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Swiss Franc Plunges By 600 Pips On Peg Speculation; Will It Succeed?

Tyler Durden's picture





 

All those hoping that in the wilderness of fiat, the Swiss Franc would be to be a safe haven, are getting destroyed today, following speculation overnight that the SNB would implement a euro-swiss franc peg. The result: an unprecedented 600 pip plunge in the two key pairs, the EURCHF and USDCHF, since new overnight highs. The take home: for those seeing a safe haven from central banking stupidity, just go to where there is no counterparty: physical precious metals.

Will the peg work? Here is Citi's Stevem Englander explaning his outlook.

There is some early discussion today that the SNB might implement a formal peg of the CHF against the EUR that is meant to prevent CHF's  and CHF has responded by being the worst performing major so far today. The idea would be that the SNB would set the peg and undertake unlimited intervention to maintain it. Unlike the recent moves in money and swap markets this would involve direct buying of EUR, rather than intervention through swaps and money markets. The question is whether the policy should be expected to succeed. In the past the ability of such commitments to work has been determined by investor perceptions of the ability of policymakers to stay the course with respect to such a peg.  In the famous case of the ERM, investors sensed that policymakers could not live with the interest rates that were needed to maintain the beg, given that the underlying fundamentals were out of line. On the surface it is easy to argue that unlimited intervention selling your currency is much easier than the trying to do unlimited intervention buying it. The other side of the argument is that if the concerns about the euro zone do not dissipate, investors may be very happy to make the trade, especially if they set the EURCHF peg at or above current spot. If the amount of buying needed was large relative to the size of the Swiss financial system and economy, investors may lose confidence that they will have the stomach to maintain the pace of buying and take the risk. The Danish peg, which is the most successful in modern times, has had a history of willingness to absorb pain in order to maintain the peg, whereas investors will be far more uncertain about how committed the SNB, given that the peg is tactical rather than structural.

Bottom line: yet another last ditch attempt to intervene by a desperate central bank. It will fail as all others have.

 


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Thu, 08/11/2011 - 10:08 | Link to Comment Ethics Gradient
Ethics Gradient's picture

ERM, bitchez!

Thu, 08/11/2011 - 10:10 | Link to Comment Clueless Economist
Clueless Economist's picture

I am an attractive female who just got my associate dgree in Economics from ITT Tech.  I very much want to be an on air personality on CNBC.  I am a very good cheerleader for the stock market.  To be sure I get the job which of the following should I sleep with?  Steve Liesman, Jim Cramer, Joe Kernan, Larry Kudlow or Rick Santelli?

Thu, 08/11/2011 - 10:13 | Link to Comment Dr. Engali
Dr. Engali's picture

Becky Quick. Oh wait she is Warren's ho.

 

Thu, 08/11/2011 - 10:24 | Link to Comment Pladizow
Pladizow's picture

There is NO more Switzerland in the classic sense.

To join the IMF their currency could not be backed by gold - so in 2000 they obliged.

Expect nothing but more stupidity!

Thu, 08/11/2011 - 10:36 | Link to Comment espirit
espirit's picture

Doesn't matter which one... the top layer of skin will have to come off, if it does wash off.

Thu, 08/11/2011 - 10:38 | Link to Comment falak pema
falak pema's picture

The Swiss only want one thing : that their money does not become a punching bag in the world currency war game. They have a REAL economy and jobs to protect; they are not all mad hedge funders, expression of current madness of the dregs of the earth.

Thu, 08/11/2011 - 10:43 | Link to Comment Pladizow
Pladizow's picture

If that were the case, their currency would still be backed by gold!

Thu, 08/11/2011 - 11:07 | Link to Comment falak pema
falak pema's picture

The rush to gold is an archaic knee jerk that is justifed as financialised capitalism, à la amerikan, dies before our eyes, and takes down with it all who beieved in it: ie; the three pillars of west economies.

So don't blame the Swiss for not having a gold backing, they got caught up in this shit storm like all the others. Now they have to broaden their money base as the ISSUE today will become LACK OF LIQUIDITY in the banking sector.

The de facto gold standard base today is very narrow. There is not enough gold around to stop the fiat ponzi from killing the real economy. Gold hoarding just takes money out of the real economy and puts it into temporary deep freeze. The Swiss have to make a living and sell their stuff. So they buy into the Euro stability ponzi along with the others. Its a race to the bottom with NO winners...

This whole scam is a PRIVATE BANK SECTOR SCAM FROM DAY ONE. The sovereign debt has arisen to save the private sector oiligarchs from going down and they are still doing it. Its cause and effect. But the root cause is the private sector madness.

Thu, 08/11/2011 - 11:27 | Link to Comment Stares straight...
Stares straight ahead's picture

Other than Falak, the comments above are not accurate.  The swiss want their currency weakened to protect exporters.  This strategy is working so far. 

Lesson learned? :  do not try to store value in a currency in the middle of a currency war.

Thu, 08/11/2011 - 13:36 | Link to Comment malek
malek's picture

Other than your's and falak's comment, the above are accurate.

Yes, the Swiss exporters are getting hurt. And yes, Switzerland is now trying to devalue their currency to stop that (one has to love the euphemism "broaden their money base".)
But unless the SNB will buy up nearly infinite amounts of EUR and therefore eat tons of losses when their intervention stops/fails, it's not going to work.

And to believe that Switzerland is going to quasi-permanently peg to the EUR is laughable.

Next step, which by the way will work a lot better for the Swiss, is capital controls for foreigners.

Thu, 08/11/2011 - 21:19 | Link to Comment Stares straight...
Stares straight ahead's picture

Actually, all of the comments above are only partially correct.

My point was that gold is a safer bet than currencies in a currency war. And I said the swiss strategy was working so far, but I don't think it is sustainable.  And as Milton said, the Euro is doomed from its inception.

Thu, 08/11/2011 - 22:15 | Link to Comment malek
malek's picture

Then we are in agreement! <hat tip>

Thu, 08/11/2011 - 13:59 | Link to Comment trav7777
trav7777's picture

Buying gold doesn't take money out of the economy, dude.  It transfers the money from one holder of gold to the other.

CBs don't redeem paper money for gold any longer.

Thu, 08/11/2011 - 13:55 | Link to Comment trav7777
trav7777's picture

well, it's also a matter of that the rest of the currencies can't have everyone flocking to CHF and making life hard for them.  This is why FDR banned gold, because people were stampeding out of FRNs.  On the flipside, the desire for safe haven is making life expensive for any exporter

Thu, 08/11/2011 - 10:55 | Link to Comment hunglow
hunglow's picture

can I watch

Thu, 08/11/2011 - 10:15 | Link to Comment Stoploss
Stoploss's picture

You will have to pull a train.

Thu, 08/11/2011 - 12:40 | Link to Comment hunglow
hunglow's picture

Throw another log in the fire. 

Thu, 08/11/2011 - 10:15 | Link to Comment TwoShortPlanks
TwoShortPlanks's picture

The Devil.

Thu, 08/11/2011 - 10:17 | Link to Comment slaughterer
slaughterer's picture

Steve Liesman (please no, anyway he is into bald economics Professors from Princeton)

Jim Cramer (nah, all used up, can't get it up)

Joe Kernan (represents a different type of challenge)

Larry Kudlow (too effete, no need to sleep with him, just give him a good bottle of wine and a back rub)

Rick Santelli (yes, why not, just do not mention the Tea Party, and ignore the fact that he speaks like David Lee Roth but looks like the neighborhood Italian pastry chef) 

Thu, 08/11/2011 - 10:18 | Link to Comment DonnieD
DonnieD's picture

Application Denied. Attractice females need not apply. Try ESPN

Thu, 08/11/2011 - 10:25 | Link to Comment ToNYC
ToNYC's picture

 

Go to the NJ studio after Jokernon gets off. Bring his daughter's book looking for an autograph wearing a tight red MCC sweater and a Right attitude about corporate fealty.

Thu, 08/11/2011 - 10:29 | Link to Comment MolotovCockhead
MolotovCockhead's picture

You are really clueless ain't you? Those that you mentioned are all small fries! If you are aiming to go all the way up to the top of a corporate ladder, you should open yourself to names like Rothschild, Warburg, Rockefeller, Astors, DuPonts, Guggenheims, Vanderbilts............Aim higher, don't lower your standard!

Thu, 08/11/2011 - 10:34 | Link to Comment falak pema
falak pema's picture

Try DSK, although not a media baron, he is big news and somewhat a lonesome cowboy these days. It would do your reputation of clueless hotty a lot of good if you survived a one night stand by his side. You'd get a AAA+ rating from S&P for being a rising star with a jet booster from a rooster in a place where it counts most; if you don't want to end up as toast in the sheeple crowd; without a PM hoard  to show for your name, but thanks to your PHD degree in no holds barred, naked uneconomic play. 

Thu, 08/11/2011 - 12:30 | Link to Comment FeralSerf
FeralSerf's picture

I recommend you sleep with me.  I can do you as much good as Liesman, Kudlow or Cramer.

You wouldn't get much sleep with Cramer or Kudlow unless you brought some serious ear plugs with you.

Thu, 08/11/2011 - 13:33 | Link to Comment TruthInSunshine
TruthInSunshine's picture

He's a male.

Clueless Economist is hilarious and used to have Paul Krugman's photo as his avatar.

I wish he'd return to the old avatar because it was more consistent with his actually very funny sarc-baiting of Krugmanites & Keynesians.

Thu, 08/11/2011 - 13:16 | Link to Comment konputa
konputa's picture

@Clueless Economist,

I noticed you say this quite a lot.

Thu, 08/11/2011 - 10:22 | Link to Comment Pladizow
Pladizow's picture

There is NO more Switzerland in the classic sense.

They will do what ever the IMF tells them.

To be a part of the IMF their currency could not be backed by gold, so stupidly in 2000 they removed the gold backing.

Expect nothing but more stupidity.

Thu, 08/11/2011 - 10:41 | Link to Comment Spitzer
Spitzer's picture

I don't think the IMF is happy that the Swiss are pegging to the Euro.

Thu, 08/11/2011 - 12:31 | Link to Comment FeralSerf
FeralSerf's picture

Think BIS.

Thu, 08/11/2011 - 10:33 | Link to Comment legal eagle
legal eagle's picture

Does anyone remember "property rights"? I have a sizable payment due me in CHF September 9th, the SNB just fooked me out of thousands in USD. Everywhere you turn there is no free markets and property is stolen as a matter of gubermint policy, ugh. I think I will leave it in CHF and see how long this intervention lasts.

Thu, 08/11/2011 - 10:57 | Link to Comment the tower
the tower's picture

Those CHFs are not your property, so the Swiss can do what they want with them.

Your failure to arrange your payments in US$ is your fault, not theirs.

Thu, 08/11/2011 - 22:25 | Link to Comment IQ 145
IQ 145's picture

The CHF/USD pair dropped sharply because the price went up sharply first; looking at the chart reveals that a kind of panic into the CHF took place; this made the trade pair attractive to professionals as a short. (The risk reward was better on the CHF/USD than the CHF/EUR). The "news" had nothing to do with it. This is shocking ignorance. If you just read the chart you could make money by taking advantage of the temporary foolishness expressed in the price behaviour. If you never read the news at all; which would be an excellent advice; the result would be exactly the same. The whole concept of a "Peg"; is childish nonsense. it's a waste of time to even discuss such a thing.

Thu, 08/11/2011 - 10:10 | Link to Comment Steve Evets
Steve Evets's picture

lunacy

Thu, 08/11/2011 - 10:41 | Link to Comment A Lunatic
A Lunatic's picture

you called?

Thu, 08/11/2011 - 10:11 | Link to Comment Stoploss
Stoploss's picture

Im shocked it took this long. EUR/CHF parity was about to be real by tomorrow. Now you know why the margin hike for gold.

Thu, 08/11/2011 - 10:12 | Link to Comment Tyler Durden
Tyler Durden's picture

CHF margins were also hiked.

Thu, 08/11/2011 - 10:18 | Link to Comment Stoploss
Stoploss's picture

I believe this is an attempt to save the EURO, since the swissie is pegged to gold, this must be an end run to stabilize euro without going full gold peg. That means gold is undervalued by just a smidge.

Thu, 08/11/2011 - 10:21 | Link to Comment Paralympic Equity
Paralympic Equity's picture

CHF is not pegged to gold, for a long time now...

Thu, 08/11/2011 - 11:26 | Link to Comment Stoploss
Stoploss's picture

After Bretton Woods they 'adopted' an exchange rate. It was and always will be, stated against gold. Why in the world would it not move in lockstep with gold?

Thu, 08/11/2011 - 10:22 | Link to Comment Spitzer
Spitzer's picture

No, its the Euro that is floated against gold. The Franc is not pegged or floated to gold. It will be after the peg though.

As if the Swiss are trying to save the Euro out of the goodness of their heart.

Thu, 08/11/2011 - 10:27 | Link to Comment Sudden Debt
Sudden Debt's picture

Yes, the Swiss never really liked it when foreigners dumped their money into their banks....

...

 

Thu, 08/11/2011 - 10:32 | Link to Comment Spitzer
Spitzer's picture

yeah right. Who wants money.....

Thu, 08/11/2011 - 10:39 | Link to Comment Sudden Debt
Sudden Debt's picture

the age old dillema he:

Money > <industry

Thu, 08/11/2011 - 10:37 | Link to Comment Ratscam
Ratscam's picture

correction will be short lived since a peg would have to be politically agreedto and that takes weeks in CH.
come on a 6% move in a currency in 1 day, just sick and not sustainable

Thu, 08/11/2011 - 10:45 | Link to Comment william shatner
william shatner's picture

That's where you are wrong. The Swiss Franc is no longer pegged to gold since 2000. It has become a fiat currency like all the others.

 

Thu, 08/11/2011 - 11:51 | Link to Comment DosZap
DosZap's picture

Stoploss,

The Swissie is no longer pegged to Gold............that went bye bye a while back.(Idiots)

They wish it were, and they had not like most CB's in thise days, dumped the reserves neccessary to back their currency w/Gold.

If it were backed by Gold, the WORLD would have already beat their doors completely down.

Thu, 08/11/2011 - 10:22 | Link to Comment slaughterer
slaughterer's picture

How much is it going to cost that minimum wage earner from Minnesota for a Big Mac in Zurich today?

Thu, 08/11/2011 - 10:31 | Link to Comment Long-John-Silver
Long-John-Silver's picture

It will always be worth 7 90% Silver dimes with a few copper pennies back in change.

Thu, 08/11/2011 - 11:03 | Link to Comment the tower
the tower's picture

there are no minimum wage earners from Minnesota in Zürich so who cares

Thu, 08/11/2011 - 10:27 | Link to Comment TruthInSunshine
TruthInSunshine's picture

The Swiss are trying to save whatever will remain of their exporters.

Does anyone buy Swiss watches anymore?

Does anyone wear watches???

What about chocolates (eating them, not wearing them)?

I think this will work, if lowering the exchange rate of the CHF is the goal.

Whether it's a good idea or bad idea, maybe Paul Krugman or another "government should interfere with markets at every opportunity, especially when externalities create comparative disadvantages" type economist can tell us the answer.

After which, they can explain to us what happened to Japan or what's soon to happen to China (or Amerkranski, for that matter).

The problem with the academics is that they so vastly fail to appreciate the laws of unintended consequences.

Markets are not a temperapedic mattress where you can jump up and down on them like a rabid Gorilla, while not waking your spouse up, let alone not knocking over the glass of red wine someone placed on top of the mattress.

Thu, 08/11/2011 - 10:34 | Link to Comment Spitzer
Spitzer's picture

The US had the strongest currency in the world when it was the worlds biggest exporter.

Sure is allot of closet keynesians around here....

Thu, 08/11/2011 - 10:46 | Link to Comment TruthInSunshine
TruthInSunshine's picture

If you were directing that at me, you missed my point.

Stated succinctly, I think it's within the control of the Swiss Gov't to debase their currency.

(I do not think it's the best idea, to put it mildly - see my comments above)

Thu, 08/11/2011 - 10:37 | Link to Comment pods
pods's picture

Go long Swatches!  And don't forget the swatchguards!

pods

Thu, 08/11/2011 - 14:36 | Link to Comment trav7777
trav7777's picture

yes...rich people buy swiss watches.  I'm wearing one now and have another at home.

Losers wear knockoffs or cheap crap like chinese Fossil trying to look bigtime.  Only non-swiss watch worth a shit is seiko.

Thu, 08/11/2011 - 14:49 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I haven't worn s watch since the dawn of the smart phone, and have never not known what time it is.

If I run into a problem on that front in the future, maybe I'll wear my Tag again, which would allow me to dive 500 meters deep into the ocean, which would be really useful, I guess, even though that's about 1,640 feet, and I'd die.

Thu, 08/11/2011 - 15:11 | Link to Comment trav7777
trav7777's picture

people who use their phone as a watch lack class and style.  Simple as that.  This may work for you, but let's just be honest about the truth.

Fri, 08/12/2011 - 03:54 | Link to Comment ZeroPower
ZeroPower's picture

Patek P FTW

Thu, 08/11/2011 - 22:30 | Link to Comment IQ 145
IQ 145's picture

Correct. The high tech export sector is good in Switzerland.

Thu, 08/11/2011 - 15:58 | Link to Comment knukles
knukles's picture

Dear Tyler,

Does this effect my extradition papers?

Anonomyous

Thu, 08/11/2011 - 10:11 | Link to Comment Willzyx
Willzyx's picture

Who is gonna be the one to break the bank of Switzerland?

Thu, 08/11/2011 - 10:35 | Link to Comment malikai
malikai's picture

Seriously. What are they going to do, ride the Euro to zero? Give me a break. I'm pretty sure the ECB will take that bet.

Thu, 08/11/2011 - 10:14 | Link to Comment Caveman93
Caveman93's picture

They're like "Money Cockroaches" ... you cannot kill the Swiss. 

Thu, 08/11/2011 - 10:18 | Link to Comment swissaustrian
swissaustrian's picture

Cockroach here.

Maybe all the chf-buyers arround finally realized that the snb is guaranteeing UBS and CS?

Thu, 08/11/2011 - 11:25 | Link to Comment Bam_Man
Bam_Man's picture

Bingo!

When UBS goes up in flames, it will take the CHF along with it (eventually due to attempted bailout costs). 

Thu, 08/11/2011 - 10:17 | Link to Comment runlevel
runlevel's picture

den of vipers

Thu, 08/11/2011 - 10:18 | Link to Comment slaughterer
slaughterer's picture

And we are supposed to trust Swiss bankers?  

Thu, 08/11/2011 - 10:18 | Link to Comment Spitzer
Spitzer's picture

Ok, can we put the bullshit to rest, that the dollar is " the cleanest dirty shirt" off the pile." ?

It is faily obvious to me that the Euro is the better currecny and the Swiss agree, but like usual, consensus is dead wrong.

The dollar is the worst of the big 3.

Thu, 08/11/2011 - 10:33 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Yep Spitz - I was tempted by the dollar when the ECB & their swiss counterparts appeared not to back Italy but now Italian yields are falling - me thinks I was wrong.

If the free gold meme becomes a bigger reality the US trade deficit will effect US consumption dramatically - then we enter a different world.

Thu, 08/11/2011 - 10:52 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I'll take USD over EUR right now, all day long, every day, for the time being.

Blackboard the math on the EU crisis, including total *real* debt of sovereign members, and then throw in the banking sector liabilities and exposure (in europe and abroad).

We'll see what happens going forward, but for now, as tragic as the U.S. situation is, at least much of the tragedy is in the form of unfunded future liabilities (which can be made non-funded, non-future, non-liabilities), whereas in europe, the current welfare intra-state transfers are much higher than in the U.S. on a GDP adjusted scale.

As a bonus, the U.S. has massive pocket of unrealized savings it can go to if it ever becomes rational, to wit, the military budget (which is not something that can be said for any of the EU member states).

Thu, 08/11/2011 - 11:02 | Link to Comment Spitzer
Spitzer's picture

I will just counter with one fact. Even though there is many reasons why the Euro is a fundamentally better cuurency.

The Eurozone is a net creditor with no trade deficit. The US is the biggest debtor in history.

What savings are you talking about that the US has ?

 

Thu, 08/11/2011 - 14:39 | Link to Comment trav7777
trav7777's picture

the EZ banks are not in great shape and most of the eurozone is a net debtor.  What you meant to say is that the deutschemark is in great shape

Thu, 08/11/2011 - 17:28 | Link to Comment Spitzer
Spitzer's picture

Thats not true but anyway, does California have more debt then Texas ?

Thu, 08/11/2011 - 11:09 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Yes but nearly all of the debt is internal and in Euros - so where exactly does the Euro wealth  go ?

Theres a very small Euro trade defecit now - and although sustainable trade flows does not matter much with the dollar reserve system , if Euro CB banks decide to buy Gold with newly printed Euros the dollar reserve system is in deep deep trouble.

Thu, 08/11/2011 - 11:21 | Link to Comment TruthInSunshine
TruthInSunshine's picture

The EU is about to partake in one of the biggest fiat printing exercises known in the history of the world, via the ECB, lest the EU implodes in a ball of fiery death (which is a possibility - but it's one or the other), and you guys want to talk about deficits and a non-USD reserve currency hypothetical?

Be my guest, but I'm just trying to point out the writing on the wall.

Thu, 08/11/2011 - 11:35 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Volcker oversaw a massive bank credit explosion to pay interest on US goverment debt - why cannot the euro banks print their base to suck in the remaining wealth from that  30 year $ credit bubble.

 

Thu, 08/11/2011 - 11:54 | Link to Comment TruthInSunshine
TruthInSunshine's picture

First, Volcker had to crash the economy under Carter, to break the back of rampant inflation, which gave Reagan the opportunity/window to provide stimulative tax breaks (check out what cutting capital gain rates did for commercial real estate) which fueled a massive credit/debt issuance expansion of the U.S. economy (which we're still feeling the overhang of).

There is no comparable situation at present in Europe. If anything, interest rates are still artifically low for consumers and businesses (whereas a 30 year mortgage was 14% under Carter and a small business loan could have a 20% interest rate - hell, 30 year UST were paying 16%).

Second, the fundamentals are completely different. While unemployment raged under Carter, it was because of oil and energy shocks, labor costs and high inflation and costly credit. When Reagan took office, the people who were laid off in factories got their jobs back, as there was no NAFTA, Chinese MFN trade pact, etc. In Europe now, just like in the U.S. now, there is no fix for chronic and massively high rates of unemployment and underemployment, as the leaders of the PIIGS+UK+France have all been more than happy to see their multinationals build factories in Eastern Europe (their Mexico), and they also import a great deal of finished goods from China and Japan.

So, whether one thinks what happened under Reagan is good, bad or indifferent, how can you possibly argue that the structure is currently in place in Europe to allow the ECB and the European Banking Sector to repeat the credit/debt expansion that took place in the U.S. from roughly 1983 to roughly 2007???

This is all the more puzzling given that The Bernank and his cohorts are suppressing yields are sovereign issued debt so far below what would naturally flow in a truly free market that it's safe to say that The Bernank has literally lopped what yields should be by about 75% (notwithstanding the crises in PIIGS debt which has produced spikes in their yields due to lack of clarity as to how their epic problems will be resolved).

Thu, 08/11/2011 - 12:17 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

They will not increase their credit debt , they will increase their base - base money is not debt.

Interest rates are a product of how much wealth you can extract from a economy - they are not high or low , they just are.

Witness the high rates in the US when you still had real wealth to extract - there is no more capital wealth , thats why interest rates are so low.

Thu, 08/11/2011 - 12:27 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Witness the high rates in the US when you still had real wealth to extract - there is no more capital wealth , thats why interest rates are so low.

 

You can't possibly be serious. You're saying free market forces are setting rates, and not central planning?

There's a lot of wealth in the United States. It happens to be locked up in ogilopolies or de facto monopolies, but it's there.

But are you really saying that interest rates ARE NOT low primarily because of Bernanke's interventionism in U.S. debt issuance?

You won't concede that interest rates would be much higher had The Federal Reserve not monetized 1.5 trillion of U.S. debt, bending the yield curve, over the past 26 odd months or so, and had it not set member bank borrowing rates so low?

I mean, the Fed has taken FOMC rates from 6.5% in 2007 to 0.25% today, monetized between 55% and 63% of U.S. deficit spending in the past 23 months, and you're actually claiming that rates are low because of any free market forces?

???

Thu, 08/11/2011 - 12:39 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

The Fed took the decision to not destroy the shadow banking sector - this is the rentier sector of the economy.

To pay the interest on this malinvested credit you must increase the fiscal debt  , YOU MUST - otherwise there is no money to pay the private credit debt.

If the FED destroyed the banks  - interest on goverment debt would be higher.

There is a lot of potential wealth in America but it does not exist now - 30 years of net negative capital investment has extracted most of it.

Thu, 08/11/2011 - 12:48 | Link to Comment FeralSerf
FeralSerf's picture

It's wrong to infer that the Fed, by not giving the banks large quantities of public capital, would be "destroying the banks".   The banks destroyed themselves.

Interest on government debt would not be higher if the banks were allowed to fail.  The Fed could still have bought USTs, but without the markup that was given to the banks, if it had wanted to.  These are two separate issues.  There is a difference between "rent" and "theft".

Thu, 08/11/2011 - 12:58 | Link to Comment Spitzer
Spitzer's picture

the Fed cannot, by law, buy US treasuries without going through the banks. No banks, no purchases.

Thu, 08/11/2011 - 13:13 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

OK Spitzer , but if there was a debt for equity swap in the banks interest on US debt would be higher  - Yes ? , No ?

Thu, 08/11/2011 - 12:41 | Link to Comment FeralSerf
FeralSerf's picture

+1767

Spot on!

Thu, 08/11/2011 - 14:43 | Link to Comment trav7777
trav7777's picture

Look man, it's very important that you and everyone else understand this concept.

DEBT is a supply and demand instrument like ANYTHING ELSE.  There is NO DEMAND for credit in the US at even 2%.  Nobody will borrow at that rate.  YES, the Fed follows the economy and YES, there is very little wealth that can be had in the US.  There's no POINT in borrowing money to do economic activity here because aggregate economic ROI has gone flatline or even negative in the USA.

Would sovereign rates be higher?  Sure!  Would people be lining up to borrow at 10%?  Hell no.  Credit's inability to GROW at higher rates is WHY the Fed had to follow the rate regime downward.

All the idiots out there thinking high rates will magically make their stupid savings account money by virtue of magic are fools.  To PAY YOU the coupon, the banks have to EARN a higher one elsewhere...and they cannot!

Thu, 08/11/2011 - 16:27 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

 3 Words Trav : MISALLOCATION OF CAPITAL , we have a energy crisis because we have had a banking crisis for 40 years. - we do not have banking crisis because we have energy crisis.

But because we have so little capital left it truely feels like a pure energy crisis.

Thu, 08/11/2011 - 11:45 | Link to Comment Spitzer
Spitzer's picture

Europe has a trade surplus with China today. What makes you think that the Chinese are not next in line to peg to the Euro ?and buy lots of Euro bonds?

The US prints 50 billion a month just to feed itself. You have no idea what you are talking about.

 

Thu, 08/11/2011 - 12:16 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Europe has a trade surplus with China today because of Germany.

Take Germany out of any discussion centered around EU and then rework your figures and come back to the debate - that includes your statement above. Europe can't feed itself going forward absent massive deficits that can only be made possible by a massively devalued EUR (due to a German consent on a EU bailout package provide by ECB action; i.e. printing EUR to bail out defaulting EU member states) or outright defaults and massively lower standards of living.

And that brings us back to the fundamental point:  Germany is the EU, for the time being. Without Germany's consent, there can be no future for the EU. Germany can literally dissolve the EU, because it's the only nation that can afford (albeit very painfully for citizens and taxpayers of Germany) to rescue nearly every other EU member state, and especially France, Italy and Spain.

So, if Germany decides to try and hold the EU together, the ECB is going to have to dilute the EUR by printing so much of it that it's somewhat less painful for Germany's taxpayers, and Germany may go along if only because this will have a very positive affect on Germany's exporters, and essentially give them assurance of better comparative advantage for a longer period of time, too (Germany may recoup a good chunk of the upfront pledge they will have to provide to the ECB with time).

There are two roads to resolution of the EU crisis: 1) Germany can approve a plan to back the ECB and the ECB can print trillions of EUR so that troubled members can be bailed out, or 2) Troubled EU members can default on their debts (though, I don't know that I'd label this as a resolution, rather than an end result).

If you pick option #1 above, how does the EUR catch a bid, let alone not go lower?

Thu, 08/11/2011 - 12:51 | Link to Comment kaiten
kaiten's picture

I think, you are underestimating the rest of eurozone. Nearly all eurozone countries have higher export per capita then US, including countries like Portugal, Spain, Italy ....

http://en.wikipedia.org/wiki/List_of_countries_by_exports_per_capita

Thu, 08/11/2011 - 13:08 | Link to Comment Spitzer
Spitzer's picture

The US treasury issues debt and buys it from itself through the (not so private) Federal reserve. Not only is the treasury the biggest printer in the world, but it is also the biggest debtor.

Contrast that with the ECB. The ECB is a real central bank. It has no debt. It issues no debt. It can print and devalue the Euro by reshuffling purchasing power between member bond markets but that is a night and day diffrence between the ponzi disaster going on in the Treasurey/Fed world.

Thu, 08/11/2011 - 13:44 | Link to Comment TruthInSunshine
TruthInSunshine's picture

I honestly don't know if you're joking or being serious.

Honestly. I really, really don't.

In the event that you're serious, let me just state that the ECB practices fractional reserve banking exactly in the same manner that the Federal Reserve does. They issue money/debt, conjured from thin air, absent any relation or ties to anything of inherent value, whether gold or any other tangible thing, and they loan these credits of money/debt out to ECB chartered banks, who then repeat the process with leverage.

The Euro is backed by nothing. It is pure fiat. It doesn't even carry the rhetorical 'full faith & credit' clause that the USD/FRN does.

Greece or Spain or Italy or France can't print more Euros to provide to their creditors if they find that they're...ahem....short. They have to borrow from the ECB, the IMF, or THE FEDERAL RESERVE, which is indirectly precisely what happened back in 2008, when member banks chartered under the ECB and THE ECB ITSELF were borrowing money from the Federal Reserve!!!!!!!

Thu, 08/11/2011 - 17:34 | Link to Comment Spitzer
Spitzer's picture

You don't understand the reality of the situation. The US treasury is the biggest debtor and printer in the world.

The ECB does not isssue debt for all the of the memeber countries and print money to buy their own bonds.

You just said it yourslef that Greece Italy or Spain cant print their own Euro's. Do you see the disconnect yet ?

Thu, 08/11/2011 - 11:27 | Link to Comment Bam_Man
Bam_Man's picture

Personally, I prefer the "The dollar is the whore with crabs, the others all have AIDS" analogy.

Thu, 08/11/2011 - 10:18 | Link to Comment chartcruzer
chartcruzer's picture

yup,  any parabolic move eventually corrects,,,  for whatever reason

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s229780586]&disp=P

what's interesting is that other previously hot areas (like pm and pmm) are also correcting.

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s162592053]&disp=P

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3225058&cmd=show[s162873844]&disp=P

could be a reversal candle on gold?

this seems to portend that aversion to risk is mitigating (at least temporarily)

 

Thu, 08/11/2011 - 10:28 | Link to Comment breezer1
breezer1's picture

technicals on gold? lots say they work even with overwhelming intervention by tptb. 

i no longer believe anything i see or hear on msm.

i'm going back to my reality show.

http://www.youtube.com/watch?v=OsRFGn_9Vw0&feature=player_embedded#at=744

Thu, 08/11/2011 - 10:19 | Link to Comment twinshot
twinshot's picture

The SNB will break if that pig in lipstick UBS gets caught without a dance partner.

There are not that many actual Swiss people. A good % are foreigners who are quite happy to jump a sinking ship.

Thu, 08/11/2011 - 10:20 | Link to Comment slaughterer
slaughterer's picture

ES and SPY bears: please cover if we break through 1155.87 today.  

Thu, 08/11/2011 - 10:31 | Link to Comment SheepDog-One
SheepDog-One's picture

LOL, thanks but no thanks for the advice. Anyone 'trading' this manic depressive basketcase of a 'market' is a lunatic themselves. Yea I'll really try to time some trades in a market that swings up or down 300-400 points within minutes? No thanks, I'll stick with buying small PM's on dips, along with other real assets.

Thu, 08/11/2011 - 10:53 | Link to Comment slaughterer
slaughterer's picture

You sure?  First time in a long time that the technicals are flashing "Strong Buy"

Thu, 08/11/2011 - 10:21 | Link to Comment Seasmoke
Seasmoke's picture

wee wee

Thu, 08/11/2011 - 10:21 | Link to Comment SheepDog-One
SheepDog-One's picture

WTF the central planning and iron fist control of absolutely every aspect of every market is not working? 

Zeig Heil, bitchez.

Thu, 08/11/2011 - 10:21 | Link to Comment twinshot
twinshot's picture

The CHF is not pegged to gold. FFS do your basics.

Thu, 08/11/2011 - 10:21 | Link to Comment Reptil
Reptil's picture

wow, that'd be a first in swiss history, no?

It seems to be more than just a rumour: http://www.bloomberg.com/news/2011-08-11/franc-weakens-as-swiss-central-...

Thu, 08/11/2011 - 10:22 | Link to Comment caerus
caerus's picture

fk'n a man this is crazy!  wheee!!!

Thu, 08/11/2011 - 10:23 | Link to Comment vegas
vegas's picture

Pairs were [are] due for a sizable correction. Afterall, you can't let all those Greek deposits make money forever.

The SNB isn't that stupid; they are going to strike when market looks like it may correct, giving more impact to their stupidity of intervention. That said, TD is right; only the PM's have no counterparty risk and are considered a safe haven. Everything else is fiat, and of course subject to the whim of excrement piles like the Bernank and Hilldebrand.

Thu, 08/11/2011 - 10:25 | Link to Comment SheepDog-One
SheepDog-One's picture

CNN running a 'hot manhunt crime drama' story on.....D.B. Cooper?? Who stole $200,000 40 years ago? Cooper was way more than what is stated....hell the FBI chartered to SR 71 FOUR times to do recon to find Cooper. Theyve probably spent $50 million over 40 years looking for a guy who supposedly stole $200,000...hell Wall St banksters steal way more than that every day.

Thu, 08/11/2011 - 11:32 | Link to Comment Bam_Man
Bam_Man's picture

Well, it is a slow news day. Not much else to report. ROFLMAO.

Television is called "the idiot box" for a reason.

Thu, 08/11/2011 - 15:15 | Link to Comment trav7777
trav7777's picture

well, the riots that took place in London and Milwaukee were by a particular demographic that doesn't apparently warrant heavy news coverage.

Thu, 08/11/2011 - 10:26 | Link to Comment HUGE_Gamma
HUGE_Gamma's picture

this trade was a once in a lifetime opportunity

Thu, 08/11/2011 - 10:26 | Link to Comment Sudden Debt
Sudden Debt's picture

THE PEOPLE MIGHT TRY TO SAVE THEIR MONEY FROM THE COMMING COLAPSE,

BUT BIG BROTHER WILL TRASH IT EITHER WAY!!

 

ps: I could also have something to do with a article in "Le Figaro" where they said the article in "Le Monde" about Société Générale WAS A LIE! Those evil, evil, evil, media speculators!

 

Thu, 08/11/2011 - 10:28 | Link to Comment twinshot
twinshot's picture

Cramer just said the words "Gordon Brown" and "China" in a sentence.

Helmets on guys and gals.

Thu, 08/11/2011 - 10:30 | Link to Comment Stpierre
Stpierre's picture

We French can't be trusted

Thu, 08/11/2011 - 10:30 | Link to Comment High Plains Drifter
High Plains Drifter's picture

what happened to leo?  where is my pension pulse?

Thu, 08/11/2011 - 10:31 | Link to Comment ToNYC
ToNYC's picture

 

D.B Cooper stimulated the economy when Nixon cut the last peg to something non-fiat and rare went out in 1971. They could have dual used the now-historical platinum meter rod kept in Paris at the Institute. It's only important use is to be non-reactive symbol of confidence, best kept in a drawer under dis-ease.

Thu, 08/11/2011 - 10:38 | Link to Comment DonutBoy
DonutBoy's picture

First they give up their customers to the IRS.  Now they give up their currency to the Euro.  A reputation 100's of years in the making, aaaaand it's gone

Thu, 08/11/2011 - 10:49 | Link to Comment ToNYC
ToNYC's picture

 

It's a Pacific Rim story. Go to Singapore and Hong Kong. Moving along is the game, tiger.

Thu, 08/11/2011 - 11:42 | Link to Comment Freebird
Freebird's picture

Exactly.

Thu, 08/11/2011 - 10:38 | Link to Comment janus
janus's picture

Mr. Durden,

I like your bottom lines...but i read it anyway.  I've got another one: SNB robs its average citizen in a short-term and inane attempt to save the ECB further embarrasment.  no real sweeping economic vision behind the theft; just emotive spasms.  congrats, you highly-refined rifle-shootin rednecks (after janus's own heart), you're entering banana land...

sunshine lolly pops and rainbows/

everything is wonderful/

that's what i feel when we're together,

janus

Thu, 08/11/2011 - 10:44 | Link to Comment Spitzer
Spitzer's picture

so the Swiss are trying to save the Euro out of the goodness of their heart ?

Thu, 08/11/2011 - 12:09 | Link to Comment janus
janus's picture

not really, it was a nicer way of sayin that nuts are being squeezed.  and, touche, i suppose i must inevitably concede to such binary thinking...after all, the fruits of our efforts to devalue the dollar and spur exports are sweet and splendid, no?  oh those horrible days of a strong manufacturing sector and a strong dollar -- how the FUCK can they exist side-by-side?

teach me...i'm here to learn.

Thu, 08/11/2011 - 12:09 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

@Spitz

Explosive article - the Swiss are not sterilising - they are printing raw currency.

No more US QE means less interest flowing back to the treasury.............

Gold is going to EXPLODE.

http://ftalphaville.ft.com/blog/2011/08/11/650656/when-a-government-bond-becomes-a-giffen-good/

Thu, 08/11/2011 - 12:17 | Link to Comment FeralSerf
FeralSerf's picture

Goodness of their hearts?!? There ain't no such thing when you're talking about bankers!

It's honour among thieves! Although "honour" may not be the correct terminology when one is discussing this bunch of thieves.

It's called fuck the taxpayers, fuck the savers, fuck the pensioners, fuck the proles, steal as much as you can for the bankers. The Swiss have been a frugal lot for a long time. It's time for them to bend over and get their rewards. Bring your own vaseline.

Thu, 08/11/2011 - 10:53 | Link to Comment lubyanka
lubyanka's picture

you call it "robbing average citizens", i'd call it "save what's left of a once booming export industry". it's a race to the bottom and switzerland is losing (altho i guess it's catching up fast)

Thu, 08/11/2011 - 11:06 | Link to Comment RedPirate
RedPirate's picture

I couldn't agree more!

Thu, 08/11/2011 - 12:23 | Link to Comment FeralSerf
FeralSerf's picture

All the Swiss would have to do is buy gold, not euros or dollars,  with all that newly printed currency to keep their export industry healthy.  But then the other bankers would be pissed off because they didn't stick to their "Gentlemen's Agreement" not to buy gold and force its price higher.  Better to have poor starving Swiss taxpayers than pissed off international bankers!

Kill them all.  Let God sort them out!

Thu, 08/11/2011 - 10:39 | Link to Comment lookma
lookma's picture

The take home: for those seeing a safe haven from central banking stupidity, just go to where there is no counterparty: physical precious metals.

Exactly!  This is the mindset behind the Swiss thinking - in the face of an economic crisis brought on by the inevitable failure of the dollar reserve currency system, Switzerland wants to develop a stronger economic relationship with the world's second largest reserve currency, the euro, because the fundamental aspect of the Euro is its regressive link to gold.

Who knew - the Swiss want in on the party too, because they are realizing the horrible flaw in the antiquated and utterly flawed gold standard (or in the current case, the closest quasi-proxy thereto) - your transactional currency has to rise, which kills trade. 

Those Euro kids are real smart, they read their Ludwig von Mises and understand its all about establishing a stable secondary medium of exchange (aka unlike the current system where unstable debt serves as a secondary medium of exchange).

Go go Mises, Menger and Hayek -The Return to Honest Money !!!!!!!!!!!

Thu, 08/11/2011 - 10:41 | Link to Comment DonutBoy
DonutBoy's picture

How long before the Japanese smell the coffee?

Thu, 08/11/2011 - 10:58 | Link to Comment godzila
godzila's picture

On a related matter: what happened to the massive pile of CHF denominated mortgages in Eastern Europe ?! Seems that the subject has vanished from the radar...

Thu, 08/11/2011 - 11:37 | Link to Comment Bam_Man
Bam_Man's picture

Excellent point.

Could be the real reason for the CHF smackdown.

There is no way the Swiss government could afford to even try to bail out UBS if it comes to that.

Thu, 08/11/2011 - 11:03 | Link to Comment Young
Young's picture

Keep goin long that sucker!

Thu, 08/11/2011 - 11:03 | Link to Comment Young
Young's picture

Keep goin long that sucker!

Thu, 08/11/2011 - 11:14 | Link to Comment DosZap
DosZap's picture

SNB,

Finally had enough.............................

Ok, you CHF ruining bitchezz, WE will show you how to not screw w/our Currency.

Alas, poor Yoric, I knew him well.

Thu, 08/11/2011 - 11:22 | Link to Comment Atlantis Consigliore
Atlantis Consigliore's picture

W e  re  not Swiss; 

 

We re Germain, 

 

Yah, "Spring time for Swiss Franc and Switzerland"

 

Cmon Swiss Central Bank, Do your Dance.   lol

Thu, 08/11/2011 - 11:38 | Link to Comment theprofromdover
theprofromdover's picture

If you are going to peg, go all the way- 5:1

You can't outrun a manipulated herd, so confuse them.

Thu, 08/11/2011 - 13:13 | Link to Comment toto
toto's picture

This happened for only one reason.Next records in gold price must be in all currencies simultaneously.

Thu, 08/11/2011 - 17:24 | Link to Comment PulauHantu29
PulauHantu29's picture

I read Cialis and Viagra are selling out in Switzerland today after they look at their portfolios.

Wed, 09/14/2011 - 05:51 | Link to Comment chinawholesaler
chinawholesaler's picture

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