It's the Debt, Stupid

Switzerland, the nation that hasn’t gone to war with a foreign power since Napoleon, is reluctantly debating a generational taboo: ceding monetary independence to win a battle over its runaway currency.

Swiss National Bank Vice President Thomas Jordan said the central bank is assessing “a whole range of options” to prevent the franc, which reached a record against the euro this month, from making Swiss goods prohibitively expensive. Even a cup of coffee at Cafe St. Gotthard in Zurich costs $8.30, with one Swiss franc buying $1.2816 at today’s exchange rate.

via Swiss Ponder Unthinkable as World Turns Economy Upside Down – Bloomberg.

TAL Commentary: Christoph Blocher, a Swiss politician, goes on to complain that “the franc is catastrophically overvalued.” Sometimes I wonder if the stupid gene isn’t linked to the politician gene. Blocher is a billionaire. He’s made a lot more money than I have, so you’d think he’d be smarter than this.

What’s happening to the franc is not that it’s overvalued. What’s happening is that the dollar and the euro are beginning to reflect their true value… which ain’t much, because of the incomprehensible amounts of debt behind those currencies. You see, the Swiss have a balanced budget, almost no unemployment, and an insignificant accumulated national debt. As the US and the rest of Europe plunder their currencies, the demand for these currencies falls and the demand for the Swiss currency rises.

It’s not rocket science, so it’s surprising that Blocher doesn’t understand this. Actually, I bet he does. He’s probably heavily invested in non-liquid assets denominated in dollars, or else he holds large assets whose income depends on tourism. Just a guess, but it would explain his weird assessment that the franc is “overvalued.”

For Liberty,

Manny Edwards