage our currency and financial markets. Our principles for managing the National Bank are now laid down by the Federal Reserve and ultimately Goldman Sachs. Here at the Bank we fully subscribe to the statement of the wise Mayer Amshel Rotschild: "Give me control of a nation's money and I care not who make its laws."
So fortunately we don't have to buy any more gold and we should probably consider selling the 1,000 tons we may still own since it serves no purpose and has no yield. That would also give us ammunition to buy more euros.
The one concern that I would like to share with the board is our currency position. As you are well aware, we have printed over 400 billion and bought mainly assets in euros but also in other currencies in order to hold the peg above 1.20. We are all aware that printed pieces of paper are not really worth anything but since we are a national bank, we can just tell the people that it is real money. Fortunately they are foolish wise enough to believe us.
The reason I have been so nervous about the referendum is that the Bank is now sitting on the biggest speculative currency position of any major central bank in the world. Our balance sheet of 522 Billion is over 80% of GDP which is an extremely dangerous position for our country. It is virtually impossible to get out of this massive position without a loss of 10s of Billions or even as much as 100 Billion. Obviously the people would ultimately pay for this loss.
The 1.20 peg is artificial and throughout history no currency peg has ever held in the longer term. Over time currency rates always reflect economic and monetary differences between countries. Since our economy, for a while at least, is likely to continue to be stronger than the weak eurozone, our home currency will naturally outperform the euro. We are of course extremely grateful that the voters listened to our propaganda information during the campaign and rejected the Gold Initiative. But sadly the Bank's problems are not over.
This peg was critical to save the bankers banks that had lent massive amounts of our national currency to mainly Eastern European banks. So now we are totally linked with the eurozone and at some point we should perhaps discuss to make this permanent. There are of course disadvantages to be tied to a very weak currency. Everything we buy in the shops is now more expensive. Also, we could be dragged down by euroland and end up with the same economic disaster they are in. But fortunately the people don't understand these major drawbacks.
But the biggest problem with taking the euro as our currency is that the Bank would lose its ability to be irresponsible independent. The ECB would take over and we would lose all our power to print money.
Therefore I recommend to the Board that we stay as we are. But that still gives us the headache of our 470 billion speculative currency position. This is a time bomb and we know we will never be able to extract from it without very major losses. Hopefully the current board will have retired from the National Bank before this happens so a new board can be blamed for it.
Finally I would like to thank the Board for their support of my actions. The Bank now retains total "control of the Nation's money" which is comforting.
P.S. The above is a fictional account of events and any connection to a real situation is purely coincidental.
On November 30th the Swiss voted on:
- Returning their national gold which is held abroad back to Switzerland
- Requiring the Swiss National Bank to hold 20% of their assets in physical gold
- Prohibiting further gold sales
So why was this referendum so important? Because Switzerland has, for hundreds of years, been a bastion of sound monetary policy and low inflation. But this has gradually changed in the last 100 years since the creation of the Fed in the US and especially during the past 15 years when the Swiss government quietly removed the 40% gold backing from the revised Federal Constitution which was adopted by popular vote in 1999.
No paper currency has ever survived throughout history in its original form. And the Swiss Franc from having been a strong currency is now in the process of being slowly destroyed by the recent policies of the Swiss National Bank (SNB).
Since 2008 the SNB's balance sheet has expanded 5 times from CHF 100 Billion to CHF 500 Billion. So Switzerland has printed around 400 Billion Swiss Francs in the last 6 years in order to hold its currency down against the Euro and other currencies. CHF 400 Billion is around 2/3 of GDP.
This means that Switzerland has printed more money, relatively, than any major country in the world in the last 6 years.
Repression Authority with Egon von Greyerz
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