Did The Swiss National Bank Signal The End of The Euro?
Earlier today the Swiss National Bank removed the "cap rate" of 1.2 Swiss Francs per Euro, which sent Swiss stocks into a tailspin and the yield curve on bonds was crushed to negative interest rates nine years out. It was a swift and decisive move that took markets and traders by surprise, but given the extreme weakness in the Euro, it the was the best move going forward for the Swiss Franc and economy.
The European Union (and Euro currency) were a Keynesian central planner's wet dream in the late 1990s. They had the grand vision of all the nations in Europe under the same currency, working together in parliament holding hands and singing Kum-Ba-Yah.
But like all Keynesian theories and delusions, they never quite work out in reality like they do in the college textbook. While countries in Europe share the same continent, they don't share the same fiscal or other values. And with this big difference and clash in cultures virtually doomed the Great European Experiment from the beginning.
Northern European countries like Germany are more industrious and fiscally responsible. Even 90 years later, Germans still remember the effects of hyper-inflation on its people in the Weimar Republic, and don't want to run up high deficits or high inflation. Southern European nations like France, Italy and Greece are more free-spending and have no problem charging up a storm on the national credit card while they party and drink Ouzo on the beach.
The southern nations like this arrangement because the northern ones were financing their profligate spending. And this won't continue for much longer. But first, a little backstory - what happened in the past that led to this decision?
Back in September 2011, the price of gold was surging higher to $1900/ounce... the US Dollar was rapidly losing value... and Eurozone countries were in big-time financial trouble. So for the "greater good" of the EU, Switzerland pegged the Franc to the Euro - and for all intents and purposes just surrendered its sovereignty to the EU.
Why did they de-couple the Franc from the Euro now?
The European Central Bank (ECB) will meet on January 22nd, where they will probably announce their version of Quantitative Easing (QE), or Money-Printing Gone Wild. The SNB looked at what the ECB planned to do, and decided they wanted no part of this monetary insanity.
There's also the possibility of the "Grexit" (Greek exit from the Euro), and Germany does not want to see the 21st century version of the Weimar Republic. Look for the Germans to make their break from the EU soon if Mario Draghi puts the printing presses into overdrive.
That's why this decoupling may be the beginning of the end of the Euro.
The European Union (and Euro currency) were a Keynesian central planner's wet dream in the late 1990s. They had the grand vision of all the nations in Europe under the same currency, working together in parliament holding hands and singing Kum-Ba-Yah.
But like all Keynesian theories and delusions, they never quite work out in reality like they do in the college textbook. While countries in Europe share the same continent, they don't share the same fiscal or other values. And with this big difference and clash in cultures virtually doomed the Great European Experiment from the beginning.
Northern European countries like Germany are more industrious and fiscally responsible. Even 90 years later, Germans still remember the effects of hyper-inflation on its people in the Weimar Republic, and don't want to run up high deficits or high inflation. Southern European nations like France, Italy and Greece are more free-spending and have no problem charging up a storm on the national credit card while they party and drink Ouzo on the beach.
The southern nations like this arrangement because the northern ones were financing their profligate spending. And this won't continue for much longer. But first, a little backstory - what happened in the past that led to this decision?
Back in September 2011, the price of gold was surging higher to $1900/ounce... the US Dollar was rapidly losing value... and Eurozone countries were in big-time financial trouble. So for the "greater good" of the EU, Switzerland pegged the Franc to the Euro - and for all intents and purposes just surrendered its sovereignty to the EU.
Why did they de-couple the Franc from the Euro now?
The European Central Bank (ECB) will meet on January 22nd, where they will probably announce their version of Quantitative Easing (QE), or Money-Printing Gone Wild. The SNB looked at what the ECB planned to do, and decided they wanted no part of this monetary insanity.
There's also the possibility of the "Grexit" (Greek exit from the Euro), and Germany does not want to see the 21st century version of the Weimar Republic. Look for the Germans to make their break from the EU soon if Mario Draghi puts the printing presses into overdrive.
That's why this decoupling may be the beginning of the end of the Euro.
Labels: Euro, European Central Bank, Mario Draghi, quantitative easing, Swiss Franc, Swiss National Bank
posted by Brian Ochsner | 3:10 PM
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