Get gold. Now.
That is the only message you need to take away from the Swiss National Bank’s surprise, overnight action to abandon the three-year-old cap it maintained in the franc/euro trade. The Swiss bank had vowed to not allow the franc to rise beyond 1.20 francs per euro. With the removal of that cap, the franc soared as much as 30% against the euro on Thursday, an unheard of move in the currency markets.
It tells the world loudly that a global currency crisis — albeit unstated — is underway … that Western economies and Western sovereign debt is so out of whack that the only ammo left in the arsenal is currency.
Currencies are now being sacrificed in an effort to save economies. And the only winner in that environment is gold.
Switzerland and its currency has always been an island of safety in times of European turmoil. Most recently, European investors began flooding into the franc in 2011 to escape the fall out of the European debt crisis on the euro. That rising demand for the franc pushed the value of the franc up against the euro, making Switzerland, a country dependent on exports, increasingly uncompetitive in a global world.
So, the Swiss National Bank intervened in 2011. It regularly and routinely waded into the currency markets with baskets of money it printed out of thin air to keep the franc from breeching 1.20 francs per euro. That was a very expensive proposition — costing the bank billions of francs — and it promised to get increasingly more expensive in coming weeks because of pending actions by the European Central Bank (the ECB).
The ECB is soon to unleash a round of quantitative easing (QE) that will weaken the euro because of all the currency units the ECB will print … which means even more flooding into Switzerland, which would have forced the Swiss bank to print more and more francs to maintain the cap. Looking at the tidal wave of cash likely headed toward Switzerland in an ECB QE program, “We came to conclusion that [intervening to maintain the cap] is not a sustainable policy,” Swiss bank president Thomas Jordan said in announcing the bank was scrapping the cap.
“Not a sustainable policy” says it all. The Swiss have explicitly stated what other central banks fear to utter … that interventionist policies are doomed to ultimately fail.
Japan has been intervening for two decades and has done nothing besides tread water — and just barely. Now Japan is in the midst of a massive money-printing scheme. China has been the world’s largest printer of money. India has been printing wildly. The ECB has been printing and, with its new QE program on the way, will ramp up its efforts sharply. And the U.S. … the Federal Reserve’s balance sheet has exploded to more than $4.4 trillion, 21% of America’s annual economy. In 2007, before the currency orgy began, the Fed’s balance sheet was just 6% of our economy.
All of these policies are destined to fail. It’s only a matter of when, not if.
Markets and economies are too complex for the mind of man. Central bankers and the politicians they serve are not so smart that they can see all the moving parts or the unintended consequences of their actions.
Indeed, I can make a strong case that the Swiss bank’s surprise move is in part a direct result of the actions by the Obama administration to slap sanctions on Russia: Absent those sanctions, European economies — which entered 2014 looking healthier than they have in years — would not have weakened over the late-summer and fall … and Greece — where the economy was also looking up and which is highly dependent on Russian trade — would not have fallen back into economic woes that are now creating a new round of Greek/euro angst in Europe … and the ECB would not suddenly feel compelled to push for a QE program … which means the Swiss likely would not have felt compelled to scrap the cap.
Insurance Against Unintended Consequences
Intervention is a loser’s game. Markets, rooted in economic laws, always outlast the actions of central bankers, a group of men and women tethered to hopes and dreams and a wrongheaded belief that they can manipulate currencies and economies to their whims. While that might be true for a time, it always ends badly; a fact proven time and again.
And so it will be this time, too. It’s never different, just a different day.
Which is why you absolutely must own gold. It is your only insurance policy against the surprise announcements certain to come from the world’s other central bankers in the months and years ahead.
Money printing has consequences. I don’t care what all the smart apologists say about increased money supply not making it into the economy. That’s irrelevant and untrue. The money exists, and it has impacts. If it didn’t, then why did global assets rise in value during the Fed’s massive QE campaign, only to decline in recent months as the Fed stopped spending $45 billion a month on U.S. bonds?
All this excessive supply of dollars, yen, yuan, euro, rupees in the world will create unintended consequences at some point. There is no other recourse. It will see central banks make surprise moves. It will see a giant financial reset globally. It will ripple through currencies and economies, and either tax rates will increase globally or countries will default on their debts — or both.
And it will see investors rush to the security of gold, meaning now is the moment to begin trading overvalued dollars for undervalued gold. You can do this in many ways — collectible coins from before 1933, bullion bars, gold-mining stocks.
To me, the easiest way to get started is through EverBank’s Metals Select account. It allows you to own gold in a pooled account, and to build your position gradually, investing as little as $100 a month. I think of it as a gold savings account that allows you to build golden wealth over time.
Best of all, you can convert your pooled account into coins or bars if ever you want to take control of the physical metal. That, to me, is far better than a gold exchange-traded fund (ETF), which has a number of operational risks and which generally does not allow you to take control of the physical metal. For the sake of full disclosure, we receive a marketing fee based on our relationship with EverBank. But, honestly, we’d work with them regardless.
The Swiss are sending the world a message: Intervention doesn’t work in the end.
And I’m sending the only obvious message that spins out of that: Get gold. Get it now. It’s the only insurance policy that will protect you against the coming currency crisis.
Until next time, stay Sovereign …
Jeff D. Opdyke
Editor, Profit Seeker
The post Swiss Bank’s Surprise Move Reveals Global Currency Crisis appeared first on The Sovereign Investor.
