STEVE PIECZENIK TALKS

What is Faster than a Speeding Bullet…. More Dangerous than an Atomic Bomb? 

The Swiss France! Monopoly Money On A Grand Scale! 

Within hours of the moment that the Zurich Bankers in Switzerland decided, correctly, to break away from the Euro and appreciate significantly…. the following countries went into a financial tailspin: Poland, Hungary, Romania, Bulgaria, Croatia, Serbia…..The list will rise every day.

Why?

Unbeknownst to many of us in the west, most of the Central and East European countries had mortgages denominated in Swiss Francs [SF]. That means as the SF rose, it became much harder to pay back the loans in the SF.  Instead, Hungary decided to convert all SF loans into their own currency-FORINTS [completely worthless in the open currency markets]. Therefore, the aforementioned countries cannot pay back the Swiss denominated loans without restructuring these loans [Poland]; or declaring massive bankruptcy [Romania].

As I have pointed out over the past two years, the European Market will never really be able to settle it’s financial/political/economic differences amidst the poverty stricken- southern tiered countries: Portugal, Spain, Italy, Greece [ready to exit the EU]—and the more prosperous northern countries: Germany, Austria, Switzerland, England, Belgium, Scandinavian [Denmark, Finland, Sweden].

The reason is quite simple,  it has to do with the different political cultures or the national characters of each country. One cannot expect the Spanish who have a corrupt centralized government in Madrid to be able to stimulate an economy with close to 25% unemployment rate.  Spain, other than Barcelona [Catalonia], has never been a major center of manufacturing or industry like Frankfurt or Bremen. 

Germans, despite two world wars; complete fragmentation of their country have, once again, ascended to their apex of economic performance because they are by nature INDUSTRIOUS, FOCUSED, HARD-WORKING; maintaining higher standards of production and manufacturing than most EU countries. That is both a historical and psychological reality. Therefore, when the French, who have never been recognized for their manufacturing skills or work ethic decided to corral Germany in the fictitious myth called the ‘EUROPEAN UNION’—then, the weaker of the two countries, France, suffers the most from this unholy alliance. The reason is that the economic destiny of that EU is not dependent on all the countries but on the strongest country and its currency. The French Franc could never compete against the German Deutsch Mark or,  even the stronger, Swiss Franc.

Angela Merkel, the brilliant Phd leader of a reunited Germany understands this better than anyone else. She grew up in the dysfunctional East German sector and she knows from past experience how poorly countries that are basically socialist or communist in nature compete in the present day worldwide markets.  However, there is one serious caveat that Merkel has to bear, like the Iron Cross. Germany/Austria had extended massive amounts of credit to these ‘failing states’ in the Southern, Eastern and Central part of Europe. If they refuse to repay the loans in the denomination that they are loaned out, usually Swiss Francs; then each country will decide to default on the loans; creating a massive banking crisis throughout Europe, England and possibly worldwide.

In time, that type of financial crises will lead to political instability throughout the European continent. The more marginalized minorities [Muslim, Gypsies, et al.] will begin to disrupt the political stability of their respective countries as we have seen in both France and Belgium. However, the real problem is the dissolution of the EU.

One way or another, the EU has to dissolve and allow each of the respective countries to print their own moneys. That money will clearly reflect what the dollar mirrors in our present day society—peace, prosperity and political stability.  All reality based psychological determinants that must be met in order for a currency to reflect real worth. 

As you know by now, Switzerland has had three hundred years of peace and political stability—irrespective of what they had to do in order to achieve this long sought after goal. Therefore,  this collective underlying pressure felt by the Swiss bankers compelled them to break away from the Euro-Pegged currency which did not really reflect how ‘good things were in Switzerland.’

However, currency wars are two-edged swords. No sooner did the Swiss Franc appreciate than the Swiss exports like Swatches, Chocolate, Weapons, became much more expensive; and not as competitive, in the open trade markets. So the currency wars can have unintended consequences far more reaching in my opinion than KINETIC ACTIONS [War].

Despite President Obama’s jubilance about our present economic situation, he has not really understood how our stock market does not reflect his exuberance. In fact, there is clear evidence to me that there may be signs of deflation creeping into, at best, an erratic stock market-- with very low trading volumes.

So, what are we to do?
I think it would be prudent if we, Americans, could remain liquid.  In effect the dollar is so strong that US Treasury yields are so low that just buying US Bonds denominated in US Dollars are considered a ‘safe bet’ for ‘flight capital’. Remember: a strong currency means fewer exports of US manufactured goods. And the one thing that we, Americans, are particularly good at is entrepreneurship; or creating businesses in real time.  

Clearly our conglomerates cannot carry the brunt of our economic growth. We have to be able to create new businesses at the rate at which employees are being fired in order to maintain the necessary growth rate that will prevent deflation. At the same time, we must have tax codes and financial incentives that will allow our country to grow without USG impediments.

I think it would be prudent for us to wait and see what exactly will happen-- as the Swiss Franc Bullet Speeds across the World’s currencies-- creating a major tidal wave of disproportionate heights.

I hope that I am wrong. 

The sooner, the EU dissolves, the better it will be for world financial markets which depend on the ability of each country to print money backed by nothing more than psychological determinants like hope, anxiety, and fear---specific to that particular country. What a way to run the world currencies: phony paper money absorbing the cultural/political/historical/psychological determinants of a body politic.

Monopoly Money on a Grand Scale!

That is the reality of the CURRENCY WARS!!