Gold & Silver, STAFF NEWS & ANALYSIS
Squeaking of the Swiss National Bank: 'No Gold for Us!'
By Staff News & Analysis - November 21, 2014

Swiss National Bank's Zurbruegg Repeats Opposition to Gold Vote … Vote Would Force SNB to Maintain a Minimum of 20% of The Assets … A member of the Swiss National Bank governing board reiterated opposition to an upcoming vote that would require it to hold a fifth of its assets in gold, saying it would impede the central bank's ability to conduct monetary policy. In text of a speech to be delivered in Geneva on Thursday, Fritz Zurbruegg said the initiative, known as "Save Our Swiss Gold," would put restrictions on the central bank if passed that would "severely restrict our scope of action." That, in turn, would make it considerably more difficult for the SNB to meet its legal mandate of ensuring price stability, he said. – Wall Street Journal

Dominant Social Theme: Gold … get rid of it, please.

Free-Market Analysis: Gone is the almost disparaging confidence of Swiss bankers and others when it comes to this anti-fiat referendum that could basically force the Swiss National Bank to back at least 20 percent of assets with gold.

Only months and even weeks ago they were almost derisively confident, buoyed by polls that seemed to show that significant numbers of Swiss enjoyed the debasement of their currency at the hands of the EU.

Put most simply, the Swiss franc only several decades ago was almost "good as gold." Today, linked to the euro, it is indeed "good as the EU" – which leads to the question whether it is any good at all.

The EU debasement is ongoing but in the wacky world of international banking such debasement is considered a hallmark of prosperity. The less your currency is worth the better off you are. Something like that.

The sophistry can make your teeth ache, yet it is repeated around the world in thousands of articles, reports and communiqués every hour, every day, every week.

The economic policies of the world are built on it. Financial catastrophes are to be liquidated via the printing press. The more you owe, the more monetary units you produce, debasing the currency for all and providing the illusory notion that catastrophe always has a silver (or gold) lining. (Ask the Japanese how well this works.)

We see all these nostrums trotted out in statements such as this one by the Swiss central bank, excerpted above. Here's more:

"The SNB considers the initiative to be unnecessary and harmful," Mr. Zurbruegg said in the speech. "Price stability and the stability of the Swiss franc are not determined by the share of gold in the SNB's balance sheet, but by its monetary policy."

Mr. Zurbruegg said the initiative's prohibition on sales of gold were particularly problematic because it limits the utility of the asset when dealing with economic challenges.

"We may even go so far as to say that gold which cannot be sold in a crisis no longer meets the definition of a reserve and thus offers no security at all," he said.

The organizers of the initiative, members of the right-wing Swiss People's Party, say the measures are needed because the SNB's policy of capping the value of the franc has left its balance sheet stuffed with euros. Those euros, they say, have been devalued in the wake of the financial crisis.

Okay, standard stuff for the most part … What's not so standard is that central bankers are being forced to trot out their arguments in the face of a significant monetary challenge. The resulting explanations are informed with a sense of urgency that more fully reveals their disingenuous nature.

The argument – like so many associated with central banking – involves the invocation of bankers' privilege. It is a technocratic argument because it assumes that bankers know best when it comes to the volume and value of money.

Yes, central bankers insist on their prerogative based on their superior knowledge of how the world works. And they simply do not know. They cannot in any sense support their arguments.

These technocrats have had a century to cultivate and improve their model and over time it has proven flawed. Depressions, recessions and ever-escalating and regional and world wars provide the theme – the sound track – for the expansion of this endless monetary manipulation.

At the beginning of the 20th century there were perhaps five central banks. Today there are some 150 central banks with the BIS in Switzerland to coordinate them all. It is a legalized monopoly and it attempts to run the world.

We don't know if the upcoming Swiss referendum will win or not. We assume elite interests will do all they can to ensure the referendum loses, even if illegal measures are employed. The referendum, from what we can tell, did not emerge from any of the predictable interests allied with monetary elites. Thus, they shall be doubly desperate to refute it.

Whatever does occur, presumably a defeat (though we would be delighted to be wrong), these sorts of issues will not go away. As we point out in the other article in this issue, it is the Internet itself, and the information available, that is creating the conditions that give rise to considerable economic and sociopolitical ferment.

People are discovering for themselves that their "matrix" has boundaries and that the modern – current – template need not apply eternally. They are challenging the common wisdom, breaking the bonds of public school programming and discovering that the history of the world and its human species is infinitely richer and more flexible than they have been taught to believe.

Again, whether or not this referendum wins the day, the underlying factors that have cultivated it are not disappearing. People will not accept hoax-like aspects of the current system forever.

After Thoughts

In fact, those behind it are aware as well …

Posted in Gold & Silver, STAFF NEWS & ANALYSIS
  • I too will be surprised if the Swiss Gold Initiative passes. I too will be delighted if it does. It is good of The Bell to keep a focus on this possibly seminal event. The Swiss system, and the smaller size of both the Swiss nation and the Swiss population make things “more possible” in terms of real change for the better, in Switzerland. Nevertheless, it will require a massive turnout of the Swiss people to pass this excellent step forward. Here is hoping they do just that! The worldwide banking fraud is starting to unravel in several different locations simultaneously, here are 3 excellent interviews on this crucial subject:

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/21_China_%26_Russia_To_Accuse_U.S._Of_Not_Having_The_Gold.html

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/20_Swiss_Gold_Initiative_Leader_Banned_From_Televised_Debate.html

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/19_Insider_Exposes_Shocking_Truth_On_German_Gold_Repatriation.html

  • Dont Mention The War

    Big push in the last days from the (panicking) NO vote. All the “elites” coming out now together saying how bad a yes would be. “Think of the jobs losses a strong franc would bring!” “Think of the exporters!” (with no thought that these exporters have to first buy/import their raw materials with said weakened currency).

    Cheers!

    • Lots of similarities to the PTB panic just prior to the Scottish Independence Vote…. Cheers to you as well DMTW.

      • Dont Mention The War

        Agreed. Although I did think that DC going to Scotland to schmooze would for sure help the YES vote!

  • Dan Haggerty

    If the referendum were to succeed, the Banksters will engineer a credit crisis so they can say “we told you so” and win back control. Same thing happened in the US with the panic of 1907.

    • Good point Dan, that is what I expect as well even if the outcome of such shenanigans is uncertain. It is possible that an engineered credit crisis would just strengthen the resolve of the Swiss people, and cause them to throw the vipers – the “money changers” – out of the Temple entirely. Now THAT would really be something!! I am dreaming of that day.

  • Peter J. Nickitas

    In my opinion, this article frames the issue of the nature of money, and the bankers’ roles, than the article on the House of Commons debate.

  • As a tax payer in Switz (but Austrian citizen and thus not voting) i am
    divided: The referendum would be a great thing but I was not able to
    understand the clause “can not be sold under any circumstances”.

    This
    is utter nonsense, since all this accumulated gold would then not be a
    ‘reserve’ and could not be used even in times of crisis to purchase food
    or oil.

    I would understand if the clause would read “…can not
    be changed into other currencies (but only into real perishable goods
    aka food, oil, etc. in times of need)”; I would also understand if it
    would in some form directly back the CHF.

    So, in this case the
    3rd point of this gold initiative is simply a shot in the knee and when
    consulting with relatives and friends in Switz it prevents them to vote
    “yes” to this otherwise good initiative.

    Question remains, who came up with this 3rd clause and for what reason? Is the SVP, which initiated this, really that stupid?

    • Still seems to sound better than the alternative. The purpose of a clearing house traditionally is to provide liquidity in times of financial stress, not comestibles in a time of crisis …

      • Claus, I have to agree with the DB on this one, as to the purpose of gold reserves. Please let your Swiss friends know that there are quite a number of us out here, who have been effectively disenfranchised, and who are pulling for the Swiss to be the first to strike a blow against The Empire, so to speak. We wish Godspeed to the Swiss on this Referendum, and Godspeed on returning Switzerland to being one of the true national examples of financial prudence and stability, in this very unstable world of ours.

        • Agreed, but then I guess you are not Swiss yourself and thus not affected by the negative part of potential consequences. It may be nice to deliver a short term blow to the gold riggers and Keynesian PTB, but what will be the eventual consequence of a gold reserve (which is not the same as a gold-backed Frank), that can not be touched. It’s still called a “reserve” and historically reserves are there to be used in times of distress. Should another popular vote be needed to change this again? Sounds not so well thought through, since this is the constitution we are talking about, not a piece of law that can be changed and amended easily.

          • Good points Claus. A “reserve” is, as you correctly say, not the same as a currency exchangeable one for one with true money (IE Gold or Silver in that historical role). Your points are very well taken, and a “Yes” vote might impose many negative short term consequences on the Swiss people even if the PTB did not choose to strike back in destructive ways (which they almost certainly would). So in this case I plead guilty to being an idealistic dreamer, who would not have to bear the consequences, since I am not Swiss as you correctly surmise. All of this may just be meaningless blather on my part, since the chances of passage are nil IMHO. Just raging against the machine I guess : (

      • Agreed, and correct me if I am wrong here again, but the motion voted on by the Swiss people, will, if accepted, change the Swiss constitution to …

        “the gold [also the one accumulated above 20%] under no circumstances can be sold”

        I can’t see how it can then provide liquidity?

        • mava

          It seems to me, that you’re right Claus. What they offer is not a true control over bankers. This is because the gold control functions by the threat of bankruptcy, because as more notes printed, there is less and less gold to [ s e l l ] for those notes. If the bankers cannot sell gold, then they cannot redeem their notes in gold, then there is no limitation still. They will still print and you can only control them by legislative action and you have zero gold control, and if legislative action ever worked even a little bit, then you would not need the gold, as you would simply order the bankers not to print.

          Unless they meant cannot sell off gold is was practiced by all CBs in order to get rid of it and suppress gold prices on demands of Washington D.C. But, I doubt that they meant well. Most likely they meant to castrate the vote even if it happens.

    • Just to make sure what I am referring to exactly:

      Initiative)», ist gültig und wird Volk und Ständen zur Abstimmung unterbreitet.

      “Die Volksinitiative vom 20. März 2013 «Rettet unser Schweizer Gold

      Sie lautet:

      Die Bundesverfassung wird wie folgt geändert:

      Art. 99a (neu) Goldreserven der Schweizerischen Nationalbank

      1 Die Goldreserven der Schweizerischen Nationalbank sind unverkäuflich. [!]

      2 Die Goldreserven der Schweizerischen Nationalbank sind in der Schweiz zu lagern.

      3 Die Schweizerische Nationalbank hat ihre Aktiven zu einem wesentlichen Teil in Gold zu halten. Der Goldanteil darf zwanzig Prozent nicht unterschreiten.”

      …I am referring to point 1 (not 3 as previously mentioned).

      https://www.ch.ch/index.php/download_file/force/485/3072/

  • Gina

    The level of arrogance astounds me. There is still an underlying presumption on the part of the bankers that they are the only ones who should determine national monetary policy. In fact, they are the last ones who should determine the monetary policy of any nation. They had in their hands the gold of the people, and they sold the peoples gold, converting it into worthless paper which the bankers could then trade for profit. Why should they seek to make a profit off an asset that isn’t theirs? Comes back again to Rothbard, and the solution for a separate storage depository different from a lending institution. Venture capital investments should be clearly delineated, separate contract funds between private parties. No bank should be using OPM to gamble with. No Central Bank has any right to sell off a nation’s assets.

  • Jim

    It does not mention leasing, loaning or use as collateral for credit – nor does it prevent forfeiture against unpayable debt. It does not foreclose all options. Printing currency and/or debt to infinity means cash = zero. Those are your options. Remember Weimar?

  • Danny B

    The upper crust of society, being non-producers must rely on constant inflation to allow them to siphon off enough to flourish. There are 2 loops to the economy. The lower loop receives money LIMITED by their productivity and credit-worthiness. The bankers blew bubbles and liar loans to inflate the low-power money used by the lower loop. Since low-powered money must be repaid, there is a built in limitation.
    High-power money or, base money was gold and bank reserves. Foreign competition crashed productivity in the value-added industries and caused mega-deflation. The bankers tried with liar loans to inflate the low-power money. The limitation of creditworthiness finally came home to roost. The bankers as a rescue strategy inflated the high-power money to replace the lost low-powered money. As they recklessly inflate the high-power money, it loses it’s mojo. The base money is debased.
    The original TARP money was not repaid because it would have been ineffective at reflation if injected as low-power money.

    As creditworthiness falls lower and lower, low power money becomes ever-scarcer. The injections of high-power money would cause price inflation except that, employment and productivity continue to fall.

    Previously, the Swiss Franc reached 18% gold backing and there was no problem. Now, they claim that 20% would be catastrophic. As the bureaucratic load grows ever-greater in Europe, there is an ever-greater demand for money creation to support them. Low power money can NOT be created willy nilly. You must be productive and credit worthy.

    This demands an ever greater creation of high-power money for an ever greater cohort of non-producers.

    Draghi and his ilk must blow bubbles in the upper loop of high-power money to support the bureaucratic behemoth.

    Nobody can create inflation in the lower loop without increased employment and productivity.

    Since idiocy has no limitation, some are claiming that we will enter some kind of BOOM when we finally crash into deflation;
    http://www.zerohedge.com/news/2014-11-19/only-thing-more-bullish-inflation
    The flexibility that the SNB demands is necessary to support the non-producers

    • mava

      Danny B, I ditto you absolutely.

      You got it right. You should publish this, because what you said is really how the banking works.
      Pretty shot too.

      Disclaimer:
      For all those ready to jump on the issue of “exploited” or “exploiters”, this is not what I meant.
      I could not care less about the lower class. I only see the need to exterminate the thievish fiat banking
      not because they are higher, but because they steal.

  • Jim

    https://www.bullionstar.com/blog/koos-jansen/the-netherlands-has-repatriated-122-5t-gold-from-us/

    Oh those crazy Dutch huh??? They have gold in Canada too – or so they think. Canada (Finance Dept) reflects almost none on it’s balance sheets and BoC refers all inquires to Finance. Perhaps they don’t report “deposits” – one cannot find out.

  • Jim

    One more if I may: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/11/21_China_%26_Russia_To_Accuse_U.S._Of_Not_Having_The_Gold.html

    Canada is the only member of G-7 with no gold reserves – apparently a deliberate policy decision at some point when Canada’s gold was almost all sold. Queries have resulted in polite form letter responses and not-so-polite e-mails. The logical question in the case of the Bank and Finance Department is how non-existant gold might be returns to several different countries on request. While never told as much, the only possibility could be that gold on deposit is not reported publicly – possibile. Were I a CB with gold on deposit, I would demand an answer that mere citizens are denied, and were I a Swede, I’d open the other eye.

  • Hey You

    This internet thing is really revealing.

  • This Swiss vote on Gold on November 31 is NOT going to pass (or maybe better said, not ALLOWED to pass). It may be a close defeat for the YES vote. Just like the Scots, the Swiss will wake up the next day on December 1 with a big hangover of regret.

    • Yes you are guaranteed 100% right – because the vote is already on the 30th and it would be futile to rig a vote one day too late:-)

      • Alright, smartass! So, I got the date wrong! Thanks though for pointing it out!

    • Fabian

      It’s not going to pass because few understand the problematic and people will follow the recommandation of the authorities. That’s what the Swiss do on non emotional subjects. And what can be less emotional than the balance sheet of Swiss National Bank, particularly one month before Xmas? As to the subject, I don’t think, as a Swiss, that it is in the best interest of the country to be the only nerd in a class of retards. Particularly when the retards are 5 or 10 times bigger than the nerd. I strongly recommend to vote NO and manage our way in a more subtile manner.

      • It’s actually quite simple: Gold is real money, Swiss franc is nada!

        Sheeple have been brainwashed by the Presstitute Lamestream Media like those in Switzerland for way too long. Time to wake up!

        • Werni Wolf

          The real problem of the SNB isn’t really gold but the EURO. EURO’s are 45% of reserves and rising. With Draghi’s do whatever it needs policy and the fixing of the EURO at 1.20 there is no end of EORO inflow forseeable.The question must be: how can we diversify this EURO risk and Gold, Norwegian Krones and few other solid reserve instruments appear automaticaly as alternatives.

          • Don Duncan

            You appear to be advocating a mixture of gold, fiat and less weak (less inflated) fiat to “diversify…risk”. Can you fix (stabilize) fiat currency? No! It is inherently unstable. It is a fraud, a scheme to rob the masses. The desire to steal forever without destroying the producer is as old as humanity. It has been the dream of the non-producers to rule, prosper, and allow enough freedom to maximize their booty. What they and their victims fail to understand is the futility of systematic slavery, even if the slaves cooperate. The most productive will always resent/resist enslavement, sometimes only subconsciously, sometimes openly, but always with passive or active resistance. The answer to this conflict is a social system that benefits everyone in the long run. A non-compulsive system of voluntary interactions enslaves none. It is the peer-peer, everyday morality practiced by individuals that exists in spite of the compulsive example seen in politics. It is what creates value. But the so-called leaders (rulers, bureaucrats) take credit for the wealth created.

            Until institutionalized violence is abandoned as immoral/impractical no civilization, no stabile society, no peace or prosperity is possible. War, poverty, and domestic unrest will continue.

          • Werni Wolf

            Sure, fiat currencies are losing credibility with an increasing pace. Nevertheless, there are parameters to judge a countries economic strength. A positive fiscal and current account balance are signs of comparative strength. A country with these characteristics creates reserve which represent the collective savings of the nation. The dilema of the expl.Switzerland an obviouly successful player of the existing system is their mistake to fix their exchange rate to the EURO, an obvious systemic failure.
            Now you can dream of an utopic more just system. For such a system to work, you would have to redefine human rights and include the right to a minimum package of material an non-material consumer goods. A redefinition of the allocation of labour would have to be included in the reform along with a new form of ownership of capital—a very utopic and especially long term project.

          • Don Duncan

            I don’t “dream” that tomorrow humanity will wake up enlightened and boycott all government (initiated force). The “dreamers” are those that believe in the illusion of concentrated, centralized power as viable or beneficial, despite the 100% failure of every culture that tried it, and the continuing domestic suffering along with escalating international violence. Death from war and poverty increase as the world becomes less free and less safe, especially for the maverick. A free society will never be utopia. It will be a moral, practical way to evolve. That evolution will be forever. But for such a system to work, it must be tried explicitly in some society as an experiment, without hinderance from authority or mob violence.

            The “dreamers” are those who cling to the superstition of statism. Their fear of individual sovereignty is blocking their self realization, and their collective violence is endangering the survival of the species.

          • Werni Wolf

            A nice trial was Silvio Gsell’s trial of a “free money” society. The exercise worked on a communal basis but was overwhelmed by the events of the late 1920’2 and early 30’s. But sure, to start, you have to do it outside the conventional system. For who dares!

  • Jim

    Well, they best consider – this is a guess/circumstantial evidence due to lack of systemic transpanancy – a possible coincidence – but very unnerving:

    http://investmentresearchdynamics.com/was-gld-gold-moved-to-the-dutch-central-bank/

  • Don Duncan

    Perhaps the strategy of a frontal attack on Keynesian monetary policy is doomed due to lack of mass understanding. I believe the best strategy is to present a contrasting paradigm and let competition decide. That was tried with a gold digital currency. It failed because TPTB attacked the physical storage. They can’t stop the internet because they use it also, along with digital currency. Therefore, Bitcoin will be very difficult, if not impossible to stop. If they fail to stop Bitcoin, their major funding base is undermined, and all that wealth is re-directed into the black/grey/free market. Meanwhile, the ‘net will correct the Keynesian myth as it explains the success of Bitcoin. TPTB know this. We, the Austrians, should also. Bitcoin will carry the message of prosperity thru sound money, free banking, and a peer-peer monetary system.

    • The problem is that Bitcoin is not suitable as a standard with which to measure value. In other words, it is not suitable to function as MONEY.

      The best chance to create a redeemable digital currency under the gold standard is presented with the rollout of “ApplePay”. A “one-time” use of digital coin is the basis for a redeemable digital currency. Such “one-time” digital coin use can be connected to electronic “Bills of Exchange” which allows for currency creation under the RBD.

      • Don Duncan

        The world’s most popular, most used money is not suitable to function as money. But it does function as money, and may continue to do so for decades, if not challenged. Of course it will collapse sooner or later on its own but in the meantime billions are suffering and being robbed. Over forty years ago Harry Brown predicted total collapse of the dollar/economy within a few years. He “proved” his prediction was accurate with a best selling book. I bought the time line because I was a hard money guy and knew his monetary theory was correct. At 72 I have to face the fact that Austrian monetary theory does not give us the details of how to predict the life of a fiat currency. We only know it will not last forever. However, if I die after waiting a half century for economic law to triumph over political law, what good did it do me? My heirs may thank me, but I won’t know it, and I did not buy gold for my heirs.

        Bitcoin has a limit. That makes it suitable as a standard of exchange. Gold would be a better standard because it can increase with the world economy, but it is also vulnerable because it is physical. Cryptocurrency is not.

        • BitCoin is a medium of exchange, it is not money. It is a digital currency, it is not a standard with which to measure value.

          With the introduction of coins with exact measure of weight and fineness, gold specie was used not only as currency, but primarily as the standard by which to measure value. Gold lost its utility as a widely circulating currency by the early Middle Ages.

          With the suspension of bullion exchange by Richard Nixon in 1971, thereby violating the 1944 Bretton Woods Agreement, the world for the first time in 2,500 years was without money (or currency of fixed value). Only paper currencies without fixed value have existed since 1971. The relative value of each fiat currency is determined in the FX markets.

          Also, the first gold market in world history opened on September 1, 1971 in Toronto, Canada. Four years later, after Gerald Ford reversed FDR’s Executive Order #6102 effective January 1, 1975, a gold market opened in New York. A gold exchange with a daily fix for the “price” of gold in the meantime had opened in London. After the departure of Mao Tse Tung in China, the Shanghai gold exchange opened, and it has since become the largest gold exchange in the world.

          Gold is still a measure of value, though it is no longer used to lend value to paper currencies, because of the existence of “legal tender” protection for central bank debt monetized paper currencies. Gold today instead of lending a fixed value to paper currency, it serves to measure the actual value of paper currencies. A quote of an ounce of gold for $1,700 is really a quote for a USD at 1/1700 of an ounce of gold.

          People today have greater reason to buy gold when the USD quote is high than when it is low. People should hold gold as savings and as insurance against the collapse of central bank money regimes. One can only save with gold. BitCoin or anything else is unsuitable as a vehicle for one’s savings.

          • Don Duncan

            You posted under my comment, so why didn’t you address any of my points?

            I consider the greatest value of money to be as a medium of exchange. What good is savings if it can’t be spent? Or if spending is difficult? Or if storage/transfer is difficult? Bitcoin is the easiest money to spend, store, and transfer. But will it last? Will it be widely accepted? Will some unforeseen problem arise? Will a better cryptocurrency take its place?

            I started investing in PM in 1966 based on my understanding of monetary theory. I have read all the Austrian economists. I did not begin to champion Bitcoin from ignorance. Still, it took a lot of thought before I came to the conclusion that the uncertainty of cryptocurrency should not deter us from making it our primary medium of exchange. Nothing of what you said was unknown to me or deterred me from my conclusion.

          • Paul Stokes

            Ingo Bischoff – Don Duncan has raised pertinent points – could you please respond. I think many followers could learn from your response. Kind regards,

          • Paul Stokes,

            I’ll be happy to respond. I apologize for only responding now. Also, I apologize to Don Duncan. My failure to reply to his comments directly was and is not an intentional slight. First, we have to get terms straight. Otherwise, we are arguing “passed” each other.

            Don Duncan says: “I consider the greatest value of money to be as a medium of exchange.

            On that point, I disagree. Let me explain.

            First, the term “value” in economics is much more specific than the word “value” used colloquially. “Value” in economics is something created through the application of “human exertion” or “work”. The word “work” in economics and particularly in physics is very definitely defined.

            Furthermore, the term “money” is defined as a specific amount of a commodity, the “value” of which serves as the standard for the measurement of the “value” of any other commodity. How do you know which commodity is “money”…??? It is the commodity which has constant or nearly constant marginal utility.

            For the last 2,500 years this has turned out to be gold. It was 2,500 years ago in Lydia that the first coins were minted from gold (actually electrum) which had specific weight and fineness. It is this coinage or specie of accurate weight and fineness the value of which serves as “money”, meaning as the standard by which the value of other commodities are measured.

            I could argue with Mr. Duncan’s statement, if it had said, “I consider the greatest UTILITY of “money” to be as a medium of exchange.” I would have phrased my response to say, “that the greatest utility of “money” (gold) is not to function as a “medium of exchange”, but to function as a measuring device measuring “value”, just as a yard stick’s greatest utility is to function as a measuring devise to measure linear distance.

            The currency system which I promote is that advocated by Adam Smith which involves the use of “Bills of Exchange” (Real Bill) against which to create a redeemable paper currency. I hope that my explanation of the RBD, contained in a response to a previous question from a reader of the Daily Bell will help to clarify the monetary system which I support.

            “The property of money (gold) is not that it serves as a medium of exchange. The ability of money (gold) to serve as a medium of exchange (currency) is an option, not an inherent property. Coined gold (specie) is a measurement devise, like a tape measure is a measurement devise. At one point coined gold was both MONEY (a measuring devise) and CURRENCY (medium used in exchange transactions) rolled into one. However, as I pointed out numerous times, money (gold) hasn’t been a medium of exchange since the Middle Ages. Why…???

            Gold is a commodity which is relatively rare compared to other metals. While gold was used as a “medium of exchange” long before gold became “money”, it was used in trade exchanges exclusively. However, as trade spawned increased production, the quantity of circulating gold coin to serve both as a medium of exchange as well, as to finance investment in the production process, proved insufficient.

            What was the solution….??? Initially, the solution was found in the form of paper script issued at large regional fairs which took place in the early Middle Ages in cities such as Lyon, Seville and Leipzig. Farmers and Artisans where admitted into the walled in cities to take part in the fair. At the point of entry they declared the value of goods carried, and they were issued “fair script” in the amount of value declared (whether they actually carried what they declared or not). By accepting the script, the holder committed to return the script upon exit from the city, at which time any difference in the amount of script, plus or minus, would be settled with gold coin.

            What was the significance of this…??? Firstly, the farmer didn’t have to carry a large amount of gold with him to use for transactions, making it safer to travel to the fair. Secondly, the farmer or artisan didn’t have to wait until he had made enough deals to amass money to purchase what he wanted. He was able to spend the fair script immediately for the best bargains. Upon exit from the fair the difference between the script drawn and the script returned was settled with gold coin. Anyone failing to settle, was dealt with under the law.

            Of course, the fair script worked as long as there were walled in cities which attracted enough participants to hold a fair. Though very efficient in stimulating exchanges at a fair, the fair script had its limitations for wide spread use. Enter the next advancement in currency, Bills of Exchange, or Real Bill as they are often called. Real Bills for use as currency were popularized by the Venetians at the very time that double entry bookkeeping made its appearance in the Venetian city states.

            What are Bills of Exchange….??? They are a negotiable instrument which is drawn by the supplier of goods and materials on a producer. When the producer signs the Real Bill, he promises to pay the face amount on the Real Bill within ninety days. To dishonor a Real Bill on maturity renders the signer of the Real Bill (the producer) to certain ostracism from the business and banking community.

            A Bills of Exchange or Real Bill is not a credit instrument. There is no surplus or savings generated by “work” (labor) which is loaned out against interest. Instead, the surplus delivered to producers which gave rise to Bills of Exchange came into being as surplus provided by nature. Let me explain.

            Let’s say a farmer expended the normal amount of exertion to plant wheat, expecting a normal harvest. Instead, the weather turned extremely favorable, and the harvest turned out to be twice as large as normal. So, for the same amount of work normally invested, nature blessed the farmer with a harvest double the normal size. However, now the farmer had a problem. His regular channels of distribution couldn’t accommodate the extra harvest, and the farmer didn’t have facilities to store it. By the time he could have built storage facilities, the wheat would have rotted in the field. Consequently, he approached an elevator company which could rearrange its storage commitment to store the extra harvest for the farmer. However, in order to move the extra wheat to his customers, the elevator company needed time. They did not offer to pay the farmer in advance, but promised payment in ninety days evidenced by signature on a Real Bill. The farmer had the choice of accepting the ninety day terms, or let the extra bounty which nature provided to him rot in the fields. Of course, the farmer accepted the elevator operator’s signature on a the Real Bill.

            The elevator operator had to meet other commitments to store, and he therefore needed to move the wheat. He in turn approached a flower mill operator to take the extra wheat. The flower mill operator knowing that his bakery clients had customers who were eager to buy additional bread and pastry, agreed to take the extra wheat, with the provision that he could pay on a Bill of Exchange in ninety days. The elevator operator accepted the mill operator’s signature on a Real Bill and delivered the wheat. Knowing that he didn’t have to pay the farmer for ninety days, the elevator operator gladly drew the Real Bill.

            The bakers, knowing their customers to be eager consumers of their bread and pastry, drove a bargain before accepting the extra flower from the mill. They insisted to pay in ninety days by endorsing a Bill of Exchange. The mill operator knowing that ready desire for consumption of bread and pastry existed, knowing the integrity of his bakery clients had no fear in drawing Real Bills on the bakers. Had he failed to do so, there would have been half a dozen flower mill competitors standing ready to snap up the extra business.

            The retail customers were happy. They snapped up the extra bread and pastry as they paid the bakers on delivery. The bakers in turn honored the Real Bill to the flower mill operator, who in turn honored his Real Bill to the elevator operator, who in turned paid the farmer on his Real Bill. The farmer received income which he did not expect at the time that he exerted himself to plant wheat. He had only expected a normal harvest. Good fortune befell him when the “surplus” of wheat was provided to him by force of nature.

            Back to the Venetians. They took the concept of Real Bills a step further by using them as currency in conducting exchanges. By endorsing a Real Bill with a valid signature, the drawer or holder could transfer the Real Bill in exchange transactions. (Hence the name “Bill of Exchange”) Thus, the emergence of Real Bills as “paper currency” was essentially made possible by surpluses provided by nature.

            Real Bills are NOT instruments based on credit, meaning that something of value created by “work” (labor) was lent in return for interest. Instead, a Real Bill is based on the “surplus” provided by nature. Real Bills represent actual goods. For that reason, they are immediately negotiable for cash. Anyone purchasing a Real Bill will do so at a discount, depending on the amount of days left until the Real Bill matures. There exists an entire body of “Law of Bills and Notes”. (Reference is “The Early History of the Law of Bills and Notes” by James Steven Rogers published by Cambridge University Press in 1995)

            Discounting and rediscounting gave rise to a Real Bills market. The largest customers for discounting Real Bills are commercial banks. They buy up Real Bills at a discount, and then under a state bank charter are allowed to use the value of the Real Bills against which to print currency in evenly denominated notes and to circulate those notes in lieu of the Real Bills. Of course, the notes had to be redeemable. No supplier in his right mind would part with supplies for which he was later paid with a currency lacking a money (gold) standard).”

            Secondly, Mr. Duncan says, “What good is savings, if it can’t be spent? Or if spending is difficult? Or if storage/transfer is difficult?”

            Let’s think about the nature of savings. Most people spend nine tenth of their income on daily necessities and occasional durable goods purchases. The ten percent of remaining income is set aside for survival in old age or in a medical emergency. Long-term savings in the form of bread, butter or milk to help survive in old age is not feasible. When needed in old age, the bread would be moldy, the butter rancid and the milk sour. It is at that point that those wanting to save for old age with a commodity that doesn’t spoil or deteriorate find a partner in the gold miner. He has gold that he can’t eat, and he has need for bread, butter and milk to sustain himself to go on mining gold. Those with income wanting to save for old age will trade the bread, milk and butter for the equivalent “value” in gold.

            As you will be able to deduce, in the clearance of all the “buy” and “sell” exchanges, the difference is the income used for savings. This difference is cleared with gold from the gold miner. To Mr. Duncan’s point, “Can savings be spent…???” my answer is, of course they can be spent. Not only can the savings in the form of gold (or redeemable currency) be spent, but these savings can be readily spent without any loss of “value”, thanks to the unique chemical and physical characteristics of gold. As to storage of gold, very few people would want to hold on to physical gold. Most people would invest their gold savings in gold bonds for a return of annual interest. A “gold bond” is a debenture which upon maturity returns the principal in the form of gold or redeemable currency. Under the gold standard, it is the willingness of savers to part with their gold savings which sets the market rate (prime rate) of interest.

            Thirdly, as to Mr. Duncan’s point, “BitCoin is the easiest money to spend, store, and transfer. But will it last? Will it be widely accepted? Will some unforeseen problem arise? Will a better crypto currency take its place?”

            My answer is that I do not consider BitCoin to be “money”, based on the definitions I gave. If by “crypto currency” is meant “digital” currency, I emphatically endorse the idea of the “one-time use” of digital coin featured by ApplePay which can be linked to “digital” Real Bills.

            Fourthly, “off the top of my head”, I do not know what Mr. Duncan means by investing in PM. As to Austrian economists on “money”, Menger, von Boehm-Bawerk, von Weber, von Mises, Hazlitt and Rothbard come to mind. For me, Menger, Boehm-Bawerk and von Weber are helpful in understanding “money”. Ludwig von Mises and Murray Rothbard are not helpful in this regard.

            I have nothing against anyone using BitCoin as currency, meaning in exchange for goods. As such, it might operate as a barter currency, but I would never call BitCoin “money”, or suitable for one’s savings.

            Mr. Stokes, I hope you were able to suffer through my explanations. I am sure they are more voluminous than you bargained for……..

            Regards,
            Ingo Bischoff

        • Greg Jaxon

          Bitcoin is only a competitive “medium of exchange” in an international cross-currency realm.
          This is not an opinion. It is an observable fact. Merely examine the bid/ask spreads for all the
          alternative “intermediate assets”, including spot gold+transshipment. The “medium of exchange”
          is the one with the smallest spread. For domestic transfers, that ain’t bitcoin. But not for lack of
          trying. BTC also tries to store value, but relies on the QTM (and some imaginary properties of
          digital files) to do this. At that role, the jury may still be out, but my opinion is it fails, and shouldn’t have tried in the first place.

  • The Swiss used to be fiercely independent. Now, they seem to have swallowed the QMT bug. They seem to prefer that central bankers be in charge of their lives. In the end, central bankers and their politicians always seem to convince people that it is so much easier to have them make decisions for them than having to make decisions for one’s self.

    Ferdinand Lips, where are you when we need you…..???

  • mava

    Ferdinand Lipp? Forget it.

    If the fruits in your basket are rotten, and there is a fruit that was untouched by rot just a day ago, but now has a rotten side, can that fruit un-rot itself?

    I think not. The rot must progress. I will be happily surprised if Swiss vote for gold, but I don’t think this will come to pass. May-be only formally so, only to be quickly overturned, forgotten, ignored in light of, like our own shenanigans used to call their own theft fever, “inflationary pressures”. Not for real.

    • Under the circumstance, it doesn’t mean anything for the Swiss to vote to “back” twenty percent of their currency with gold. Who ever proposed it, doesn’t understand the difference between gold (being money) and irredeemable paper currency (being merely a medium of exchange).

      Ferdinand Lips knew the difference. All I wished was for him to be still here to once again explain the difference to his countrymen.

      • mava

        I meant the same thing, as far as your mentioning of Lipps. All true men are gone.

  • Praetor

    Gold, its all about control. As, always, I’m amazed, how MUCH the Elites Love their Gold, being its a relic from the past! The Swiss franc has lost 90% of its purchasing power since “1914”, Hmm! All currencies with a stable purchasing power, will always lead to stable prices, and that, will lead to savings and investment, and that, will discourage reckless spending by the use of credit, its simple. Voltaire’s statement is correct: Paper currencies eventually return to their intrinsic value, ZERO. From, “Billy Bob” Clintons friend, Dr. Carroll Quigley: The power of financial capitalism has another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the Political system of each country and the Economy of the World as a whole. So, we have a Central Banking system buying up all the Gold. So, their, one world currency will be the only currency of value, backed by Gold. So, all you Gold haters, had better start Loving Gold, because your Masters, most defiantly, LOVE THEIR GOLD. Just down the street and around the corner and through the lanes from the “BIS” building. On the wall in the old town hall, the words be written: FREEDOM IS GREATER THAN SILVER AND GOLD. The Swiss have an opportunity to “START” the revolution against these, evil feudal warmongers. INTERNET REFORMATION AND THE CONTINUING DESTRUCTION OF THE CENTRAL BANKING SYSTEM, is a must, do!!

    • That is correct. Gold is about control. However, it is not the gold in the hands of the central bankers that provides control. Central bankers would be just as happy, if gold never existed. Their desire is to get a hold of all the gold, or at least the vast majority of the gold, to lock it up, and to never let it surface again.

      It is in the hands of the private individual that gold provides ultimate control. By holding gold, individual alone are in charge of determining their economic and physical well being. When individuals hold gold, and the government does not provide “legal tender” protection to central bank paper currency, the banking system serves the people.

      When individuals are prohibited from holding gold, or when central bank currency is protected by “legal tender” laws, the people are made to serve the central bankers and the politicians who protect them.

      Voltaire’s statement: “Paper currencies eventually return to their intrinsic value, ZERO”, is not correct. It is not correct in the sense that it is not qualified. I would agree with Voltaire, if he had said, “Irredeemable paper currency eventually return to its intrinsic value, namely that of kindling or toilet paper.”

      PRAETOR: “The power of financial capitalism has another far-reaching aim, nothing less than to create a world system of financial control in private hands….”

      BISCHOFF: I don’t know what “financial capitalism” is. I know that CAPITALISM is an economic system named after the most prominent factor amongst the three factors of production, namely “Capital”. The other two economic systems are SLAVERY, when “Labor” is the prominent factor, and FEUDALISM, when “Land” is the most prominent factor in a production system.

      The terms “Finance” and “financial” relate to accounting in terms of money or currency. The term “Capital” in economics is defined as “wealth employed in the production of more wealth”. Refined gold in the form of specie or bullion is wealth, but not just any wealth. It is the wealth which is used as standard to measure value. As such, gold as wealth is not employed to produce more wealth, nor to serve as medium of exchange. Rather, it serves as a standard of measure to verify the value of redeemable currency which holds a promise to redeem for gold. Unless banks are suspected of dishonesty in the creation of redeemable currency, the need to redeem such currency rarely exists. Therefore, the more honest a banking system, the less need for gold to be on hand for redemption purposes.

      However, human nature being what it is, to find honest bankers is as difficult, if not more difficult, than to find honest people in general. Therefore, the need for some stores of gold specie or gold bullion does exist, and the presently existing 160,000 tones of above ground inventory of gold is far more gold than will be needed should there be a return to the gold standard.

      Also, as it regards mining and refining of gold, the methods and the capital employed by mining companies in their daily operations is a critical factor in the establishment of the value of gold. This maybe difficult to understand.

      The value of refined gold changes with the amount of human exertion employed in its production. What needs to be understood is that capital employed to mine gold, most often also finds application in the industrial productive sector of the economy. Thus, the value increase/decrease for gold and that of other wealth becomes a “wash”. Thereby, the standard in measuring the value of other wealth against the value of gold is kept pretty well unchanged. However, what is, and what must always be kept constant, is the “price”. Not the “price” of gold. Gold has no “price”. What must be kept constant is the “price” in terms of quantities of gold in specie, such as the fractions of an ounce of gold in a U.S. Gold Dollar, in a Canadian Maple Leaf, in a South African Krugerrand, an Austrian Dukat, etc.

      PRAETOR: “So, we have a Central Banking system buying up all the Gold.”

      BISCHOFF: There is no doubt that the central banking crowd would love to buy up all the gold in the world. However, they will never be able to do it. Central banks today hold approximately 25,000 tones of gold, while the tonnage held in private hands is estimated to be about 134,000 tons. The annual gold production has held steady for decades upon decades at approximately 3,000 tones.

      The gold held in private hands represents gold held by a disparate group of people, many of whom are just as suspicious of the motives of central bankers as you and I are. They will never let go of their gold, unless it is guaranteed that it can be safely used in trading in a “Real Bills” market or employed as “paid-in” capital in a banking system which creates redeemable currency.

      If you want to look at it in a sober way, there is a crowd of people holding 20% of the gold in the world as insurance to be used as stake in a redeemable currency regime, should such come about when the central banking regime collapses. In the meantime, they will do anything to continue to operate to their benefit the central banking system supported by the power of the state, thanks corrupt politicians.

      Unless, ApplePay through close cooperation with J.P. Morgan-Chase, Citi and Bof A, in the development of the pay system has already been corrupted, the unique “one-time” use of ApplePay’s digital coin just might be the thing to save us from falling into the financial abyss created with Executive Order #6102 in April of 1933.

      • Praetor

        Mr. Bischoff, agree with most of what you say, but, please, do not attribute to me, the statement of Dr. Quigley. I find the whole statement, of interest. It shows the mentality of the Group, that, “we the people” are dealing with. Their goal is to OWN the entire world we call earth, which means, the land, the people, and everything on it, above it, and under it. That, no one else, would own anything, not even themselves or any of the land, which we call earth. I too, believe, the earth belongs to all, in common. As, I may, in theory agree with the Georgist Philosophy or the Land Value Tax. I see, no way for this to ever be enacted on this present earth. IMHO, because human nature is flawed. Having, said that. Hope Springs Eternal. I, think Voltaire, may have been thinking about toilet paper, when he used the word, ZERO. As, far as Gold goes, if this Groups goal is reached, to own the world, they own all the Gold. Just, because they say so, and, everything in their Palaces will be made out of this stuff we call Gold.

        • Sorry, if I wrongly attributed Dr. Quigley’s statement to you. It seems to be a statement coming from a “progressive” mind similar to recent statements emanating from the MIT Professor Dr. Gruber.

          PRAETOR: “As, I may, in theory agree with the Georgist Philosophy or the Land Value Tax. I see, no way for this to ever be enacted on this present earth.”

          BISCHOFF: I have been a long time student of Henry George’s writings, among them his book “Progress and Poverty” published in 1879. As a matter of fact, I was present at the one hundred year anniversary celebration of the publication of the book held in San Francisco.

          There is, as you probably know, a sizable “Henry George Movement” supported by a number of foundations funded by people who saw the wisdom of a Georgist land value tax. The problem with this movement is that it has taken on some religious tones and is peopled with individuals who benefit from the Georgist foundation funds. There is little attempt to look beyond George’s philosophy or how he came to it.

          The essence of what is today called “Georgist philosophy” is really embodied in the Vulgar laws brought by the German Angles, Saxons and Thueringians to the English Isles in the 4th Century A.D. after the Romans left there. These Vulgar laws provided for land use administration and for government from the bottom up. Eric John in his book “Land Tenure in early England” gives a detailed account of land use administration and government under Anglo-Saxon rule.

          The early settlers in North America can be considered Anglo-Saxon refugees fleeing Norman England via the Netherlands. The Anglo-Saxon government however came to North America with the deputy-governorship of the Jamestown Colony in Virginia, Sir Thomas Dale. It was during his administration that the first code of laws of Virginia mirroring Anglo-Saxon law, nominally in force from 1611 to 1619, was effectively tested. This code, entitled “Articles, Lawes, and Orders Divine, Politique, and Martiall” (popularly known as Dale’s Code) included land use administration practiced by the old Anglo-Saxon shire system in England. While the fief under Anglo-Saxon land use administration, was a variation of Henry George’s land value tax, its effect on economic life is the same.

          Dale’s Code served as a model for the first written constitution on the North American continent, namely the 1636 Constitution of Connecticut. The U.S. Constitution, as are the constitutions of every state (now that Louisiana adopted common law), are modeled on the 1939 Constitution of Connecticut. The State of Connecticut proudly proclaims itself as the “Constitution State” on its license plates.

          Our county system in the separate states mirrors the old Anglo-Saxon shire system. An Anglo-Saxon shire, as a county in a U.S. state, is headed up by a chief administrative and law enforcement official known as a “sheriff”. Together with the “county assessor” and the “county recorder” he oversees the land use administration of county lands. The counties are administrative sub-divisions of the sovereign states.

          A land value taxation system is in fact in force in all fifty states, except that in the majority of the states it is perverted, and in California it has been materially damaged by the passage of Proposition 13. The focus was lifted from the efficacy of the land value tax with the ratification of the 16th Amendment which introduced the Income Tax. The economic benefit of the land value tax is totally obscured to benefit real estate moguls and speculators.

          Henry George fought a noble battle to explain his “land value tax” to the average person. I think, if he had connected it more to the history of land use administration under the Anglo-Saxons, it might have been less vulnerable to being attacked by corporate forces which reflect government from the top down.

          Only, if you look at George’s land value taxation in isolation, as most of the Georgist movement does, will you come to the conclusion as you did. It isn’t realized that the founding fathers and particular Jefferson made sure that the Anglo-Saxon land use administration became part of our state constitutions through the provisions of Article IV of the U.S. Constitution. Its mechanism thereby exists in every state. That its proper application is neglected is primarily the fault of “We, the people” who are failing to understand what the founders gave us with the U.S. Constitution.

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