As America heads toward another circus-like presidential election, and the EU looks to be headed for a season of electoral chaos of its own, it pays to look back at something Richard Rahn wrote at the Cato Institute back in 2015 about the presidential election happening then. He wrote:
Being surrounded by countries that are jealous of its success (i.e., many of the current members of the European Union), without much in the way of natural resources and without access to the sea has caused the Swiss to be much more practical and serious when it comes to public policy. They have a national referendum system and direct democracy, where major issues must be agreed upon by a majority of the people and a majority of the cantons, which is slow and cumbersome but tends to mitigate against reckless policies that are often the product of momentary passions.
The U.S. presidential election process has turned into a circus that few would argue leads to the best qualified and sane candidate elected president. Few know who the Swiss president is because it is not terribly important. (It is currently a woman by the name of Simonetta Sommaruga.)
We would have a prosperous and safe world if all countries traded with and invested in each other’s economies; if basic human liberties, property rights, free markets and sound currencies prevailed; if countries ceased to meddle in the internal affairs of others; and if much of the population was armed for the common defense in order to make it too costly for others to invade. In other words if they all acted like Switzerland. It took the Swiss more than 700 years of struggle to create — not a perfect role model — but in total the best on the planet, which others can emulate only to their benefit.
When it comes to foreign policy, and how to run a country for that matter, the world’s political candidates could learn a thing or two from Switzerland. A Swiss-style foreign policy and a return to the gold standard would clear up many of the most pressing problems faced by many countries today. Just like hundreds of years of Swiss neutrality, a return to the gold standard would provide citizens reliability and predictability. That’s what’s sorely lacking in financial markets today. For America, the abandonment of neutrality is what forced it off the gold standard.
From January 1934 until March 1968 (with some variation around WWII and the Korean War), gold was worth about $35/ounce, or more appropriately stated, a dollar was worth around 1/35th of an ounce of gold.
At the time, America was trying to pay for the ongoing war in Vietnam, and the increased spending on the war was pushing inflation higher. Adjusted CPI readings in 1966 and 1967 were 2.9%. That may seem low by Bidenflation-era standards, but at the time, it was significant. By 1968, CPI growth had reached 4.2%. The spiraling inflation was too much for the London Gold Pool, which was the international system managing the convertibility of currency to gold for the world’s wealthier nations. The Pool collapsed and that ultimately led to the end of American gold convertibility in 1971.
You can see on my chart below that today, gold trades for $2,317 per ounce in New York. Or, more appropriately, a dollar is worth 1/2317th of an ounce of gold. Because an ounce of gold today is the same as it was in 1934. It’s the same weight. It hasn’t rusted or tarnished. It’s not the gold that’s changed. It’s the dollar that’s rusty. See the problem?
Part of the cause is the massive increase in monetary reserves and overspending by governments at all levels. You can see on Your Survival Guy’s chart below how the increase in monetary reserves since the 1960s tracks the explosion in the price of gold.
Action Line: When you want to discuss inflation and the dollar’s weakness and what that means for your investment portfolio, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
