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End of CB Power - SNB Folds
I wrote about the Swiss National Bank being forced to abandon its currency peg to the Euro on 12/3/14, 12/8/14 and 1/11/15. That said, I'm blown away that this has happened today.
Thomas Jordan, the head of the SNB has repeated said that the Franc peg would last forever, and that he would be willing to intervene in "Unlimited Amounts" in support of the peg. Jordan has folded on his promise like a cheap suit in the rain. When push came to shove, Jordan failed to deliver.
The Swiss economy will rapidly fall into recession as a result of the SNB move. The Swiss stock market has been blasted, the currency is now nearly 20% higher than it was a day before. Someone will have to fall on the sword, the arrows are pointing at Jordan.
The dust has not settled on this development as of this morning. I will stick my neck out and say that the failure to hold the minimum rate will result in a one time loss for the SNB of close to $100B. That's a huge amount of money. It comes to 20% of the Swiss GDP! If this type of loss were incurred by the US Fed it would result in a loss in excess of $2 Trillion!
In the coming days and weeks there will be more fallout from the SNB disaster. There will be reports of big losses and gains from today's events. But that is a side show to the real story. We have just witnesses the collapse of a promise by a major central bank.
The Fed, Bank of Japan, ECB, SNB and other Central Banks have repeatedly made the same promises over the past half decade:
Don't worry! We are here. We will do anything it takes to achieve the stability we desire. We are stronger than the markets. We can overwhelm all forces. We will never let go - just trust us!
I never believed in these promises, but the vast majority of those who are active in financial markets did. The entire world has signed onto the notion that Central Banks are all powerful. We now have evidence that they are not.
Anyone who continues to believes in the All Powerful CB after today is a fool. Those who believed in Jordan's promises now have red ink on their hands - lots of it!
The next central bank that will come into the market's cross hairs is the ECB. Mario Draghi has made promises that he would "Do anything - in any amount". Like I said, you would be a fool to continue to believe in that promise as of this morning.
We've just taken a huge leap into chaos. The linchpin of the capital markets has been the trust in the CBs. The market's anchors have now been tossed overboard.
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Which is exactly what the originators of the EU had anticipated all along. They knew that it would blow up for the exact reasons it is today...and they knew that the only way to save it was for a complete federal system to take hold. And save it they must as too many Eurocrats fortunes are pinned on it. The EU has been a major source of wealth for many of the bureaucrats running and working this show. AS with America, those holding the reigns will hold on till they can hold no more.
The Central Bank can certainly buy everything...that's called the "Soviet Union".
First rat off a sinking ship?
But DAMN, that water's cold...
Bruce, a large amt of the fault lies with the lack of a gold standard, once the discipline of spending money goes away, as it did in the U.S in it's entirety in 1971, the players who committed themselves to a strict std, no longer have a level playing field but one that is comprimised in others favor. Which became the fiat money crowd who suddenly saw their power increase, and along with it their wealth. There needs to be some kind of balancing between currencies which at it's core, is gold.
The SNB sold off a huge chunk of its gold holdings a decade ago. What huge mistake! This would not have happened today if the Swiss had kept their gold (and added to it over time).
The lesson is clear to the other CBs - gold has a real value and any CB must have more of it on the shelves than paper.
The SNB has spent years pushing the print button to buy other currencies. They still have those currencies and can use them to buy back their gold. After they announce what they've done they'll get back some that 100B they just lost.
Why do I keep thinking that the SNB just might have hedged a little? It's not like this move was a surprise to them.
Bruce, thanks for the comments. Question, why would the Swiss having more gold allow them to cheapen their currency? FYI I made wine on Lake Geneva awhile, but ended up marrying an Austrian.
LOL! having another moment of clarity Bruce?
That would be crazy.
If that were the case, then real* people would decide what currency is worth by trading it for gold.
CB's hate reality.
*those not behind the curtain in Oz
Is Bruce finally admitting that it may have been a bad idea to create so many bullshit paper claims on real goods and services?
Hey, fuck you Bruce, you useless paper-pushing fuck, some of us have been saying this for 35+ years.
Have a nice day everyone. And for the record, I don't worry at all about my friends in Switzerland. Very frugal, very smart, very productive, etc. they are all doing just fine.
Bruce is a statist banking shill and foot soldier for the Illuminati.
That said, his CHF call was pretty good.
Congrats old boy!
A positive comment from my favorite troll? Almost as surprising as the move by the SNB. I'll take what I can get.....
Sincerely,
Statist Banking Shill
What's with all the francness...
we hate fucking bankers and the whole ilk of followers, racketers, letter writers. they fall in the catagory of self annointed, degreed krugman types.
Don't blame the surfers for the storm, dude!
We buy PMs because we think it's suppressed relative to everything else. We're traders, too.
Yep, and he wasn't the only one to "make the call". He should have been a politician as much as he flip flops around he probably would have been a pretty good puppet too.
LOP, I for one, am interested in your views and your reasoning, but your lack of civility is a real turn off. Get your shit together, dude. There's no need to be insulting to bruce for sharing his views and his opinions, which are typically well-reasoned. If you get that upset reading them, and can't engage in a civil discussion, then maybe you should just skip his posts. I'm sure I'm not the only one worried you're going to give yourself a heart attack.
Our shit is together, no worries there. These shills who keep "calling out" the very same system that makes them "richer" must be held accountable, every single one. Nothing changes otherwise and will only lead to greater chaos if there is no retribution. History is very clear on this.
My heart, and that of my tribe, is very strong and healthy, again, no worries there at all.
tribe?
Was Geronimo a grain grower ?
I seem to remember a movie with Burt L about an Apache who grew corn.
I'm going to create another pricincple of monetary economics:
"Central banks have two tools: printing money and talking about printing money."
bruce if you are reading the comment: you are talking out both sides of your mouth if you are fx trading. so therefore you are a typical finance pundit.. how can you NOT "trust" that the cb's got your back side.??? well, you had to or you would have lost your ass like shorting the s/p for the last 4 years. so you are disengenous like all the other finance / banker types. sorry i lost a lot of respect for your 20/20 hindsight. UNLESS you were out of the fx markets, which i doubt...
And (iii) turning their back on those who do print money.
We folked some fools.
We fooled some folks...
We was Gnomed, I tell ya.
+1 and kudos to Bruce to make that call. I remember being a bit... savage with him about the need... you have been proven right, Bruce
"That said, I'm blown away that this has happened today. " Me too, twice that. Big, big mistake, imho. We'll see
btw... what happens to the 700'000 Poles that have mortgages denominated in CHF? And other assorted Eastern Europeans that have similar arrangements?
how do you feel when your mortgage is suddently 10% more expensive? with a chance of becoming even more so?
take a look at the bursting of the Cyprus property bubble for an indication of the damage that can ensue....much of the speculative boom there was driven by over-leveraged fools borrowing in CHF because rates were "cheaper"....all got fcuked as CHF appreciated against GBP and Euro..and we know how that ended for Cyprus.
"how do you feel when your mortgage is suddently 10% more expensive? with a chance of becoming even more so?"
Why did you choose to denominate your mortgage in a currency which is not the currency in which you get paid? Everyone should live with the consequences of their decisions.
As for what happens, probably people just end up in debt longer, unless they are unable to pay, in which case they get foreclosed on.
I didn't know about that one. Emerging market mortgages?
This was a move to return to reality, as opposed to the bulkshit that has been piling up for decades. They'll get hurt in the short run, but they'll be the last country standing when the EU collapses.
FX trading should be outlawed. All those high finance fuckers need to be sent to work on farms picking strawberries
Thinking back on the original act, I was thinking there goes the Swiss Frank. Crazy times
The CB's have no power other than what is given to them by others. And by others I mean you and me and everyone else. When I hear the phrase "Don't fight the Fed" what I actually hear is a bunch of children crying out "Follow the Pied Piper".
The only problem with running with the herd is when it changes direction and runs over you and me.
That no vote on gold sure did help them...you betcha...
Didn't hurt them, although today they could have picked up some "cheap" gold to make up for any % allocation shortfall on the balance sheet. Besides, there's always tomorrow.
Exactly. Still amazed by how many people, out of the 7+ billion on this rock that still accept their paper.
"Full faith and credit"
When I hear that phrase, I always automatically think in my mind:
"Nothing except faith and credit"
It yields a very different perspective on the meaning of a paper currency.
Don't forget about legal tender laws and the fact that you probably know a shitload of people who have oodles and oodles of debt, who will gladly accept your FRNs because of all of that. It's a bit more than faith and credit here. More like "Full faith, credit and coercion."
If you sign a contract to deliver a good, service or commodity to someone, is it a debt? If so, does that mean that any contract can be fulfilled by paying in dollars? Like, if I sign a contract to deliver to you a ton of gold, but I don't have it, I can settle the debt with dollars instead?
Yup. If you don't own it, you'll end up with dollars.
Fair enough. It's a system. As such, there are a lot of moving parts.
Just curious, which people are you talking about? Those who owe the debt or those who "own" it? I could read your comment either way.
i for one am happy to report that I never listened to the SNB...
This smells like a "test run" . What's the next strongest CB on the list?
Correct.
And the ECB probably asked SNB to start the cards tumbling...it was the plan.
Now everybody can blame the Swiss for the downfall, probably the reason they coupled to the Euro in the first place.
Maybe all the CB leaders are going on Winter vacation soon ?
you live in a city that has it's little currency zone where it's "financial authorities" have a peg to the USD, don't you?
a de facto part of the dollarzone that experiences heavy shopping (or the opposite) whenever the FX changes. this makes you, in my experience, more conscious about the follies of CBs
particularly to those that live in the very middle of a currency zone, particularly when that currency is the global reserve currency
the case of Switzerland is particular, there. all the residents at the borders will shift for a while their shopping in the eurozone
and the worst hit will be my collegues the small and medium producers in Switzerland, and of course the employees they might have to say goodbye to
Perhaps. I have one friend who has a pretty good bee/honey operation there and another that is a vet. Both are doing just fine. They both do business in multiple currencies, are very smart and very productive.
It's always about demographics and the laws of averages. Compared to American society, I really don't fret too much when I look at places like Switzerland.
Looks like they will need to be approximately 20% more productive!
Hyperinflation, BITCHEZ!