When the Swiss Franc started appreciating against the Euro (or was it the Euro depreciating against the CHF?) the Swiss National Bank vowed to fight tooth and nail to keep the Swiss Franc at a 1.20 parity “at all cost”.
Time to wonder how such a “fight” is fought, whether it can be successful and what are the consequences.
The currency “stabilisation” choices a central bank has
A central bank is the master of its own currency, i.e. the currency it is meant to issue.
In today’s world of unbacked (“fiat”) currencies even the Swiss Central Bank has no real restriction as to how many units of its currency it can create. It can virtually create infinitesimal amounts of it. Read more…
The Euro was probably the most hyped-in currency the world may have ever known.
That fact alone should have been reason for suspicion.
In this article we contrast some of the eulogies heaped on the Euro back in around 2001/2002 when it was introduced as a tangible currency with these past weeks’ near-obituaries.
After World War II when the German Reichsmark was discredited and people were starving they would travel from their city to the local farms … Read more…
Not so very long ago the idea had firmly taken root that the Fed was the “lender of the last resort”, meaning that if no one else would lend to banks, the Fed would, thus preventing bank runs. Now it always struck CrisisMaven as odd that banks under any circumstance should be so little creditworthy that they couldn’t get credit. After all, aren’t banks the “eponym” of creditworthy, so to speak? But that the Fed one day would need to borrow from these banks no one else would lend to is an irony of fate we need to chew on a little to fathom all its dire implications.
How not to Introduce a New Currency
The Euro has been touted as something of a capstone of the European Unification project. Now it may well prove its stumbling block. How ironic. And at the same time how stupid and humiliating!
How (and why) has it all happened? Read more…
Many still think sovereign debt is safe (although I’d like to know how many “elder statesmen” still invest in these “assets” themselves today). This is astonishing at the best of times: would you give credit to a boy who still lived at home at the age of 200+ with no income of his own? Oh, of course, I see, you hope his Mum and Dad Taxpayer will foot the bill. So if he goes to the “Royal Casino” and buys chips, looses big time, then even scraps his old, but perfectly serviceable car to get a new one, you still give him more credit and more, and more?
This is the first article in the “Economic Fallacies” series. An economic fallacy is a concept of economic policy or a statement of “fact” or the proposition of an economic “law” which often sound very convincing while being at least incomplete if not utterly false and thus leading to ineffective, wrong, counter-productive, in short: to mostly harmful economic policies.
One of the more dangerous concepts is the myth of the effects of currency undervaluation, i.e. currency pegs at an exchange rate that tries to keep a currency lower than an unfettered market exchange would effectuate. Read more…
In times where within less than a generation humankind has seen several asset bubbles come and go (Japan’s real estate and stock market bubbles, the tiger states, the Dotcom bubble and now housing in the US, but equally e.g. in Spain and elsewhere plus one brewing in China and maybe one again in the US) and still left standing albeit on feet of clay, the recent rallies in gold obviously beg the question if we not only see another bubble, this time in gold. The argument seems to rest on the assumption that any price change with a certain gradient above “what feels right” must be unjustified. Read more…
… or will the Euro bring down Greece?
(That second question, which by and large I will equally deny, will be more thoroughly dealt with in a future post.)
In an interview in today’s Frankfurter Allgemeine Zeitung, probably Germany‘s most prestigious daily newspaper, titled “Helping Greece would be against the law“, professor of European Law Dr. Matthias Ruffert states unmistakably that each and every European Union treaty that established the European Currency Union and the European currency called the Euro prohibits any form of bailout of the Greek republic, its government or its bonds, be it via direct subsidies, by co-guaranteeing its debt or in any manner conceivable: Read more…