Volume 6, Issue 6
The Swiss banking system is considered to be one of the pillars of the world’s financial institutions. Two years ago, when fear of the Euro as a currency spread like a plague throughout EU member countries, the immediate flight of capital was to Switzerland. The pressure to take foreign investments was so extreme that the Swiss Central Bank invoked negative interest rates. This means that investors paid Switzerland a fee to take their money.
At the conference in Zurich, international economists, central bankers, academics, financial news reporters, professors of economics, and elected officials all agreed on one simple point. The state financial system of Switzerland is broken.
Given the strength of the primary economic indicators of Switzerland, how can the compendium of all presentations come to this incredulous conclusion? It is because they believe that their government debt is too high, deficits are too frequent, and financial pressure on future generations is growing too much.
I am in Zurich, as the guest of certain conference participants, observing. I have had the opportunity the past few days to interview government leaders, business executives, and academics in reference to the subject matter at hand. They have stressed to me their concerns about their government’s commitment to the principle of passing on to their children the same stable currency, banking system, and economic progress that they received from the previous generation.
This may seem surprising that a current generation is so committed to the next generation. But it is not if you examine Swiss history. For 500 years they have been able to remain neutral in wars and political struggles between kings and Popes, by paying attention to their own business. They have been known throughout the centuries for their loyalty to a cause and respect for their nation’s culture. They are known as a sovereign that, on one hand, is fervent in its mission to its own ideals. And, on the other hand, is committed to minding its own business. Loyalty sanctions character. That is one reason why the Swiss Guards were highly sought as soldiers for the Papal State. They were deemed to be incorruptible.
The Swiss have been able to survive in geopolitics by preserving and protecting critical national needs. They are fiercely independent. And in this independence, they constantly prepare for the future, weighing all warnings, and never denying signs of danger.
Today, their concern is that government debt and ongoing deficits will undermine their currency in the future. They understand that, as strong as the Swiss Franc is, it is a regional currency. They must prepare to keep their government lean while the United States and China run enormous deficits, and thereby threaten all world currencies.
The U.S. and China are now in a worldwide economic competition. This competition is not just for goods and services sold. But it is also for the world reach of their competing banking systems and currencies. China is operating under a flawed communist system. Communist economics requires expansion. This expansion is underwritten by the issuance of an overvalued currency. China is now executing a government policy to expand their economic influence in the world beyond their region through mercantilism. This sphere of influence called “the circle of economic pearls” now reaches into India and Pakistan.
There are approximately 170 nations, out of the 182 sovereigns in the World Trade Organization, with GDPs less than $1 trillion. These countries lack the banking strength or the currency circulation to navigate any economic course independent of the United States or China. They struggle in providing government services. In some of these countries, corruption is institutional. China entices countries into its economic sphere with cheap government loans or outright grants to build deep water ports or infrastructure. In exchange for this, they agree to become part of the “silk road” or partnership with China in economic development.
The United States, in its commitment to free enterprise, believes in fair trade and equal competition. In America, government facilitates business. Corporations compete innovatively through free enterprise for the sale of goods and services. As it should be, the United States doesn’t pay anybody to trade with U.S. corporations.
The Chinese government owns or controls the Chinese corporations that compete in international trade. These Chinese corporations act at the behest of the Chinese government to support the Chinese state policy.
This may seem unfair. Yet, as a matter of fact, it doesn’t matter. If the U.S. pays attention to its commitment to its own principles, free enterprise will always outperform communism. However, running deficits and accumulating debt burdens economic growth. Accumulating too much debt is like putting ankle weights on a sprinter in the 100-yard dash. No matter how much more ability one runner has over another, sooner or later, enough ankle weights will prohibit the best athlete from winning the race.
The Chinese strategy will not succeed unless the rest of the world yields to it by ignoring their own commitment to principles. Communist economics requires a constant flow of new unvalued currency. It’s like blowing up a balloon and not tying a knot in the stem. The only way you can keep it inflated is to constantly blow air into it under pressure. The effort can never truly be successful. Sooner or later, the ability to blow air is restricted and the balloon collapses.
Communism can only appear to succeed if everyone else fails. The former Soviet Union attempted this very model. They tried to maintain economic stability through military occupation and control. History has recorded how that worked out for them.
The U.S. stock markets have reached unprecedented heights. Yesterday, an all-time drop in the Dow occurred. Today, it regained almost half its losses. It is not clear whether this volatility will continue. But one reason for the rise in dollar-denominated assets is that the entire world seeks their value. There is very little flight of capital to China. The Trump Administration tax cuts are stimulating the economy. Part of the volatility comes from economic stimulation and reaction from an already over-stimulated stock exchange.
What should the United States do to pay attention to its own business?
The U.S. government must seriously address the issue of deficits and accumulated debt. The theory now is that the economy will grow out of its debt-to-equity ratio. That assumption is in question. Next year’s deficit is projected by the Congressional Budget Office to be $1 trillion. That is greater in percent to the GDP than the economic growth of the GDP. The race between China and the United States rests on whether China is able to pump yuans into the balloon until the rest of the world collapses. Or, whether the United States will commit to principles to control deficits, reduce the debt, and maintain the dollar as the world’s currency. If the U.S. will remain vigilant to its calling, China will be forced to reform or retreat.
In the above comparison of the economies of Switzerland and the United States, Switzerland has some unfair advantages. They do not support a worldwide military. They allow few immigrants. And, their population per square kilometer is 198.6 people. The United States population is 32.8 people per square kilometer. We’re much larger, diverse, and stretched in our infrastructure.
The United States of America is not only the world’s greatest country, it is the world’s greatest servant. Switzerland would not be safe and prosperous today without the United States’ military and economic worldwide umbrella.
The Swiss example to be admired is their concern for the next generation. Swiss culture is ensured in this commitment.
The United States, in paying attention to its own business and recommitting to its forefathers’ principles, not only benefits the next generation of Americans, it ensures the security and economic prosperity of the world.
My name is Marc Nuttle and this is what I believe.
What do you believe?