By Egon von Greyerz Founder Matterhorn Asset Management

January 31 (King World News) - World Financial System & Economy At Dangerous Break Point

In the late 1960s when I started my working life in Switzerland we paid Swiss francs (CHF) 4.30 for every dollar.  Today one dollar costs us 90 Swiss cents.  Thus, in the last 45 years the dollar has fallen 80% against the Swiss franc.  This is of course not what we would expect from the world’s reserve currency.  But we all know that the US has abused its reserve currency status and increasingly lived above its means since 1971, thereby creating a massive debt and current account deficit....

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The trend of the dollar against the Swiss franc is unlikely to change in the next few years (see chart below).  The next projected level for the USD/CHF exchange rate is CHF 0.40 – 0.50.  Thus I would expect another 50% fall in the dollar in the next few years.

Let us instead look at the CHF/USD rate which is the inverse of the above (see chart below courtesy of goldchartsrus).  Back in 1970, one Swiss franc was worth $ 0.23.  Today you get $1.11 for one Swiss franc, or an an almost 5-times appreciation.  During the same period, gold in Swiss francs has gone from CHF 150 per ounce, to CHF 1,125 per ounce, or up 7.5-times.  Remember that gold in dollars went from $35 in 1971, to $1,250 today, which is a 35-fold increase.

Thus gold has been a better investment than Swiss francs over the last 40 odd years, but virtually anything is better than the US dollar which is being totally destroyed by endless deficits, debts and money printing.

What most holders of dollars don’t realize is that their currency is being totally debased in real terms by falling 97% against gold in the last 43 years, and 80% against the Swiss franc.  It is totally amazing that anyone outside the US wants to hold dollars.  And even the Americans would be much better off to dump their own currency.

So will the Swiss franc continue to be almost as good as gold and a safe haven currency?  Based on my projection above, the dollar should fall another 50% against the Swiss franc.  But that doesn’t necessarily mean the Swiss franc will appreciate in real terms.  The problem for the Swiss franc is that the Swiss banking system is too big for the country -- being 7-times GDP, which is in line with Cyprus.  And since there is a risk that the banking system will have problems worldwide, the Swiss would have to print an awful lot of money to try to save their banks. 

So even if Swiss francs will be better to hold than dollars in the next few years, there is still a risk just like there is with most paper currencies.  With the world financial and economic situation being at a very dangerous breaking point, for investors there is of course nothing safer than holding real physical gold and storing it outside the banking system.”

© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

IMPORTANT - KWN will be releasing interviews all day today and this weekend with former US Treasury official Dr. Paul Craig Roberts, Egon von Greyerz, Andrew Maguire, John Ing and many others. 

UPDATE: Egon von Greyerz’ incredible audio interview is available now, you can listen to it by CLICKING HERE.

The audio interviews with Egon von Greyerz, Dr. Paul Craig Roberts, Nigel Farage, James Dines, Gerald Celente, Michael Pento, Eric Sprott, Andrew Maguire, Rob Arnott, William Kaye, David Stockman, Art Cashin and Dr. Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf -- to listen CLICK HERE.

Eric King

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© 2014 by King World News®. All Rights Reserved. This material may not be published, broadcast,

rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

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