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Franc-ly You Must be Kidding

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Last Friday the ongoing “Currency War” claimed an unlikely casualty – Switzerland, a nation best known for being solid in money and neutral in war. The central bank had to remove the ties to the Euro under pressure from foreign investors and the result was an upward explosion of 39%, before settling in at 15%, in the Swiss Franc (CHF, known by its French name Confédération Helvétique).

That may sound like good news for the alpine nation, and it is if you are holding a lot of CHF in a bank account. But if you make precise equipment or other things that the Alpine nation is known for, your stuff just got 15% more expensive. Managing this situation is going to be a tough one for the Swiss, certainly, but it’s a disaster for those who borrowed money from their famously solid and discreet banks.

It’s also an earthquake that rattles our whole idea of “globalism”.

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Inflation? Naw.

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After years of low interest rates and quantitative easing that amounts to more or less printing $4.5T, it would be easy to predict that inflation is bound to rise eventually. More dollars means, by supply and demand, that they have to be worth less, yes?

But the opposite is happening as the US economy charges ahead as the strongest economy in the developed world. While we have stopped stimulating our economy, Japan and Europe are only accelerating their programs. The US is poised to lose the currency war with the strongest currency standing – and a guarantee of lower prices for a lot more than just gasoline in the near future.

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Eurocrisis II: The Hot One

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Pity poor Europe. 2014 was supposed to be the year that they finally put the Eurocrisis behind them, culminating with a stress-test of banks to prove they could weather the next downturn. There has always been hope for a little bit more growth, too, showing that the forced marriage of nations had benefits beyond just staying together for the kids’ sake.

Then, it all blew up in Ukraine.

Like the previous crisis Europe faced as a freshly united single entity, this one was partly their own making. Ukrainian President Yanukovych was clearly fishing around for about $15B to stabilize his country – and when Europe couldn’t offer reasonable terms he went over to Russia for it, sparking this whole conflict. Europe eventually had to offer the new, less legitimate government the same aid when things turned again. But unlike the previous Eurocrisis, this is an external conflict that will test their determination to stand together to face a more horrible threat – war.

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The Euro Forced Marriage

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The time was a year before the Euro launched, the place was the tiny town of Burghausen, Germany.  Busloads of people from their sister city in France were welcomed with fluttering tricolors silently proclaiming liberty, equality, and brotherhood. It was declared “French Week” through the town as menus in German gave way to French and the whole town celebrated unity.

I asked Herr Mitterer, the owner of the Hotel Post, if this grand “Eurozone” idea was going to work.  “It has to,” he replied, “We’ve seen the alternative.”

Underneath the giddy celebrations at the end of a long period of expansion, the Euro was launched in 1999.  It was always a forced marriage, a necessity blessed like any marriage with talk of happiness and great times ahead.  But at the first sign of trouble the cracks are showing.  Fourteen years on it is at a turning point – move closer or forget the whole thing?

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The Cyprus Disaster

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I have been slow to write about the Eurozone crisis of the moment, Cyprus, for one important reason – I didn’t understand it.  I read about how the big banks became under-capitalized and as the central government contemplated default like so many other European nations and thought it was about the same as we’ve seen repeated in far too many nations.  Then, it got weird.  What was so hard to understand?  It was the way the European Central Bank (ECB) put the hammer down that pretty much forced a run on Cypriot banks and guaranteed a major depression.  Was there something in this that I missed?  Or was the ECB really that unbelievably stupid?

After looking this over for a while, I have come to a very frightening conclusion – the ECB really was that stupid, and more.  This isn’t about Cyprus anymore, it’s about how the ECB is unworthy of any faith at all.  If that scares the Hell out of you, welcome to the club.  I certainly didn’t want to come to this conclusion, but here it is. It all starts, like everything Euro, with Greece …

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