9/18/07 - A Sad Day For America
- Thread starter aeliodon
- Start date
Quote from KyivTrader:
You meant this move here, right?
http://www.forbes.com/markets/feeds/afx/2007/09/13/afx4114116.html
I think key to the price and economic stability that Switzerland enjoys is having a truly independent central bank. Not in mere words but in its actions.
I quote from SNB's web site:
"Mandate
"The Swiss National Bank conducts the countryâs monetary policy as an independent central bank. It is obliged by Constitution and statute to act in accordance with the interests of the country as a whole. Its primary goal is to ensure price stability, while taking due account of economic developments. In so doing, it creates an appropriate environment for economic growth."
Naturally even in a small place like Switzerland lots of institutions would love to be able to tell the SNB exactly what to do, so how can they stay neutral?
The key lies here:
http://www.snb.ch/en/iabout/snb/org/id/snb_org_indep
"... The functional independence consists in the formal prohibition of the National Bank and its statutory bodies to accept instructions from the Federal Council (that would be your President), the Federal Assembly (that would be Congress in the US) or any other body in fulfilling its monetary tasks ..."
The SNB gets frequently shot at by political parties and trade associations for not doing this or that. Same happens to the ECB. I remember years ago some German politicians wanted to have some control over the Deutsche Bundesbank, telling them what to do. The Deutsche Bundesbank politely told them to "bugger off". That's what independence of a Central Bank is all about in my view: to be there to serve the whole not just a few.
Just so you know, as generally there are some wrong assumptions about the Swiss Franc.
It is no longer hard currency, it has been a fiat since 2000 or 2001 and was slowly being debased since 1970s. While Switzerland enjoys a number advantages, its currency is kind of an illusion. Like I said, it's pretty much a fiat nowdays and it was quite a surprise to me when I found this out through random research.
If you're not pissed off yet, just check where the Canadian Dollar is trading.
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Yup, less than three more cents, and theirs will be worth more than ours!
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Yup, less than three more cents, and theirs will be worth more than ours!
Bernacke will put us in a Japan style 20 year depression if he panics and uses up all this rate cut bullets while economy still strong and market near all time highs. I've never head of a CB panic so fast and so soon over nothing. And we don't have the savings resources to survive somthing like that like the Japanese do. A .25 cut in the discount rate would've been more prudent.
It's so fascinating to see Japan's recent history play out exactly in the U.S. Japan's central bank panicked in a similar fashion (albeit slightly AFTER a real collapse started to surface), and moved the funds rate all the way to 0%.
Did this stimulate spending? No, it didn't. In fact the Japanese consumer decided to save even more cash. It's interesting that as borrowing became increasingly affordable, the nation as a whole decided to stuff their money in savings rather than put it to use for consumption or venture capital.
As I've stated time and again, the issue is no longer rates, but confidence in the system. When the overall mindset becomes risk-intolerant, (as both banks and consumers are becoming toward real estate here), the economy steadily grinds to a halt. The worst consequence of this is a massive deflationary spiral like Japan has endured for decades.
There's no avoiding it. All this phony liquidity MUST be washed out of th system under a period of DEFLATION before our economy can get healthy again. It's going to happen regardless of monetary policy.
RoughTrader