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  1. Wealth
September 7, 2011

Francly Speaking

By Spear's

The Swiss action has put a decisive line under all that kind of nonsense. The gloves are now well and truly off

Talk about the SNB putting the skids under the Swiss Franc – down 9% in a day against the euro – that’s a red run in anyone’s language!

The reason? The flight to safe havens is on in earnest as two factors become apparent: fiat currencies have been devalued, first by the greed of the bankers, and then by the incompetence of the politicians – throughout the G7; and the devaluations by the G7, apart from Japan, have now run out of steam as the double-dip begins.

For devaluation to work only a maximum of one half of the world can devalue against the other half: it’s simple arithmetic, but no one in power does basic arithmetic any more, such is their dysfunctional approach to economic reality.

The Swiss had no option but to knock the value of the Franc. They have many global businesses – Novartis, Sanofi, Hoffman La Roche, Nestle – and their export operations were being hampered by the strength of the Franc. There will be a cost, however – inflation – but that is considered to be the lesser evil, as the world economy stares into the abyss; and the fact that the SNB has to buy other devaluing fiat currencies, especially the euro.

Now wait for the Japanese to follow suit and prevent the Yen from becoming the next safe haven, and expect the Norwegian Kroner to rise as well.

What does all this tell us? When currency wars break out, expect depression and protectionism to be not far behind. There are only two countries with impeccable public finances, with budget surpluses, and with fully-funded pension and healthcare costs: Switzerland and Norway. For the rest, if the crisis morphs into Great Depression 2, the end of their fiat currencies is nigh, along with their savings and pensions. Expect two noughts to be lopped off their denominations: US$100.00 becomes US$1.00. Simple. End of.

Germany has pulled back from the brink of bailing out the euro; Merkel, who went with the euro dream far enough, has been defeated in her own region. The beginning of common sense is coming from the electorate, not the elected ones. But I fear it is too late; the new reality is that the G7 economies are ex-growth, which means the debt dynamics are in reverse, a polite way of saying that the debts cannot be repaid by good money. That is what we are witnessing in Greece, and there are plenty more PIGS ready for the financial cull.

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Where does the UK stand in all this? Mercifully, it stands with its own currency and with a Conservative-led Coalition, and with an agenda of cuts to public expenditure excess, but zero-growth is now also its main problem. It is going to be extremely tough for Cameron and co., who will have to kill the Coalition if the Lib-Dems misbehave and want to go on living in La-La-Land. The Swiss action has put a decisive line under all that kind of nonsense. The gloves are now well and truly off.

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