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The action by the Swiss central bank proves that central bankers simply can not be trusted

The move by the Swiss central bank yesterday to remove its peg with the Euro was an enormous move by a central bank. It collapsed the value of the second most traded currency on the planet versus the Swiss Franc by 30% in a matter of seconds.

This really goes to highlight just how fast things can change due to the decisions of a few (mainly) men sat round a table. It’s worth reiterating that we’re talking about the second biggest currency losing 30% of value against another major currency in the blink of an eye. It doesn’t exactly smack of a stable economic environment – or ‘price stability – now does it?

Whilst most commentary has focused on the impact of the move in terms of the global economy, we thought we’d look at the Swiss central bank action in terms of what it tells us about central banking in general.

Back in August 2011 we penned an article titled “Babylonian Queen Nitetis’ message to the Germans, it was an article looking at the amount of gold the Germans calmed the had, we wrote:

So just how much of that 3,400 tons do the German’s keep in Germany? According to this only about 5%, or 170 tons. To put that in perspective that’s just over half the size of the UK’s meagre gold holdings. And a whopping 66% of all of Germany’s gold is at the NY Federal reserve.

So if it doesn’t have it in its own vaults, can it be said that the Germans own very much gold at all?

This situation reminds us of story of Babylonian Queen Nitetis. When she died she had a tomb made that was prominent in the city centre with the words:

“If one of the Kings after me lack money, let him open this tomb and take what he will. But let him not open it unless he need, for it shall be worse for him.”

Then came along King Darius who thought that it was a shame that money was being hoarded in the tomb of Nitetis. So he decided to open the tomb up and take back the riches.

However when King Darius opened up the tomb instead of seeing gold as far as the eye could see, he could only see the dead body of the Queen and a note which read:

“If thou were not insatiate of money and a lover of gain, tho hadst not opened the resting place of the dead”

So when Germany asks for its gold back and goes down to the vaults for the NY Fed and swings the door of the safe open and instead of seeing pallets of gold there will be a simple note”

“Of course we stole your gold – we’re central bankers, it’s in our nature”

Since we published that article the Germans have of coursed asked for their gold back from the USA – and to date ONLY 5 tonnes have been shipped back to the Germans – way less than should’ve been shipped by now.

What we were trying to say in that article from four years ago is that central bankers are not to be trusted ,and when it suits them the rules of the game can, and will, be changed in an instant. All to the great detriment of the average guy in the street.

Fast-forward to today and the action by the Swiss central bank goest to highlight what we’re trying to say perfectly. First up, let’s just take a look what the Swiss central bank was saying on the 12th January, 2015, just three days before they dropped the Euro peg:

The Swiss National Bank’s cap on the franc at 1.20 per euro will remain its key monetary policy tool, the central bank’s vice-chairman said in a television interview broadcast on Monday. “We took stock of the situation less than a month ago, we looked again at all the parameters and we are convinced that the minimum exchange rate must remain the cornerstone of our monetary policy,” Jean-Pierre Danthine told RTS.

Got that? Just three days before it dropped the peg the Swiss central bank was saying that the peg “remained the cornerstone of our monetary policy”. So you would be forgiven for thinking that the peg would remain in place a little longer than just three days. But you would’ve been wrong – and lost a lot of money if you trusted what the Swiss central bank was saying.

This isn’t the only example of the Swiss central bankers being disingenuous (at best) regarding the importance of the peg. At the end of the November the Swiss voted against backing their currency with 20% gold. The result was hardly surprising due to the unprecedented scare-mongering by the Swiss national bank that such a course of action would be a disaster for the Swiss economy.

In the lead up to that vote the Swiss central bank came out and said that it would no longer be able to peg the Franc to the Euro if it had to back 20% of its balance sheet with gold. Here’s a couple of examples of what we heard during the gold referendum campaign by those in control of the monetary levers:

  • [the gold initiative is] dangerous because the peg would not hold if the Gold Initiative was passed
  • we will use any means to defend that peg for future years
  • Furthermore, because gold pays no interest or dividends, the SNB’s ability to generate profits and distribute them to the Confederation and the Cantons would be impaired. [this one is hilarious because the action yesterday generated a loss (according to Citi bank) in the region of 60bnCHF for the central bank]

You would be forgiven if you lived in Switzerland and assumed from all these mutterings by the Swiss central bank that the peg was here to stay for a long time.

It turns out these arguments against a gold backed Franc were totally fictitious because they had no plan to keep the euro-peg, it was just a convenient excuse to bash gold at the time – truth be damned.

So there we go – we hope the people in general a slowly beginning to grasp the simple concept that you can not trust a single world a central banker says. In the words of the current EU president, Jean-Claude Juncker:

“when it becomes serious, you have to lie,”

Link to this article: : http://www.goldmadesimplenews.com/gold/the-action-by-the-swiss-central-bank-proves-that-central-bankers-simply-can-not-be-trusted-12797/

Posted by on Jan 16 2015. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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