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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I dont get it. What has weakening a currency got anything to do with DOJ and Swiss accounts?
ReplyDeleteAnon @ 3:54. They are both hostile acts. From the US this had to be signed off on by the WH. There are diplomatic considerations that make this necessary. The highest levels of the Swiss government were involved with the decision to devalue the currency.
ReplyDeleteWe hurt the Swiss. The decision to devalue will hurt the USA. tit for tat
"We hurt the Swiss. The decision to devalue will hurt the USA. tit for tat"
ReplyDeleteThat must be one angry bunch of Swiss if your earlier post is correct regarding the danger they are creating for themselves in defending their currency this way. Why would the Swiss do such a thing over the relatively smaller matter of turning over the information the Justice Dept wants? Why not just decline instead?
Even more interesting and provocative is your earlier piece suggesting Obama will announce a massive mortgage refinancing program. Great stuff, fascinating.
But, any further evidence it might be real?
Interesting, but I disagree. I think it has more to do with genuine Swiss concerns about its export base—remember, the EU dwarfs the US as a Swiss trading partner.
ReplyDeleteIf anyone would be pissed off at the SNB move, it would be the eurocrats, not the US. By devaluing the franc, and then pegging it, the SNB has simultaneously removed the franc as a European safe haven play, and has boosted its export prospects at the cost of the European economy.
It's also left gold as the only safe play in case the euro goes down the tubes—which helps the Swiss.
Everything is connected? Often. But sometimes, a cigar is just a cigar.
GL
The UK "dumbed down" or devalued sterling several years back to gain competitive export advantage. The US has QE'd devaluation. The Euro will now devalue due to the peripheral debt (or even worse).(I note that even the Poles are trying to "dumb down" the zloty, as a minor example.)
ReplyDeleteIt's no wonder the Swiss are PO'd at being treated as a relative "safe haven" are drawing a line and saying thus far and no further and the Goldbugs are smugly saying told you so.
Jim Rickards has aptly titled his forthcoming book.
People have historically gone to war over money. But Obama is too weak a president to plan ahead and will “compromise”—his soup du jour.
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