Gold News

What the Swiss Did to My Money

Twisted like a pretzel, monetary policy has straightened a bit in Switzerland...
 
WE CAME to Switzerland to visit our money, writes Bill Bonner in his Diary of a Rogue Economist.
 
Many years ago, we opened an account with one of the country's oldest and most prestigious banks.
 
Occasionally – usually in spring, when we can find white asparagus with cream sauce in the restaurants – we come to say hello.
 
Yesterday's reunion was neither filled with joy nor with disappointment.
 
Our portfolio – Swiss Francs, gold, and a few stocks – has gone up 2.5% so far this year. Not bad. Not good. Satisfactory.
 
But you don't use a Swiss account to make money. Or to hide money. Or avoid taxes. Those days are long gone.
 
You put money in Switzerland in the single hope that it will still be there when you need it, say, 30 years later.
 
"I wouldn't be too sure," said our Swiss banker...
"Our central bank has done more than any of them. It created Swiss Francs to buy Euro...to try to keep the exchange value of the franc down and protect Swiss exporters.
 
"By last year, it had amassed the equivalent of about half a trillion Dollars' worth of foreign currency – or about 70% of Swiss GDP. Really, the Swiss National Bank is the biggest hedge fund in Switzerland."
Like everyone else in the developed world, the Swiss have plenty of debt.
 
We pointed to a house on the side of Lake Geneva. "How much is a place like that?"
 
It was an ordinary house, with no particular distinction, except that it had a nice view of the lake.
"About $10 million. But if you're borrowing money at 1%...you're talking about a monthly mortgage of about $8,000.
 
"And with so many Swiss bonds now carrying a negative nominal yield, some of these mortgage rates are going down to zero. It's gotten really crazy."
Janet Yellen is concerned.
 
If the Fed holds short-term interest rates too low for too long, she reckons it may cause further distortions in the economy.
 
We have news for her: The world economy is already as twisted as a pretzel.
 
Houses are expensive in Switzerland. Homeowners tend to have big, long-term mortgages at low rates. And like everyone else on the planet, they don't want their bonds to go down or their currency to go up.
 
Until recently, the country fought its own battles in the "currency wars" – pegging the franc at €1.20, so Swiss companies could continue to sell their chocolates, medicines, and watches to the European Union.
 
Then, in January, it suddenly gave up.
 
Switzerland is a small country in the heart of Europe. When the gnomes of Zürich learned that European Central Bank chief Mario Draghi was bringing out the big guns – a €1 trillion ($1.1 trillion) QE program – they raised the white flag.
 
No more would they intervene in the currency markets, they said. The Swiss Franc soared. Our account moved up.
 
Today, on the shores of Lake Geneva, people seem as prosperous as ever. The streets are clean. The trains run on time. The clocks are set to the right time. And when you go to a good Swiss restaurant, they offer you a second helping.
 
In short, Switzerland appears to have done for itself what it did for our money: It hasn't changed.
 
We've been trying to find something good to say about our generation – the baby boomers, who have dominated life back in the US for at least the last 30 years.
 
But we keep running into the same problem: We have been so eager to protect our perks, power, and profits we have perverted the entire system.
 
Capitalism takes you into the future...with innovation, failure, and surprise. You invest, you lose your money, you try something different, and you stumble forward. Capitalism is constantly burying its mistakes and discovering tomorrow.
 
Cronyism, on the other hand, keeps you in the past. It is today and yesterday trying to stop tomorrow from happening.
 
By bribing public officials (they are remarkably cheap; in terms of return on investment nothing else comes close)...restricting...regulating...controlling...central planning...bailing out well-established businesses...rewarding stockholders...paying off voters, lobbyists, and special interests...and distorting the political establishment, with its geriatric candidates and tired themes.
 
And guess what? Cronyism depends on the credit bubble. The future is where new wealth is created. When you try to stop or twist the future into the shape want, you prevent this wealth from ever happening.
 
So, you switch from creating wealth now to taking wealth from the future, so you can consume it now. That's how the credit bubble got so big. And that's why almost nobody wants to see it pop.
 
Cronies owe money. They borrow money. They depend on borrowed money for their budgets, their spending, their bonuses, their portfolios, their welfare checks, and their special privileges.
 
They all depend so heavily on borrowing that few of them – whether in academia, media, business, finance, or government – can see the truth...let alone speak it.
 
They are all paid not to see it. And if they do see it, they keep their mouths shut.
 
Who is left on the other side? Who is left to say something?

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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