Introduction: Frank R. Suess, CEO & Chairman, BFI Consulting, started his career as a management consultant with Andersen Consulting in 1989. Before taking the lead at BFI Consulting in 1998, he held a senior management position with Price Waterhouse working as a strategic and operational management consultant to a number of international corporations. Mr. Suess is Swiss by background. However, he obtained part of his education in the United States. He has an MBA with Honors from the Haas School of Business, UC Berkeley, California. And he holds a Bachelor´s Degree in Finance, magna cum laude, from Saint Mary´s College in Moraga, California.
Daily Bell: Nice to have you back again. We look forward to getting your Swiss perspective.
Frank Suess: Thanks for inviting me. It's always an honor and a pleasure.
Daily Bell: Let's get right into this, Frank. After this week's intervention by the Swiss National Bank (SNB), has the Swiss franc lost its safe haven currency, also considering it is no longer backed by gold?
Frank Suess: I don't think so. Ultimately, the fundamentals of Switzerland are very solid. And, more importantly, the fundamentals of the US dollar and the euro are very weak in comparison. Switzerland has a long tradition of political stability, economic prosperity and solid rule of law. At the foundation of Switzerland's success stand its independence and its system of direct democracy. The overall package has led to a long tradition of trust in a currency that is considered strong and a secure store of value – the image of a "sound money" so to speak.
Yet, as you mentioned correctly, the Swiss franc is no longer constitutionally backed by gold. Until roughly a decade ago, the Swiss constitution required a 40% gold backing. When that was given up, unfortunately, the Swiss franc joined the mob of pure fiat currencies based solely on the trust and creditworthiness of the Swiss government and the SNB's monetary decisions.
Consequently, the Swiss franc too is exposed to the whims of fiscal and monetary policy. This week's interventions by the SNB stand testimony to that.
Daily Bell: Do you think the Swiss National Bank (SNB) should be devaluing it against the euro and US dollar as it has?
Frank Suess: Over the past few months, international investors have been increasingly looking for safety in the Swiss franc as their trust in currencies and financial markets elsewhere has become brittle. With the dramatic rise of the franc, political pressure on the SNB mounted rapidly. A few weeks ago, in response, the SNB embarked on its own Swiss version of quantitative easing.
Then, this week, the SNB shook the markets with a statement that could not have been clearer: "With immediate effect, we [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."
The wording – "…with immediate effect…", "…utmost determination…", "… in unlimited quantities…" – was certainly chosen very carefully and deliberately. The goal was to jolt the markets. And, that objective was reached. After the announcement on Tuesday, the euro appreciated sharply by about 10% versus the franc.
Therefore, one might say the SNB's intervention was successful. However, that is short-sighted. I am not a friend of these measures.
Ultimately, the SNB cannot control what happens to the economies in the rest of the world. Unless the EU and the US get their houses in order – which won't happen any time soon – it will be very difficult for the SNB to keep the Swiss franc from rising once again.
First of all, while the Swiss franc is globally well-respected as a safe haven currency, it is by no means a currency that in terms of size and circulation can be compared with the US dollar, the euro or the yen. The balance sheet of the SNB is relatively minute compared to those currencies. Thus, the interventions available to the SNB are far more limited.
Secondly, in the world of fiat currencies there are no 'good' or 'bad' currencies. There are only 'better' and 'worse' currencies. Relative to other fiat currencies, the Swiss franc is still a 'less bad' and thus safer choice. I don't expect the SNB´s interventions to turn the Swiss franc – a 'better' currency – into a 'worse enough' currency to ever be even less attractive than the euro or the US dollar.
Remember that, while we had a sharp rise in the Swiss franc last week, the currency exchange rate to the euro and the dollar are still at historically low levels. At the beginning of 2010, the Swiss franc stood at 1.50 to the euro. At 1.20 one might still consider the CHF overvalued in terms of purchasing power.
So, in conclusion, while this is not good for Switzerland, it won't break the Swiss economy. The Swiss will get through this mess in relatively good shape – better than then rest.
They will weaken the Swiss economy, not make it more competitive. The devaluation "strategy" might work for a while but the SNB will probably end up losing a lot of good Swiss francs by buying up a lot of lesser foreign currencies that they have to sell at a loss later.
However, the Swiss franc will still remain one of, if not the, best fiat currency. It will continue to depreciate versus gold, though. Gold is the "best currency" of all. The SNB's actions have made very transparent why even for Swiss people it is paramount to have part of their wealth in gold.
Daily Bell: What is your opinion about Thomas Jacob's idea of launching a new competing gold-backed franc?
Frank Suess: I'm in favor of any endeavor that aims at installing a gold backing to a currency. The natural supply limitations of gold will provide for a natural limitation of government powers.
In the case of Thomas Jacob's idea, the proposal is to create an additional, parallel currency to the national Swiss franc. The 'Swiss Gold franc' would be constitutionally regulated as an official coin with a specified gold content. With its gold content, it could serve as an ideal store of value for Swiss and international savers, while the Swiss franc could still be used as the main currency of exchange.
It will be interesting to see how the initiative is received in Parliament. Even if it ultimately does not go through, the public debate in this context will hopefully have a positive effect and remind the people in Switzerland – and possibly elsewhere – of the importance of a gold backing and sound money.
Daily Bell: Is the Swiss People's Party continuing to gain momentum? Do you see positive change as a result for Switzerland?
Frank Suess: We will have elections in the fall. I have not been following the polls lately, but in the context of the economic and political developments of our neighboring countries, I would expect the Swiss People's Party to again do very well in those elections. The party stands for freedom and independence. It has been the only party that has been steadfast in its rejection to join the EU.
I think it is pretty much common sense that, contrary to the leftist propaganda, Switzerland has fared extremely well 'outside' of the EU. For instance, the rate of unemployment in Switzerland is currently about 2.8%. Compare that to unemployment of any of our European neighbors, or to any other country for that matter. In most countries an unemployment rate of 2.8% would be considered a state of full employment.
Nevertheless, for years now, socialists and centralists in Switzerland have propagated that Switzerland would falter by being too isolated without an EU membership. Reality has proven them wrong again and again. Yet some, amazingly, still continue to preach their nonsense. Voters in Switzerland recognize that. That's a good thing. Switzerland will do comparatively well in the crisis ahead, BECAUSE they are not members of the EU.
Daily Bell: What is your opinion about the ECB and the launching of euro bonds?
Frank Suess: Until around 2007, the ECB, largely in the tradition of the German Bundesbank, focused on price stability and sound monetary policy. In comparison to the US Federal Reserve, the ECB acted on a much more restrained basis. Accordingly, the euro continuously strengthened in its acceptance as an international reserve currency over the past decade. It became a serious contender to the US dollar.
In the aftermath of the 2008 crash, the US Fed launched its quantitative easing campaign, while the ECB initially rejected going off on the same trajectory. That ignited an outright currency war. Ever since, we have seen the two currencies basically racing each other to the bottom.
The US Treasury has, since the beginning of 2009, regularly had problems selling its Treasury bills in the open market, thus being forced toward unprecedented levels of debt monetization – in essence, issuing government bonds and buying them back themselves with their freshly printed funny money. Interestingly, it was precisely in that context that the US rating agencies started downgrading the credit ratings of European countries…
When Greece's credit rating was downgraded, there were a host of other candidates, including the US, which objectively could have been downgraded too, possibly even sooner. If the quality and independence of US rating agencies was put in question during the subprime debacle, they should certainly have now lost the last notch of credibility. Yet, markets still listened.
Consequently, Europe and the ECB have been pulled into a game that they are not good at playing. The EU, contrary to America, however, is not an organically and historically grown unit. It is a patchwork of nations and cultures that, not too long ago, were trying to cut each other's throats. This is reflected in Europe's indecisiveness and incapacity to manage the European debt crisis. In my opinion, it is this which has, so far, saved the US dollar from collapsing completely. Relatively speaking, the European currency looks even worse to part of the financial markets. So, both currencies are depreciating in sync, making it less obvious to most.
As we speak, the insurance on the debt of several large European banks is on the rise. Credit default swap rates on the bonds of banks like BNP Paribas, the Royal Bank of Scotland and even Deutsche Bank are at historic levels.
Should the EU issue euro bonds? I think that euro bonds could indeed temporarily help the euro, as well as European banks and economies. However, ultimately, it has become painfully apparent that the EU construct is fragile and lacks "poise under pressure".
Daily Bell: Should there be more centralization for the EU and a continent-wide taxing authority?
Frank Suess: To the contrary, in the medium- to long-term, I would expect a de-centralized, confederate system to work much better for the EU. However, the EU long ago went down the road of centralistic bureaucracy. It is a failed construct that is not backed by the people and never was.
I wish the EU would have a closer look at the Swiss system and copy some of its nuggets. That combined with a gold-backed euro would be a solid mix. However, that won't happen.
Daily Bell: Do you think the euro will survive as a currency?
Frank Suess: At this point, there is still a lot of political will and influential groups – not just in Europe – who want to keep the euro alive. Thus, I would not count the euro out too quickly. However, I think it will fail in the end, at least in its current construct. Multistate currency unions, historically, have always failed.
Daily Bell: Do you think there is a global money power desirous of installing global governance?
Frank Suess: There are elitist groups with influence. Some of them tend to even have a bit of a conspiracy smack to them. The most prominent is probably the Bilderberg Group. There are also elitist forums such as the World Economic Forum in Davos, Switzerland. Then, there are large international institutions such as the United Nations, the IMF, the World Bank, and of course the G's (G20, G10, G7…).
I don't believe that any one of these groups or gatherings have an explicit and orchestrated intent to rule the world. I am not a believer in conspiracy theories. I do think, however, that the leftist and elitist "do-gooders" have a natural and deeply ingrained tendency to 'solve' problems and 'manage' the world with centralistic panaceas that don't work. They love to harmonize, centralize and bureaucratize anything that crosses their paths. Possibly, they even mean well. Possibly, they just don't know any better.
Daily Bell: Do you think the IMF and World Bank will end up issuing and managing a global currency?
Frank Suess: There may be people who daydream about further extending the fiat currency system by having yet a 'bigger and better paper system to play with'. But, I don't think that will happen any time soon.
Special Drawing Rights (SDRs), for instance, have existed for many years. They serve as a means of lending between IMF members and central banks. However, I don't expect SDRs to act as a viable global currency. SDRs are basically units made up of a basket of international currencies. The largest part of that basket today is made up of US dollars. The current weighting, however, no longer reflects economic realities. The Chinese, therefore, demand a bigger piece of the pie and the influence and power that could come with it. The same goes for Russia, India, Brazil and Europe, too.
At this point, I don't think these different contenders will be able or willing to come to terms. Thus, I don't expect SDRs to take over the role of leading reserve currency. If, as we discussed before, the EU can't manage a crisis with the euro, one can imagine what a political mess a world currency will make.
Daily Bell: Are the wars in the Middle East and North African States more about readying the targeted nations for global political consolidation by installing Anglosphere controlled puppet regimes?
Frank Suess: I don't know what ultimately triggered the 'democratic' movement in the Middle East. What's clear, though, is that NATO did not really pursue the 'humanistic' resolution and mandate given to it by the UN. And, as Muammar Gaddafi appears to be losing the battle in Libya, several Western leaders are falling over each other to meet with the new regime. Nicolas Sarkozy and Silvio Berlusconi have already knocked on the doors of 'New Libya' to secure some juicy oil contracts and to negotiate African migration issues.
Whatever the true background story is, one thing is certain: the Middle East has not become a more stable and peaceful place as a result of it all. To the contrary, if "somebody" orchestrated all of this, then they have indeed further destabilized the region for possibly a very long time.
Daily Bell: Is Western-style regulatory democracy a failed concept? Does central planning work?
Frank Suess: I don't think that Western-style democracy has failed nor do I believe that capitalism has failed. I think that both have not really been given a chance to be truly implemented and to fully unfold.
I am a great fan of the American Constitution and its Amendments. It has many similarities and common roots with the Swiss democratic system that I treasure. The basic democratic concept defined in the American Constitution is, in my opinion, still an excellent model, one founded on the right of privacy, property and freedom. However, the rules and regulations in place in the United States today, unfortunately, have very little resemblance with the Constitution. And, ultimately, it will only work in combination with a sound money system.
Forty years ago, US President Richard Nixon ended the gold standard and announced the end of the Bretton Woods International Monetary System. Either knowingly or unknowingly, he unleashed the fundamental ingredients of the toxic monetary and fiscal waste the world is dealing with today. Since 1971, the progression of decreasing interest rates and increasing debt in Western societies has been steady. The world has witnessed a variety of business cycles and a number of financial market crises over this period. The one common denominator throughout has been increasingly loose monetary and fiscal policies.
These policies were the reason for the sub-prime crisis and the crash in 2008. And these policies are the reason we are headed for the worst economic downturn since the 1930s, with all the ramifications and implications that will come with it.
Daily Bell: Please describe the decentralized approach of the Swiss Federation. Is it working?
Frank Suess: At the core of the Swiss system is the concept of a direct democracy. It allows Swiss citizens to vote directly on government decisions via initiatives and referendums. Every three months, we vote on specific issues and laws. Thus, contrary to all other democratic systems that I am aware of today, we do not merely elect our representatives to Parliament. We actually have the right to accept or reject the ideas and laws they propose. That creates a whole different level of control and accountability.
Furthermore, a lot of fiscal responsibility is delegated to the Swiss cantons and counties. This improves the quality of decisions as they are not made in some central, far-away place, but instead by the people directly impacted and involved. Hand-in-hand with the fiscal responsibility comes the tax competition that exists between different Swiss cantons and counties. Tax competition, contrary to tax harmonization, very directly leads to lower taxes, better quality of spending and a slimmer state.
Daily Bell: Should the US government, as Ron Paul states, get out of the backyards of other countries and stop spending trillions of dollars on these overseas wars?
Frank Suess: To a large degree, I think so. The interventionist strategy of America may have created more problems than it has solved. It's cost America way too much money. There are plenty of issues in that the dollars spent on Iraq, for instance, could have been better spent at home. And that kind of illegitimate intervention, based on false pretenses and lies, has not supported worldwide peace or made America a safer place, to the contrary.
Daily Bell: Why do you think the American public tolerates this aggressive foreign policy? Is mainstream media partially to blame for trumpeting fear-based propaganda?
Frank Suess: Yes, I would agree with that. Fear is certainly a good tool for influence and control of the people. I notice that very quickly when I fly to the States. The security checks are out of control and beyond common sense. I invite any American to fly to Zurich and compare the welcome you get there to what awaits me as a foreigner at US airports.
In this context, the speed at which independent information spreads across the globe today, to a large extent via the Internet, is making it increasingly difficult for governments to keep their actions and agendas as secret as they would like.
Daily Bell: The US dollar's purchasing power has been steadily declining against gold, something we have long been predicting. Is the US dollar in its final days of being the world's reserve currency?
Frank Suess: Gold is telling us a story, at least for those willing to listen. It is loudly and clearly announcing the demise of fiat currencies, with the dollar in the lead. I doubt that the dollar in its current makeup will exist much longer. Similar to the euro, there are a lot of people who want to keep the dollar alive and will support it. Yet, again, I would not count it out too quickly.
However, America does have a formidable heap of problems to solve. The US debt levels, particularly when including unfunded liabilities, will never be paid back. The debt ceiling was raised without meaningful spending cuts. The recipe to counter the debt problem continues to be the creation of more money and more debt. At some point, that "strategy" will falter.
Daily Bell: What should concerned people do, who presently have US dollar exposure? Perhaps your Global Gold Program makes sense?
Frank Suess: Yes, if you have not yet stocked up on physical gold bars and coins, it is high noon to do so. Rising inflation and an accelerating depreciation of the dollar is a risk that needs to be managed.
I'm convinced of the absolute necessity to safely keep a portion of your assets in physically allocated precious metals, particularly gold and silver. The world's financial system and fiat currency model is flawed. A growing number of savvy investors recognize that. In the interest of preserving and growing their wealth, they wish to safely store allocated precious metals in a secure location, from where the metals can be delivered anytime and anywhere, or sold promptly and conveniently when the time is right.
Global Gold offers its clients a solid solution that addresses precisely those objectives. It offers a non-bank, straightforward setup that works and meets our clients' needs, even during a severe financial crisis. With Global Gold, you buy physical coins and bars that you directly own and store safely in a high-security storage facility in Switzerland.
Daily Bell: What about US equities? Warren Buffett seems to think they are cheap now. What do you say?
Frank Suess: I say wait! They will be a LOT cheaper still.
Daily Bell: How about silver? Is physical silver a sensible thing for people to own as well at this time?
Frank Suess: Silver has a slightly different character than gold in that it is used industrially. However, silver is the 'poor man's gold' and will do very well in a severe financial crisis. Also, silver is currently at an extremely interesting ratio to gold. Thus, contrary to stocks, silver is indeed cheap and I would recommend owning a portion of physical silver next to gold.
Daily Bell: Should Americans be concerned about a potential gold confiscatory action by their government? Is this possible in the 'Net era?
Frank Suess: Personally, I would be more concerned about a variety of explicit and implicit exchange controls. Already, anybody observing the host of regulations flowing out of Washington must be very concerned.
Recently, one law that has been given much too little attention in America is Foreign Account Tax Compliance Act (FATCA). I recently wrote about this and will be happy to send you the link to the article. I recommend that every American taxpayer take a close look at this law, consider its implications and then write a letter to your preferred congressman.
Daily Bell: Any final thoughts you would like to share with our readers?
Frank Suess: I would simply advise your readers to prioritize risk management and wealth preservation over any other investment considerations at this point. As part of your wealth preservation strategy, jurisdictional diversification is crucial.
As in team sports, a solid offense is based on a strong defense. There are times when you need to prioritize one over the other. This is not a time to procrastinate. And, it is not a time during which you should trust in the 'noise' of mainstream media. It's all smoke and mirrors.
Daily Bell: Thank you for taking the time to sit down with us again.
Frank Suess gives us a lot to think about in this interview. We've commented on some of the trends – and of course the crazy decision to link the Swiss franc to the failing euro. It's very obviously a political decision, designed to ensure that all eurozone currencies degrade equally.
Toward the end of the interview, he mentions FATCA and its ongoing implementation, which will actually come into force so far as we can tell in 2013/2014. FATCA is a deeply ominous program, because its over-riding assumption is that the US can tell other countries around the world and their banks how to do business with US citizens.
Basically, in a few years' time, the US will insist that banks around the world withhold up to one-third of the funds they receive in accounts for US nationals and turn them over to the IRS. This withholding would take place if the US national himself is not providing to the IRS the requisite taxes and information.
In the US, taxes – all in – can come to 50 percent of a person's income, when one includes various local and state taxes, sales taxes, house and car taxes, etc. One of the surprising things about Islamic Sharia Law, as we have pointed out in the past, is that it apparently mandates taxes in the area of one to two percent. This is never mentioned in ongoing dirges about the horrors of Sharia law and its terrible consequences.
In fact, in the Middle Ages, serfs tithed one-third of their income to their lieges, a far cry from the 50 percent that many (even middle class) individuals now pay to their governments (or more). The assumption is that governments can do more with funds than the individual can. One only needs to look at the deteriorating infrastructure in Southern Europe or all over Middle America to see this is not true.
In truth, government is incapable of wise redistribution of funds. It's simply a myth. Only the free market itself can adequately redistribute capital and properly direct it. Every government project is inevitably influenced by deciders' self-interest. The more money that is spent, the more inefficient government is.
While it is easy to make the argument that government can do little or nothing that is competent (as there is no competition to keep boondoggles in check), FATCA represents a huge step forward in terms of US insistence regarding its graduated income tax program. Despite congressional calls for repeal of the US's inefficient, wasteful and repressive taxing system, Congress itself, via the IRS, is expanding the program to the WHOLE WORLD.
This is a statement of unlimited US power. It is also a comment on US citizens and their rights. What the US government is telling its citizens is that the government unilaterally has a right to pursue citizens and enlist other countries (and banks) to enforce US laws.
We have often pointed out that the one of the keystones of freedom is the ability of people to pick up and leave and move to another place when government becomes too oppressive. Greece, Renaissance Italy, even the 13 original colonies of these United States of America prospered because the hand of government rested lightly on its citizens. In today's world, the trends are toward consolidation and creeping totalitarianism. The US, in some ways, seems to be leading the charge.