Bloomberg has an article out this morning on the impact a strong Franc is having on their economy. The article explains that Switzerland’s 2nd quarter was the weakest since emerging from the 2009 slump, their central bank’s economic outlook has “deteriorated substantially”, and may undergo a strong deceleration in the second half of the year. Direct quote: “If the currency stays at its current levels, Switzerland might slip into a recession next year.”
In response to this, the Swiss central bank has lowered borrowing costs to zero and boosted liquidity to the money market last month to weaken the currency. The Swiss government pledged 870 million francs yesterday to help counter the effects of what it called the franc’s “massive overvaluation”. The Swiss National Bank will hold its next monetary policy meeting on September 15.
While not stimulating for a Thursday morning, I think this serves as a timely confirmation of the challenges facing countries who allow their currencies to strengthen. Switzerland isn’t exactly considered a willy nilly manager of financial affairs and here we see them making significant strategic moves (that don’t appear to be working as of yet) to weaken the franc (inflate).
I believe the only possible way out of the US debt problem is via inflating and paying back in funny money (not funny to bondholders mind you). When I am told day in and day out that we have no inflation problem in this country, it only strengthens my contrary thoughts on the subject. This strategy will cause other nations to make moves similar to those being made by Switzerland today or risk grinding their exports to a halt. You know the next move…and the one after that.
Don’t get lost in the laughable data being spread by the bureau of labor statistics and don’t forget the ramifications ramping inflation data would have upon social security payments. Again, watch what they do not what they say.
TD
Z Koolaid 