walkitout (walkitout) wrote,
walkitout
walkitout

Capitulation

Recently, the Swiss National Bank, which, unusually, is a listed organization that pays dividends and thus is under pressure from its share holders (predominantly Swiss cantons, which rely heavily upon that reliable dividend) abandoned its peg to the euro, resulting in some bankruptcies, insolvencies, and general forex freakout.

Here's a bit about the pinch the cantons were feeling back in 2011, and there at least still _was_ a dividend back then.

http://www.swissinfo.ch/eng/cantons-count-cost-of-reduced-snb-handouts/31630160

[ETA: http://www.bloomberg.com/news/2015-01-09/snb-sees-2014-profit-of-38-billion-francs-resumes-dividend.html]

Expecting this system to continue indefinitely was probably unrealistic.

Here's what Krugman posted when SNB abandoned the peg:

http://krugman.blogs.nytimes.com/2015/01/16/regime-change-in-switzerland/

and

http://krugman.blogs.nytimes.com/2015/01/21/a-tale-of-two-pegs/?_r=0

He's completely ignoring the shareholder issue. More importantly, I think he totally failed to understand the psychology of the event.

"By throwing in the towel on the peg to the euro, the SNB immediately convinced markets that its previous apparent commitment to do whatever it takes to avoid deflation is null and void....the SNB’s wimp-out will make life harder for monetary policy in other countries, because it will leave markets skeptical about whether other supposed commitments to keep up unconventional policy will similarly prove time-limited."

By focusing on monetary policy "in other countries" rather than monetary policy at the supra-country level, viz. the ECB, Krugman continues a long standing policy of treating the Euro zone has somewhere between half baked and already failed.

I like Krugman. He's a smart guy. But I'm pretty sure that my read on the situation -- that SNB throwing in the towel would force Euro level QE -- has turned out to be true. That is, unless Bloomberg really cocked it up on sourcing this:

http://www.bloomberg.com/news/2015-01-19/draghi-s-big-push-seen-delivering-635-billion-with-qe-this-week.html

Which, you know, Bloomberg. So probably they didn't cock it up. Time will tell.

On, and while you're thinking It Is About Fucking Time, don't blame Draghi. SNB abandoning the peg [ETA and several countries adopting negative exchange rates] is [are] what has given him the ability to take this action. This is what capitulation looks like.

[ETA: Oh, and while the rumored ECB action runs through the end of 2016, a quick look at our QE actions had some time limits, too, but that didn't stop additional ones getting tacked on the end. It was a lot easier to go rounds 2 and 3 and so forth than to get the first one.]
Tags: economics, politics
Subscribe
  • Post a new comment

    Error

    default userpic

    Your reply will be screened

    Your IP address will be recorded 

    When you submit the form an invisible reCAPTCHA check will be performed.
    You must follow the Privacy Policy and Google Terms of use.
  • 0 comments