News & Analysis
Credit Suisse Says Governments Are Discouraging Gold Holdings – And What It Misses
India and Vietnam: Taking the Glitter out of Gold ... When uncertainty reigns, investors all over the world turn to gold as a safe haven. But some countries are starting to take issue with their residents' preference for storing wealth in gold bars, rather than bank accounts. Large gold imports can throw of a country's current account balance – the difference between what a country earns and what it spends on foreign trade. Widespread investments in physical gold also mean that large pots of wealth sit idle, instead of being put to work in the broader economy. And in countries where gold is a popular investment, those financial institutions which carry large gold deposits, lend cash against gold or offer interest-bearing gold deposit accounts, can pose a risk to the financial system if commodity prices suddenly shift. – Thefinancialist.com
Dominant Social Theme: The nation is more important than the individual, at least when it comes to account balances.
Free-Market Analysis: The Financialist is published by the vast securities firm of Credit Suisse, and thus we are not surprised to find this sentiment being enunciated by officials in charge of this publication.
It is, of course, a kind of elite dominant social theme. The idea is that the state itself is the source of all authority – and when there is a choice between state power and the rights of the individual, the state reigns supreme. This is a kind of European meme, as well, for Europe, more than the US, is accustomed to this sort of reasoning.
It is a shame, nonetheless, to see it coming from Credit Suisse based in Switzerland. Switzerland is a republic, where power still flows from the citizen up to the leadership rather than vice versa. It is a direct democracy but with republican features and not everyone can vote on all issues – all of the time.
Credit Suisse in this article sees the problem as one of national account balances but this is antithetical to the country in which it is headquartered. The problem, in our view, is more apt to be Credit Suisse than gold storage.
That's because Credit Suisse is an international bank subject to larger Western political pressure and regulations. The same goes for Switzerland's other global bank, UBS, which has gotten the Swiss banking industry into terrible trouble.
By exposing itself to the banking laws of other countries, UBS was attacked over Swiss bank secrecy laws. The accusation was that UBS was actively abetting clients in tax avoidance schemes. When UBS admitted to this, the US government – along with some others – demanded that Switzerland change its bank secrecy laws and become more transparent.
As a result, hundreds of years of tradition were overturned along with the customs of Swiss private banking itself. This is the unfortunate legacy of UBS – and Credit Suisse, which has avoided some of UBS's troubles, has approximately the same business model.
Bad enough that Swiss private banking – mostly a modest, domestic exercise – has to be held hostage to the fortunes of these two giant firms. But to add insult to injury, we see that the mindset of Credit Suisse, as expressed in this article, remains relentlessly statist. It's almost anti-Swiss. Here's more from the article (paragraphing ours):
Governments in India, the largest gold importer in the world, and Vietnam, a country which imported 95% of its domestic gold consumption in 2011, have taken steps in the past year to discourage savers from hoarding gold. The Indian government doubled import duties on gold bullion to 4 percent in March and with current account de?cits at record highs, recently announced another hike to 6 percent. Taxing Their Way Out of Gold?
"It is di?cult to establish the impact (of the tax) on CAD," Indian Economic A?airs Secretary Arvind Mayaram said, according to Reuters. "But there will be some moderation in gold demand." Though Credit Suisse analysts say the higher taxes could weaken import demand by as much as 10 percent, they believe the health of the Indian economy and rupee strength will probably play a larger role in determining the country's demand for gold this year.
Indian gold imports already appear to have slowed. After several years of acceleration, the Reserve Bank of India reported last month that gold imports between April and October 2012 dropped to 398 tons from 589 tons during the same period in 2011. In a recent note, Credit Suisse analysts predicted that net imports were on track to drop to no more than 800 tons for the whole of last year from 2011's approximately 970 tons. But analysts also note that it is di?cult to know how much of that slowdown can be aributed to tax increases since the rupee also depreciated sharply over the year.
This is written in an entirely technocratic way. It is, in fact, almost value-free. No attempt is made to determine the legitimacy of a government trying to discourage private holdings. And no mention is made of the political systems of either Viet Nam (quasi-communist) or India (socialist). These two countries, in fact, are used as examples of a larger trend.
Whatever pejoratives are in use tend to attack gold holdings, as people who own gold in quantity are called "hoarders." While the article no doubt imparts useful information, a discussion of the legitimacy of the kinds of steps being taken by India and Vietnam might have been useful and even enlightening.
In our humble view, this highlights an increasing disconnect not just between Credit Suisse and the country of its origin, but between the financial industry generally and nation-states around the world. In a globalist, technocratic society, civil society arises as a kind of negotiation between the demands of the state and the desires of its citizens.
But in reality this is an entirely unequal discussion, as the state intends to impose its demands by force, while citizens can only utilize protest and civil disobedience.
What Credit Suisse and other firms are missing, however, is that the current arrangement is an unstable one that arrogates more and more power over time to the state. If citizens in various repressive states are hoarding gold, it is because they don't trust government-run currencies. Perhaps they hoard gold as well because taxes are continually rising and because price inflation is out of control.
Over time, the dissatisfaction of citizens with unequal negotiations will manifest itself in more and more discontent and social upheaval. This is already happening today. The social compact is not a discussion between equals but a profound unequal contest between average citizens and elite-controlled agencies of government.
For this reason we regularly repeat the following point: What we call the Internet Reformation is making the social compact more and more suspect, as more are discovering the essential inequities between society and its secretive rulers.
Conclusion: The modern dialogue eschews a conversation based on freedom issues. Such discussions are considered naïve – almost embarrassing – in the modern technocratic era. But we would suggest a rethink. They may become timely again, and sooner rather than later.
Posted by taxesbyanyothername on 02/24/13 10:34 PM
I don't know Ingo, Danny could probably become a chef, and he's definitely verging on some machine thinking. Sounds like his schooling took way too well. That bell should only be curved right into the trash.
Posted by Bischoff on 02/24/13 01:57 AM
@ Danny B
DANNY: "There is no way that man can hope to keep a large part of the population employed."
BISCHOFF: That argument has been advanced from the minute the first labor saving device (capital) was used. It has been proven wrong everytime. It will be proven wrong again. Just think of all the food growing and food preparation processes which sets out to produce quality instead of quantity. Do you think there'll ever be a machine to replace a culinary chef of a three star Michelin restaurant... ???
Posted by Danny B on 02/23/13 10:25 PM
Mava, I'm impressed by your posts and your command of English. I presume that it is your second language. I'm not impressed with your posts because we are in agreement. I'm impressed with your posts because you always work towards clarity.
Some good books;
The Collapse of Complex Societies,, Tainter
The Rise and Fall of Society,,, Chodorov
The Bell Curve: Intelligence and Class Structure in American Life by Richard Herrnstein and Charles Murray
While there are thousands of good books, these three are very applicable.
We are in a paradigm change. There has always been a percentage of society who were unfit for jobs that demanded intelligence. They worked in menial jobs like stevedore. The industrial revolution wiped out lots of job niches that didn't demanded much intellect. It is still working it's way up the ability ladder.
7 billion humans and 1 billion computers. Mankind has been VERY successful at inventing labor saving devices. We are on the verge of making a quantum leap in manufacturing technology that will abolish much of todays manufacturing industry.
Click to view link
There is no way that man can hope to keep a large part of the population employed.
He will have to come to a new arrangement. Traditionally, GOV produced make-work jobs to keep everybody busy. That doesn't seem to be an option anymore. The percentage of the population who are unemployable or otherwise redundant is growing far too high to be employed by GOV.
Posted by Bischoff on 02/23/13 10:18 PM
"Widespread investments in physical gold also mean that large pots of wealth sit idle, instead of being put to work in the broader economy."
Gold is a store of value, besides being the standard to measure value.
What is value? Value accrues as human exertion is expended to transform a natural resource into a commodity or a good.
Most commodity and goods are consumed. However, those which are not consumed, and which are instead set aside for savings are best exchanged for gold, particularly where long-term savings are concerned.
Gold does not earn interest, unless loaned out. If gold bonds were available, gold savings could be invested for an interest return, while the gold would be returned upon maturity of the bond.
Producers and consumers can clear commodities and goods intended for consumption by use of a redeemable paper currency. There is no need for gold to circulate. However, the difference that occurs in clearing commodities and goods for consumption is caused by those commodities and goods which are set aside for savings. Luckily, goldminers are ready to exchange those consumption items intended as savings for the most ideal store of value, namely gold. This is possible, because goldminers have to eat too...
Until 1933, when FDR nationalized existing gold holdings, and prohibited U.S. citizens from further holding gold in the future, producers and consumers were able to "save", because the paper currency used for clearing the commodities and goods from the market was a redeemable paper currency.
Since 1933, we have had an irredeemable paper currency, and a prohibition against holding gold, which was not lifted until 1975.
By 1975, every currency in the world was a "managed" central bank currency. For decades now, gold has been "bad-mouthed" and manipulated by central banks and big government politicians and their supporters.
It is the independence and security against looting of savings which is afforded an individual by holding gold that sticks in the craw of big government politicians and the central bank crowd.
Posted by mava on 02/23/13 10:54 AM
Hey DannyB, that is an awesome post!
This is exactly how I see it. You are exactly right, I don't see anyone questioning these things.
No one seem to be able to comprehend that the reason for the economy is MY NEED, not someone else's need. So, if I don't need any profit, I must keep my money in "money" (gold). It is none of my business that someone, somewhere may be sitting without capital he "needs" to start a business. Too bad. He should have created the capital in the first place, sucker.
Because if this, fact is that when I keep the capital where others can use it, this DOS NOT BENEFIT the economy, unless that is what I want. Unless I want to make that profit, my capital in someone's hands can possibly create only a mal-investment.
Anyway, like you said, gold is portable. So, since I care so little, or rather, none at all about what the Keynesian fearless leathers think, I'll just keep it in gold. And the more they write about how bad that is, the more I seem to enjoy doing it.
And still, I have a lingering feeling that some may read my post and still believe the government, still think that there is some sort of harm done when people convert their paper to cold and go off the radar.
Like DannyB says, it is a lie.
Remember, that keynesians say there is no value in gold. It is a "barbaric relic". Well then, why the long faces? They have the freedom to replace all the paper that I convert to gold, and then some with brand new paper money. They can print to the moon. If gold has no value, then there is no reason to be upset, just keep printing what you call "money".
Posted by Danny B on 02/23/13 12:22 AM
"Widespread investments in physical gold also mean that large pots of wealth sit idle, instead of being put to work in the broader economy."
Ahh yes, the oft repeated LIE.
Banks don't lend their depositors money. The borrower creates the money with his signature.
The currency flows into gold. The gold just sits there quietly and SAFELY.
It isn't accessible to be shrunken by fees or stolen. The states complain when somebody buys gold. What if they buy empty land,,, same thing. The difference is that the land can be taxed or confiscated.
Gold has the "quality" that there is no trust involved.
GOV has the "quality that there is NO trust merited.
GOV loves for you to invest in things that are either out-of-reach or non-portable.
Gold is nicely portable.
Posted by taxesbyanyothername on 02/22/13 07:15 AM
I don't think I'd go quite that far, many still have their heads stuck in the sand (or any orifice you'd care to think of).
When the music stops the people without any gold won't be looking for a chair, they will be shooting each other for food. And you won't be able to buy gold, for any amount of dollars.
Swiss banking may have been different but aparently their bankers weren't.
Posted by mava on 02/22/13 04:27 AM
"Many people believe that both UBS and Credit Suisse are not in physical possession of all the allocated gold they currently store for customers, not to mention the unallocated gold they store for customers. If this is the case, both institutions should benefit significantly from the sale of western central bank gold reserves. "
Many people believe? I would agree and go further.
Like in "many people believe that the earth is round".
It is a certainty, SoundMoney. These banks work very hard to make it possible for some talking head on US TV to ask this question "how come the price of gold is not rising?". The answer, never mentioned on TV, is, of course, that the price of gold is rising, but for that to be visible people need to actually inquire about the price of gold and not paper fool's dream. When they are buying paper, they should not expect the price of paper to rise, unless there is a natural disaster that wipes forests, recycling plants, power grid and computer networks all at once.
Posted by mava on 02/22/13 04:17 AM
Nithsdale is generally correct, except for his remark on commonwealth direction antedating the Austrian economics. US no longer cares for private property, there is no such thing as private property in America, and there lies a major root of all current problems.
Economics, being a real science, such as what is called "Austrian" (and no other, currently) can certainly show the way on how to deal with economic questions, provided that there is a desire to actually have an economy. Without private property there is no economy, current US does not desire to have any economy.
Posted by SoundMoney on 02/22/13 03:15 AM
UBS is a primary dealer of the New York Federal Reserve Bank Corporation, and as all primary dealers, is very heavily influenced by the US. Given the size and businesses of both UBS and Credit Suisse, they are no longer traditional Swiss companies, but global companies with Swiss addresses. It could be argued that the actions UBS and Credit Suisse took were designed to lift the veil of banking secrecy from Switzerland, and it should also be remembered that both were instrumental in removing gold backing from Swiss Franc on May 1, 2000.
Many people believe that both UBS and Credit Suisse are not in physical possession of all the allocated gold they currently store for customers, not to mention the unallocated gold they store for customers. If this is the case, both institutions should benefit significantly from the sale of western central bank gold reserves.
Posted by Wrusssr on 02/22/13 02:20 AM
Good article and as a result of Swiss banker actions their debt v. GDP is something like 70% now, if memory serves. No idea how much gold they have left as the shell game continues among the whales. Everyone appears to be scrambling for it right now, including the central banks. Would not be surprised to see the Swiss go hat in hand to the Asian alliance that's forming. Sad they folded a winning hand and the equity they had built into their system to a bunch financial criminals running a bluff.
Posted by non-salivating dog on 02/22/13 02:14 AM
Cardozo and Brandeis served on the Supreme Court from from 1932-1938 and 1916-1939, respectively. Carl Menger's "Principles of Economics" was first published in 1871. Ludwig von Mises' "Socialism" was published in 1922.
Thus, your comment about the influence of these jurists predating the "Austrian economic geniuses" you to hold in contempt "by half a century" is patently false.
Posted by taxesbyanyothername on 02/22/13 12:07 AM
I give up. What can you say to these people? Never trust anyone Leary slipped a micky to?
Posted by Bischoff on 02/21/13 11:09 PM
NITHDALE: "This important 'dicta", now the law of the West (who hears about common law these days) antedates all your Austrian economic geniuses by half a century."
BISCHOFF: Quite so... . What to do about it? How about a constitutional amendment which provides freedom to disregard lower courts as precedence setting. The amendment could apply to all Supreme Court decision rendered after a certain date.
The proposal and ratification of such an ammendment could be a solution to returning common law. It would not require that Supreme Court decisions be disregarded as precedence. It merely lifts the requirement that higher court decisions be precedence setting, and it leaves lower court judges free to disagree with higher court decisions.
Posted by laugele1 on 02/21/13 10:41 PM
Yes indeed, UBS brought shame to Helvetia with all their crooked actions. My brother lost 90% of his holdings in UBS stocks. When you are retired that is a monumental hit. And thanks again to UBS, the IRS put pressure on all the Swiss banks and government to change the Swiss bank secrecy laws. As a result I received a letter from one of the popular smaller Swiss banks to close my account and transfer a very small amount of money out of the country. I bought Swiss Francs for 189 Euros per month, my small German pension pays me. After six years, you can calculate the amount quite easily. For this minute amount, the bank caved in to IRS demands! Shame to the Swiss government for giving in to the professional thieves at the IRS and the current gangster government. And shame again to UBS for starting this avalanche of losses to the Swiss economy and banking system.
Posted by nithsdale on 02/21/13 09:59 PM
Send your staff for a brief history of the law! THere is your answer to all your questions. There are thousands of books, papers, court decisions all rendered in fine prose regarding this same topic, all about "private property", "private persons".
The West, once governed by "common law", which tried to define Man's rights to his life, his work, his "things" made and bought and then his ability to will all to his heirs, was turned on its head in the mid 19th Century. In the USA, two men sitting on the US Supreme Court, sons of immigrants from Spain and Portugal, Cardozo and Brandeis, scrapped "common law" and began its replacement with "commonwealth law" in effect raising commune over person. Henceforth all good governance mandated that community took precedence over person and the well was established for taxes and fees and all sorts of fines etc. for anything anybody had to use or to keep "to maintain the common good".
This important 'dicta", now the law of the West (who hears about common law these days) antedates all your Austrian economic geniuses by half a century.
Boys, get with it. You are beginning to sound foolish!
Posted by taxesbyanyothername on 02/21/13 05:43 PM
More and more it is obvious that the Swiss are responding to pressure by the PTB. Responding as the PTB want, or not, will destroy them just as surely.
Posted by Hugo_de_Groot on 02/21/13 04:57 PM
Ehm DB, there is no sales tax on gold in EUrope. Most EUropean countries have no capital gains tax on gold if one holds it for a longer time (mine sadly does tax it at 1,2%) and Europe didnt confiscate gold in the great depression like FDR did. Since the end of the classical goldstandard no EUropean country defaulted on gold. Unlike the USA. The ECB and member banks mark their gold to market. The USA treasury (note not the FED) marks its gold still at $42.22.
Reply from The Daily Bell
Thanks, Hugo. Did we imply the EU was about to tax gold? Our point was that elements of Swiss society are increasingly technocratic and this article represents a larger trend.
Posted by 1776 on 02/21/13 04:13 PM
The more money put into circulation, the more there is to bid up prices. Posted by Jim Cardoza at Thursday, February 21, 2013
Click to view link
Simply supply side economics as a currency policy, and with the same results!