Below is the summary from my latest research note on the "surprise" revaluation of the Swiss Franc and the related financial damage. There are many ways to lose money from inflation, including sudden jerking motions from conflicted central bankers. They key point to understand is that the Swiss had to defend the franc because of the zero-rate policies of the Fed and other central banks.
Now the ECB is "doubling down" with the notable absence of the Bundesbank and Angela Merkel. The net effect of the ECB action will be greater market instability and less economic growth. I'll be writing a post for The National Interest [11]on the ECB's belated folly for tomorrow. Meanwhile, where to dine in New Orleans tonight....
Best,
Chris
(PS: Yes, the P-51 is back in full D-Day markings. Texcatlipoca is a really cool guy, but a demigod is just not made for modern warfare.)
* Kroll Bond Rating Agency (KBRA) believes that the financial cost associated with the sudden pward revision in the value of the Swiss Franc (“CHF”) is likely to become clear over the upcoming days and weeks in the form of losses to financial institutions and investors. At this time, based upon the information available, we do not expect any changes in the ratings of the global banks maintained by KBRA’s Subscription Ratings Service.
* KBRA notes that low interest rate policies maintained by the Fed and other central banks have created asset bubbles around the globe. The cause of the sudden crisis involving the SNB has its origins in the zero interest rate monetary policies followed by the Federal Open Market Committee (FOMC) and other major central banks since the 2008 financial crisis erupted in the U.S. KBRA believes that the FOMC and other central banks, by keeping interest rates too low for too long, have innocently created a liquidity trap that is now feeding global deflation.
* We believe that the prospect of asset purchases by the European Central Bank (ECB) raises the prospect of further economic distortions in the future. We believe that the Fed and global central banks need to tailor their policies so as not to add greater risk and volatility to the markets and instead support the process of debt restructuring and normalization that must occur in the coming year in order to restore stability and growth to the global economy.
To read the full report, click the link below (free registration required).
https://www.krollbondratings.com/show_report/1876 [12]