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It's War?
Whenever something of significance happens in the financial world I struggle to answer the question, “Why now?” There can be clues to markets if that question is answered accurately. If nothing else, it puts things in their proper perspective. I’ve been wondering about the timing of the big move by the SNB all day.
It’s not often a major central bank devalues the currency by 10%. It’s not as if this development is not without significant risks to the Swiss people and in particular, the SNB. It’s been suggested to me that the SNB has no risk; that they can print Francs in any amount necessary. Trillions is not a problem. That's not the case at all.
One of the biggest risks the Swiss face on this is from the rest of the EU. If you were looking for a textbook definition of a “Beggar My Neighbor” policy, this would be it.
So, why Tuesday; after a long holiday weekend in the USA? I am wondering if it has to with this angle of the story:
Swiss Banks Seek Negotiated Tax Settlement Amid Reports of U.S. ‘Ultimatum' on Details
U.S. Deputy Attorney General James Cole wrote a letter Aug. 31 to the Swiss government insisting that Swiss authorities hand over information on hidden U.S. funds in the country by Sept. 6.
The letter specifically targeted Credit Suisse, the country’s second largest bank, as well as nine other private and regional banks.
I don’t argue so much with the US position on this. But consider the implication if you were the Swiss government. The big bad USA takes out its big guns and threatens to fire at poor little Switzerland. They threaten the mother of them all, Credit Suisse. They threaten the smaller banks too.
How would you feel if someone pushed you around like that? No one likes to get pushed. Generally the proper response to pushing, is to push back just as hard in another direction.
Today is September 6th. IMHO it’s not a coincidence that the SNB took a monetary action the same day that the USA had a drop dead date for the Swiss banks.
My question is, “Who was firing a warning shot?” Was it the Swiss? Or was it the US DOJ? Both?
If you think that the timing of both of these issues just happened by accident to fall on this day, I have a bridge to sell you. Everything is connected. Someday we may learn of the facts in this matter. Someone will write a book, or, better yet, there will be a leak. It will come out.
We may have today witnessed the first real cannon shots fired in a global economic war. The muse of history will be that those cannon shots came from the Swiss; the one country that has refused to go to war for the last 200 years. This war is not about principals, land or resources. This one’s about money and wealth. It could get just as nasty as any of the other wars we stumble into.
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"We may have today witnessed the first real cannon shots fired in a global economic war. The muse of history will be that those cannon shots came from the Swiss; the one country that has refused to go to war for the last 200 years. This war is not about principals, land or resources. This one’s about money and wealth. It could get just as nasty as any of the other wars we stumble into." Interesting behind-the-scenes insights into the 10% devaluation by the SNB. - Jenna Orkin
http://www.collapsenet.com/154.html
The problem is that speculations based on various logical concepts only goes so far. There is logic in both directions on this, as outlined by various posters and one early post where the person said he was knowledgeable about the Swiss. I am as well and personally think the retaliation theory is an overstretch.
At worst, maybe they chose the particular day to make a point, but regarding the overall decision, what was their alternative? Just let the CHF go to par with the Euro, 1.5 or 2 x to the dollar?
Societies don't arbitrage as easily as financial markets. You need to have some first hand experience to see this in action. You can't just lower salaries, for example, because the exchange rate gets out of hand. With the ChF so high, Swiss goods were being priced out of the markets.
So, what course of action should they take? Decimate the Swiss productive base? Offshore the labor? Bring in more immigrants? The American way, as we've all seen all too well is an unmitigated greed disaster, just designed to make CEOs wealthy.
Look, if they were having a debt problem, few people would blink if they printed to fill the hole. The ECB is doing it as is the Fed. In this case, they are being screwed because of their neighbors policies and had to make a decision. The situation as it was, was not viable, so they printed not to be priced out.
IMO, it's a bit naive to think the CB'ers are not talking to each other. Isn't that what the BIS is all about? The Swiss economy is not so big as to make so much difference to the U.S. and the rest of Europe. In fact, the Swiss move makes the general trend towards printing more universal, makes it less desirable for people to go out of their way to invest in CHF, and keeps the Euro and dollar from looking so pitiful.
Better to focus on the more relevant war at hand: keeping the value of your money when nearly every store of value is being drained by those working the system. Why invent spectator skirmishes? Doesn't NFL or the World Series work for that? The Swiss move is part of the same trend that is hurting us all in terms of maintaining wealth.
I think that China will be now buying Swiss francs at bargain prices. Beats buying the Euro.
But of course Gold n Silver are the best buys. They need not go back to any Government to claim value.
Bruce,
If the Dollar Bill were running the show, he would say this -- in order to stem a panic and possible market collapse on a global scale, the symptoms of the crisis need to be alleviated. Symptom number 1, CHF. Link the rise of the CHF to the demise of the DAX. What is it a symptom of? The Germans are bailing on their own market because they are terrified of the EUR bill coming due. How to alleviate the symptom? Burn everyone who is piling into the momentum panic trade. I have no doubt that the US and the SNB were in contact on this one and a back room deal has been made.
You must chase the Germans back into Germany and hence back into the EUR. The next to fall is going to be gold because if there is anything a frightened German likes better than CHF it is Gold. Look at the double top right now. Excellent time to attempt the gold bitch slap.
Now look at the DXY and the EURUSD. Since they are almost perfectly negatively correlated over the year, they are more or less the same thing in mirror image. IF the DXY breaks above 76, the EURUSD is going to plunge below 1.40 and keep on going. Or so a long mediation on the charts show. What happens today? The German Court says the EFSB is good to go. Risk on? This has been one long range bound trade up and down. It's the end of the world as we know it if it breaks. Why? Because the Germans will say "I told you so" and abandon the EUR completely.
You´re looking at wrong direction. This is purely an european issue. SNB had hoped that things in eurozone would start improving/stabilising(after ECB bond byuing), but they didnt, so they made the move. It´s easier (and cheaper) to peg CHF at 1.1 than at 0.8-0.9, and CHF had begun rising again, recently. As simple as that.
sure it's war.
place yer bets.
janus is no-stop short on dow and s&p (with small margin in case i have to double down for a day or two)...i'll make the call when i SEE the bleeding stop.
seems like tellin uncle sam to shove it up the ole rectum is gettin to be as common as every single du jour liquidity crisis.
thanks for the free money, Mr. Krastings.
go long dollar if yer a pussy!
and, from now until the end of the decade, buy silver and gold with the gravy!
janus will do just such (the no stop shorts; and then turn in for a few hours of peaceful and worry free hours of sleep)
see y'all on the winning side...bloody, bloody week ahead. stay thristy!
This is screaming a new Gold standard to me - in 1978 it was a real possibility , instead Volcker Hyperinflated credit to pay riduculous interest rates on Treasuaries & destroy US organic core capital wealth.
The US does not have enough wealth to squander now - the monetarist game of currency pairs is over , Arabia is not what it was - the world has changed.
It (currency trading) simply does not produce any wealth , no long term stability , no long term real industrial development - its just a extraction business and the mine is now depleted.
We Ain't seen nothing yet.
www.youtube.com/watch?v=7miRCLeFSJo
In my remark on BK's previous post where he said: "its madness the SNB has just drawn a line in the sand and you never do that. No CB can beat the market", I commented that this was possibly WAR declared by the Eu, via the SNB, who apparently had bought in "lock stock and barrel" into the Euro scheme, on financial USA; on the USD hegemony and the current USD carry trade in interest/currency arbitrage derivative plays that milk middle America and middle EU to make the 0.1% richer.
This can't go on. The EU has its back to the wall. Its do or die time for EU construct.
One scenario is that the SNB has just fired the first shot in a world wide coalition around EU and Euro zone to fight the USD financial ponzi's inroads into EU economy using the sovereign bond spreads as a wedge into wrecking the real world economy. Having wrecked their own national economy, like arrogant giants gone mad, these vulture fund vehicles continue their mad race to the bottom, fleecing every sheep they can find on the way. The institutionals, who manage the world's pension funds, all 30+ trillion of it, string along like blind mice in panic mode. Sharks and whales in a mad squall of speculative mayhem that destroys the real economy.
Now its Frau Merkel's call. If she shows her metal as Herr Merkel and becomes the leader of EU resistance to this financial mayhem then a whole new financial architecture becomes possible with Euro as pivot, down grading USD to ponzi fiat.
For this to occur the BRICS, Russia and China mainly, have to join in as well as Japan. But the real crunch will come if the QUEEN of all commodity trades, OIL, changes horses and moves to non USD denominated currencies to set the standard.
THAT will spell the end of USD pax americana that started in 1945 with the historic handshake between FDR and King SAud in SUez on his way back from Yalta. THAT WILL BE THE TRUE GAME CHANGER.
That is why PUTIN's call is so relevant as it follows Schroeder's call to EU federation. The russian announcement of the North Project gas pipeline pressure priming exercise is a signal that Russia now has a permanent direct link to EU markets bypassing Ukraine etc. Sign of the times that corroborates France's power play in Libya with Qatari ally, CHavez's moves in Venezuela and Iran's decision to develop its export commercialising outside the USD.
As BK says, its ALL interconnected. Lets see how Merkel now plays her cards...
Thanks Bruce for this article. Good insight that has sparked some great discussion and commentary. I think there is some truth in what Yourfather has to say and don't necessarily think it contradicts Bruce's thoughts.
Barliman thanks for your thoughts and insight on this as well!
Bruce,
Add also the timing of the "discovery" of a billion dollars in "unreported" money of 170 top diamond dealers from Antwerp found in HSBC, Geneva accounts. Swiss bank secrecy is a thing of the past.
OTOH, I believe that the Swiss found it necessary to keep their banks' loans to Easter Europe repayable. At the same time they provide a sort of anchor to the Euro, for which I'm sure they will have a good quid pro quo.
i couldnt write much earlier because I was at work. but i disagree with your premise that this is a shot from the Swiss against the US and so on.
What I can say is that while I am not Swiss, I am relatively tuned in to their mentality. The reason why they want to put a floor (not a peg) on the currency is because literally the local economy and exporters are getting annihilated by the Franc being so strong. The issue is so important because you can be in Basel, and drive maybe 15 minutes across the border to Lorrach and buy things at crazy prices.
The transporting of household goods across the border has seen the number of "tax refund slips" being validated by the Swiss border control increase in the scale of the millions. The reality is that a prezel that costs 1.40 Euro in Lorrach costs 8 Fr. in Switzerland. Multiply this by every consumer good in the economy and you'll see why there is such debate. Swiss people are happy to pay for Swiss produced items, but when deodourant costs 15 francs in CH and 5 euro across the border they start to get a bit pissed. Migros and Coop have been having extremely aggressive negotiations with their suppliers in response to this and I believe Coop has decided to stop stocking some lines because suppliers have been greedy.
Migros, Coop, Aldi, Ikea, all these places are struggling to get the consumer through the door to buy things. And you know that the Swiss being the conservative people they are will only buy if they feel that they are getting decent value for money.
This isn't sustainable and it makes the economy run in two phases. The argument which in typical swiss fashion is debated publicly innewspapers like the Neue Zurcher Zeitung will tell you that economists and relatively trustworthy and reputable public intellectuals have been discussing this for some time. Indeed, while they are pissed off with the way that the US treated them with the John Doe summons, the person who did perform these shitty deals was in fact an american and tried to use his story to attempt to get immunity from prosecution.
Finally, a note about being neutral. The Swiss are not a passive neutral country but are an actively - neutral one. This means that if they feel that there is something to be achieved by acting, they will decide (and it will take a typically swiss long time) to do it and they will execute as per plan. This does not mean that they will want to go to 'guns' and war that way, but when you think about it, most houses do have nuclear shelters and they have really a perfect place to engage in a guerilla campaign, with landing strips for the air force near all larger towns and cities and mountaineous terrain.
Finally, what the Swiss really dislike is this "big ego" kind of thing, and I think that what you will see is that in their eyes, the best way to achieve a goal is to do it in an almost anonymous way. This is in direct contrast with the style you will see of Bernanke & Co. who are happy to use the stage the media gives them to further their ego/coverage etc.
You are sooooo right... thanks
So like, you've thought this through?
On a planet, owned and operated by the US, where no body takes shots at the US except the US.. you figure Switzerland decided to go first?
Really?
I figure you got the War part right, but you might want to take a closer look at the uniform everyone is wearing.
catch edge ghost - you really haven't been paying attention have you
"On a planet, owned and operated by the US" is so Ronald Reagan
Bush and Greenspan sold the deeds the White House to China and Obama and Bernanke are still making it worse.
The USA has very little bite left behind its bark and the Swiss and everyone else is calling your bluff.
Funny how the US Attorney Generals Office is not attcking the largest offshore tax haven in the world, which just so happens to Delaware where all the big US companies are based.
Glass houses, bricks, work it out
Sold the deeds?
No, they sold China and the Others, Treasury Bonds, aka income streams with negative real returns. In exchange, the World gave the US a power monopoly via reserve currency status.
Like I said, Owned and Operated.
You fail by presuming I support this paradigm. I believe your comment was intended to posit your philosophy. My intention was to describe the world I live in, not the one I want to live in.
The peg could be a practical expedient:
1. Preserve export capacity/market share.
2. Not permanent, can be discontinued.
3. Likely to prevent or discourage safe-haven appreciation.
Not so sure US would have anything against EUR getting stronger.
another hissy fit...
WAR ? and the reason ? swiss use wrong sort of cheese for fondue. ??? :))))
#It’s not often a major central bank devalues the currency by 10%. It’s not as if this development is not without significant risks to the Swiss people and in particular, the SNB. It’s been suggested to me that the SNB has no risk; that they can print Francs in any amount necessary. Trillions is not a problem. That's not the case at all.
#
Bruce,, another load of BS...
could you point exactly how is SNB at risk by printing franks ( digitally ) and exchanging them for digitally printed euros by ECB or dollars by FED?
alx
There's this strange and ugly beast called "monetary inflation". Some people believe this creature will sneak up on you at night and eat your children if you 'print money'. I for one am not a believer. Not because I don't believe in monetary inflation, just because I believe the trolls under my bed will eat the beast.
I enjoyed your article. I enjoy trying to be a detective about the way the world is working.
Thanks for timely and thought provoking article.
In the humble world of makin' tosh those who see business as war should not be in business but ought perhaps to be in care.
Here Switzerland is described as:
"the one country that has refused to go to war for the last 200 years"
Since Europe has been at war forever one might be inclined to ask "why not then?" before beginning to understand "why now?" ... hopefully the time for truth and reconciliation is imminent.
bruce this post was pointless.
Did you mean 'is'?
Glad to see the US pursuing tax evaders regardless. Great article, Bruce.
This move helps Swiss banks in part due to loans made to Eastern European borrowers in francs get harder to pay back as the franc rises.
Glad to see the US pursuing tax evaders regardless.
why?
We can just print United States Notes and the whole world can live at a decent standard of living.
"Glad to see the US pursuing tax evaders regardless."
Spoken like a true sheeple.
Don't you know the ponzi is based on stealing American's green paper which they actullay could have worked for. It is a way to give some credibility to the ponzi.
Then the Fed can counterfeit $2 TRILLION at will (like they just did), or the government can rob social security of $2.5 TRILLION (which they did) and give most of it to the criminal banksters and the poor, poor, "no fault of their own never paid tax in their life," voters.
Geez...Zero Hedge understands this is all a pure ponzi but I guess it gets by some sheeple still.
The Swiss may love to double down, but in AA they call it, ``Lowering the bottom``.
Choo know, the Bildebergers met in Switzerland this yar....and Switzerland seems to be the only rogue financial nation that isn't a dictatorship. *cough*
Bruce,
Thank you for reconsidering your earlier take on this. I have no idea of the people involved, but you seem to and that is why your opinion matters as far as I am concerned.
I have never seen a market behave as it did the night before last----I imagined that this could be the crazy little surprise that always causes big events and, it did seem like war in the midst of so much mindless activity. It did seem like someone had snapped, but I could not imagine this had happened to the SNB.
It seems to me, also, that the 'unintended consequence' of this might be a bit difficult to fathom for a few days, but that there would be one, at least. Do you still believe that the SNB acted alone without the knowledge of other CBs? At least that is what you seemed to be saying.
I know very little about fx trading aside from trading a few currencies in the early 80's, but won't this come unwound in time and have to be closed?
Sorry to be such a nitwit in this, but this is the best I can do om
War? Sound more like Swiss surrender. Now the cartels just have to "regulate" precious metal trading and there will be no way out of the Fiat money scam. In France you cannot buy or sell gold without giving your ID anymore since beginning of September. As you said, everything is connected...
This European banking shit seems to have gotten a whole lot more complicated today.
So what's up (or should I say .. down) with Gold (and Silver)?
Someone with huge firepower has been beating them with a stick since the swissie devalued.
This below isn't an organic market, it's on purpose.
Two differnet Metals, one with an industrial component to it, and they both take a dive in perfect unison.
Sure. perfectly natural. No manipulation here. Move along, nothing to see.
Over analyzing. More likely they just waited for everyone to get back from holiday before springing this on markets. It wasn't like this wasn't telegraphed for a while now. The only questions were when? and at what rate?
As noted below borrowers in Swiss Francs from Eastern Europe were defaulting on their loans in increasing numbers due to the higher exchange rate. The Swiss move is a sign of weakness in the banking sector there.
You know what, screw the U.S. I hope this was a direct shot from the Swiss at the United States.
United States did nothing to combat decades of fraud. Starting with the garbage dot.com companies and the banks pushing horseshit IPOs the underwriters knew were fraudulent. Enforcement activity: zero. Then we go to Enron, Worldcom, and the other massive off-balance sheet accounting frauds, all of it guided by banks who designed the deals, accountants who signed off on them, and lawyers who wrote opinion letters blessing it all. Again, enforcement action by the U.S., zero.
Queue the latest reel, massive, massive fraud in the residential and commercial mortgage backed securities, atrocious underwriting, sweeping all of it under the rug, Greenspan greenlighting all of it with his absurd policies, and the absolute flood of US dollars to bail out these goddamn criminals. Again, enforcement activity, zero. No bankers have gone to jail over this. Not a single rating agency prosecution. Instead the SEC prosecutes Martha Stewart while our stupid politicians try to support grossly overinflated housing prices.
Against this disgusting backdrop, the DOJ has the temerity to challenge the Swiss over banking practices? Are you f-ing joking? I hope the Swiss, Japan, China, Australia, and Canada match Bernake move-for-move and make us pay for the rampant fraud we refused to prosecute, as our bankers were allowed to get away with financial murder. U.S. needs a major, major housecleaning, and terminating the SEC and starting over would be a good start.
To add insult to injury, think of what the price of gold does to all those fancy gold watches they are tryng to sell.
I don't see the connection, but Switzerland has already lost the moral victory by caving in to Uncle Scam with the UBS (Bradley Birkenfeld) case. If the SNB is really serious about debasing the CHF, how will they politically reconcile the hit to the non-mercantilist majority of persons living in Switzerland as import prices skyrocket? This post-Bretton Woods fuckery is pernicious, punishing the least evil of fiat participans in a race to the bottom. Bad Switzerland, bad! The ongoing fiat conflagration should not concern rational people on a personal level, who will simply protect themselves with physical gold and silver. But the SNB is unleashing forces beyond its control. Beyond anyone's control. These days one can see how the logical positards (it's money because .gov says it is) running institutional money would be at a mortal intellectual disadvantage, as their cherished fallacies about money are discredited. Too bad for the vaporizing retirement plans, but it's nothing that dog food, bandaids and moving back in with the kids won't fix. One can't help but feel sorry for Switzerland, but it should have stuck to its guns. The relatively virtuous can only lose when they play the loaded game of noumenal currencies, a bad idea whose time is rapidly running out. On the other side: gold or guns.
Majority of persons living in Switzerland don't save in metals. They just stick to the central planned policy and don't even recognize they were robbed 9% in a day. Most of the people I know didn't even pay attention to the EUR/CHF move 1.2 -> 1.0 -> 1.2 and they were fucked twice. First time when 1.2 -> 1.0 sales prices weren't adjusted for the lower costs (took 3 weeks for actions to be taken on heavy consumer pressure) and yesterday... well, if you look at the price of gold in CHF you have the answer.
I am angry, I have 3kg silver and a Fas90. Too bad I don't have the machinery for making silver bullets, there are financial vampires to kill out there and the night is coming.
Sir, that's half a Hollywood screenplay right there.
Wait, don't the Swiss have a large amount of both?!
When the bank(s) turns over the info, where will you put the tin foil hats?
So let me get this straight - the Swiss trashed their currency as blow back to USA demands. Errr?
Bruce
Amazing times. Hope you stay with it and stay with us. Appreciate the work, time and effort. Trite to say maybe, but it makes an atmosphere of being in it together. Common cause and comradery and all. I am glad to be in good company here at the ZH factory.
Tom, this has been on the radar for a year or more. Now it`s ùltimatum time, and the Swiss have answered.
thank you Bruce
I thought when someone pushed you, you turn and use your opponent's momentum against them.
And possibly that is what just happened. No doubt this overt move was accompanied by a lot of other moves discernible only to the players themselves.
Seems odd that the U.S. gave the Swiss only one week to hand over information...unless this request had been made weeks or months ago and the Swiss were not responding. Anyone idea why the short response time from the U.S.?
U.S. Deputy Attorney General James Cole wrote a letterAug. 31 to the Swiss government insisting that Swiss authorities hand over information on hidden U.S. funds in the country by Sept. 6.
Dies this mean my "secret" Swiss funds are safe? Yippee. In all seriousness, I think the blogger is on to something.
"What were you doing grandpa when the Swiss "nuked" the Fed on 9/6/11?"
'Making money, kid. Making money.'
Would I argue with the U.S. position on the subject of bank accounts? Only with the corrupt and incompetent Obama administration. This is a political power play with regard to internal U.S. politics. Unless one is willing to believe there is $ 100 trillion dollars hidden in these U.S. citizen accounts, what is the compelling reason to issue an ultimatum to the Swiss on a subject that has been on the back burner?
....................*.........................*........................*.................... (just tumbleweeds quietly skittering in the wind)
Undoubtedly, the DOJ views shaking down the Swiss as an everyday undertaking - but given the answer they just got back, it really is not done in polite international society.
Anyone think the Swiss government is not bright enough to realize that pegging their currency was TACTICALLY the dumbest move they could make?
If you answered "yes" to the question, please click over to CNBC - you will be much happier with their version of events.
If your answer is "no", then the Swiss were making a STRATEGIC move that they were certain the Obama administration did not expect. (I think they did contact Hillary to say "WTF?" and get inside information from her.)
What is the overarching strategy? My best guess is a major power shift/realignment goal decided upon without U.S. input that will make the question of money hidden in Swiss accounts the least of the Obama administration's concerns.
Yes, Bruce. This is the start of the war.
barliman
"Anyone think the Swiss government is not bright enough to realize that pegging their currency was TACTICALLY the dumbest move they could make?
If you answered "yes" to the question, please click over to CNBC - you will be much happier with their version of events."
The Swiss last took an unmeasured step...never.
But if this move strengthens the USD (which happened today), then doesn't that give the USD more room to weaken when QE3 is announced? Or is that the Swiss move: to goose The Bernake into QE3 ASAP, thus pumping metals? Because I assume that will just make the money flow to...gold.
Admittedly, I'm confused. But I recognize the significance of this. As barliman points out, I made the CNBC mistake and thought "how stupid of the Swiss", but on reflection, that simple, knee-jerk response can't be the answer to "why?" this occurred. Thanks Krasting, for putting this out there and creating some discussion you won't get anywhere else.
Strength in the U.S.D. over the last three years has resulted in U.S. equities tanking - Look back at the DXY chart over the last three years with the S&P overlaid on it.
A strong U.S.D. kills the carry trade which depends upon the U.S.D. depreciating relative to other currencies. Any currency not depreciating (i.e. the Swiss franc) was treating its citizens to an unending session of buggery and beggary.
Depreciating the currency to a massive extent is the only way the U.S. avoids defaulting on its future debt in the Bible according to Ben Bernanke. That would be true and might be survivable provided all the other countries who have bought our debt would be happy being paid back with dollars worth 30% of what a January 2009 U.S.D. equated to in goods and services.
The dollar strengthening in a world where the SWISS are willing to peg their currrency means even "Helicopter Ben" can't provide enough "juice" to keep the U.S. economy from spiraling down uncontrollably.
You seem like a nice person, so I am asking you NOT to read my last comment/question.
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What happens when an incredibly weak leader up for re-election who has thousands of nuclear weapons finds himself boxed into an oncoming depression an no viable alternatives?
barliman