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EYE-BALL Guru on – Another reason the Australian Treasurer deserves his DUNCE-HAT – Part II!!!

September 6, 2011
The-EYE-BALL-GURU
Title:
Another reason the Australian Treasurer deserves his DUNCE-HAT – Part II…
The Swiss Central Bank today acted to protect its own economy – it took the market by surprise when it announced it was fixing its currency to the EURO at CHF1.20 to the Euro.  The chart contained in the copy of the story shows the markets response.The story over the wire read:

Swiss National Bank acts to weaken strong franc 

EUR:CHF intraday chart

The Swiss National Bank (SNB) has set a minimum exchange rate of 1.20 francs to the euro, saying the current value of the franc is a threat to the economy.

The SNB said it would enforce the minimum rate by buying foreign currency in unlimited quantities.

The move had an immediate effect, with the euro rising from about 1.10 francs before the announcement to 1.21 francs.

It is the latest attempt by the central bank to weaken its currency, which has been at export-damaging record highs.

The SNB has previously said that it would increase available deposits to commercial banks, as well as cut interest rates.

The Swiss government has also said it would increase its spending by 2bn francs to help boost the domestic economy.

‘Utmost determination’

In a statement, the SNB said: “The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20.

“The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

The Swiss stock market, the Zurich SMI, rose 4% after the announcement, with exporters the biggest risers.

‘Grand scale’

The European Central Bank issued a short statement saying the decision had been taken by the Swiss National Bank “under its own responsibility”.

Jeremy Cook, chief economist at World First, said the resulting currency movement was “the single largest foreign exchange move I have ever seen”.

Against the franc, the euro climbed 9%, the dollar rose 7.7% and sterling gained 7.8% within minutes of the announcment.

“This dwarfs moves seen post-Lehman Brothers, 7/7, and other major geopolitical events in the past decade,” Mr Cook said.

“The Swiss have had enough. This is intervention on a grand scale.

“This turns up the heat on the eurozone and other economies who have benefited from weakening their currency in the past couple of years.”

Once again the Australian Treasurer and the RBA are shown to be complete “dunces” – for many months this blog site has pounded the Australian Treasurer and the RBA over the high value of the A$ – [see links below to read previous posts.]

Previous posts on this same issue can be read using the links below:

Given this devaluation – and the swiftness the Swiss Central Bank (SCB) has acted over the last 3-4 months to curtail the appreciation of their currency – this latest action gives new meaning to determination.   It also shows up the lack of action and pure idiocy of Mr Swan as the Australian Treasurer over the last 4 odd years – and the collective stupidity of the RBA’s policy to only focus on “inflation” indicators to monitor the Australian economy.

The $A Billion’s being shipped off-shore in raw materials and agriculture is returning to Australia as a fraction of what it was when the A$ traded in the A$.70-.80c range – this is where the A$vUS$ has averaged over the last 40 odd years.

The current levels have created the two-speed economy every economist and forecaster has blamed for Australia’s economic woes – and as a response the Government and the RBA have not acted or responded to the rise of the A$.

There was a time when the RBA would step into the markets to take the heat out of the currency – this often had the sting to squash over-buying or selling – this appears on the RBA record of activities to be a thing of the past – particularly when currency targeting should have been of focus.

TRhis in-action and the policy of maintaining relative high interest rates has underpinned any reason to sell the A$ – it continues to be so even now -

The SCB showed some insight to protect their economy – as a contrast the RBA under the Treasurer’s direction has shown no intent to prevent the A$ from rising.  This represents gross incompetence on a scale that has cost Australian Retailers, exporters, tourism operators, manufacturers and the mining and agriculture sectors $100’s billions.

It’s time for SWAN to offer his head and acknowledge his incompetence.

________________________________________

The EYE-BALL GURU …

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  1. Cowboy
    September 6, 2011 at 11:10 pm

    Hi Guru …

    The saying ‘sometimes you are the windscreen, and than at other times you’re the bug’ … seems to apply … Swan is the ‘bug’ on this issue …

    Cowboy …

  2. Long-John
    September 6, 2011 at 11:13 pm

    Maybe Swannie is so occupied with his own number counting for the Leadership to have his eye on the ball over currency governance …

    Long-John

  3. HissyFif
    September 6, 2011 at 11:14 pm

    Hey Cowboy –

    Love the match up between the windscreen and the bug … gonna use it .. Thanks

  4. The EYE-BALL
    September 6, 2011 at 11:18 pm

    Hi Guru,

    The Swiss markets rallied 300 points after the announcement re currency devaluation against the Euro …

    The FTSE CAC, and DAX have been pulled along as a result. Seems all Europe want to join the party. Wonder if the ‘Old man Swannie’ has learnt a lesson …

    EYE-BALL

  5. Firecracker
    September 6, 2011 at 11:28 pm

    This is a real go at the Chinese –

    ‘We’ve had enough and we’re not gonna take it anymore’ type stuff …

    When the markets get hit with this type of regulatory response – the markets will reverse – shorts will cover themselves and the 2-3 day rally has started … if it fails than the Swiss will have to play their next card … the chess pieces are on the move …

  6. Budda-Balls
    September 6, 2011 at 11:41 pm

    Swan’s a wanker – no doubt he sees himself as Gillard’s successor and is doing the numbers right now … if he does not learn form the Swiss intervention then this Treasurer surely has to finally accept that he is not qualified for the responsibility of the title …

  7. Herman
    September 7, 2011 at 9:42 am

    Let us try to imagine that we pegged the AUD at 0.80 to the USD. The banksters (courtesy of Oz Truth) would be up in arms. They prey upon the import/export sector as much as any other sector. An Octopus with sucking tentacles everywhere. The boon to manufacturing sector would be immense.

    A company like a beverage company pays cents for sugar, cents for aluminium and other packaging, cents for wages (most processes are mechanised) often $ in excise, and too often their largest volatility in profit is currency conversion, branding or import/export side. They have developed strategies to deal with this which often includes structural tax evasion.

    Some time ago, a Christmas Cracker manufacturing company in Malayasia was presenting on TV how they do not hedge any production inputs costs only sales. Currency.

    Then there is Newcrest. Their proven gold reserves would immediately jump from world price converted at spot to World Price at 0.8. A 30+% increase in value. Gold would have to be included in the resource royalty tax.

    Then consider the mortgage sector. They would immediately have immense weekly savings as our official interest rate would move to parity to US interest rates, and there would be a further spike in already outrageously high real estate affordability index. There would be some offsetting inflationary pressures, like the price of fuel coming down.

    We could consider tying our currency to a stronger currency like the Chinese yuan (which is the same thing).

    What is really most broken right now, is the WTO. For decades GATT was able to make small inroads into nonsense protectist policies that saw Ricardian Model economics and Heckscher Ohlin Model totally ignored in the name of national interest. Then out of national interest the USA simplistically thought that by shanghai-ing China into WTO they could have China embrace industrial property law and logic. The Doha round of trade talks is in tatters, it rarely gets a mention, and China was permitted to maintain a currency peg, and therefore pursue mercantilist theory (national interest). Of course there are other issues in WTO.

    Should the Treasurer simply call for econometric models to be developed, to start considering this what might incur. It would be immediately labelled as Sovereign risk. Really what is sovereign risk? The mining sector tried to use this argument against a resource royalty tax. An unexpected government policy shift. It is no different to volatlity that we all need to adopt to, devolve to everyday.

    How does the household sector cope with Prices increasing at CPI ish where wages are increased at a small part of CPI plus productivity? That is slowly re distributing wealth from household sector to technology and innovation.

    Guru, keep up the debate. Our government is failing us, and when the writing is on the wall, the corrective elements of our society, are too asleep or part of the same nonsense.

    Why does Mr Swan put too many other interests in front of our national interest?

  8. oztruth
    September 7, 2011 at 10:57 am

    Great to see Swann getting called out. Unfortunately I think Hockey would be doing the same. They don’t have much say in these issues.

    And so the Swiss Gov. are gunna print money, and buy trashy sovereign debt to control it’s currency. This essentially puts them in the Italy/Greece/Portugal boat.

    Hope you have your popcorn ready – the fireworks are about to start. It’s a race to the bottom.. my money is on the Euro.

  9. EYE-BALL Guru
    September 7, 2011 at 11:01 am

    There are many outcomes from a Currency Peg – not all favour the desired outcome. In the case of Australia – a Nation of huge export reliance to balance our National accounts – this single fact is enough reason by itself.

    China’s brinkmanship game in defying world efforts to allow their currency to appreciate freely according to the prominant position in exports – has cost a great deal to the trust within the imbalances of the world trade markets.

    Right now the WORLD is relying on China and its internal consumption and continued growth to drive recoveries in their own economies – third class participants 20 odd years ago – China has a long memory in how the West has dealt with it for over 300 years … soon the world will realise that China is all about China … how can internal growth sponsor world growth as the world comes to grips with their own wastefulness for the last 40 odd years.

    No – I don’t agree that free trade is what it used to be – orininally introduced to help prevent conflict it has now taken on a different and more aggressive posturing. …

    Herman – your comments are inciteful as they are illuminating and you continue to be a like thinker and you are appreciated.

    Guru …

  10. EYE-BALL Guru
    September 7, 2011 at 11:07 am

    Thanks for the contribution Oztruth – fact is if teh Opposition became Government – Turnbull would be most likely the Treasurer if ability and knowledge were to count for anything – shoving Hockey into that role and as you same – it would be more of the same ….

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