The Swiss Gold Referendum
You may well be aware that on Sunday 30th November 2014, the Swiss people will vote in an historic referendum on the future of their financial security – whether or not to back the Swiss Franc, once again, with Gold.
A little background might be helpful. Switzerland’s voting system is unique in that Switzerland practices direct democracy, in which any citizen may challenge any law or propose a modification of the Constitution if they obtain 100,000 signatures of support.
An MP named Luzi Stamm - a lawyer by training, only recently came to grips with how the monetary system works and in so doing, realized that Switzerland made a mistake in abandoning the Gold Standard system that helped make the country a by-word for financial stability. (Privacy is another matter for another article.)
The background for Stamm’s decision stems from Switzerland’s decision to join the IMF if 1992 and in 2000 to sell off the majority of its Gold reserves that it had accumulated over centuries of prudent fiscal discipline, current account surpluses and hard work. From its original stock of 2,600 tons, the Swiss National Bank has now only 1,040 tons. Stamm decided to organize a petition with the following terms:
1. The gold of the Swiss National Bank must be stored physically in Switzerland. (Much of it is in the UK and Canada.)
2. The Swiss National Bank should no longer have the right to sell its gold reserves. (This should require a separate authority.)
3. The Swiss National Bank must hold at least 20% of its total assets in gold. (Traditionally around a 40% backing, there is now only 7.5% in gold.)
Luckily, there were 100,000 Swiss citizens well versed enough in their financial history to sign the petition. The reaction from the Swiss National Bank was not welcoming. Stating:
“The SNB does not generally comment on any political initiatives. However, the gold initiative has a very direct impact on the SNB’s capacity to act…. We share the objectives the initiators put forward, such as maintaining currency and price stability.”
It’s easy to understand why the SNB whom ‘does not generally comment on any political initiatives’ has reacted to this particular initiative. Firstly, retrieving the gold from foreign central banks might be a problem as Germany recently discovered. Secondly, since 1999 the SNB has inflated its money supply fivefold from approximately 100 billion CHF to 500 billion CHF. Inflating ones money supply is usually quite fun, reducing it again less so. Thirdly, the SNB sold off most of its Gold back when it was approximately $400 per oz – buying back 1,700 tons - even at current low prices would cost US $70 billion. Tricky.
A typical 400 oz gold bar used by central banks.
A recent poll shows 38% in favour of the proposal and 47% against. The breakdown of the demographics is extremely interesting indeed. The mainstream politicians and the financial sector are vocally against the proposal. They need unrestricted money printing to keep solvent. The wealthier voters have also polled against the proposal – disturbed by the warnings that a strong CHF on a gold standard would see the value of their stocks and real estate decline whilst their debts would be increased in relative value. The lower middle and working class seem to enjoy the idea of their wages going further and have polled ‘Yes’. The Italian ethnic minority of all classes generally polled ‘Yes’ as they are well aware of the disasters of the inflated Italian Lira.
And so here we have a microcosm of the broader problem. The Swiss, (like almost everyone in the developed world) are addicted to their unpayable debts being made bearable by ever lower interest rates – which in turn are made possible by reckless money printing. Each country must tackle reality and return to a gold standard sooner or later. As individuals, we are free to put ourselves on our own gold standard by placing a proportion of our own reserves in bullion. Doing so takes courage and an acceptance of having to live within one’s means. Switzerland’s chance is now.
by James Cox
and The Safe House / Silver Bullion Team |
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Photo: A pallet cage containing 16 x 1,000 silver bars is lifted for inspection via stacker at TSH.
Silver Maple Leafs shortly after the last newsletter the Royal Canadian Mint went on allocation due to a surge of demand while re-tooling for 2015 coins. A small 2014 coin shipment is still due to arrive but the bulk of mint production is now for 2015 coins which should arrive by late December. Our premiums are unaffected.
Johnson Matthey 100 oz Poured Silver Bars - Availability is still good for our most popular silver bar (over 1 million ounces sold).
Perth Mint Silver Coins and Bars - a shipment of 2015 Kookaburra and Koala coins is arriving next week.