Warning: Creating default object from empty value in /home3/tandem/public_html/golemXIV/wp-content/themes/canvas/functions/admin-hooks.php on line 160

The Midas Touch – Swiss style

Another update from Switzerland.

Sometimes people forget the point of the story of King Midas.  And by forgetting, they make  the same mistake as Midas. How often have you heard someone say, “He has the Midas touch you know”,  meaning he’s rich and knows how to get  richer. Whereas the story of Midas is how once the king had the ‘gift’ of being able to turn whatever he touched into gold, it killed him because everything he tried to eat or drink also turned to gold.

And that is what is begining to happen to Switzerland. Just as with King Midas there may be some unforseen consequences to having the Midas Touch.

You might think that Switzerland of all countries must be riding high. After all Switzerland and its currency are seen as safe havens and so money has flowed there in rivers. It is an open secret that wealthier Greeks, Spaniards and Italians have been spiriting their wealth out of their own nations to hide it away in Swizterland. Capital flight from all parts of Europe to Switzerland is hardly news.

How could this be a bad thing for the Swiss? Indded for a long time it didn’t seem as if it could be. The problems were all on the shoulders of those outside Switzerland, in the countries from whence the money was bleeding. For countries like Hungary, Romania and others like Poland the problem was that many people in those countries had taken out mortgages and other debts (corporate and municipal debt as well) in Swiss francs because at the time they did so, the rate was atractively low. But the more capital has flown from those countries and Europe in general to Switzerland the more the value of the Swiss franc has risen relative to all the other currencies. And those were and still are the currencies with which people are trying to pay back their swiss franc denominated loans.

Given that story you would expect the problem to be in Hungary Romania and elsewhere but not in Switzerland. The problem would be for the people who took out the loans and for the banks who made the loans and were now facing massive losses on them. And those banks were not so much Swiss as Austrian, Italian (UniCredit) and most of Greece’s banks.

And all this is true.

The Swiss tried to stop the Franc increasing in value by having the Swiss Central Bank sell francs and buy euros on the open market. But each time it did so it got absolutely spanked. It would gorge itself on euros, and move the market a few points, only to watch the entire effect be erased in a matter of hours as the market pushed the other way. And so the Swiss took the amazing step of pegging the franc to the euro.

To some extent this has worked for the currency. BUT it has not worked for prices.

Switzerland ‘the banking center’ is not the same as Switzerland ‘the nation’ or the Swiss people and their other businesses and lives. And this is the Midas lesson the Swiss people are only now really having to face. As money keeps pouring in to Switzerland, the currency is no longer moving as much as it did before, but prices are. Not a problem for the banks and their super wealthy clients. But becoming a serious problem for everyone else. In some of the wealthies parts of Switzerland, like Zurich and Lugano, a strange thing is happening. It is becoming too expensive for the Swiss. Local consumer and serivce businesses are dying in Switzerland.

Even large industries are finding it hard to stay. Nestle, a name synonymous with Switzerland, ( EDITis –  I previously INCORRECTLY wrote..” now headquartered in Luxembourg.”  This is not true.  It is Nestle Finance International, Nestles’ corporate financing arm which is incorporated in Luxembourg)  Last year I think it was, Novartis cut 2000 jobs and moved most of them to China. Rumour is that more will go soon.  Yesterday Merck announced it was leaving Geneva.

Switzerland has the Midas Touch and is choking on it. Small businesses, particularly those which cater for tourists are finding there are fewer. Sure, the super rich are still coming. In the exclusive hotels there are often more Russian conversations than Swiss ones. But outside the charmed circle, businesses which catered for more ordinary tourists and more ordinary businessmen and women are finding those people just can’t afford to spend in Switzerland. Even the Swiss find it cheaper to shop over the border.

Capital flight to Switzerland is begining to have seriously negative effects on the more ordinary Swiss and on the rest of the Swiss economy. Perhaps even the Swiss, those not sucking on the global banking teet, will come to realize as we already have, that bailing out Europe’s big banks, when the cost is austerity for the rest of us and for the economy we actualluy live in and depend upon for food and clothes and employment, is not going to save the rest of us. It is and will continue to impoverish us and destroy the real worth of everything it touches.

The banks have already touched Democracy and as they have turned it in to a source of gold for themselves they have destroyed what democracy was supposed to be for the rest of us. Our democractic institutions have become a golden investment for them but increasingly an empty parade of inside influence and unaccountable power, for the rest oof us. They have touched the law and turned it too into a fount of gold for themselves and destroyed what it was for us. Equality before the law? Don’t make me sick. If you steal a loaf you will go to gaol. If you launder billions or bank the blood money of dictators you will get a knighthood or dinner with the President. They have touched the very fabric of our civil society and made it brittle and repressive. The more of the world and society the banks touch and turn to gold for themselves, the more alienated more and more of us become.

What then?

Subscribe

Subscribe to posts by email

84 Responses to The Midas Touch – Swiss style

  1. Mike April 27, 2012 at 2:15 am #

    Golem,

    Great to see you’re back in the groove. Keep them coming.

    Good to hear it. Switzerland is a disgraceful country. Basically run by criminals for criminals.

    Jumped into bed with the Nazi’s for profit as well.

    Hate to nit pick as i think what you do is great, but you have goal – take it you mean gaol.

    Thanks

  2. James April 27, 2012 at 8:10 am #

    Excellent article Mr Malone, if you live by the sword etc ? If they continue to press ahead with austerity for the populace (for austerity read poverty) they will eventually trigger a response.

    Like all addicts they seem unable to curb themselves.

  3. Patrick Donnelly April 27, 2012 at 9:37 am #

    The Swiss are used to this. It is not new. What flummoxed me was the sheer stupidity of Ireland attempting to emulate them with the IFSC.

    Singapore is similar. They however have the “self discipline” to resist the corruption attendant upon massive, useless wealth?

    But it is all so brittle, acting as money launderers to the despots of the world? The stench affects all manner of things and attracts a heavy dose of flies …. An easy way to resist some of the problem is to raise fees and charge interest on deposits etc. The EU now surrounds Switzerland. This is very relevant. An embargo on this most neutral of nations would soon bring its inhabitants to their knees. Neutrality works only if others care ….. or if there is offensive capability. Why the USA is so obsessed with the Swiss is linked to the money laundering ….. What do you buy the world’s biggest drug smuggler?

  4. Sceptic April 27, 2012 at 10:18 am #

    Like many others I didn’t want to believe everything was deliberate. I wanted to believe it was accident, bad luck, naivety, genuine error.

    But I can no longer do that. The conspiracy people were right. It’s an intentional destruction of western society that started with globalisation in the 1990s.

    Now it’s “de-democratisation” and the creation of “financial feudalism”.

    There is no hope.

    • Debra April 30, 2012 at 11:37 pm #

      No intentional destruction. No conspiracy either.
      The two last world wars culminated in a new form of globalization that was put into place in 1945. The logical outcome of THIS globalization is unrolling before our eyes.
      The issues involved in WW2 are the same as those before us right now : what will federate us ? A nation state ? Global government (with virtual currency ?) ?
      The world has never been democratic… and a quick read of Aristophanes’ last plays will give you an idea how putrid democracy can come to smell in decadence.
      We are a decadent civilization, and democracy definitely smells right now…
      There have always been elites, and there always will be.
      Think about it… in an emergency, for example, when the dikes break, what would you rather do, vote democratically about what to do while the water pours in, while nobody dares raise his voice one decibel above his neighbor’s, or follow the orders ? instructions ? of somebody speaking with authority who tells you what to do ?
      Think carefully about your answer…
      That is why there will always be elites, and why we need them…
      On Switzerland..
      There are quite a few rural communities in France where wealthy furreigners acquire real estate, thereby raising prices, and making it very difficult for the remaining locals to keep their heads above water, and pay their property taxes, for example.
      Much of the French countryside (and much of France’s wealthiest city centers) is already owned by furreigners, and not Swiss..
      Last nitpick : The saddest part of Midas’s story was perhaps not that he died of starvation, but that he turned his young daughter into a gold statue…
      Worse than dying, even.

  5. MrShigemitsu April 27, 2012 at 11:01 am #

    Great to see you back on the case, Golem – I was wondering about the recent radio silence…

  6. Michael Fish April 27, 2012 at 11:47 am #

    It is absolutely necessary to close the tax havens of the world. If one has a global business world for corporations the rules must cross borders. It would be very easy to tax any money or movable property coming out of these tax havens into any other country with a punitive rate that all other countries would have to collect. The only basis that the tax havens have for existence is that the money of the cheaters will eventually come to another home country to be spent. The fact that western and other governments won’t enact laws to get these outlaw countries and principalities out of business is a black mark on their moralities.

    • Gary April 27, 2012 at 2:33 pm #

      Abolishing tax havens, when you think about it , becomes a more complex question. Suppose you have some money saved, even a quite small amount, where do you put it ? If you put it in a UK bank, our own govt (via the BoE)using low interest rates and inflation is stealing it from you. Pure theft. Now it becomes morally equivocal to compare the tax haven depriving the country of tax with the country stealing your own savings. Which is worse ?

      The Swiss are not only attracting cash savings, they are also attracting gold savings. To the point that they have run out of safety deposit box space. Why would people want to put their gold there ? Because other countries have a tendency to confiscate gold when the going gets tough. The USA did this in 1933. People don’t want to risk it again.

      I think we should turn the question around. We should not ask should we abolish tax havens , we should ask what is our govt doing to make conditions in our own country conducive to saving, why did they destroy our economy in the first place, and what are they going to to fix it ? These are the reasons why people take their money out of the country. Blaming the tax havens is an exercise in projection.

      • CArratiaM April 27, 2012 at 3:35 pm #

        Are you insinuating, Gary, that every government should try to compete against tax havens by making their own countries more attractive?

      • Hawkeye April 27, 2012 at 5:03 pm #

        Gary

        Nicholas Shaxson’s Treasure Islands deals extensively with Tax Havens. The description he provides is one in which wealthy private lobbying interests persuade tame Gvts in small off-shore locations to compete in a “race to the bottom”, of tax exemption policies.

        In this era of globalised finance, this isn’t about whether Gvt can attract capital and investment, but about the people and mechanisms that enable certain people to move money around supra-nationally, whereas the man in the street suffers the consequences.

        Gvt is the problem – but only in so far as to state that current policy making has been “captured” by wealthy lobbying interests.

        • Gary April 27, 2012 at 6:06 pm #

          Yes, Hawkeye , the govt is the problem. And it is worse that just confiscating savings. The govt wants you to pay tax to hand over to their banker chums in the form of bailouts. So not only are they stealing savings , they are squandering and looting tax revenues. It is a giant heist. Govt colluding with the bankers. This is the definition of fascism. The crime is vast. The solution lies at home , not in the tax havens. An honest currency at home would bring a flood of capital into the country. More capital than they will know what to do with. I predict the first country that moves to an effective gold standard will be inundated with capital as the entire world flees to their door for safety from the fiat nightmare.

          CArratiaM

          Yes. We have to do what is required to attract capital. We cannot close down Switzerland, we have no jurisdiction over it. Nor Singapore nor a few dozen others. We can only control what we do, and we have to do the correct things to compete. Instead we loot our own people.

          BTW one of the biggest tax havens in the world is The City. We do have control over that , don’t we ?….or maybe not.

          • John Souter April 27, 2012 at 9:07 pm #

            In truth we do not Gary. Parliament has no jurisdiction in the square mile, it operates under a euphemism called the Crown which, in itself, is a development of The honourable East India Company. Even the BoE is covered, there they do not have a board of directors but a court.

          • Synopticist April 27, 2012 at 10:12 pm #

            Golem, your site is very cool, and a welcome antidote to the MSM bollocks.
            But it’s real strength comes from smart, well informed, leftfield commentors BLT.

            If every other post is a response to some retarded libertartarian with his head up Rothbard’s anus, then lots of people ain’t going to bother any longer.

          • Mike Hall April 27, 2012 at 11:10 pm #

            Gary writes;

            “…we should ask what is our govt doing to make conditions in our own country conducive to saving…”

            and:

            “We have to do what is required to attract capital…”

            Really?

            At least in your second comment you state what is really meant by ‘saving’. Not actually granny’s homely sounding but inconsequential 20 quid ‘savings’, but ‘capital’, as in the bulk of it in the hands of the top few percent. And maybe a bit in the next 10 percent down with aspirations to live off money rather than ‘labour’.

            But is the ‘problem’ really that we haven’t shovelled enough ‘return’ to the owners of money?

            Because all the actual ‘data’ from the last 20 years shows that in Europe & the US, indeed most places, the vast bulk of productivity gains have gone to Capital, not Labour.

            Moreover, economists from a wide spectrum have also suggested that this inequality of incomes has played a significant part in the global financial crisis & the lack of any sign of recovery. (That ‘spectrum’ also includes the IMF among others not usually known for their compassion or empathy with workers.) Specifically, lack of growth in wages drove workers incrementally into more debt, which becomes unsustainable at some point, leaving a recession/depression in its wake.

            And you think we need more of the same?

            If it wasn’t already transparent enough, I think your comment here makes it obvious that where many of us are considering ‘the problem’ in terms of the real economy & majority of citizens (who by definition derive primary income from labour), you, on the other hand seem to be just representing the interests of not perhaps the top 1% (tho’ possibly also), but the next 10 percent or so down who aspire to live off ‘savings’ rather than working.

            Well, ok, but it’s not going to be too attractive to most people once they figure this out. It’s also hard to see how a functioning democracy – one that actually represents an informed majority – would go anywhere near your prescription.

            I suppose that’s why advocates of this position are pretty down on ‘government’ too?

          • Phil April 27, 2012 at 11:35 pm #

            This Von Mises nonsense is where many of our problems started. Like the Bolsheviks it’s always a case of it wasn’t Communist / Libertarian enough. It is utterly deceitful. They tell us now that those taxes will be used to pay for bank bailouts. The Mont Pelerin crew weren’t telling us that 60 years ago were they?

            Freedom for the Pike is death for the Minnow.

            Vast inequalities of wealth lead to economic crises as demand slumps outside the gilded circle. ‘Perfect’ markets don’t exist.

            The tax havens are not only silos for taxes owed elsewhere but for drug money, terrorist financing, the proceeds of graft and illicit Third World capital flight.

            There are an obscenity.

          • Gary April 29, 2012 at 1:15 pm #

            John

            You are correct.IMO. The downloadable book “Empire of the City” by Knuth details this. (also available on Amazon.) It is the most shocking book I have read.

            Synopticist

            Maybe you should answer your critics with a case and show that they are wrong ?

            Mike

            “Because all the actual ‘data’ from the last 20 years shows that in Europe & the US, indeed most places, the vast bulk of productivity gains have gone to Capital, not Labour.”

            I do agree that the inequalities have become obscene, but from an Austrian perspective labour rightly is the biggest cost to a business, and that wealth should become capital. The wages and salaries to labour, should be saved so that it can be loaned out to form the capital for new enterprises. Wages and salaries saved IS capital. But it is not saved because savings are being looted by inflation, so instead labour’s wages are immediately spent or misdirect away from new production and into property and this leaves productive manufacturers bereft of investment while the rentiers and money printers accrue this wealth. Inflation of the money supply by money printing is the root cause of this.

            Phil.

            There are no perfectly free markets or perfect communism. It is a continuum. The Austrian School believes that we have to get as close to the free market end as possible. Because the closer we get to free markets, the more sound the currency, and the less monetary inflation we will have, because each implies the other.

            I actually don’t care what system we get , or what it is called, as long as there is no monetary inflation. Inflation is the cancer that destroys an economy. Use whatever you like , but get rid of inflation. I just cannot see another way to achieve this outside of a free market.

          • Pilotfish April 30, 2012 at 9:10 am #

            You are right on the money, but the problem is what government is ever going to give up the printing press with out a fight. Even countries that are our competitors are not about to give up on the power and control they have over their citizens with fiat money. No they would rather beggar their country than restore a sound monetary system. The fiat monetary system and the fractional banking system imposed by the government and central banksters is the means used to create the welfare warfare state and every thing in between. I say starve the beast demand a market controlled gold standard or at the very least a repeal of legal tender laws and let the market place decide what is honest money and what is not. Good luck to fiat money in an open and free market and the governments pushing this fraud on it’s citizens.

    • Joe R April 27, 2012 at 5:03 pm #

      There are two off the coast of Britain that fly the British flag – Jersey and The Isle of Man.

      Start with them.

    • Alpöi April 29, 2012 at 9:53 am #

      Start with the anglosaxon ones

    • Michael Fish April 29, 2012 at 12:49 pm #

      If one wants to see why the offfshore havens prosper, see today’s al jazeera story of David Cameron’s connections. Almost unbelievable….. almost…..

      http://www.aljazeera.com/indepth/opinion/2012/04/201242611931801956.html

  7. Mark Wadsworth April 27, 2012 at 10:31 pm #

    This antipathy towards tax-havens is understandable, but the proposed solutions of “more of the same, more controls” etc are misplaced and will never work.

    The key to this is turning the clock back a bit, abandoning the attempt to tax income, profits and output and taxing the rental value of land instead*. You can’t hide land or take it offshore, and as a matter of fact and observation, land values are highest where there are most people. So if income is not taxed in the UK, there’d be no incentive for people to try and funnel income abroad – quite the reverse, people would be falling over themselves to invest here. Which makes us more productive, thus boosts the rental value of land, thus boosting land value tax receipts and so on, in a virtuous circle/cycle.

    * In practice this just means applying Business Rates to residential land and buildings (aka Domestic Rates) and reinstating Agricultural Rates. It’s nothing particularly radical.

    • Mike Hall April 27, 2012 at 11:19 pm #

      I haven’t thought this thru’ to any great extent, but what if we were to just tax the key resource commodities on the basis of their projected non renewable availabliity, including land, as you propose?

      Also providing a basic ‘hypothecated’ income so that everyone can access a minimum amount essential for a minimum living standard.

      • Patricia April 28, 2012 at 12:35 am #

        “Also providing a basic ‘hypothecated’ income so that everyone can access a minimum amount essential for a minimum living standard.”

        Read Gareth Morgan’s “the big Kahuna” who also promotes this idea. He is a well known economist here in New Zealand.

      • Mark Wadsworth April 29, 2012 at 5:35 pm #

        @ Mike Hall, exactly. If you think it through, the total rental value of land is far, far higher than what a government needs to run its core functions (road maintenance, law and order, refuse collection, public health in narrow sense) and so, seeing as the rental value of land is collectively generated by everybody (apart from burglars and muggers), the surplus has to be dished out as a Citizen’s Dividend, or used to pay off the National Debt, depending on your preferences.

    • johnm33 April 28, 2012 at 6:36 pm #

      Any fool can run a business without profits if they can put them all offshore, so a turnover tax on top of an asset tax on anyone doing business here, and instead of inheritence tax and capital gains what about a simple annual tax on the increase in the value of assets of every-one/company. Only the very rich can manage without income so it’s daft to impose tax’s that discourage it .
      Alongside this a guaranteed income [or job] thats free of the usual disdain that accompanies ‘benefits’ after all we live in the age of leisure where there are clearly not enough meaningful work opportunities to go round, it’s adding insult to injury to further demean those who have failed to secure rewarding work.

  8. CArratiaM April 28, 2012 at 3:45 am #

    Thanks for the insightful article Golem, very interesting as always. And it gets quite close to me, that actually moved into Switzerland a few months ago. I don’t yet feel that I know much of the Swiss economy (or society!), so I’m afraid I can’t add much on the current situation here.

    Still, you may find surprising (as I did when I found out) that for paying my health insurance I have to make a banking transfer to a bank account in… Ireland. Quite ironic…

    I recommend this presentation on “The Darwin Economy” by Robert Frank:

    http://www.youtube.com/watch?v=M8j1e-oT0UQ

    It explains very clearly how the competition for self interest can go against the common good. A clear and simple argument against ‘laissez faire’.

    • Gary April 29, 2012 at 12:56 pm #

      “It explains very clearly how the competition for self interest can go against the common good. A clear and simple argument against ‘laissez faire’.”

      On the contrary. Attempts by citizens to protect themselves from the ravages of the govt and banker duopoly is perfectly reasonable. They have no choice, unless they actually like getting pillaged. The problem is the unfair system that is anti-market. A banking cartel that could only exist with govt collusion. The bankers would have been wiped out in at least 1998 with the Russian and Asian crisis BEFORE they were too big to fail, if the market was allowed to operate. Instead the govt stepped in and using our taxpayer money put them on life support and ensured that they then became too-big-to-fail. The stepped in again in 2008 with more of our money and without asking us. There is nothing free market about that. It is the exact opposite.

      • CArratiaM April 29, 2012 at 2:41 pm #

        Gary, did you at least watch the link I posted?
        What I’m arguing here is that completely free market is NOT the best way to organise the economy.

        Whether there has ever been completely free market is another issue, I think that we have been as close to it as it’s possible in the real world. Arguing otherwise is comparable to arguing that there has never been true communism.

        Are you open to a questioning of the claim that completely free market is the best way to organise the economy? If not, there is not much to discuss on this.

        • Gary April 29, 2012 at 4:01 pm #

          Cristobal, you said

          “What I’m arguing here is that completely free market is NOT the best way to organise the economy. ”

          Yes, and the essence of my reply was to disagree with that. The govt bailing out the banks is not free market, by definition,and that has directly caused too-big-to-fail which has directly led us into the present intractable mess. I am saying that the free market response, if allowed to happen, would have been correct and that the banks should have been allowed to fail in 1998, before they became too-big-to-fail. You cannot organise an economy without allowing bad, failing businesses to actually fail and go out of business. Allowing bad business to go out of business redirects capital and labour to more innovative, less resource wasting businesses. eg. aircraft jet engines in the 70’s were loud, smoking, inefficient fuel guzzlers.Airlines could not keep their fuel costs down to make any profits. Newer more efficient engines have replaced them, some engine companies that could not change went out of business. Now we have a per passenger mile in the newest jets set at less than the most economical small motor car. Resources have been spared while profits improved. That is the free market way. That is Schumpeter’s Creative Destruction. The banks are the old smokey engine producers, but instead of being put on the scrap heap the govt saved them , and they became too-big-to-fail. With our money !

          • CArratiaM April 29, 2012 at 5:25 pm #

            I have never said that the banks shouldn’t have failed!

            I haven’t said that bailing them is free market either.

            But you are still not answering the point I’m trying to make, which is that completely free market is not the best way to organise the economy. Or, in slightly different terms, the competition of different entities motivated by self interest does not necessarily produce the best outcome for the group.

            Whether hockey players should be obliged or not to wear helmets is a good example from the video. If they all start using helmets but they are not obliged, the slight advantage a player gets by taking off the helmet will lead to all taking their helmets off. There is then no more advantage, they are all worse cause they don’t wear helmets and are more exposed to injuries. That is why the players actually prefer to have a rule imposed on them. It limits their “freedom” (of playing a little better without a helmet) but is the best for everyone.

        • Gary April 29, 2012 at 4:43 pm #

          BTW: the first example in your video link does not make any sense to me. It sounds like a false dichotomy. Frank says if ice hockey players were free to choose they would choose not to wear helmets, but if they voted in a secret ballot they would choose to wear helmets, so that is why the govt has to step in and legislate for compulsory wearing of helmets. (?) I am sure that left to their own choice each player would weigh up safety vs performance and each would come to their own conclusion and act accordingly. That is why football goalkeeper Petr Cech chose to wear a helmet and other ‘keepers did not. In a free market what will happen is that a new helmet would be invented that allowed complete vision and hearing, while being safe, and the company that made this helmet would get the market share and the players would seek to voluntarily wear it.

          He then says that govt must legislate to protect individual safety because selfish interests in the market place conspire against group safety(he prefaces this by an example of schools and housing and I cannot see the connection). But he is wrong on this as well IMO. eg the aircraft industry again. Stelios , ex-head of Easy Jet, said that the thing that would destroy his company overnight is a plane crash and evidence that he skimped on safety would drive customers to competitors who took safety seriously. People would chose not to use his airline. He said under no circumstances could he afford that to happen, so they are scrupulous with safety, and that forces the aircraft manufacturers to make ever more safe aircraft. All industries are safer than ever. eg. the asbestos industry is practically gone. Private litigation and consumer pressure not to use their products because in the long run they could kill you, put paid to that.

          I am sure that all such examples of govt needing to step in are contrived and are easily rebutted.

          • CArratiaM April 29, 2012 at 5:52 pm #

            I didn’t see this reply in my previous reply…

            But well, you say:

            “the asbestos industry is practically gone. Private litigation and consumer pressure not to use their products because in the long run they could kill you”

            So you think that having several sick and dead people and wait until the market makes the asbestos industry fail is better than regulating its use.

            You have made your point. I see that we have a different scale of values.

          • Gary April 29, 2012 at 7:20 pm #

            Hang on. The Canadian and Indian govts up until recently were still trying to protect the asbestos industry, because powerful lobbyists had bought them off. They may still be.

            Govts are shockingly self interested. There is nothing more democratic than markets. Consumers vote with their feet every day.

  9. Roger April 28, 2012 at 8:13 am #

    Dadaism alive and well watched these two movies last night a kind of activist candid camera.
    Very funny good weekend watching Gloabalisation examined. Theres an earlier movie too I watched both last night and was laughing uproariously .
    The Chamber of commerce guy in front of the green screen with homoerotic imagery projected to represent free markets allowing individuals to express themselves as they would as someone else had already bagged the jefferson monument is priceless as is the coquettish oleaginous slimery of the mayor of New orleans and his naked truth chasing a well dressed lie?

    http://www.youtube.com/watch?v=OazUh0Ym8rc

    http://en.wikipedia.org/wiki/Dada

    Executives, investors, and opponents alike reacted with surprise to the news that Bank of America, realizing it was heading for a taxpayer bailout, was asking Americans to start thinking about what they’ll do with the bank once they own it, and to start advertising that vision too.

    http://yeslab.org/project/yourbofa

    • backwardsevolution April 30, 2012 at 7:06 pm #

      Roger – thanks for posting. Watched the first 15 minutes of “Yes Men” (will watch the rest later). You are right, it is very funny. The makers of propaganda and lies do not like the tables being turned, do they?

  10. Phil April 28, 2012 at 10:15 am #

    Golem, I’d like to challenge you on a few accounts.

    1) A recent HSBC report showed that the spectacular rise of the Swiss franc was driven much more by repatriation flows by Swiss banks and households selling foreign assets than foreigners. Also, the CHF mortgages you mention are all CHF liabilities and every time a household pays interest or indeed principal, CHF need to be bought in FX markets. But the money is not “flowing to Switzerland”.

    2) The crucial point is that by pegging the CHF against the EUR, the SNB and the Swiss establishment are essentially stealing wealth from anyone holding CHF for the (short term) benefit of the Swiss export industry. It will backfire badly.

    3) Nestle is not based in Luxembourg. Like any multinational company it uses many different legal entities to optimize taxes. Nestle is based in Vevey, Switzerland.

    4) The price inflation happening in Switzerland is mostly due to absurdly cheap interest rates in Switzerland (the entire short end of the yield curve is negative!), increasing the money supply and slowly but surely creating a housing bubble. That, too, courtesy of the SNB.

  11. Ed April 28, 2012 at 6:47 pm #

    Huh? Where do you get your facts? I’m referring to your statement: “But becoming a serious problem for everyone else. In some of the wealthies parts of Switzerland, like Zurich and Lugano, a strange thing is happening. It is becoming too expensive for the Swiss. Local consumer and serivce businesses are dying in Switzerland.”

    The Swiss have traditionally been a nation of renters. 70% used to rent rather than own but that is changing. Recently Swiss are buying their own homes at record rates and the balance is shifting.

    As far as consumer prices go… I have been living here for the last 13 years and prices have actually dropped at the grocery stores. Partly because of the strong franc and partly because of relaxed laws and competition from Lidl and Aldi. In fact, I can’t think of the last time I saw a shop close.

    I live in Canton Luzern and the Canton has just dropped the corporate tax to the lowest rate in Switzerland and business is booming. Multinational corporations are coming in every day. Same for our neighbor Canton Zug.

    Sure tourism and exports are suffering from the strong franc but not as much as your article would have us believe. It may slow us down a little but we are a very long way from stagnation. Building is going on everywhere.

  12. Les April 28, 2012 at 10:33 pm #

    Golam, in addition to the last two contributors, in who I concur with (I have been living above the Nestle global headquarters in Vevey for 12 years), you fail to place the currency peg by the SNB in the global context of the fiat currency wars happening.

    The Federal Reserve is well know for its desire to drop the US dollar to “improve competitiveness” – 1.20 prior to 2008 down to .80 at the time the peg was declared is a serious erosion of currency competitiveness for Swiss exporters. Probably the primary reason the SNB made the peg in the first place. As we see around Europe, it’s about jobs. The SNB made an appropriate tactical decision to peg the franc, and it does have precedence in doing so.

    Similarly with the Euro. The Euro/$USD peg remains elevated given the situation in Europe, but the Euro/CHF peg dropping from 1.65 (which I remember well shopping across the border some years ago) to 1.00 was a great way to strangle the Swiss export industry.

    Given the willingness of the SNB to enter into currency swaps and increase its foreign reserves in order to maintain the 1.20 peg, Switzerland is at RISK of witnessing increasing inflation if these reserves on its books leak into the Swiss domestic economy. From what I understand a sterilization of these reserves through the purchase of gold bullion would appear an ideal solution to the problem, all the while increasing the present gold backing of the Franc from 17% (last time I checked).

    But it is not sterilizing these transactions, and the uncertainty surrounding this policy is no doubt contributing towards the strengthening of the price of gold against the Swiss Franc. With an understanding of debt myself and what it means for the present fiscal, monetary and trade system, I have prudently reduced debt levels along with consumption, while steadily investing in silver bars as a hedge to the lunacy of the debt, currency and derivative markets that are the primary threats to Swiss people’s wealth.

    Apart from a number of small retailers that are failing in the cut throat retail clothing industry, my subjective analysis of Switzerland’s economy is that things are moving smoothly, although I suspect easy credit (the hallmark of a corrupt debt based money system) will come back to bite those taking on large sums of credit like an apartment mortgage (up 60% since we bought in ’02). But not until there is a collapse in confidence. Then all bets are off.

    The tremors are being felt in the French elections, Dutch political disarray, increasing German isolation and lamentable US attempts to address its economic woes. I see no reason to isolate Swiss policy from the larger picture that it, quite frankly, has very little control over – except in matters on its currency.

    • Gary April 29, 2012 at 12:48 pm #

      The world is learning that one of the only ways to protect your savings from this fiat hell is to get into hard currencies. Gold and silver are being hoarded on an unprecedented scale, and when (not if) this fractional reserve fiat system collapses, then the offer of gold will be withdrawn and it will effectively become priceless. Most will realise far too late and will lose everything.

  13. ambrit April 29, 2012 at 2:50 am #

    Friends;
    Why not go that ‘extra mile’ and impose a UN global tax on wealth transfers? Put the UN on a sound footing, and develop a useful tool to manage global commerce. Adjustments on the rates of taxation for flows of goods and services across borders can be very useful in stabilizing our tired old world. (Of course I’m assuming some rational governing system in place at the international level. Not at all, I admit, a given.)

  14. Andrea April 29, 2012 at 9:47 am #

    “…It is becoming too expensive for the Swiss. Local consumer and serivce businesses
    are dying in Switzerland.”

    CH is not too expensive for the Swiss, or for foreign Cos. (I have lived here 30 years.) Now, I’m leaving aside rentiers/young households who want to own their own home (housing bubble is the biggest danger right now), as well as the underclass, the ‘working poor’, and some problems concerning medical costs. All of which have nothing
    to do with the EU, the currency, etc.

    Salaries have actually risen a tiny tad. (That is an average and disguises some negatives, see above.) Unemployment is not up, not in terms of any importance.

    Some international Cos leave (Merk Serono), others arrive. New businesses spring up all the time.

    Prices of consumer goods have tumbled, because of the high CHF. I have cut my spending budget by 20% in the last two years. That is for an ‘regular’ middle class life style – own modest 12 year old car, filled up once a month, plus season ticket for public transport, eat out twice a week, buy fresh, top class food, drink good wine, invite ppl, cheap holiday twice a year (not skiing but Spain), hair done every 3 months, new leather shoes if I need them, etc. That may sound rather ‘lux‘ but I spend carefully, comparison shop, don’t waste, and know lots of tricks. New car prices have gone down so steep they throw them at you..

    The exceptions, which 90% don’t pay for are: high end luxury goods, some brands e.g. Apple (buy second hand), and some commodities (e.g. copper), gold, and no doubt others that don’t concern ordinary families.

    I know ppl who have taken salary cuts and don’t mind. There is a general agreement that all prices, incl of labor, must come down. The poor performance of the tourist biz (and that is quite relative btw) is largely due to the weather (skiing, snow) – global warming.

    6 months ago I was paid a sum in Euros and I have exchanged them, spending the money bit by bit, at anything from parity (small Kiosk shop where customers don’t care and the owner loves it) to 1.40 CHF for one euro (Hotel, and one can even get better.) The official rate is meaningless to the person walking around.

    As for local biz closing, absolutely not. They change. Small grocer becomes Thai take-out. Hairdresser became novelty shop (doing well), clothes shop switched to sports equipment, you get the picture.

    • Gary April 29, 2012 at 12:43 pm #

      A good first hand account of the realities of living under a mild deflation. It is not as the serial inflationists keep telling us. The paper swindlers tell us we have to keep debasing the currency to remain competitive. We have to shaft the savers to get ahead. We have to have constantly rising prices to give manufacturers pricing power. That is a load of rubbish. They have swallowed the fraud by of those who own the money printing presses. We learn to today in the Sunday Times rich list that the rich are getting richer and the poor poorer. Well only those who swallowed the kool-aid of the serial inflationists are surprised. The rest of us who know the cancer of inflation understand that this is a guaranteed outcome. I will bet that those getting stinking rich are mostly financiers who get first hit of the freshly printed moola and those who took refuge in price inflated commodities, who saw this coming. The savers are getting looted like there is no tomorrow. Well there will not be a tomorrow at this rate.

      If we want our entire society to be prosperous and reward prudence and productive work, and put an end to the financial leeches we have to get a sound (non-inflating) currency. You won’t get that with fractional reserve banking and you won’t get it with MMT, so start by taking those off the table and work from there. Switzerland is not a paragon of virtue , it is also trying to debase its currency, but they just are far less bad than the rest of a bad bunch, so they have got relative deflation. Imagine how much more successful even they would be with a proper sound currency ?

    • Golem XIV April 29, 2012 at 1:54 pm #

      To all those Swiss residents who took the time to write a reply –

      First thank you for bothering.

      Second – I defer to your first hand knowledge. I wrote my account based on what someone else told me about her friends’ experiences who are in the serviceand tourist industry. Perhaps given what you write their experience is atypical. If so then I am glad you restored some balance with your accounts.

      We all live and learn. I’m no exception.

  15. CArratiaM April 29, 2012 at 3:22 pm #

    Thanks for your integrity David. The intellectual honesty makes of this blog a great place for questioning and debate.

    Cristobal.

  16. Mike Hall April 29, 2012 at 7:08 pm #

    Someone asked recently what the costs of bailing out the banks in the US might ultimately be.

    Whilst an important question, not just for the US, but all the other countries forced to fund ‘TBTF’, I’ve long thought the systemic costs are massively higher & seem to be completely ignored by most economists & media.

    Well, Andrew Haldane of the Bank of England wrote a paper on this in 2010. The numbers are truly shocking.

    Here’s an extract:

    “There is a large literature measuring the costs of past financial crises.This is typically done by evaluating either the fiscal or the foregone output costs of crisis. On either measure, the costs of past financial crises appear to be large and long-lived, often in excess of 10% of pre-crisis GDP. What about the present crisis?

    The narrowest fiscal interpretation of the cost of crisis would be given by the wealth transfer from the government to the banks as a result of the bailout. Plainly, there is a large degree of uncertainty about the eventual loss governments may face. But in the US, this is currently estimated to be around $100 billion, or less than 1% of US GDP. For US taxpayers, these losses are (almost exactly) a $100 billion question. In the UK, the direct cost may be less than £20 billion, or little more than 1% of GDP.

    Assuming a systemic crisis occurs every 20 years, recouping these costs from banks would not place an unbearable strain on their finances. The tax charge on US banks would be less than $5 billion per year, on UK banks less than £1 billion per year.

    Total pre-tax profits earned by US and UK banks in 2009 alone were around $60 billion and £23 billion respectively. But these direct fiscal costs are almost certainly an underestimate of the damage to the wider economy which has resulted from the crisis – the true social costs of crisis. World output in 2009 is expected to have been around 6.5% lower than its counterfactual path in the absence of crisis. In the UK, the equivalent output loss is around 10%. In money terms, that translates into output losses of $4 trillion and £140 billion respectively.

    Moreover, some of these GDP losses are expected to persist. Evidence from past crises
    suggests that crisis-induced output losses are permanent, or at least persistent, in their
    impact on the level of output if not its growth rate. If GDP losses are permanent, the present value cost of crisis will exceed significantly today’s cost.

    By way of illustration, Table 1 looks at the present value of output losses for the world and the UK assuming different fractions of the 2009 loss are permanent – 100%, 50% and 25%. It also assumes, somewhat arbitrarily, that future GDP is discounted at a rate of 5% per year and that trend GDP growth is 3%.

    Present value losses are shown as a fraction of output in 2009.
    As Table 1 shows, these losses are multiples of the static costs, lying anywhere between one and five times annual GDP. Put in money terms, that is an output loss equivalent to between $60 trillion and $200 trillion for the world economy and between £1.8 trillion and £7.4 trillion for the UK.

    As Nobel-prize winning physicist Richard Feynman observed, to call these
    numbers “astronomical” would be to do astronomy a disservice: there are only hundreds of billions of stars in the galaxy. “Economical” might be a better description.
    It is clear that banks would not have deep enough pockets to foot this bill. Assuming that a crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year. The total market capitalisation of the largest global banks is currently only around $1.2 trillion.”

    Full paper here:

    http://www.bis.org/review/r100406d.pdf

  17. Pilotfish April 30, 2012 at 12:39 am #

    Honest Money ( gold, silver, etc ) would level the playing field for all, and I don’t mean a government controlled gold standard but a market controlled standard, a willing seller and a willing buyer by mutual agreement. You know Laissez Fair Capitalism! Government currencies and central bankers are at the root of this mess and history teaches they are not to be trusted ever. Repeal legal tenure laws by governments would be a good first step let their fiat currencies compete in the market place with what ever the market deems acceptable. Then and only then would we have a level and free market economy that would produce wealth for all. If we settle for less than a total free market and that means the medium of exchange as well as the market place we will continue to get the same old boom and bust economy and robbed of our hard earned wealth by our masters. That is the long and short of this screw job.

  18. MacB April 30, 2012 at 1:17 am #

    I am genuinely puzzled by the concept of ‘honest money’ making everything ok. I can see how it would alter the rules of the game but it would do nothing to alter the pyramidical heirarchy of capitalism. To be honest you could adopt any monetary system you like and any level of government. But it’s not the systems that are corrupt it’s the people that run them.

    They game the current system and will continue to game anything you replace it with unless regulated. What would a corporation become if the world were unregulated? – I’d take a good guess at it resembling a government minus the welfare.

    But deregulation does have its place, if you want to try and create a more level playing field the unit of exchange isn’t the key. Why not deregulate the biggest barrier to equality and growth, intellectual property, patents and natural resources? If a market were truly free then there would be no laws against reverse engineering and copying.

    • Pilotfish April 30, 2012 at 8:41 am #

      Power [ money ] always corrupts absolutely, when governments can print fiat money you have a dishonest monetary system. Your savings [money ] is being diluted by the new money being printed and the interest you get on your savings isn’t enough to keep up with inflation [ the cause of newly printed money ]. You are being robbed by the monetary system of your country. If your country had a honest monetary system [ gold and or silver ] the government couldn’t just make more money they would have to tax you and take your gold and silver [ money ] which they would do. But the problem for the government would be at todays rate of government spending they would have to take all your money and they would still not have enough [ big problem ]. Gold and silver [ money ] limit government spending and corruption because they can’t create it out of thin air [ printing when ever they like QE style ]. Governments hate gold and silver because they know it’s easer to print more fiat money than raise your taxes and they can easily spend more than they collect in taxes. This is how they bail out their friends [ banksters ] with newly created money flushed into the monetary system and you and your fellow citizens can just pay more fiat money for every thing you need in the future if you can afford it. Back in the day [ 1963 ] I could buy a US gallon of gasoline for 25 cents so one would think and say gasoline has increased in price over the years. However if we had gold and siliver as our money I could still buy a gallon of gas for 25 cents if that 25 cents was made out of silver as it was back then [ one oz. of silver is selling at $ 30 US so one forth of that is $ 7.50 US minus 10% because a US silver quarter was only 90% silver $6.75 US ] almost enough to buy two gallons in some parts of the US. You tell me which system you would rather live with. I believe the only honest monetary system is the one governments and their cronies [ banksters and large corporations that fund their elections ] can’t control with a printing press no matter how well or ill intended they think they are. When governments control fiat money they control your medium of exchange by imposing legal tender laws [ only fiat money ] they are robbing you to death after they have taxed you all they think they can get away with, and we think we are free and live in a country that believes in justice and fare play. Corporation and our governments have teamed up to form a new form of fascism and now they want it all with a fiat world currency. All of this is made possible because we the people are to stupid to know the differences between a government promise and real money [ gold and silver ]. God help us if we don’t wake up soon……

      • Gary April 30, 2012 at 9:30 am #

        Pilotfish

        Said it better than I ever could. I could never understand how people clamour for more govt, when the govt is the one that is robbing them blind. Maybe they don’t even know they are being robbed ?

        • Pilotfish May 1, 2012 at 5:50 am #

          Gary
          Socialists, Statist and Progressives are to busy helping or at the very least justifying the government robbing others of their hard earned money to notice their government is robbing them as well and only scream bloody murder when the robbery isn’t to their liking. That is why they always think if only the right person or party was in power things would be better and therefore believe government is the answer never realizing how the pendulum swings. I find it very interesting when deceit and fraud is the order of the day how the truth is so revolutionary to these people……

      • CArratiaM April 30, 2012 at 10:41 am #

        OOH!! I have seen the light!!
        It’s the market (A.K.A. banksters and big corporations)! You just have to let them completely free and all our problems will be automatically solved, no abuse and no corruption, HALLELUJAH!!!

        Give me a break.

      • johnm33 April 30, 2012 at 7:36 pm #

        Pilotfish
        What is dishonest about fiat money if it is out in the open and everyone is informed.Also shit happens so if you get hit by a fukushima or katrina, handy to be able to print money to sort stuff out.The poor have always been robbed by the rich whether inside or outside government, until we have a social contract thats honoured including everyone being equal before the law, and the law is enforced, there is no hope of that changing. If we don’t use our own govrnment fiat we have to borrow from ‘the markets’ who have finagled their own money into existence by a similarly deceptive route, and who are now looking for rent. Personally I cant see why we couldn’t have a parallel gold/silver coin system of crowns/half-crowns/florins soveriegns and guineas, which would float against and compete with the fiat.
        Our current problem is that ‘the markets’ which lets face it is a euphemism for international cartels, have bribed or duped succesive governments into channeling the wealth all their way, and there is increasingly less wealth for the real economy to operate with. But thats only half of it, it is as if their was a drought on and in an attempt to get it to rain the government started to pump the rivers into the sea instead of trying irrigation.
        The £325,000,000,000 yes 325 billion that have been wasted in a so far futile attempt to rescue the banks from their own folly could as easily been wasted building an O2 arena and a new ‘wembley’ stadium in every uk population centre >loughborough. I’m not at all sure that would have been less mad. What we do need is for the government to set the banks adrift they’re buisnesses and should sink or swim on their merits, and to form some new banks that only do high street banking.

        • Pilotfish May 1, 2012 at 5:26 am #

          Johnm33
          The government has laws called legal tender laws that forbid competing currencies and for good reason, fiat currencies can’t compete with gold or silver in a free market. I agree the bailout money to the banks is a total waste of money and will not work in the end. If the government couldn’t print the money up they couldn’t spend it like a drunken sailor on good or bad causes depending on your view of a good cause or a bad one. My point is fiat money is a fraud and cheats the working man out of his hard earned savings to a larger extent than it does large corporations and moneyed interest that control our governments. Fiat money is the root cause of our problem. Governments and corporations are and will always be corrupted it is their nature it has always been and will always be as history has shown. Whenever gold and silver passed as the legal tender of a country the working man had a far better chance than he has when the government is debasing it’s currency as it is doing now. This has happen over and over throughout history and it always ends badly.

          • johnm33 May 1, 2012 at 3:19 pm #

            Pilotfish
            Any law they pass they can repeal, the main difficulty I have with using only gold and silver is that it would tie up a prodigious amount of capital/wealth in the means of exchange [plus taxes would have to be paid in it]. Even if it was printed and 100% backed by p.ms. this would be gamed at some point. Most of the fortunes that currently exist have been created by dubious shenanigans involving fiat, mostly due to hubris or a sense of entitlement by those in privileged positions, I’m not holding my breath until this stops, and it is clearly this that is at the root of our problem. Any system could work if run by people with integrity and none without it, but for now it would be a good idea to remove from private bankers the right to create credit in a circular bookeeping exercise.

  19. MacB April 30, 2012 at 11:44 am #

    So, no answer to my question merely a diatribe about the wonders of honest money like it’s a magic bullet. I don’t need money and inflation explaining, it’s the idea of a level playing field that I don’t understand. You are treating it like an emergent property of a change to the monetary system. What’s more you imagine that this, coupled with a removal of regulation, would allow the markets to perform in a free and fair manner. Free and fair for who and in what manner would you be measuring the outcomes?

    • Gary April 30, 2012 at 12:02 pm #

      MacB

      Put it this way , name ONE giant cartel/monopoly that is NOT supported by the govt.

      Govt as the cause of monopolies :
      http://fare.tunes.org/liberty/microsoft_monopoly.html

      • MacB April 30, 2012 at 12:45 pm #

        No that’s just answering a question with a question and, put bluntly, stating the obvious. No-one here is denying that regulatory capture has occurred on a massive scale and is beneficial to monopoly interests. But logic would dictate that it’s only worth subverting and capturing the regulations if they were effective. Logic would also dictate that removal of all regulation would just make the creation and maintenance of a monopoly easier.

        Is there a working model of what this may look like that many people are familiar with? Well I’d suggest the game of Monopoly itself. Anyone that has ever played the game knows that the final outcome is decided very early on but the ‘end game’ could drag on almost indefinitely.

        What you envisage as being a game changer would just be a minor period of adjustment for TPTB. How can people stand against monopoly interests in the absence of a David? They band together to try and form their own Goliath. What if there were multiple Goliaths? well you need something really big, let’s call it government shall we?

        You seem to occupy this weird reality that insists that a change in the money supply and deregulation will make us all potential Davids.

        • Gary April 30, 2012 at 2:52 pm #

          “You seem to occupy this weird reality that insists that a change in the money supply and deregulation will make us all potential Davids.”

          I take it then that you are happy with the status quo ? If so, then you are a lost cause.

          A change in the money supply to sound money will not make us all potential Davids, but it will at least be a level playing field and will kill off this rotten banking system and make govt collect money honestly by taxes instead of printing money, and what the govt cannot raise in taxes it will have to forgo in spending. Is that too much to ask as a start ?

          • MacB April 30, 2012 at 3:27 pm #

            Ok, now you move from answering a question with a question to trying a variation of the ‘do you still beat your wife’ statement. But I take my hat off to you, on a blog of this nature and with my posting history, you are trying to create a straw man where I am happy with the status quo. Just in case anyone wasn’t clear on how wrong that would make me you throw in the final bit of it making me a lost cause.

            So, again, describe to me this level playing field, how it would work and how it would address the current issues?

            DO NOT describe to me again how gold, silver, positive money, true money, real money, inflation, etc, etc work….I KNOW

            I’ve already given you some pointers and acknowledged that removing regulation around IP, patents and the like could be a great help. But I’m guessing that’s not the sort of regulation you want to see the back of. I’m also guessing that the thought of inventing something but not being able to own it and earn off it for all time would hurt the very core of your being.

            Actually give me anything to work with here

          • Gary April 30, 2012 at 7:16 pm #

            “DO NOT describe to me again how gold, silver, positive money, true money, real money, inflation, etc, etc work….I KNOW”

            You obviously don’t know. You think you know, but if you did know you would stop asking the same questions over and over and over again, no matter how many times you get an answer. You are trapped in a tautology of misunderstanding.

            For a somewhat recent example of sound money on a Gold Standard and stable growth see Bretton Woods from 1948 to 1971. I mentioned this before but maybe you did not see it.

            You either can’t understand, won’t understand, or are taking the piss. If you are serious and if you feel that I cannot answer your questions then go and read this. 875 pages, all the answers to all your questions. Come back when you are done and the world will seem like a new place. Or in your case , maybe not.

            http://www.amazon.com/Money-Bank-Credit-Economic-Cycles/dp/0945466390

  20. Sir Harry April 30, 2012 at 1:00 pm #

    @ Golem and other contributors: Thank you.

    Until recently, I went out with a Swiss woman from Zollikon, just outside Zuerich, for many years and am a regular visitor to the country (mainly to Zuerich and Geneve), have been for 30 years, both on business and for pleasure.

    The place seems to have more in common with the UK than its neighbours.

    Also, many people are losing out as Brits do in (central) London, but these people seem to enjoy the kool aid that the Swiss establishment sprays. There does not appear to be much trickling down.

    Salaries appear to be stagnating for most and prices, especially housing and related costs, seem to be rising. Social mobility looks limited.

    Was Merck Serono’s departure from Geneva a surprise? Not really. We have seen this in the UK. It was only a matter of time.

    • Ed May 1, 2012 at 8:49 am #

      Quote Sir Harry: “Salaries appear to be stagnating for most and prices, especially housing and related costs, seem to be rising. Social mobility looks limited.”

      I’m afraid that real estate prices in Geneva and Zürich do not reflect the rest of the country and inflation is almost non-existent here, so how much salary growth should we have? Sure Switzerland is expensive but if you look at our salaries you will see that we earn a lot too. We don’t get the mega salaries we hear about in the UK and USA (except perhaps in the banking industry) our wages are more balanced, so I would argue that trickling down is occurring rather nicely. Have a look at the wage charts: http://www.bfs.admin.ch/bfs/portal/en/index/themen/03/04/blank/key/erwerbseinkommen.html

      If social mobility appears limited it is because the Swiss tend to not change jobs frequently, they live in the same house or apartment for very long periods and tend to work for large corporations rather than take the risks of an entrepreneur. Compared to what I experienced living in the USA, there is very little ostentatious display of wealth here and very little desire to have more and more material possessions. I think the Swiss have a very contented society and tend to think communally rather than individually. I’m making generalizations but for the most part, these things are true.

  21. Jim M. April 30, 2012 at 6:05 pm #

    @ MacB:

    Your patience does you credit, Sir!

  22. MacB May 1, 2012 at 1:24 am #

    @ Jim M – patience and hope Jim, patience and hope, though I’ve run out of the former now and the latter appears forlorn. It’s a shame it’s a good blog and a very interesting comments section. But I don’t think I’m adding anything to the party by continuing to pursue this line of questioning. I can shoot down straw men all day long but it’s starting to take over otherwise interesting discussions.

    I’ll stick to commenting on the actual topics now and related subjects and links.

  23. Pilotfish May 1, 2012 at 4:33 am #

    The money is what is corrupt first and for most. Which the government issues and only them. With out a monetary system that you can count on to hold it’s value you are screwed no matter how much you regulate the big corporations. Until we wake up and demand a monetary system that holds it’s value the rest of the abuse and corruption that the power elite feel they can get away with is a secondary concern for me. I do not discount their corruption. I just choose to focus on what I believe to be the biggest problem first. I agree with Gary tell me when, where or how the government has ever done any thing that hasn’t made matters worse when it comes to regulating the corrupt system they created and corporation game all the time. Talk about the asylum being run by the inmates, the very people who helped get us into this mess are not the ones going to get us out in fact they have a vested interest in keeping it going. Good luck to you if you think your elected officials are ever going to be able to regulate this rotten system in fact how has it been working out so far?

  24. bobrocket May 1, 2012 at 11:07 am #

    Gary, Pilotfish

    whilst I agree that governments in a fiat regime will always debase the money supply (to a greater or lesser extent) I am fascinated by what you think are the safeguards against the debasement of so called ‘sound money’.

    Who do you trust to regulate its soundness ?

    Sound money would have to be finite and verifiable and the system of exchange un-gameable.

    Gold, the typical hard currency worked fine for the Spanish until the Conquistadors brought home ships full of the stuff and inflation ran riot.
    (I have some unregulated gold on my desk, I found it in a river, releasing it onto the market after a gold standard had been implemented would debase the rest of the currency)

    I’m not suggesting that the idea of sound money is any better or worse than any other system, just that none are perfect and I’m pretty sure I could come up with a way of gaming any system implemented
    (whether I would or not depends on the risk/reward ratio, I’m risk averse but not all people are like me)

    • Gary May 1, 2012 at 3:45 pm #

      “Who do you trust to regulate its soundness ?”

      The tens of millions of people in every corner in the economy who accept money every day for wages and as payments. Why would they consciously choose a money that started losing value the moment it was printed when they could instead choose one that did not lose value ?

      This is why the govt has to have legal tender laws forcing you to take their inferior paper money. If their money was so good they would not need these legal tender laws. They know that if they repeal these laws their money would be shunned in the marketplace and it would be worth only the value of the paper and ink. ie nothing. If you break the legal tender laws they may arrest and jail you. This is govt theft by threat of force.

      BTW : The Spanish Conquistadors brought home silver in vast quantities and the oversupply debased the value of silver coins. That is one reason why you don’t get a silver monetary standard that is effective, you get a Gold Standard. Silver is more supply sensitive than gold, they mine loads of it as a by-product of base metal and gold mining. They mine almost no gold compared to that which has already been mined, and is almost all still in existence. The whereabouts of all of gold ever mined is mostly known and already discounted.

      • Hawkeye May 1, 2012 at 4:03 pm #

        Gary

        I have my doubts that any form of “Sound money” (in whatever form) will provide the democratised benefits of the populist interpretation of Smith’s “Invisible hand”.

        Putting faith in the money system as the sole form of “power to the people” is surely only going to result in another form of wealth AND power concentration.

        The model of Sound Money (classical gold standard), Laissez-Faire economic policy (i.e. lack of regulations), plus fairly small Gvt has existed before; in the latter half of the 19th Century. It culminated in the Gilded Age:

        http://en.wikipedia.org/wiki/Gilded_Age

      • bobrocket May 1, 2012 at 10:45 pm #

        Hi Gary,

        thanks for the reply.

        ‘This is govt theft by threat of force’

        all taxes are govt theft by threat of force and ‘legal tender’ is just their specification as to what format they will accept payment.

        There is nothing to stop people trading/accepting beans or gold amongst themselves for payment but at the end of the year you are forced to source a quantity of USD, UKP, Euros or conch shells to pay the govt their tithe.

        We have a tendency to utilise the same ‘currency’ that we pay our taxes in purely for convenience.

  25. Gary May 1, 2012 at 3:41 pm #

    Speaking of govt creating monopolies :

    Big, Crooked, Dumb, Govt taking care of us from cradle to grave, moves to censor internet :

    http://www.telegraph.co.uk/technology/news/9236667/Pirate-Bay-must-be-blocked-High-Court-tells-ISPs.html

    “Mr Justice Arnold said that the process must begin in the next few weeks. It followed his ruling in February that both the operators and users of The Pirate Bay website infringe the copyright of music companies. ”

    In other words the govt is being used as the enforcer by the music industry cartel. Yet another example of your govt at work creating and protecting monopolies. The irony here is that one reason given was to protect the talent, but the music industry has long been seen , by the talent themselves, as acting as virtual slave owners extracting extortionate rent out of the talent. Now the corporate cartels seek to entrench that and the crooked govt acquiesces. Many artists would never get discovered except through free downloads, and many artists are making more money than ever from packed concerts and merchandise sales. Not to mention increased direct sales of their music, even though a perhaps small proportion of total downloads, may still be more than they would have otherwise received.

    As usual watch for the unintended consequences. This could open a can of worms. What content is pirated ? Quotes ? Links ? Youtube ?

    And not least , what will they move to ban next ?

  26. CArratiaM May 1, 2012 at 4:29 pm #

    “Any system could work if run by people with integrity and none without it”

    johnm33 May 1, 2012 at 3:19 pm.

    I agree. This is why I think that the validation of selfishness in the publicly accepted discourse is harmful. Self-interest will always be a driving force and there will always be people that is/become greedy. There is no need to promote selfishness by praising it as something positive, it is not.

    This is the big problem with objectivists and extreme free marketeers. In their worldview there is no sanction to accumulation and abuse, there is no counterbalance. We are doomed to live in a savage society if that kind of ideology is dominant. Besides a legal/regulatory system, there should be a counterbalance which must come from the society and the basic set of values commonly accepted.

  27. Pilotfish May 2, 2012 at 8:06 am #

    I found this article very informative when I first started trying to understand how and what happened to our economy and banking system in 2008. The only thing I would add to his statements about the welfare state would be the warfare state both require deficit spending and the western world gets both in spades.

    Gold and Economic Freedom

    by Alan Greenspan

    Published in Ayn Rand’s “Objectivist” newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal, in 1967.

    An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

    In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

    Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

    The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

    What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

    In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

    Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

    A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

    When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

    A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

    But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

    When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

    With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

    Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

    In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

    This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

    Home »

    • Hawkeye May 2, 2012 at 8:35 am #

      PilotFish

      If I’m not mistaken, then this is the same Alan Greenspan who:

      a) Has created the greatest paper debt bubble in the history of the world through de-regulation and low interest rates (i.e. acted to completely abolish any form of sound monetary basis!)
      b) Declared that he saw no housing bubble occuring in the USA
      c) Justified almost complete de-regulation of finance because he proclaimed that no rational firm would engage in behaviour detrimental to its long term viability (i.e. denies that fraud & looting for bankruptcy can ever occur)

      “The Warning” gives a clear understanding of the collusion between the “libertarian” Chicago School economic dogma of Greenspan & Summers and powerful private & political interests:

      http://www.pbs.org/wgbh/pages/frontline/warning/etc/synopsis.html

      • Gary May 2, 2012 at 9:31 am #

        Hawkeye

        No. What it does show is that no one man or govt should be given the power to to suppress honest money , especially power should not given to those who actually deeply understand sound money but who are corrupt, or who become corrupt as in the case of Greenspan. Control of Money has to be put into the hands of the people.

        And, what Greenspan wrote there is as far away from the Chicago School that you can get. The Chicago school wanted central banking controlled by a computer. That makes Sound Money proponents sick on two levels 1. a central bank is central control of money and 2. using a computer is folly because of the impossibility of central economic calculation.

        Let all people decide the money , let all people control the money. That is the ultimate democracy. If you don’t like that then you don’t trust the collective people, and you are not a democrat(small d).

        • Hawkeye May 2, 2012 at 11:50 am #

          Gary

          See my comment here about the “democratisation” of money:

          http://www.golemxiv.co.uk/2012/04/the-midas-touch-swiss-style/#comment-17381

          I think you’re chasing rainbows expecting money to be the mechanism for representing collective interests. This is because representing the collective interests of people often requires non-market solutions (e.g. to tackle Free-rider problems, assymetric information, Collective Action Problems such as the Tragedy of the Commons, to name but a few).

          This is not to suggest that the market can’t solve any problems, but that it shouldn’t be expected to solve ALL problems.

    • John Souter May 2, 2012 at 12:00 pm #

      Pilotfish – on it’s face Greenspan’s argument is persuasive.

      Until, that is, you change one word in his discourse – change ‘statist’ to democrat.

      Do that and their logic is exposed as a polemic advocating wealth controlled by wealth as the means of power irrespective of any system devised or any democratic means of regulation or control.

      Fundamentally the re-establishment and development of our democratic rights is the key to a solution and perhaps our salvation.

      In this respect our problem is the vastness of our majority and diversity as individuals towards identifying and defining these rights as against the interests of a infinitely small but cohesive minority who claim to hold superiority of arms and intellect.

      In fact this is a false flag fluttering from the towers of a stage set; but for too long, too many of us have been cowed into believing its illusions.

      For humanity wealth has many levels and many facets – this is how it should be and has to be encouraged; but for humanity to flourish in the evolutionary scale without adopting the role of aggressive and destructive parasite it has to recognise the mantra of the softest pillow is a clear conscience.

      Without forcing that change we are relinquishing the stewardship of the world and the future of our species to the dominance of psychopaths.

      Some post’s back, I posed the question -‘Has anyone seen the Oligarchs manifesto?’

      Your guess is a good as mine, but I doubt if any of the envisaged scenarios would in any meaningful way be optimistic. In view of that, I for one do not want my grandchildren to be eugenically registered as either a minor Tribune for the establishment or a debt slave.

  28. Alan May 2, 2012 at 9:22 am #

    “Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes.”

    “The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.”

    Replace the word “welfare” with “warfare”.

    So if Greenspan and co. are right, the following doesn’t make sense:

    “Gold stands in the way of this insidious process. It stands as a protector of property rights.”

    Wouldn’t the wealth owners go bust trying to defend their wealth?

  29. Sir Harry May 4, 2012 at 12:11 pm #

    @ Ed – Thank you.

    You’re right to point out that GE and ZH, plus may be Zug, aren’t typical of the country.

Leave a Reply