Global Economy | Investment in gold | Alternative suggestions for the long-term conservation of capital | Taut check of the volume of money

Global Economy

Presently, hardly a day goes by without some alarming crash warning tid-bits in the news. The tenor of these tidings is that the global economy is in deep trouble. Nothing but balance sheet swindles and fraudulent bookkeeping committed by executives of the highest standing and reputation. The mighty Greenspan has reduced interest rates twelve times without stopping the rot on Wall Street. The creditworthiness of the largest players in the world market, such as insurance companies and banks are of a doubtful quality because of losses already suffered or expected in the future, owing to the downhill trend of the stock exchanges of the world. The financial health of numerous conglomerates, countries, and even continents (see South America) are increasingly suspect. The consequences could be as devastating as those that lead to the world economic crisis in 1929.

Accumulated capital whether of the individual, company or country is normally stored in one of the leading world currencies, such as the Euro or the dollar. It is now particularly frightening that the stability of these currencies has come under attack. America produces enormous deficits on the current account of its balance of payments, which is likely to get worse with the currently depreciating dollar. Whilst the crazy gang, united in the Euro-Zone, is only united in not keeping to the rules and regulations, so solemnly pledged, only recently, at Maastricht. Unfortunately it is only now being discovered that the founding fathers of the Euro completely disregarded the possibility of different inflationary rates within the Euro zone, resulting from their decision to retain the freedom of choice of the individual governments to pursue individualistic financial programmes in each of the separate twelve countries. Upon some reflection, they would have noticed this fallacy. But of course Helmut Kohl, who was more interested in an honourable mention of his name in the history books, then in serious study of the Maastricht criteria, rushed through the appropriate legislation irrespective of the risks involved, in giving up financial stability of the D-Mark for the pie in the sky of European Union. This resulted in varying rates of inflation in the member countries. Whilst Portugal has slammed on the table of the ECB an inflation rate of 4.5%, countries with faltering economies are nearer 1.5%. What is now expected of these unfortunate bankers in Frankfurt? Is the bank expected to increase the money supply, and increase the inflationary pressure or to decrease it and stifle thereby the moves to revive the economies of countries such as Germany? An insoluble problem and a cause for the flight from the Euro.

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Investment in gold:

How can an investor protect himself against the danger of a world financial crisis? Only by investment in a commodity, which can never completely lose its value, i.e. gold. Gold has for thousands of years served as an immanent storage value and will remain so, at least for the time being, because although governments can influence the price of gold, they are unable to devalue and debase it, as they are doing with paper currency. The gold price will explode as soon as a sufficiently large sophisticated segment of the public will realize that the current ridiculously low price level can only exist because of the open market operations of the central banks, who rightly believe that a low gold price makes it easier to convince the unsuspecting public to invest in their dubious currencies, the supply of which they can increase at will.

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Alternative suggestions for the long-term conservation of capital:

For example the "Plan for the upgrading of Liechtenstein as a financial centre" from the newspaper "the Weltwoche Zurich" NR. 38/77, already published 25 years ago.
"One of the reasons for the incineration of the monetary agreement of Bretton Woods was the realization that with different rates of inflation only free rates of exchange can prevent the accumulation of balance of payments imbalances. It was intended that the respective rate of exchange of a currency should be determined by the market and thus create equilibrium between supply and demand. Although even thereafter, some countries still kept fixed exchange rates; Switzerland decided to assume an independent position.
In June 1976 the Swiss federal authorities found themselves in a dilemma. Should they let the rate of the Swiss currency rise further in accordance with free market principles and thus appreciate their currency (an advantage for consumers and investors, but disadvantageous for the competitive power of the Swiss exporting industries), or by purchasing Deutschmarks, promote Swiss exports? The relevant Swiss authorities decided to pursue an interventionist policy. And in such a way the rate of the Swiss franc depreciated within a year from 92 to 107, despite the higher inflation rate in the Federal Republic.

Because of this anachronistic policy that resulted in importing foreign inflation it was proposed as an alternative to separate the functions of the Swiss Franc in finance- and commercial francs, similar to the conditions prevailing at the time in Belgium. The idea was that this tool would enable Switzerland to profit from the influx of foreign capital, without endangering its export industry that could not cope with the sudden appreciation of the franc. However attractive this idea might have sounded it had to be abandoned, because it was recognized that it required a system of rigorous exchange control, which was anathema to the liberty loving citizens of Switzerland. Thus it became clear that not even an investment in Swiss Francs could safeguard an investor against the loss of value caused by world inflation. At this stage it became manifest that a new currency was needed, that would serve the purpose of a safe haven as well as a storage of wealth, without fear of a loss of value, and impervious to the interference of bankrupt governments fleecing the hard earned capital of already taxed income.

The most likely candidate for this function would be a currency of the Principality of Liechtenstein, which fulfils as part of the Swiss customs area almost all condition, which account for the popularity of the Swiss Franc. The advantage of a new currency is that one can easily separate the financial from the commercial function. Particularly in this case, where one would continue to keep the Swiss Franc for all commercial transactions. The new currency, which one could baptize Liechtensteiner Taler, could be regarded to a certain extent as a unit trust fund, the assets of which would represent the foreign currencies paid for it.

A fundamental difference would however be, that the owner of this currency, in contrast to the shareholder, could not exercise a vested right on the "funds", in this case the currency reserves. Furthermore this currency would surely be traded at a premium soon after emission over the reserve value, because of its monopolistic position as a safe haven within the Swiss customs territory.

The fact that some unit trust funds invest their capital to a large extent in foreign exchange shows that this form of the system can be profitable. On the other hand that because of the lack of interesting investment possibilities on the stock exchanges, the new currency could be considered as an attractive instrument for investments. Even more so, because of all the currencies in the world only the Liechtenstein Taler would be spared the negative effects that trade or household deficits can exert on the rate of other currencies.

Yet, it would register the turbulences of other currencies by appreciating its own value, expressed in foreign currencies. The managers of the currency could avoid useless rate fluctuations because of the high degree of reserves. The effects of the establishment of the new Liechtenstein Taler would be favourable for all involved. The supply of foreign currency cash could enhance the prominence of the principality as a financial centre and thus solve many problems. And at last international investors, both Swiss and foreigners, would finally possess not only an effective defence against the monetary depreciation, but could even derive profit from the monetary depreciation of other currencies.

Swiss banks, if members of the managing consortium, could unfold a larger emission activity, not only in the new currency, but also in all other currencies, because they would have additional liquid reserves. The same applies to the insurance and loan business. Finally it would be advantageous for the confederation, since the supply of foreign capital in Swiss francs, which at present harms the export trade, could be stopped, without the application of draconic measures, such as the introduction of a negative rate of interest.

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Taut check of the volume of money

The relation of the volume of money to the reserves will be extremely high, because the managing consortium banks (business banks) are not entitled to create new credit in the home currency (Liechtensteintaler) but only in other currencies, whereby the international liquidity would be extended."

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