This is the beginning of the end my friends, the US dollar and its purchasing power is going down the drain. So this explains the price increases on all products within our borders. The EURO is another currency to throw out of your portfolio, that’s if you have a portfolio. The US dollar cannot rebound, the private bank called the Federal Reserve continues to print money hoping to get out of this financial mess; it will not work. This leads to inflation due to the abundance of cash out in the public, thus they promise to keep interest rate low, not Main Street’s interest rate but rates that apply to financial services and products directed at the Wall Street posse.
Okay, you are wondering why the Swiss franc will not suffer the same fate as the rest of the world? Switzerland is a tax and money haven for the rich, the super rich or the uber rich. So much so, that Swiss Central Bank is thinking about restricting the amount of Swiss Francs you can buy as a foreigner. Everyone is running to the Swiss Franc and precious metals, so the Swiss Central Bank is protecting their people and their economy. They have a steady economy due to the investment in their people and infrastructure.
On the other hand, one of the reason for the dollar not rebounding is, we do not make anything anymore. We do not produce anything, so our trade balance will always be negative. We import everything you see on your shelf in your local stores. We have morphed into a consumer/service economy and we have no money to pay for these services or products. A consumer driven economy was the ultimate goal since the introduction of credit cards in the 50’s. Then the extension of credit to minority families in the 90’s to buy houses which led to the Subprime Loan debacle. The rich will always be okay but the poor and the little that’s left of the middle class will suffer the most. And this is not a particular race, this is everyone that falls into these categories.
Please do not look to your politicians for help, they are all bought and paid for by Wall Street bankers. The exception to the rule is Sen. Sanders, Sen. Kucinich and Sen. Paul. All other politicians are in the pockets of Wall Street, even our dear beloved Obama. Democrat or Republican, they are all in the pockets of the oligarchs.
Efforts by the Swiss National Bank to rein in demand for the franc are “like pushing on a piece of string”, say analysts of the bank’s increasingly urgent measures to fend off investors seeking a haven from the financial storm.
If the market continues to ignore the bank, they say, it might resort to imposing penalty rates on non-residents’ franc deposits for the first time since the 1970s.
Fears over eurozone and US sovereign debt and worries over global growth continue to stoke haven demand for the currency.
Over the past month the franc has risen nearly 14 per cent to record highs against the euro and the dollar. At one point on Tuesday it was up 6 per cent in a single trading session, its largest daily rise in 30 years.
Philipp Hildebrand, SNB president, has warned that “at some point, an overvaluation becomes absurd” and that the central bank “won’t tolerate” further franc gains.
However, last week the SNB’s initial attempts to weaken the franc met with failure. The bank tripled the amount of cash in the financial system by increasing short-term “sight” deposits – cash withdrawable on demand – for banks from SFr30bn to SFr80bn and cut interest rates to effectively zero, but still the franc advanced, threatening to choke Swiss economic growth and exports.
On Wednesday, faced with a fresh surge in the franc, the SNB tried again, adding that it would conduct foreign exchange swaps – effectively pledging to print unlimited amounts of Swiss francs to meet any escalation in demand. Although the franc retreated from its highs, the action failed to weaken the currency substantially.
Analysts say the lack of response reflects the fact that the SNB has not yet entered the market and sold Swiss francs directly. This position is in contrast to the Bank of Japan, which last week sold some Y4,000bn to weaken the yen. Like the franc, the yen has been driven to record levels as investors sought refuge from the financial turmoil.
Many believe that the SNB is reluctant to sell francs given the domestic criticism it faced following its failed and expensive intervention campaign in 2009 and 2010, during which the bank racked up a balance sheet loss of SFr21bn.
“It is telling that the SNB has, so far, not come out and sold Swiss francs directly in the market,” says Simon Smith, chief economist at FxPro. “The last round of intervention led to substantial losses on its balance sheet, which have been exacerbated this year by the franc’s continual rise.”
Some analysts say the SNB is impotent, given that the main source of demand for the franc is out of its control.
“The Swiss authorities have bravely attempted to fend off Swiss strength by announcing further liquidity measures. However, with liquidity already ample in Switzerland, the Swiss authorities could be doing little more than pushing on a string,” says Jane Foley, foreign exchange strategist at Rabobank.
“The outlook for the Swiss franc lies largely in the hands of the eurozone politicians, rather than the Swiss authorities.”
Valentin Marinov, strategist at Citigroup, says because Swiss franc strength is mainly driven by investors’ desire for alternatives to the euro and the dollar, that makes triggering a downward trend difficult. He says the SNB’s decision to conduct foreign exchange swap transactions could deter speculators from betting on more gains in the currency.
The effect of foreign exchange swaps could be augmented by the imposition of penalty, negative interest rates on Swiss franc deposits held by non-residents, Mr Marinov says – although many are sceptical about the effectiveness of even such measures.
The levy was repeatedly used to stem the flow of foreign capital into Switzerland in the 1970s as investors sought refuge from stagflation. Those attempts to weaken the franc largely failed and it remained attractive, given the restrictive monetary policy of the SNB then.
“The latest massive easing of Swiss monetary policy conditions could therefore provide an important precondition for the successful implementation of penalty rates,” says Mr Marinov.
Copyright The Financial Times Limited 2011.