GLOBAL GOLD OUTLOOK No.

8

NOVEMBER 2014

Growing distrust of an increasingly centralized
government among the people of Switzerland

Claudio Grass

Managing Director at Global Gold AG
On November 30th the Swiss public
will decide whether or not to return
to a gold-backed currency system. If
Switzerland, the dominant financial
hub in terms of offshore wealth, would
return to gold, this would be a game
changer and would determine many
things in the policymaking of our nation.
On the monetary level, the power of the
Swiss National Bank will be somewhat
constrained and the Franc will be (at least
partially) backed by gold. It will mean that
the Swiss Franc will not be just a figure,
but this figure will reflect value and
wealth. I firmly believe that a strong and
stable currency is the cornerstone of any
society that respects individual liberty and
private property rights. You will therefore
find that this issue of the Outlook is
concerned with individual freedom and
liberty. It is my great pleasure to include
an interview with a person I am grateful
to have met and who was able to inspire
many people for the cause of liberty:
Dr. Ron Paul. Additionally, we included
our book summary by the spearhead of
Austrian Economics, Prof. Friedrich A.
Hayek where he proposes to separate
the state from currency production.

Please feel free to contact us if you
have any questions.

Global Gold Inc.
Herrengasse 9
8640 Rapperswil
Switzerland
Tel. +41 58 810 1750
Fax +41 58 810 1751
claudio.grass@globalgold.ch
www.globalgold.ch

Do the Swiss People
Understand that Gold is
Money?
All the eyes of hopeful believers in freedom and individual liberty
on this planet are set on Switzerland and the upcoming “Gold
Initiative”. On November 30th, the Swiss people can correct a
mistake done 14 years ago and return to a currency backed
(partially) by physical gold. Some of us are still aware while
others have only recently realized that a strong currency is the
primary guarantee for sovereignty, stability and prosperity of a
nation, as well as the safeguard of the freedom and liberty of its
people, because it offers the best protection against government
despotism. Until the end of the 1990s the Swiss constitution
clearly stated that money in circulation needed to be backed
by a minimum of 40% of gold, with the aim to limit the power of
the central bank to create unlimited currency out of the printing
press. It has now become obvious that weakening the currency
never really created wealth, instead it was just redistributed to
certain political pressure groups and lobbyists at the expense of
the hard working and productive people of Switzerland (and the
world for that matter).

Switzerland: The Last Bastion of Liberty
The Swiss model is unique and exemplary! But the truth is
that this small federalist country is the last bastion of liberty,
where the people can and do limit the power of politicians by
collecting 100’000 signatories to challenge a decision made by
our parliament (in a so called referendum) or by launching an
initiative. This affirms that the Swiss people themselves and not
the parliament are the real sovereign. This mechanism protects
the Swiss against a totalitarian state. In the etatist world we live
in today some may consider it ‘a privilege’. In this regard I always
like to refer to the interpretation of the word ‘democracy’ which
goes back to Aristotle. ‘Demokratia’ in Greek is simply the rule
of the people. ‘Demos’ represents the village or the people and
‘kratia’ stands for strength, power or rule. In a democracy, the
power lies with the people. Although, the Athenian model of elite
rule is not the example we strive for here, the point being made
is that democracy does not turn into a wild animal as long as

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

power within a society is exercised at the lowest possible level
whereby people only decide about things which affect them
directly in their municipalities, cities or ‘cantons’ (State).

Independent Currency = Freedom
When we look outside of Switzerland it is easy to recognize
how the Swiss model successfully protects individual liberty
and the property rights of each person better than in any
other surrounding centralized government system. Outside
of Switzerland politicians have the power to make the law
and decide on behalf of the people, whereby the individual is
downgraded to a tax paying subject. Therefore an independent
hard currency is the most important ingredient when creating
the basis for an order based on freedom and liberty. Alan
Greenspan wrote back in the following passages in his essay
“Gold and Economic Freedom” (originally published in Ayn
Rand’s “Objectivist” newsletter in 1966) before he changed sides
and took over one of the most powerful jobs on the planet:
“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. (…) 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.”

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

SNB at a loss after leaving gold standard
After no longer being committed to the 40% backing of physical
gold, the Swiss National Bank (SNB) has had the freedom to
maneuver its monetary policy as it pleased. For example: It
expanded its balance sheet since 2008 by 500% and tried
everything to protect the export and banking industry, though
this came at the expense of savers and the working population.
But history proves that such a monetary policy does not work
and that by weakening the currency they can only provide a
temporary remedy. None of the past 50 hyperinflations in the
20th century would have occurred if it were possible to create
wealth out of the printing press. It only weakens the purchasing
power of the currency and favors those people who receive
the newly created money first because they can buy goods and
services at existing price levels before the prices go up due to
the increased money supply. This is the true reason for the
decimation of the middle class and for the increasing gap among
the haves and have not’s.
Swiss Gold Reserves 2000-2014
2500

2300

2100

Left to Chart:The chart shows
the dramatic drop in the SNB’s
gold reserves since departing
from the (partial) gold standard.
Since 2000, the SNB has sold
60% of its gold reserves!

1900

1700

1500

1300

1100

900

700
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: Swiss National Bank

In our Global Gold publications, we made the case time and
time again that additional liquidity out of thin air can only create
an artificial boom for a limited time. However, the consequence
is that the longer one pursues an uncovered and expansionary
monetary policy, the deeper and harder the final bust becomes.
The outcome is inflation which either leads to higher consumer
prices or it goes into certain asset bubbles such as financial
instruments, stocks, real estate etc.. We haven’t seen a hike in
consumer prices as of late, however we have seen a massive
inflation in asset prices. Again, these “booms” are fake, not
sustainable and will correct themselves sooner or later. J.P.
Morgan was right in saying that “Gold is Money – everything else
is credit! ”

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Surprise in Swiss Opinion Poll.. It looks like A
Close Call!
It is no surprise to me that there is hardly any debate taking
place in Switzerland or in the international press when it comes
to the gold initiative – it reminds me of the year 1999 when
our politicians informed the people that they will ‘modernize’
the wording of our constitution without making any substantial
changes. Not a single word was mentioned on their intention to
cancel the gold backing clause, which assured 40% gold backing.
However, it is interesting to mention that already back in 1997
the Swiss National Bank asked our political leaders to go back to
0% gold backing but were told that they can only reduce it down
to 25% and would have to wait for the official changes in the
constitution planned for 1999. Too many interests are at stake
for those profiting from this system, especially bureaucrats,
politicians, big business conglomerates and of course the
big banks in the fractional reserve business. If the upcoming
referendum passes, the SNB will have five years to build up its
gold holdings to 20%.
But the real surprise was to see the turnout of the opinion poll
taken last week. Among 13’000 people asked in this poll, 45%
were in favor of the gold initiative and 39% were against it. This
is certainly much better than anyone had expected, but signifies
that the public’s distrust of our system is growing.
We will keep you updated!

Swiss Gold Initiative Opinion Poll, 21 Oct 2014

Total
Against:
39%
Left to chart: This chart
illustrates the results of the
opinion poll taken on the Swiss
Gold Initiative. The figures show
that the Swiss public remains
indecisive on what course to
take.

Probably No
11%
Yes
29%

No
28%

Total
In Favor:
45%

Undecided
16%

Source: www.Mineweb.com

Probably Yes
16%

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Dr. Ron Paul says no matter how powerful
governments are, the market always reigns

Global Gold Talks to
Dr. Ron Paul

Last month, Global Gold’s Claudio Grass met with Dr. Ron Paul
in Lake Jackson, Texas at the Ron Paul Institute for Peace and
Prosperity. Here we show you how their discussion unfolded.
Dr. Ronald Paul is an American
physician and renowned political
activist for the cause of liberty
in American political venues. He
represented the Republican Party as
former Congressman of Texas and
twice as presidential candidate. He
also entered the 1998 presidential
race as the Libertarian Party’s
presidential nominee. Dr. Ron Paul
is also known for his strong advocacy
of Austrian economics, which is
reflected in his demands for limited
constitutional government as well as
adopting a free market economy and
returning to a gold-backed currency.
He is widely known for his strong
criticism of the Fed’s monetary policies
in the 1980s that drove up inflation.
He is currently a senior Fellow of
the Mises Institute. Dr. Ron Paul
founded a number of organizations
promoting his cause, namely the
Foundation for Rational Economics
and Education (FREE), the Campaign
for Liberty, and Liberty PAC. As a
form of media outreach to the public,
he created the nationally syndicated
podcast Ron Paul’s America, in
addition to his online network ‘The
Ron Paul Channel’. Dr. Paul also has
a number of publications, including
The School Revolution: A New Answer
for Our Broken Education System, in
addition to a number of books on
Austrian economics and classical
liberal philosophy, such as The Case
for Gold, A Foreign Policy of Freedom,
Pillars of Prosperity, The Revolution:
A Manifesto, End the Fed, and Liberty
Defined.

Global Gold:
Dr. Paul, thank you very much for taking the time to speak with us. It is
a pleasure to meet with you and learn your perspective on political and
economic developments. But first, how would you describe your days
since you’ve retired from Congress?
Dr. Paul:
I’m staying busy! I’ve been involved in several things in my life. One was
practicing medicine. That was very important, but I don’t do that anymore.
Even when I got started into politics, I did both for a long time. When I left
Congress and went back home I practiced medicine for twelve years. The
other activity was promoting the cause of liberty, believing that it’s the lack
of liberty that causes war and causes poverty and suffering and that if
people were to understand the importance of personal liberty that the world
would be a much better place. So the organization that I created was called
“Campaign for Liberty” but all those years whether I was in Congress or out
of Congress, I have been campaigning for liberty in different ways. When I ran
for office, it gave me a chance to speak about the issues. It actually all started
with the breakdown of Bretton Woods in 1971. That was a big monetary
event for me because I’ve been observing the developments and had studied
Austrian economics. Even though it was anticipated, it was still very dramatic
when it happened. So, a couple of years later I decided to run for office. I
did not expect to win any election because, as you know, my philosophy was
different. It didn’t seem to fit the pragmatism that everybody wanted. When I
got elected in ‘76, I started an organization called “The Foundation for Rational
Economics and Education”, the F.R.E.E. foundation, which is also the parent
of the new organization now, the Institute for Peace and Prosperity. Since
leaving Congress, I went in different ways, including Internet broadcasting,
programming and interviews; I do a bit of that. I also have a speaking activity,
where I go as frequently as I can. College campuses have received me pretty
well. I enjoy that and do a lot of it.
I also started a Ron Paul curriculum for homeschoolers, believing once
again in the importance of education. I don’t believe that everyone should
be homeschooled or that some are more inclined than others but there is
a certain group that can handle it - parents and students. I think that is very
important. I stay pretty active and though I am retired from Congress, I am
not retired from promoting the cause I am talking about.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Global Gold:

Fantastic! What has changed since you left Congress? Are you freer in
the way you can speak and address people?

Dr. Paul:

My schedule is more under my control and I only go where I want to go. And
if I don’t want to fly every single week, I don’t. When you’re in Washington,
government is on autopilot, it just goes. The old saying used to be “boy you’re
lucky the legislature is out of session, liberty is safe”. This isn’t true anymore,
because right now the President uses executive orders to go to war, issues
statements, violates civil liberties and gets involved in the economy through
the central bank, his central economic planner. Even the judicial system rules
against us and violates our liberties. The whole thing is so out of control. I feel
I am much better off now because I can still do what I think is important, as
far as writing and speaking out is concerned. At the same time, I don’t have
to spend a lot of time with those politicians in Washington.

Global Gold:

When you look at the United States, or let’s say the western world in
general, what do you think of the shape we’re in? The stock market
is skyrocketing and the real estate market seems to be recovering or
even spiking in certain areas.

Dr. Paul:

If you look at things from the surface, it looks like things are great. I am
convinced, however, that we are probably in the worst shape the world has
ever been financially. There’ve been bubbles and distortions and currency
breakdowns for thousands of years, but I don’t think that the world has ever
had a universal acceptance of a fiat currency like we have with the paper
dollar, US Dollar, today. It is being used endlessly as the reserve currency.
Debt and investments have been pyramided. Even now, stock markets are
doing well and people think that bonds are lovely. It’s all a deception and even
if people claim there’s no consumer price inflation, I think there is plenty but
not as much as we are still going to see in the future. A lot of people forget
that the distortions created by the inflation of the money supply will and
does lead to higher prices and these may arise in different areas. In stocks
and bonds, prices are very high, so the distortions are great. Somebody
might say the housing market is back and doing well again. However interest
rates are distorted. Interest rates tell you the right thing to do, they give you
a hint. Business people aren’t perfect, half of them might do a good job,
the other half might do it badly, but it’s all ironed out and taken care of.
But when governments fix the rate of interest, everybody, in a way, makes a
mistake. Some are lucky and make more money than the rest, but this is still
based on bad information. That is why debt is out of control, and the bubbles
keep building. If you look at the malinvestment and the amount of debt as
a consequence of the dollar being the reserve currency, I think that the
problem is gigantic. Despite the power of the central banks, especially our
Federal Reserve and the power of politicians to spend money, ornamentally,
markets are more powerful than governments. The market always reigns.
I was watching and waiting for 1971 and the breakdown of Bretton Woods
after we dumped almost 500 million ounces of gold, trying to prove that the
government is smarter than the market. I even remember Lyndon B. Johnson
in the 1960s saying “I am going to mint so many Kennedy half dollars that the
people will never be able to hoard them”. But it didn’t work. Silver reached
USD 1.23 and people started hording them, because the silver value was
higher than the nominal value of the coins. Markets are very powerful. The
markets overwhelmed Bretton Woods! We printed money and pretended
it didn’t matter. And that’s why we had that breakdown. Now we have that
strange phenomenon of this unbelievable trust in the US Dollar. This could
only happen because our country is (still) wealthy, but a lot of the wealth is
superficial because it’s based on debt. So, the people are going to be really
shocked when the hit finally comes because this system has existed for so
long and longer than any paper currency before it. The other thing that gives

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

some confidence is the size of the economy and the perceptions of its health,
but there is also the size of its military. If you have a very solid currency,
even if you have the strongest currency, but people anticipate you will be
defeated in a war next week, then all of a sudden that particular currency
loses value even though common sense says it’s a strong currency. Military
power puts some support behind the currency. That is why I don’t think the
US is vulnerable economically, but I think it’s vulnerable militarily. We cannot
sustain what we do, even though it seems like we can. We go everywhere and
“solve” everybody’s problems. Just recently we’ve been talking in the news
about what we should do in Syria and Iraq. Should we continue an 11-year
war in Iraq and go back? Some politicians have come up with this astute
idea that it’s our moral obligation. But somebody has to pay for it! We did
get a couple of dollars back when we went in to fight Saddam Hussein when
he invaded Kuwait, for example. The question wasn’t whether it was morally
correct for us to get involved in the war, or overthrow governments and that
we should do it without following the constitution. The only point being made
was “we can do it and we will but we won’t pay for it”. In a way, that statement
made by politicians was translated to “we are the mercenaries of the world”.
Well, that’s not going to work for very long. When it’s realized what kind of
a problem we have with the currency and the debt, the military is going to
continue to shrink. I believe that, right now, the military is on the defensive.
It took a long time for Obama to really work the war propaganda to be able
to enter Syria. The day will come when the dollar will weaken and we won’t
be able to afford our welfare state. The debt will be a big burden and we
won’t be able to maintain our military presence around the world. And then,
believe me, the world is going to change.
Global Gold:

When you look at the Japanese economy, they’re printing money like
there’s no tomorrow. And now we have a lot of countries in Europe back
in a recession and inflation in the Eurozone is non-existent. So, Mario
Draghi is trying everything to depreciate the Euro and at the same time
put more money into the system. The ECB even recently introduced a
negative interest rate for deposits at the central bank.

Dr. Paul:

When interest rates are zero or even negative, everyone wants to buy more.
Back in 1979-1980, you could buy a US government bond and earn 15%.
Nobody wanted it. Right now, of course, what people don’t quite realize is
interest rates are lower because the dollar is strong, but the average person
who wants to educate their kids in 10-15 years is not actually investing in
government bonds. It’s all being bought by people who are playing this big
game. Sometimes we even give money to another country just so they end up
buying our treasury bills. It is amazing that this gimmick keeps working. What
I believe is that one day we will wake up and the system will dissipate just as
fast as it has grown, maybe even faster. It has taken lots of years to build up.
It keeps getting knocked down; things have been rocky and I’ve see this quite
a few times in my lifetime: in the 70s with high interest rates, asset bubble
in 2000 and then the housing bubble. And we had this horrendous bailout
and people still came back to rebuild the bubbles. They will not concede that
it is better to use a hard asset as money than pieces of paper that a couple
of people in a secret room decide how many of them there will be, and that
whatever they decide they execute it with a click on the computer.
The foreign nations are all at fault. America’s not at fault, because they keep
taking our money. We’re not going to go back to work! In fact, Americans
would never have to work again, because we can just print more money and
buy everything that we need. Almost everybody knows that something will
happen at some point along the way. But that’s not going to happen anytime
soon. Right now there’s a lot of trust by foreign takers of our dollars, they
keep taking them. And as long as they do that, I guess, we’re going to limp
along and the bubble keeps getting bigger and bigger.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Global Gold:

We believe we are witnessing a geopolitical power shift like we had
right before the First World War where the British Empire was fighting
against the rising Kaiserreich. We have a power shift where China, other
Asian countries and the BRICs, are taking over. Also the US contribution
to world GDP has been shrinking in the past ten years. How would you
interpret this?

Dr. Paul:

The market is anticipating the vacuum that is building up and will come
eventually. With the Russian situation and the sanctions, we’re deliberately
almost pushing them out of the dollar. There’s a vacuum out there and the
BRICs or somebody else is going to come along and create a substitute.
Right now it’s not clear what’s going to evolve, there are still some questions.
Something’s got to fill the vacuum, but right now the vacuum isn’t big enough.
The dollar still does function, but there will be a day when it won’t. I think it’s
a shift, as you say to the East, because we will keep selling gold and China is
going to keep buying gold. I think it is so ironic that our policy is to deliberately
keep the gold price down. This might be really building the case for China.
But the people who are doing this don’t believe gold is money anymore,
so they pretend at least they don’t care, because then they would have a
different monetary policy. They actually convinced themselves that they’re
smart enough to manage money and not to have gold. One time I asked Alan
Greenspan, because he had been pro-gold standard in the past and said:
“What about this? You know, when we have a balance of payments problem
we shift back and forth and make these adjustments”. He said: “Well, it is
different now, because we have learned to manage paper money as if it were
gold”. He said that very sincerely. And probably they do believe that they are
smart enough to substitute the market. They have to be arrogant, because
why should one person, like our Federal Reserve Chairman know how to fix
the price of every transaction. One half of every transaction depends on the
fixing of the interest rates and at the same time they decide on the level of
the money supply. And yes, they have the Federal Reserve Board, but it is one
person that makes the decision. They can fool a lot of people for a long time
but markets will eventually catch on.

Global Gold:

You mentioned Greenspan. Usually when I have a presentation I always
quote Greenspan about the article he wrote about gold and economic
liberty in 1966 when he was still a supporter of Ayn Rand. You asked
him a while back if he would like to repeal the article. What happened
exactly when you asked him?

Dr. Paul:

I had him sign that particular article and I said ”Would you write a disclaimer
on it?”. He said: “I still support everything I wrote”. To me it was like “What
is going on here? Who are you kidding?” He sounded serious. Maybe he
believed in what he said but felt that the world wasn’t quite ready for him.
Ronald Reagan, for example, he was a loved president and he said all the
right things, but deficits exploded and lots of financial problems developed
over time. To Greenspan it was: “We’re not ready to do it, the conditions
aren’t right. I’ll be a good manager, you know. If someone has to manage the
money, I’ll do it.“ Of course history is going to show he didn’t do a good job
managing it.

Global Gold:

I think he really created the biggest bubble.

Dr. Paul:

History will show Bernanke didn’t do a good job either. When low interest
rates are the cause of the problem, what would you do? Lower them even
more to make them negative?

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Global Gold:

You’re a fan of the Austrian School of Economic. We recently published
a report on ABCT, the Austrian Business Cycle Theory, because we
believe that economies operate in cycles and that the main drivers
behind the cycles are the central banks by reducing the interest rates
and printing large amounts of money. We also believe that we have the
short-term debt cycles and the long-term debt cycles. When we go back
in history, we see that the long-term debt cycle bursts every 50 to 70
years. What do you think about this cycle theory? Do you also believe
we will see a big bust?

Dr. Paul:

Well, I think there is some truth to the big cycles. I don’t think they’re
absolute, but the cycle is there. What if you’re off ten years or so? I don’t think
we need cycle theories; I think that basic fundamental laws are sufficient
to understand what is coming: The longer you print money and distort the
market, the bigger the bubble and the bigger the bust. I wanted to study
all the details of the cycles, I just know a bit about them. I know there are a
lot of variables involved, because if the charts worked perfectly, that would
mean that cycles would be predictable and the theories would be objective.
However this conflicts with the subjective theory of value. People place value
on certain things for other reasons, maybe because there’ve been no wars
for a while, or maybe war breaks out and maybe somebody just dropped a
bomb - this changes things all at once. I think cycles theories are interesting,
but I wouldn’t depend on them.

Global Gold:

In the United States, you now have almost 50 million Americans
living off food stamps. In Europe, we have a high unemployment rate,
especially among the young, 30-60%. So what we are witnessing is that
the real economy is basically not growing in the western world, we only
have this unlimited amount of money which is going into certain asset
prices and spiking up the prices there. But it’s not going into circulation.
Do you believe that this world is going to recover? Is it getting better in
the next few years or do you think the opposite is likely?

Dr. Paul:

It is not going to recover soon, because we haven’t allowed the correction
to come. The market wants it to correct. Right now, the market is saying that
the conditions aren’t right and confidence hasn’t been restored and they’re
not going to build new businesses for various monetary as well as regulatory
reasons. People aren’t ready and I think the old saying about ‘pushing on
the string’ is pretty true. When you don’t have confidence, you can push that
money in it and it doesn’t go in the desired direction. The fact is that the
correction has never been permitted. A correction means that when you
have malinvestment, a lot of debt and the market quits functioning because
of this imbalance, that you have to allow a correction. You have to liquidate
the debt and have to get rid of the mistakes that were made and people have
to go bankrupt. Instead, in our so-called recovery, we printed a lot of money
and we bought the debt. We just transferred the debt from the rich over to
the taxpayer who is ultimately behind the currency and the Federal Reserve.
Just this past week, I was surprised to see this USD25 billion purchase of
more mortgage debt by the Fed. We thought this was all over! How is that
we are doing well? But evidently there wasn’t enough money to keep those
interest rates down at 2 and 3%, so the Fed ends up buying even more debt.
This is the exact opposite of a correction. We have to liquidate the debt and
that’s what happened traditionally, even biblically, it was known as the jubilee.
Debt getting too big seems to be human nature. When we compound this
human factor with a currency that encourages debt, we find ourselves in
a very problematic situation. I think a little more jubilee is what we need.
But the debt is still out there and people have trouble understanding it.
When people think of Detroit they recall it is bankrupt. They can’t tax them,
everybody left town. Well, how are we going to pay the retirees? The money

GLOBAL GOLD OUTLOOK No.8

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is gone. That is a true bankruptcy but they’re even going to say: “You can’t let
Detroit crumble, go to the federal government print some more money” and
delay the inevitable. But on the federal level, nobody gets denied a cheque.
More food stamps and more retirement benefits encourage people not
to produce. Again, it’s trust in our monetary system. As long as they trust
the money, it is going to go on for a while, the bubble gets bigger and the
inevitable bust gets worse.
Global Gold:

When we look back in history, economically unstable times are
associated with a lot of debt, which is often followed by war. We just
wrote an article comparing 1914 to 2014, because we see some parallels
like massive centralization of the system, a lost generation due to
massive unemployment and many more. This created the foundation
for the extremism we saw at the time. Now when we look at what is
happening on the borders of Europe, in Eastern Ukraine, and what’s
happening in the Middle East, Central Asia and North Africa. What is
your take on that? Do you think that the situation will deescalate or is
that just the beginning?

Dr. Paul:

No, I think it’ll continue but I think it will calm down just as the confrontation
with the Soviets did when they were spreading their empire and going into
Afghanistan. That situation calmed down because they went bankrupt and
had to go home. If people don’t trust us or our money anymore, we will have
to tighten our belts. Once the trust is lost, the more money you print, the
less the trust is going to be. Right now, they have no other place to go. They
could go and beg Europe to print Euros, but they trust the dollar more. As
long as they keep doing that, these insane policies will continue. I think that
governments need to fold, they need to be blamed for what they are doing.
Central banks need to be able to defend hard asset money, gold and silver,
because it works. And yet, right now, there’s just a few of us who believe that,
but I think the day will come where people will realize the truth. We have
been through similar situations before. In the 1860s, during the civil war, we
went off gold for maybe 18 years. It can be done.

Global Gold:

I personally believe that no one knows the future. Pericles once said
“we can’t predict the future, but we can prepare for it”.

Dr. Paul:

I think one can recognize trends, but knowing the timing of events is impossible.
That’s a challenge for investors too and that’s why people should be cautious.
If people listen to me talking, they could go out and sell everything they have
and buy gold. But I’ve been looking at gold since it was USD35/ounce, and
my assumptions made it pretty safe, buying a little here and there wasn’t
too bad, but the trends are very definite. I believe in a climactic end to our
current monetary system. So, I am convinced that we can’t tell the future,
however recognizing trends is possible.

Global Gold:

So you invested your savings in physical gold? What’s your rationale?

Dr. Paul:

Yes, but I don’t usually call it investing. I usually call it my little insurance
against those crazy people in Washington. I didn’t want to pretend that I
know how the charts are going to work. If I knew gold was going to go up the
next three years, I would have bought a futures contract, gotten leveraged up
and made a ton of money. I didn’t know when to get in and when to get out.
I just wanted to have an insurance policy because I believe the government
will continue to do what they’ve been doing: spend too much and run up
too much debt. It was part of what’s been engraved in our society. All the
politicians, news, everybody believes that deficits are good, spending is good,
printing money is good. So, it is going to last until someday all the people
rush for the exit.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Global Gold:

Gold has been money for 5000 years and now we have been living on
a pure fiat money standard for 40 years. Like you, we think of gold as
a monetary insurance. China is buying gold, India is buying, Russia is
buying and Central Asian countries are also buying. Do you believe they
think of gold as money?

Dr. Paul:

The person holding the gold when the world crisis hits will likely establish the
new currency. We certainly were in the driver’s seat after World War II for
various reasons, because we still had a good gold standard. People who were
safe from all the bombings and the killing, came to us to buy goods and they
paid in gold. There was more gold in the United States back in 1945 than any
one place in the world. It would’ve been a perfect time after 1945 to establish
a gold standard and live up to it, instead of saying we can print money forever
and nobody will ever notice. But the French woke up and started to take back
their gold. But we were in the driver’s seat back then. We’re not in the driver’s
seat now, even though it looks like we are. We have military might. We have
economic wealth, still. But we are not in the driver’s seat because eventually
it will be the East, mainly China, maybe Japan and Russia, India maybe too,
the BRICs.

Global Gold:

My final question. Switzerland is a small country and we operate
within a federal structure. We are the last remaining direct democracy
left on this planet and we believe in limiting the power of politician.
Aristotle used the term ‘demokratie’: ‘demos’ (the community) and
‘kratia’ (power), meaning that power is vested in the people. I believe
that democracy might work on a very small scale. I also believe that if
we’re going to see more centralization in the future it will lead to more
totalitarianism. What do you think about these tendencies?

Dr. Paul:

I think that’s where I’m optimistic. I think we live in a special time.
Communications are better now than ever before. The fact is that I never
thought of myself as being an important Congressman, yet I was saying
things that touched a lot of people. And all of a sudden through the internet,
a lot of people heard about this and it was sort of like ‘where did this come
from?’. This is just fantastic.
We’ve been testing dictatorships and authoritarianism for a long long time,
from the pharaohs down to the authoritarianism of the 20th century, the
Nazis, the communists, fascists. They all failed. Even Keynesianism now is
a failure and central banking is even going to be in worse shape. Having
failed, there is going to be a replacement and it’s going to be seen in the
disintegration of the mighty states. I recently saw a map where they listed
every single spot of every unit of government that wanted independence,
maybe they can all become like an independent canton in Switzerland.
Everyone should be independent and if the canton or state gets too large,
then go smaller, because the sovereignty in a free society is with the individual,
and the individual who commits no violence against another person, should
be totally independent. That would be of course a perfect world, but that’s
one that we should strive for. But the evidence says that the big states are
failing, that the people are waking up and they are sick and tired of them. And
let’s hope this moves along rather quickly.

Global Gold:

Thank you very much, Dr. Paul. It was a pleasure.

The Ron Paul Institute for Peace and Prosperity was founded in 2013 as a project of Dr. Ron
Paul’s Foundation for Rational Economics and Education (F.R.E.E.). The organization is dedicated
for the purpose of education based on Dr. Paul’s belief that education plays a fundamental role in
creating a peaceful and collaborative policy approach. To know more about the Ron Paul Institute
please follow this link, or to offer support to the organization, please click here.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

The Austrian School tells us where we went wrong in managing our economy!

The Austrian Business Cycle Theory:
The Documentary Movie

Last summer we published our first issue of the “The Clean
Slate” discussing the Austrian Business Cycle Theory. We were
encouraged by the positive feedback we received on our report
and therefore decided to develop a short documentary to
explain the topic in a simplified and concise manner.
The Austrian Business Cycle Theory was developed by Ludwig
von Mises and Friedrich A. Hayek. Its underlying argument is that
there is no such thing as a surprise when it comes to economic
cycles. They move from booms to busts and it is the actions or
rather misactions of governments that determine the course of
the economic cycle. In fact, if the economy were to experience
a bust, government interference will only make matters worse.
In this documentary we offer a simple explanation of how the
theory works and illustrate how it applies to the crises the
world has endured in the past, namely the Great Depression,
the Recession of the 1990s, the Dot-Com Bubble and finally the
subprime mortgage crisis in 2008. After watching this video, you
will come to question how the world economy is managed today
and how easy it has become to just “fix” the problem through
credit injections in the economy or bailouts, even though the
repercussions are severe. Finally, you will learn where we think
we are in the cycle and realize the ugly truth that even after the
2008 crisis, we haven’t seen the real bust just yet.
To view our documentary on the Austrian Business Cycle Theory, please click here.
If you are interested in reading our “Clean Slate” report, please follow this link.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

Friedrich A. Hayek calls for a competitive currency market

Denationalisation of Money

Our previous book summary on the Tragedy of the Euro by
Philipp Bagus revealed how the single currency project of the
Euro was a failed project and doomed to collapse. We now
explore an interesting idea presented by the pioneer of Austrian
Economics, Friedrich A. Hayek, who presents his proposal of a
competitive currency market in the Denationalisation of Money.
Hayek explains how the public is made to believe that the
government has an exclusive right to the monopoly issuance
of money. This idea was never questioned for over 2000 years.
Hayek has no confidence in government actions nor does he
trust its intentions towards the public, for “government has
failed, must fail and will continue to fail to supply good money”.
Instead, Hayek calls on the public to free itself and explore the
possibility of government with no monopoly over the issuing
of money. Governments do not seek a stable currency and
therefore can’t have the money holders’ interest in mind. History
has clearly shown that they have only sought their own benefit
at expense of public interest. Over the years, governments got
comfortable with this exclusive right and got addicted to injecting
“cheap money” into the markets. Hayek’s objective, however, is
the creation of an efficient currency market based on credibility
and trust between consumers and issuing banks. This book is
a manifestation of Hayek’s conviction of individual liberty. Free
markets will be able to operate as the sole true regulators only
when individuals free themselves from the perception of the
need of the government’s monopoly of money.
If you are interested in reading our detailed summary of Hayek’s Denationalisation of Money, please click
here. You can also download the complete book from the Mises Institute website under the following link.

GLOBAL GOLD OUTLOOK No.8

NOVEMBER 2014

How we think the world will develop in
the coming months and years

OUR SCENARIOS
We don’t have, nor do we claim to have, a crystal ball. What you will be reading in this section is our view about the direction
that politics and economic developments will take. We use our common sense and refrain from using complicated models,
which no one understands. In each issue we will introduce three scenarios. Each scenario will be explained and
we will discuss how probable we think each of the scenarios is and how this could impact your gold investment.

STATUS QUO

BACK TO ‘NORMAL’

CRISIS

DESCRIPTION

DESCRIPTION

DESCRIPTION

Under our “status quo” scenario,
governments will continue as they
have done so far, delaying any real
problem solving. They will continue
to “moderately” inflate currencies,
bailout banks etc. while growth
remains low.

In this scenario central banks
worldwide abandon their current
monetary policy and return to a
more prudent approach. This is
coupled with higher real economic
growth in the world.

Crises can take many different
forms, such as a complete collapse
of the financial and monetary
system, a world war, civil unrest or
many others.

PROBABILITY: 70%

PROBABILITY: 10%

PROBABILITY: 20%

We believe that the general
monetary policy approach of
governments will remain as is.
Even though the Fed said it will no
longer buy bonds, it will continue to
interfere in the economy through
management of interest rates. Also,
the ECB will launch its own version
of quantitative easing. In both cases,
the central banks refuse to address
the roots of the problem.

Due to the high debt levels in
Western economies, we hardly
think that central banks can return
to a normal monetary policy. The
lack of any real growth impulses
leads us to believe that this scenario
is not a very realistic one for the
foreseeable future. The tapering
efforts of the FED will not change
this in any way.

Political hotspots, particularly in East
Ukraine and the Middle East may
escalate at any point of time. Our
economies are fragile and will not be
able to redress the negative impact
from any potential crisis escalation
on our markets. Nevertheless, we
don’t see the tipping point on the
horizon that would translate into a
wide-scale war for the time being.

IMPACT ON GOLD

IMPACT ON GOLD

IMPACT ON GOLD

As in recent years, the current
policies of governments positively
impact gold prices. Although
short-term volatility is to be
expected, as always.

A “back to normal” scenario would
probably impact gold prices
negatively. Historically, gold has
tended to perform badly when
real short term interest rates have
exceeded 3%.

In a crisis scenario the price of gold
would likely dramatically increase in
nominal terms. In real terms gold
should be an ideal medium to store
value over the long term.

OUR CONCLUSION

Although it is possible that in the short term we continue to see some volatility in the
gold price, our long-term fundamental outlook regarding the world remains
unchanged. Gold is THE asset to hold in uncertain times!

Disclaimer: The following publication represents the opinion and analysis of Global Gold AG (GG), based on data available to the firm, at the
time of writing. This GG publication is not a recommendation, offer or solicitation to acquire or dispose of any securities, investments or any other
transaction. As trading and investing may involve serious risk of loss, GG recommends that you consult with a qualified investment advisor, one
licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a
transaction with financial ramifications. GG assumes no responsibility for the content, accuracy or completeness of the information presented.