Wednesday, September 7, 2011

The Power Of Perception

"Nothing is but what is not" - Shakespeare, Macbeth

One of George Orwell's primary propositions is that eventually a large, overwhelmingly controlling Government gains the ability to control the perception of the majority of the population.  I thought about this idea when a commenter asked my view on the Swiss franc.  I wasn't going to post on yesterday's Swissy deval because I knew the topic would get trampled on ad nauseum by a lot of other bloggers, but I ended up liking what I wrote in the comment section so I turned it into an easy post for today.   Here is my view on the Swiss franc situation: 

What Switzerland did - and has been doing for several months - is effect a currency devaluation just like every other big economic country, only they have done it in a short period of time. The U.S. has been slowly devaluing its currency since 1971 (over 80% since 1971, something like 96% since the founding of the Fed - I believe those numbers can be found on the Fed's website).

All the Swiss Government did was further confirm the Von Mises proposition from 1936 in which he said that a global system of fiat currencies would eventually end up in a devaluation race.

You can't do this in a currency system anchored by gold. When you have collapsing systems represented by fiat currencies and the Governments are tying to protect their economies, it's really kind of a "prisoner's dilemma" of sorts, if you recall that idea from your Econ 101 class in college. I don't blame the Swiss, all they did was join in the currency wars with a big splash. At least they announced their intention rather than continuously regurgitating up this "the U.S. has a strong currency policy in place" bullshit that we've been getting from Geithner...

It also further confirms the bull market in gold/silver is still young and has long way to go.
He followed up with a comment about wondering if he owned too much gold but that he had unloaded his Swiss francs before the pummelling.  It occurred to me that a lot of people have used and still use the Swiss franc as a safe-haven investment.  But why is this?  Up until May 1, 2000, the Swiss franc was backed by gold.  Up until that point I can for sure understand why it would be a safe port in an economic storm. BUT, the Swiss Government removed the backing on May 1, 2000 and the Central Bank started selling its gold.  So why do people STILL view it as a safe-haven?  Quite frankly, what happened yesterday demonstrates, live, in real-time, with real money why fiat currencies ARE NOT safe-havens.  NONE OF THEM.  Got it? 
Here was my response to his inquiry:

I have 90% of my net worth in the metals/mining stocks and I have for 10 years. Embry and Eric Sprott say they also have 90%  (many multiples greater than mine lol).

The thing is, we KNOW that every paper currency is devaluing and EVERY single country has the same fundamental problems as the U.S.  Even Canada and Australia, which are currencies some people ask me about. The Swiss took their currency off the gold standard many years ago.  At that time it no longer became a flight to safety currency. Yet, many people still think of it that way. Incredible how powerful "perception" is, huh? The big Swiss banks are in as bad of shape or worse shape as the U.S. too-big-to fail banks. There's no reason to invest in "Switzerland" any more than there is to invest in the "U.S.," which means staying away from the piece of paper which represents the national stock - the currencies.
We know that many investment "geniuses" got their ass handed to them yesterday because they failed to understand what gold/silver really are and why they are the only true flight-to-safety currencies in the world and have been for 5,000 years.  They only have themselves to blame because all the research and proof is at their fingertips using the internet.
More startling is to think about how powerful it is for the Government and media (CNBC) to have the ability to "shape" the general public perception of gold and the Swiss franc.  It's really horrifying when you think about it.  All this time most spectators and investors have perceived that the Swissy is a safe-haven and that gold is a "barbarous relic" (Keynes - wrong again) and in a bubble.  And now for the past 24 hours Western central banks and Governments are trying to reinforce this perception by manipulating the price of gold lower.  It won't work just like it hasn't worked for the last 10 years.  We have used the hit on gold to redeploy some of the cash we raised going into the last couple of weeks of August.  We'll put more to work over the next few weeks.  I hope they keep trying to reinforce the gold perception because it makes it cheaper for us to buy.
It would behoove all of us to reflect on what other major areas of our life the Government wants control our perception...


  1. Can you imagine being caught offside on a large Forex trade when the devaluation hit the tape? Holy Friggin' Moly that must have been pandemonium.


  2. Rewrite of one sentence seems appropriate:
    There's no reason to invest in "Switzerland" any more than there is to invest in the "Swaziland" which means staying away from the piece of paper which represents the national stock - the currencies.

  3. Truth serum...

    Where are the Criminal Indictments of Big Bankers?

    In closing, I just want to add what I think is one of the most preposterous things about the $196 billion lawsuit. Bank of America is being sued for $6 billion by the government. At the first of the year, Treasury Secretary Tim Geithner forgave B of A $127 billion in possible buy backs of sour mortgage debt sold to Freddie Mac. I wrote about this extensively in a post titled “B of A Settlement, Another Taxpayer Rip-off.” Just a few weeks ago, Fannie Mae agreed to buy $73 billion in troubled mortgage debt from B of A. These two deals amount to $200 billion in back door bailouts for just one of the 17 banks being sued. We gave B of A more than $200 billion from Fannie and Freddie alone, and the government is suing to recover $6 billion? I have to wonder, is our government stupid, corrupt or both?

    The government has not investigated or prosecuted crime that is obvious to anyone with a 10th grade education. Federal officials are giving the bankers that caused the entire financial calamity huge bailouts while pretending to punish them with a slap on the wrist. I think if there were widespread and genuine criminal prosecution, the entire system would collapse. That is probably why unmistakable crimes are being ignored by most federal and state authorities. Until fraud is removed from the system and criminal acts are punished, the country will not recover. Vibrant economies cannot thrive in an environment of lawlessness and mistrust.

  4. (Dave)

    Thanks Brian - appreciate the feedback.