Switzerland

In this very informative interview between The Browser and Peter Boettke, the professor of economics discusses the contributions made by the Austrian School, and explains the various nuances of the economic school by way of recent books by "Austrians." He also explains what we can learn from Mises and Hayek, and argues that economics is the sexiest subject.

• Here we go again: IMF Said to Seek $1 Trillion Resource-Boost Amid Euro Crisis (Bloomberg)
• China said to Tell banks to Restrict Lending as Local Officials Seek Funds (Bloomberg)
• EU to Take Legal Action Against Hungary (FT)
• Portugal Yields Fall in Auction of Short-Term Debt (Reuters)
• US Natural Gas Prices at 10-Year Low as Warm Weather Weakens Demand (Reuters)
• German Yield Falls in Auction of 2-Year Bonds (Reuters)
• World Bank Slashes Global GDP Forecasts, Outlook Grim (Reuters)
• Why the Super-Marios Need Help (Martin Wolf) (FT)
• Chinese Vice Premier Stresses Government Role in Improving People's Livelihoods (Xinhua)

Gold coin purchases gained 13% last year and will increase 2.7% in the first half. Purchases of gold bars increased by 36% to nearly 2,000 (1,194) metric tonnes, concentrated in China, Germany, Switzerland and Austria. East Asia demand for gold bars rose 53% to 456 metric tonnes. India rose 9% to 297 metric tonnes and western markets demand for gold bars rose 41% to 335 metric tonnes. Central banks increased net purchases by a massive fivefold to 430 tons last year, and may buy another 90 tons in the first half, GFMS said. Combined official holdings stand at 30,788.9 tons, data from the London-based World Gold Council show. “Attitudes among central banks haven’t really changed,” Thomson Reuters GFMS annual survey said. “There’s still that desire to come into the gold market to diversify some of the assets away from foreign exchange and to boost gold holdings.” The Thomson Reuters GFMS annual gold survey also predicts that gold will struggle in the first half of the year, increasing in the later half towards $2,000. It also says the gold bull market is losing steam and predicts an end to the run as economies recover next year and interest rates begin to rise.

• Jon Huntsman Will Leave Republican Presidential Race, Endorse Mitt Romney, Officials Say (WaPo)
• Dont laugh - Plosser: Fed Tightening Possible Before Mid-2013 (WSJ)
• Greece’s Creditors Seek End To Deadlock (FT)
• France Can Overcome Crisis With Reforms – Sarkozy (Reuters)
• Nowotny Says S&P Favors Fed’s Bond Buying Over ECB’s ‘Restrictive’ Policy (Bloomberg)
• Bomb material found in Thailand after terror warnings (Reuters)
• Ma Victory Seen Boosting Taiwan Markets as Baer Considers Upgrading Stocks (Bloomberg)
• Japan Key Orders Jump; Policymakers Fret over Euro (Reuters)
• Renminbi Deal Aims to Boost City Trade (FT)

Are countries which want to trade in their own currencies or to own their own central banks getting spanked ?

Weird ending to a weird story.

The Swiss had a rough couple of years; first the national airline crashes, then the banking secret, and, now, their central bank. It seems someone from inside the SNB finally woke up and skilfully played the Swiss media to work on Hildebrand’s expulsion. There is only one problem for the SNB: how to get out of the hole before the Euro blows up? The sharks are already circling their prey; the Swiss Franc decoupled from the Euro the moment SNB chairman Hildebrand resigned: The exchange rate got dangerously close to the “Rubicon” of 1.20 (the level the SNB vows to defend with utmost determination). The SNB is basically 100 pips away from extinction.

The year is not over yet, and already Greece's banks have lost €36.7 billion of their deposit base in 2011, and a whopping €64.6 billion since the beginning of 2010, which is down from €233 billion to €173 billion in under two years. In October another €3.5 billion was withdrawn from Greek banks and likely either redeposited somewhere deep in the heart of Switzerland, or converted to various inert metals and buried somewhere in the back yard. The good news: the outflow is just over half of October's record €6.8 billion. The bad news: at this rate of outflows, Greek banks will have zero deposits in around 4 years. Which at the end of the day is all the matters, because while the Troica can keep funding capital shortfalls indefinitely, all faith in the country's banks has now been lost and Greece is officially a zombie economy. The fact that the country's deficit as a % of GDP is about to be re-revised even higher is no longer even meaningful: the Greek economy and its banking sectors are now officially dead. We merely feel bad for anyone who still has cash in banks as, just like gold in 1930s America, any residual cash may soon be "sequestered" for national security purposes. After all there are bankers who need record bonuses, and Military sales from Europe and the US that have to proceed using what will likely soon be "commingled" deposit cash.

A confirmation on this could come shortly. My thoughts if it should come to pass.

As many have been suspecting all along, the political game involving the ouster of now former SNB president Philipp Hildebrand has been nothing more than a game of "pin the tail on the scapegoat" for bad monetary policy by the SNB, read the EURCHF 1.20 peg. In other words, it is quite likely that alongside the burgeoning SNB balance sheet, the bank had also accumulated quite a few losses, which the Swiss public will not be too happy with, and a change at the top was required. So what happens next: will the SNB relent and allow the peg to expire as the scramble for a (now much more diluted) CHF resumes ahead of the European D-Day in March, or will the peg be forced to be pushed even higher, at the expense of even greater balance sheet losses? Here is what SocGen thinks will be the next steps.

• SEC calls for detail on debt exposure (FT)
• Calls for US taxpayers to bear housing (FT)
• Beijing Sets Meek Tone on Reform to Banking Sector Amid Uncertainty (WSJ)
• Merkel, Sarkozy to seek growth, jobs for euro zone (Reuters)
• UK leaves door open for cash to IMF (FT)
• Hungary Runs Out of Options in Row With IMF (Bloomberg)
• Monti Says No More Budget Cutting Needed to Balance Italian Budget by 2013 (Bloomberg)
• China to maintain 'prudent' monetary policy (China Daily)
• Regional free trade talks in the pipeline (China Daily)

Markets are quiet halfway through the European session as most are awaiting the outcome of the meeting between German Chancellor Merkel and French President Sarkozy in Berlin at 1230GMT. The meeting is likely to centre around Greece, as well as the PSI update that, according to the FT may see the holders of Greek bonds accept higher losses as the contentious negotiation over writing down Greece’s debt burden are due to be concluded soon. German Industrial Production figures for November came in roughly in line with expectations, with the German Economic Minister commenting that this measure is likely to remain subdued over the winter months. Data released from Switzerland today shows Retail sales performing much stronger than expected, showing strong consumer demand in Switzerland across November.

I go schizoid.

Events in Italy must be watched closely. The country that gifted Fascism to the world in the 1930s was widely admired even by FDR, who held Mussolini in high regard and was no doubt inspired in many of his own policy choices. Will Italy lead the way once more, as politicians in Europe and the US watch to see what oppressive policies they may get away with? And while Russell Napier (correctly) foresees capital controls being imposed and suggested that one parks his cash in Singapore dollars, Italians may want to get themselves out as well before the current group of Professors slams the gates shut. Things are moving even faster than one of the world’s leading financial historians could foresee.

This is the question of the hour. Which way was it?