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The Fed Will Soon Find Itself in the SNB's Shoes: POWERLESS
Switzerland’s Got a Problem…
… and that problem is its reputation as a financial safe-haven.
As Europe continues to implode, wealthy Greeks, Italian, Portuguese, and the like are pulling their funds from their domestic banks and funneling them into Switzerland.
Because of this the Swiss Franc has been exploding higher, particularly against the Euro:
As you can see, the Franc rose 18% against the Euro in 2010. It’s up 9% against the Euro this year so far.
Now, over 50% of Switzerland’s economy is exports. And nearly 60% of this is to Europe. Combine the Franc/ Euro dynamic and the economic downturn in Europe and Swiss corporate profits and the Swiss economy are getting KILLED.
Which is why the Swiss National Bank has been doing everything in its power to keep the Swiss franc down. So far its efforts have been completely futile: every intervention pushes the Franc down for a few days at the most.
I raise these points as an example of what happens when a Central Bank goes head to head with the market: each intervention accomplishes less and less until the market completely overrides any and all interventions.
Granted, the Swiss National Bank doesn’t have the same monetary clout as the European Central Bank or US Federal Reserve, which is why the market is taking longer to override these latter two central banks’ monetary interventions.
However, we’re fast approaching a time in which neither the Fed nor the ECB will be able to hold the market together. Indeed, we got our first taste of what it will be like at the end of July when the S&P 500 wiped out nine months’ worth of gains in about two weeks’ time:
The Fed and ECB stepped in to try and prop the markets up (the former may in fact have bought the stock market outright) and they got… FOUR days’ worth of gains.
Indeed, the market has already erased most of the snapback rally’s gains. And we’re on our way to new lows in the near future. In fact, I fully believe we’re now officially in the Second Round of the Great Crisis: the time in which financial system comes undone again.
The only difference is that this time around the Fed won’t be able to stop it.
Remember, the only thing that held the markets together in 2008-2009 was the belief that the Fed could backstop the financial system. We now know that the Fed didn’t actually fix anything. In fact, the Fed’s made things worse by allowing the very same issues that nearly took down private banks in 2008 (namely toxic debt and excess leverage) to spread to the public’s balance sheet.
Which means that this time around, it will be the US as well as the banks which go bust. Put another way, we’ve entered the END GAME for the Fed and its policies. So if you thought the first Round of the Financial Crisis was bad, wait until you see the next one. Indeed, I fully expect that what’s coming is going to be 2008 on STEROIDS. I’m talking about market crashes, civil unrest, riots, bank holidays and more.
Many people will lose everything in this mess. Yes, everything. However, you don’t have to be one of them. Indeed, my Surviving a Crisis Four Times Worse Than 2008 report can show you how to turn the unfolding disaster into a time of gains and profits for any investor.
Within its nine pages I explain precisely how the Second Round of the Crisis will unfold, where it will hit hardest, and the best means of profiting from it (the very investments my clients used to make triple digit returns in 2008).
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Graham Summers
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A possible next move for Switzerland (since they've allowed the US to bust their privacy cherry with the UBS case, cf. Bradley Birkenfeld) is to go all the way. Or just threaten to go all the way and reveal much, much more to the German tax authorities. Dangerous, yeah, but these seem to be desperate times even for Switzerland. If Switzerland does blow its brains out this way (a big "If", I'll grant you) the only remaining (civilised) jurisdiction with banking privacy will have similarly severe currency appreciation. Singapore might not mind, though, since they do have exports, but their main business is as a money laundry. Little known AML fact: even outright tax evasion is not a predicate offense to money laundering in Singapore.
You hit the nail on the head. Switzerland might end up losing many of those deposits over time because of it.
The US go bust? There's a massive run into T-bonds and the dollar going on, exactly as I predicted over the last months. Europe & China in troubles, US economy depressed. Last safe havens: gold & bonds!
T
That's why the FED is going with the flow. They have no choice.
That's the problem with Zero Hegde: Always worst case scenario.
It's been a worst case scenario for a while. Where have you been?
Let's say your currency is on a 1 to 1 gold standard, this means there is a finite amout of it and any1 wanting to purchase your currency would need to trade you gold for it,
that would instantly ground this currency(because no1 could purchase it without having gold to trade), so the Swiss would do best to just 'Peg' the Franc to gold 1to1 and demand gold in exchange for Francs, problem solved
Demand does not matter when you can't pay for what you want to buy
But when the Franc can be freely exchanged for USD and EUR than you have Trillions in demand for Billions in supply and can't stop the flood no matter what you try
There is just not enough gold in the world to underpin the existing world currency even if we were to arbitrarily inflate gold’s value 10x over the current market price. The current market price is easily 10x over the cost to mine even at this point. Maybe a price that 1000x over the mine cost would cover the currency supply?
Regardless what’s the point? , if we are setting a fiat price for gold well above the manufacturing cost? How is that all that different between what we have now in which a fiat paper dollar commands a medium of exchange value 100,000x over its manufacturing cost (ie ink+paper+cotton)? Whether its 1000x or 100,000x fiat multiple to exchange value is not the issue.
Most people are missing the key problems here.
The problem is that we all have a debt based currency managed by an international banking cartel. This banking cartel uses periods of inflation and deflation as a wealth pump within nations and between nations to enrich itself.
Solution, all nations should go back to issuing their own debt free currency. Global trade should be conducted on a fair trade basis in which all nations must either buy as much stuff from each other or procure trade credits from other nations that buy more than they sell with the same nation.
For example say China wants to sell more stuff to the USA than it buys, yet Brazil buys more stuff from the USA than it sells to USA. Brazil could exchange those surplus trade USA credits to China for stuff they want from China thereby enabling China to still run a trade surplus with the USA using the Brazilian credits. In the end global trade would net out for ‘all’ nations.
In this way no nation would become indebted to another and currency manipulation (either via pegging or printing) that now causes either deflationary or inflationary forces to occur in trading partners would now be contained within the nation itself.
Anyway once the current system implodes, the very last thing we should do is follow the advice of the very same international banking cartel that caused the implosion in the first place. In fact if they say we should go to a gold backed international currency we should do the ‘exact’ opposite.
They had their chance to do the right thing an they F*** it up by taking advantage of all the hard working people in the world. Now it’s our turn collectively as citizens of our respective countries to form a foundation and envision a world monetary system without these corrupt middle men.
Hanging from sturdy branches is the best remedy.
Umm.. they might not get invited to the Secret Central Bankers Annual Ball?
BLAME CANADA!
OK.
http://video.canadiancontent.net/1996658-southpark-blame-canada.html
Krappli.
Yep.... time to get whatever assets you have into hard assets, and that means more than just PMs.
What do you call a DOUCHEBAG on STEROIDS?
PS He peddles a subscription and newsletter.
Bernanke... a floored Gulliver in chains?
BTW :THE SWISS have done a fiscal deal with the Germans to pay them fiscal compensation for money stashed in CHF by their german clients. I don't know what this implies for the cost of holding money in CHF for foreign clients. But it means that Swiss banks will protect anonymity of their fiscal haven status but pay a tax to their neighbouring countries. A first step to curtailing the impunity of tax havens world wide? One day those foreign clients will have to bear part if not all of this cost which defeats the tax haven fiscal efficiency myth, even if it does not destroy safe currency haven myth.
Comments welcome.