Thursday, February 21, 2013

Swiss Francs to Safe guard your Savings? How it worked out in the Case of Argentina

I’ve read your book and I have a great respect for your opinion.
Having gone through the economic collapse that you experienced, what
do you think of holding money in Swiss francs or Canadian Dollars as a
safe guard?

Hi Dan, I think both the Canadian Dollar and the Swiss Franc have been pretty stable in the last few years, the Swiss Franc clearly being the one sought after as a safe haven in complicated financial times. This actually caused the SF to be over-valuate and measures had to be taken so as to stop it from going up further.
It is worth reminding everyone that the Swiss Franc is no longer backed by gold as it once was. That stopped in May 2000 after a referendum.

In the case of Argentina it worked out the following way:
Knowing that our peso currency was weak, people saved in dollars, both cash stashed in home and USd accounts in banks. Back then the currency exchange rate was 1 to 1, so it made sense to save up on the much more reliable Usd than the unstable national currency. Besides, who were we kidding?  One dollar equals one peso with our country’s track record of  hyperinflation and devaluation? As soon as people saved up a bit of money, they turned it to USD and saved it in the bank. When the economy collapsed people rushed to the banks to close their accounts in USd, since all of a sudden those dollars where worth 3 pesos, then 4 the following day. The banks froze everyone’s accounts and closed their doors. Eventually going against the law and constitution they converted people’s accounts in dollars to pesos at a 1,4 exchange rate. Given that everything had gone up in price indirectly proportional to how the peso was being devaluated, you ended up loosing about 60% of your savings.  Just as the peso went from 1:1 to 1:4, prices had suddenly gone up 300% or more, somewhat keeping up with devaluation.

After the economy collapsed and people had to get by as best as they could what you did was again, save up little by little and convert your money to USD or Euros as soon as possible, and only digging into your cash stash if you had to. As years went by and learning from what happened with banks during the collapse, a lot of wealthy people stored the physical cash, mostly USD, Euros and gold, in bank safe deposit boxes. Eventually the word got around: Money was again in the banks, but not in the accounts! It got to a point where gov. officials wanted to start opening safe boxes so as to see who was hiding physical money and precious metals.  I suppose they never went ahead with that idea because many politicians had they money hidden that way themselves!

2013 Silver Eagle Dollar BU in Airtite Coin Capsule
If something like that ever happens to USA and the dollar goes through a process of devaluation, Swiss Francs will protect most of your purchasing value. In a more extreme case where the dollar devaluates harder or fully collapses, then the SF may get hit hard, in which case precious metals would be the safest haven for your savings.



Don Williams said...

1)Things are in a swirl in the USA at the moment -- it looks more and more as if the budget sequester will go through --big cuts in federal spending which may knock 0.5 to 0.9 percent off GDP and kick unemployment up over 8 percent. (Real unemployment is much higher)

On the other hand, it may support value of dollar.

Note, however, that the Federal Reserve is still piling up debt by buying debt ($3 Trillion+) and printing dollars to do so.

2) The value of any asset --including Gold -- is always relative to the alternatives. If the corporations start earning profits then people will move savings into stocks and out of gold and gold will fall just as it did in the 1980s. It lost almost 60% of its value from 1979 to 1982-- see http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx -- although that was more due to Reagan driving up interest rates enormously to cut inflation and people buying up long term bonds.

3) If the economy collapses and inflation sets in then people want gold as a store of value.

If the economy collapses and prices fall because the Fed curtails dollar releases and raises interest rates then people will grab long term bonds because they store value and also provide periodic income in the form of interest payments.

3) Decades ago Harry Brown invented the Permanent Portfolio -- a 4 way hedge with 25% in cash/short term Treasury notes, 25% in gold, 25% in large stocks, 25% in long term Treasury bonds. It is intended to preserve capital no matter what happens --but won't earn much profits in real terms.
(Harry said money you want to RISK to earn profits should be in a seperate Variable Portfolio.)

4) I am not licensed to give financial advice so following is just my personal opinion. If someone wants to put part of their savings in a Permanent Portfolio
arrangement, I would follow Harry's advice and keep gold in bullion coins (not high fee-charging index funds which can rape you just as surely as high inflation and which can collapse with the rest of the market.)

Plus nowdays you can buy short term bills/notes and long term bonds directly from the US Treasury without fees and without worrying if some index fund will go bankrupt.

Cash should be kept as dollar currency, IMO, -- US Money market funds would probably have failed in 2008 if not for the US government intervention.

There are a number of S&P 500 index funds -- management fees are something to look at.

5) Harry Brown was an inspiration to Ron Paul and others. See

His commentary "When Will We Learn?" after the Sept 11, 2001 attack was a bright ray of truth in the dark cloud of deceit thrown up by US elites to cover their guilt for that attack. And I deeply regret he did not live to publish his last book "The War Racket".

Anonymous said...

France has a 5000 € Gold coin 41 gr.

Little gold but legal tender.

So was in Germany 10€ silver coins with 1/2 OZ Silver now traded by 13€.

Anonymous said...

people forget the sequester concerns cutting a budget increase, not the budget. The feds are still spending more than last year. However, our media would have you know the sky will fall if federal employees are furloughed one day a week.

Anonymous said...

I have essentially all my savings in silver. It doubled and almost tripled two years ago, and with the inflation should be going through the roof; governments and industries however are invested in keeping the price as low as possible. No question that manipulation, both legal and illegal, are being used, but at some point that will fail and most commodities will skyrocket. Food has doubled where I live, some staples have almost tripled, in the last two years. All fiat money is in a race to the bottom, last to fail will be the winner.

Almost all my ready cash is actually in Mexican Pesos, which is surprisingly one of the most stable currencies in the world, after the 1994 crisis that brought down the PRI government the powers that be are terrified of a repeat.