Freedom Is Lost in Small Steps
Reintroduce gold coverage, close down the IMF
Freedom Is Lost in Small Steps
Popular Initiative To Reintroduce The Currency's Gold Coverage
Central Bank To Stop Gold Sales
(Translated from an article that appeared in the Swiss weekly Zeit-
Fragen. The English version, which is a monthly, is called Current
Concern - The Monthly Journal
For Independent Thought, Ethical Standards And Moral Responsibility )
By
Ferdinand Lips
October 7, 2002
The result of the most recent Swiss plebiscite on the sale of the Swiss
National Bank's (the "SNB") gold turned out differently than the
government expected. The Swiss people voted about how to the use of the
proceeds of the sales of the SNB gold. On February 26, 1997 the Swiss
government, under relentless pressure from the U.S., decided to
establish a so-called Solidarity Foundation in the amount of SFR 7
billion for Holocaust victims. The announcement was made in early March,
1997. The Swiss government has never given up this intention, although
the Swiss people are against it. A counter proposal by Dr. Blocher's
SVP party was to put the proceeds of the gold sales into the national
Swiss Old Age and Pension fund, because the gold really belongs to the
Swiss people.
Both issues were voted down and are now dead. The Swiss do not want to
spend the proceeds of the gold sales on either the social security
system or on a Solidarity Foundation. Switzerland needs to reevaluate
what is to happen with its gold. Taking public welfare and prudent
governance into consideration, two things should be done: the SNB should
immediately stop selling its gold; and, the previous gold coverage for
the Swiss franc should be reinstituted. This will have to be done by
popular initiative.
In periods of crisis, financial collapse and war, an independent and
stable currency is the people's protection against the "malice of the
times," as the Swiss Declaration of Independence (1291) so eloquently
put it. A collapse of paper-ticket-fiat money systems and the ensuing
costs of the anticipated Iraqi war, in addition to President Bush's
ongoing "War on Terrorism," which inevitably will be "paid" for by
inflation, may lead to a great economic disintegration and widespread
poverty in an alarmingly short time.
How was the Swiss currency's gold coverage abolished?
Following Switzerland's entry into the International Monetary Fund
(the "IMF") in 1992, Switzerland was forced to give up its currency's
gold coverage (40% until then) embodied in the old Swiss constitution.
The change of policy was hidden in an ominous new constitution that was
put into effect on January 1, 2000. Subordinate laws and decrees were
also changed. There was never a broad debate on the advantages and
disadvantages of abandoning gold coverage, and I doubt that the true
significance of the decisions made at that time were ever fully
understood.
Based on this development, the SNB began to sell off 1,300 tonnes of
gold that, supposedly, were no longer necessary as currency reserve.
To date, some 600 tonnes have been sold. The proceeds are to be shared,
but it has not been decided how that sharing is to take place. On
September 22, 2002, the people voted down the two proposals put forth
so far.
Advantages of reintroducing gold coverage of the currency
Switzerland is now tied into the IMF-system, which prohibits member
countries from linking their currencies to gold, and only to gold.
The damages to the Swiss are not yet clearly visible, but like an
economic B52 bomber, the IMF has cut a strip of devastation into other
countries' national economies. In any case, Switzerland is no longer
free to choose its own currency and financial policies to pursue the
common good. If gold coverage were to be reintroduced, Switzerland
would have to leave the IMF, since it would be in violation of the
IMF's gold prohibition, and Switzerland would again have an inter-
nationally respected currency, offering protection against inflationary
interests and other world economic shock waves. We would again have the
world's most trustworthy currency. Nothing could be more positive for
Switzerland, for its citizens and for its banking center.
Swiss gold, therefore, should not be sold, and the Swiss franc should
be returned to its 40% gold coverage as stipulated in the previous law.
In those days everybody could rest assured that at least 40 centimes
worth of gold for every franc were stored at the SNB. Until 1998, the
SNB accounted for its gold reserve at gold's old price, SFR 4,575 per
gold kilo, just as the U.S. government used $38 and later $42 per ounce
for the gold that it holds. Most other countries have revalued their
gold. Meanwhile, the price of gold had risen to SFR 15,000 per kilo
resulting in more than enough gold coverage for each franc in
circulation. This transformed our currency into the world's best
currency, and our central bank into a respected institution. There is
no question that Switzerland's banking center greatly profited from
these circumstances. The situation was also due to the personalities
involved, such as SNB President Dr. Fritz Leutwiler.
Exchanging the nest egg for paper-ticket-fiat money?
The price of gold per ounce (31.1 grams) has risen from $275 to $320
(+18%) within the last twelve months. During this time, stock markets
declined, and some worldwide super-companies collapsed, e.g., Enron,
Swissair, Worldcom. Many others, some of them Swiss, are teetering on
the edge of collapse. The world situation is serious, and the outlook
for next year is glum. For this reason it is very unwise, even for an
ordinary businessman, to sell the one commodity perceived everywhere
as metalized crisis protection that maintains its value. When things
get really bad, e.g., when one of the big banks fails, it will be very
difficult to contain the incident. The entire economic world may go
into a tailspin and all paper-ticket-fiat currencies may crash simul-
taneously. All the paper-ticket-fiat currency reserves that the SNB has
in dollars, euros and yen will not be of any great help in its role as
"lender of last resort" (the central bank as final rescuer of the
banking system). Then, it will have to resort to using gold-provided
the gold is still there.
The SNB creates facts
On September 26, 2002, following the plebiscite, the SNB announced that
it would sell another 283 tonnes of gold during the next twelve months.
It wants to make good on the promise to get rid of 1,300 tonnes within
four years. Considering the plebiscite's results and the state of the
gold market, the SNB ought to stop the sales and rethink the situation.
What will the SNB do in a few years when the gold price may have climbed
much higher and the treasure has been sold under value? The Bank of
England is already being criticized because England has lost about £500
million due to its gold auctions. In my book, The Gold Wars: The Battle
Against Sound Money As Seen From A Swiss Perspective, I present a
detailed historical description of how Switzerland came to the sell-out.
The bottom line is that it was a big deception and betrayal of the Swiss
people-a major scandal!
The SNB has already lost 40% due to gold sales
It is a tragedy. We are experiencing the downfall of a nation that once
was regarded as "Fort Switzerland." Such things do not happen overnight
but sneak up step by step. "Freedom is lost in small steps at a time,"
an American friend who has been observing the process recently wrote.
In the last two years, the SNB sold 603 tonnes of gold nearly unnoticed.
The proceeds were invested in dollars, euros and yen, or whatever seemed
to make sense at the time, e.g., long-term bonds. A conservative estimate
is that the SNB has lost some $500 million because the price of gold has
gone up by 20% in the meantime. Additionally, Switzerland has taken heavy
losses in national wealth due to the U.S. dollars slipping from SFR
1.80/US$ to about SFR 1.45/US$. The ongoing decline in the foreign exchange
value of the dollar is the bill for the world's realization that the
American economic miracle of the 90's was a fiction.
The Clinton/Rubin era's policy of a "hard" dollar, record money creation
and credit formation, combined with window-dressing the U.S. balance
sheet, produced the greatest stock market mania in history. This was
how the U.S.' public finances siphoned the rest of the world's savings
into U.S. financial markets, where the funds were needed to cover
deficits. Now that the truth is coming to light, some investors are
avoiding the dollar and reallocating into gold. And still, the SNB is
selling gold. Who can understand such behavior? Could it be that the
SNB is acting under orders? Who are our government and financial
crackpots listening to? Are they just innocently naïve, or are they
a part of the problem?
Is the SNB on New York's leash?
In my opinion, the once strong, proud and independent SNB has been
degraded to an "Off-shore Branch" of the U.S. central bank (the Federal
Reserve) and reports directly to Alan Greenspan and his cohorts in New
York. The Swiss franc, the last bastion of a relatively strong currency,
has been taken down, and, for the first time in history, the whole
world is floating in a sea of paper-ticket-fiat currency. This cannot
be good, but we can change it-if we want to.
While the SNB is selling our gold on a daily basis, central banks in
the Far East are acting with more foresight by buying gold at current,
and still relatively low, market prices. They are exchanging their
paper-ticket-fiat money for gold at a price of SFR 15,000 per kilo to
create an emergency fund for when currency markets crash. Are they
smarter? Why are they doing this? History has shown repeatedly that
countries selling gold lose political and economic clout. That is
what it is all about. We are clearly witnessing the shocking financial
end of Switzerland's sell-out.
Today, few understand the mechanics of gold coverage or even of the
gold standard. If this process is not stopped now, Switzerland will
wake up in the midst of a crisis, stand naked, be at everybody's mercy
and realize the terrible mistake it has made. The enormous consequences
of this pointless sell-out are that our country is losing its
independence and financial strength. Ounce per ounce, our independence
and security is being sold out. We had better think about this now
while we still have room to move.
Two prognoses:
1.. It is a given that the Swiss gold sales will help New York money
center banks to survive a bit longer. It will help them manipulate the
gold market. But, gold's time is still to come. If the SNB does not
stop its sales, Switzerland will have to buy back its gold one day but
at a higher price. The question is: With what?
2.. Switzerland and its banking center will continue to lose its
status as a safe haven in times of crises. The national economy stands
to incur enormous losses. One thing, however, is quite evident:
Switzerland will forfeit its independence, financial strength and
prosperity forever. This is a very bleak outlook indeed.
Reasons for being against the proposal
First, a word to those who reject this proposition. The Swiss cantons
have their eyes on the SNB's vast funds. Two thirds of the earnings of
SNB funds belong to the cantons by constitutional decree. The hungry
looks are understandable, because the cantons are in financial straits.
They were-as were the federal government and many other states-enticed
to go into debt, to run a deficit spending economy. They were using
money they did not have, money that future generations will have to
pay back in form of taxes. (I am ashamed to leave this legacy to the
youth of today.) Now, mountains of debt and the burden of interest are
crushing them. In earlier days politicians could gain in popularity
and appease the population by advocating the distribution of borrowed
money. Today, as judgment day approaches, they have an open mind for
anything promising money like manna from the SNB's heavens.
This kind of thinking is just as myopic as the deficit spending policy.
Even if gold were to be used to reduce the federation's and the cantons'
debts, the currency would still be at the mercy of economic waves.
Besides, only a modest part of the SFR 200 billion in federal and
cantonal debt could be repaid.
Only one thing can help. We have to look the facts straight in the eye
and begin to plan solidly and on a long-term basis. States and
individuals living in too grand a style will have to cut back, even
if those who are on generous public payrolls and who do not contribute
to the res publica, but undermine it, will grumble like the so-called
generators of culture in the arts, for example.
Reintroduce gold coverage, close down the IMF
Stable currency and honest solutions
We have to find our way back to honest currencies and clean solutions.
Pressure on the SNB needs to be increased to get it to stop its gold
sales or, at least, pause for reflection. This pause should be used to
examine gold coverage and pulling out of the IMF in view of the present
world situation and historic experience. I am not alone in this. In the
U.S., there have been repeated calls to disband the IMF by renowned
financial and banking experts, albeit for different reasons.
For the Swiss, a popular initiative is the best means of starting a
broad debate on the subject. Even if it will take some time, it will
be a chance for many to come to their senses. Switzerland is better
off being independent than being part of the manipulative international
paper-ticket-fiat money cartel. As a former banker-and there are many
colleagues who haven't become cynical over the course of their careers
and who think similarly-I cannot accept that so many innocent people
stand to lose their savings, pensions, and annuities due to the lack of
foresight on the part of those in charge. Let us hope that there will
be enough farsighted, honest, and thinking people joining me in my
opinion that the SNB is playing a macabre game that needs to be stopped
before it is too late. Gold is money. Anything else is merely credit.
###
Ferdinand Lips is the author of The Gold Wars: The Battle Against Sound
Money As Seen From A Swiss Perspective. He has had a long and
distinguished career as a Swiss banker.
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FAME,501(c)(3)
Box 625, FDR Station,
New York, NY 10150-0625
Phone:212-818-1206
Fax: 212-818-1197
Lparks@FAME.ORG
www.fame.org
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