CHOOSE YOUR ECONOMIC FRIENDS CAREFULLY

If you suddenly had to hold one-fifth of your total assets in gold in five years, would that put you in a scramble?

Well, that's the scenario the Swiss National Bank faces "if the Alpine countries' voters on Sunday back a populist initiative the central bank vigorously opposes," according to today's Wall Street Journal.

There are several things to note here. First is the use of the term populist. Make no mistake even when used by the WSJ, it's a pejorative, something foolish or even worse. That the WSJ chooses to use the term is also instructive.

A paper that claims it supports free markets and strong  currencies, it remains still part of MSM and has to be read with a filter for propaganda no different from other MSN outlets. 

Called "Save Our Swiss Gold," the movement if passed would require the Swiss central bank to hold one-fifth of its assets in gold within five years and would  prohibit it from selling its gold or keeping any gold outside the country. That means it would have to repatriate the gold it has stored with other central banks.

This is an initiative that makes central bankers quiver in their sleep at nights and roll out the Prilosec during the days. Last year Germany's central bank created some news when it announced it was repatriating some of its gold stored in French and U.S. central banks.

The Dutch central bank recently joined the movement by saying it would bring gold stored in the U.S. home. Not so long ago central banks including Germany were unloading gold because it was not yielding anything. 

The Journal then trots out its requisite experts to comment on the initiative. 

"This is part of the allure of gold. frequently it has been an asset that reflected power and might," Joshua Aizenman, a professor at University of  Southern California. "  (But) "if you look at pure economic return on gold it's not a conservative asset." 

Then the Journal cites one of the scaremongers, a Swiss central banker, who attacks gold's recent volatility, saying it has cost the bank money because it had to mark down it balance sheet and  "forgo dividends for the first time in a century." 

The banker, SNB Chairman Thomas Jordan, concludes by calling the initiative "unnecessary and dangerous."

Interpretation: populist rabble have no idea what they are doing while central bankers do and printing endless streams of fiat money backed by zilch is stable and conservative as are paper assets purchased with that fiat money.

The  article then rolls out for its checkmate move former Fed Chairman Ben Bernanke. "A lot of people hold gold as an inflation hedge, but movements of gold don't predict inflation very well actually. Nobody really understand gold prices, and I don't pretend to understand them either."

So let's get this straight. Gold is too volatile, doesn't return anything, isn't a good predictor of inflation and nobody understands it, including Ben Bernanke.

"The strength of a gold standard is its greatest weakness," again quoting Bernanke. "Because the money supply is determined by the supply of gold,  it cannot be adjusted in response to changing economic conditions."

There you have it, the nightmare of every central banker, no more house painting. You can't inflate your way out of economic mistakes and debt by printing bogus money.  

It's called house painting of the first degree and central bankers, bureaucrats and politicians just love it.

The bad news is the Swiss initiative will probably fail. The good news more and more people are getting the true picture about central banking and central bankers.

They are hardly your economic friend.