As we now enter fall and the news cycle continues to be dominated by Covid-related stories, the “second wave” and new lockdowns and restrictions being enforced all around the globe, hopes of a swift recovery have by now completely evaporated in all rational investors’ minds. It is clear that this surreal new state of affairs is here to stay, as we all get acquainted with this “new normal” in the way we do business and in our daily lives. What is also most assuredly here to stay is this severe economic downturn, a recession that could very well turn into a depression, as well as the concerted political efforts for more state control, centralization, spending, borrowing and wealth redistribution.
In these unprecedented and unpredictable times, it is essential for investors and savers to plan for what may come next and to stay one step ahead, in order to properly protect their wealth. The impact of the Covid crisis might be global, but it is not equally distributed. Some countries have fared better than others and not all jurisdictions are created equal. For those long-term, responsible precious metals investors looking to diversify geographically, there aren’t too many good options left when considering safe and predictable places to store their assets. In fact, under the current conditions, it can be argued that only Switzerland ticks all the boxes.
Solid track record
The current challenges and the enormous uncertainty that prevails in the markets, in the economy and in politics, have been described as being akin to wartime conditions. Indeed, since the start of the year, we saw abrupt and unilateral border closures, travel bans, forced shutdowns of businesses and international trade, factory closures, curfews and movement restrictions for civilians, as well as a wider suspension or suppression of many basic rights. This was followed by the eruption of widespread riots and violence in the streets of many Western nations, leading to the loss of human lives, the destruction of property, and a devolved state of lawlessness and mob rule that is still ongoing in many places, especially in the US. In the meantime, unemployment has skyrocketed, government debt has swollen to record highs, while public mistrust and discontent with the state and its institutions seems primed to boil over in many major economies. These are threats, patterns and pressures that we haven’t seen since WWII, and as history teaches us, very few jurisdictions and governance systems are prepared to deal with them and stand a chance to keep functioning despite them.
As it has done in the past, Switzerland once again stands out as the best positioned, best prepared and best equipped to handle this crisis. The nation is unlike any other and it stands in especially stark contrast with its neighbors, that have chosen to continue down the path of centralization, top-down governance and repeated abuse of their “emergency” powers. Instead, the small alpine country has successfully defended its own version of democracy; that is, the true, meaningful version of actually consulting with the people before making decisions that will materially and significantly affect their lives. This faithful adherence to this system of subsidiarity and the long tradition of holding referendums has served the country very well over the years and helped keep the state’s power in check. Yet it is even more precious now, when the whole world seems to be inclined to give up individual liberty in exchange for the false promise of absolute safety. The Swiss have long rejected this spurious tradeoff and others like it and as a people, they prioritize their individual and property rights over the “easy” way of simply handing over responsibility to government officials.
Furthermore, the political, administrative and organizational structures of the country also provide a rare advantage. This historical and cultural tendency towards decentralization and small government runs through the entire system, thereby making it both robust and agile at the same time. To a large extent, rules and laws can differ from canton to canton, even from town to town, according to the will of the people that live there, their particular concerns and local challenges and the way they chose to organize and govern themselves. This provides the country with a unique advantage during these unpredictable times, allowing it to respond quickly, intelligently and efficiently to this rapidly changing landscape. This advantage is even more striking when compared to the situation in the EU, where bureaucrats in Brussels make blanket decisions and announce uniform diktats, affecting countries they’ve never seen and people whose lives and circumstances they can never understand, even if they tried, which they demonstrably do not.
The Swiss have strongly resisted this massive wave towards more central control, forced uniformity and government intervention that was evident long before the pandemic ever emerged. Of course, the government and central planners have been pushing for further centralization for quite some time, trying to nudge the nation away from its cultural roots in individual liberty and self-determination and closer to an EU model of state control and collectivism. Over the past 20 years, we’ve seen efforts to concentrate political and economic power at the top and attempts to chip away at the core values that make the nation stand apart. However, throughout these years, it has been evident that the central planners were hesitant to push this agenda too far, as opposed to other Western countries, because they justifiably feared the reaction of the people. The Swiss are not used to a high level of government interference in daily life and business, and the government knew that if their efforts ever went too far, a broad and resounding opposition could have been expected, especially in the german speaking part of Switzerland. Thus, having successfully blocked such big government ambitions in the past, the Swiss are more likely to resist future state overreach too, as opposed to their neighbors that have been somewhat used to it, in a frog-in-boiling-water kind of way. Naturally, this depends on avoiding complacency, on constantly reaffirming those original principles of subsidiarity and free debate and on resisting those false promises of a utopian society, in exchange for individual liberty, privacy and free speech.
Switzerland might be famous for its private banking industry and its financial services sector, but despite its size, the country is also home to an impressive number of international institutions, organizations and global corporations. Apart from the UN headquarters and corporate giants like Nestle, a great number of leading pharmaceutical companies are also based in Switzerland.
When one considers the combined presence of all these entities, many of which are instrumental to global politics, international trade and the economy at large, it becomes crystal clear why Switzerland is a “special case” today, as it has always been. The nation’s centuries’ old stability is not only an organic result of its particular systems and cultural heritage, but it is also actively defended both by its residents and by those who recognize it as essential to the rest of the world. This need for stability, for the continuation of key functions and activities in the country, is even more important today, amid the turbulence and chaos of the Covid crisis. It is thus all but guaranteed that whatever extreme restrictions, fresh total lockdowns, new and creative financial or political repression efforts may come to pass elsewhere in the developed world, the impact on Switzerland will be muted.
After all, we already saw this during the first wave of the lockdowns and shutdowns: The restrictions that were introduced in the country were much lighter and certainly a lot less damaging than those we saw in various US states or other European nations, with total economic freezes lasting for months and stay-at-home mandates that came with steep fines and even arrests.
Desperate times and desperate measures
While none of us can predict the future, the past does serve as a useful guide and a valuable tool to help us manage our expectations. For example, we do know from history that heavily indebted governments more often than not attempt to fill their financing gaps by reaching into the pockets of their citizens. We also know that the more desperate they get and the more fearful they become of the public’s anger, the more they try to assert their authority and force consent through aggressive legislative overreach.
Switzerland again stands out: While it did over the last decade join its peers in adopting various monetary and fiscal interventions that are short-sighted and make little financial sense, the country’s budget and its financial state are nowhere near as dire as most other Western economies. What’s more, its currency is also widely seen as a safe haven and tends to hold up very well in times of crisis. Therefore, even though the Covid crisis will create challenges, Switzerland remains the “one-eyed among the blind” with all its pros and cons. Non-centralized in its history, based on a culture of debate and free speech upholding private property rights. Unlike in other jurisdictions, even if the government wants to target individual citizens or businesses in order to pay its bills, the constitution itself would strongly hinder any such attempt.
What’s even more important is that the country is still one of the very few jurisdictions that boasts a clean record on property rights, as it has a long and unassailable history of respecting private property. Overall, given the very particular risks we face today, Switzerland clearly remains the safest choice, especially for precious metals investors, who seek to prepare for what lies ahead and to protect their assets by moving them out of less reliable and less predictable jurisdictions and keeping them outside the banking system.