Courtesy of Karl Denninger at The Market Ticker
You want to know where the spikes in the Euro came from today?
That’s "official intervention" by the Swiss National Bank and if they don’t cut this crap out they’re going to cause an equity and credit market collapse.
These jackasses now have double the Euros they held just a short while ago from these "operations", and as you can see, they’re pissing into a hurricane on even a daily basis, say much less on anything more consequential:
Congress does not have the right to get involved in the affairs of a foreign sovereign.
But Congress has every right to demand that Bernanke close his goddamn swap lines right now until this shit stops, lest The Fed be the one who is on the hook when the entire ECB structure comes apart and WE THE TAXPAYERS are on the hook.
This sort of tampering, performed by a private party, is illegal. Of course it’s routine and "expected" in the FX space for sovereigns to interfere, but much of the instability that we have seen of late has been caused by this sort of "intervention." Specifically, today it was responsible for a sixteen point, or 1.5%, jackrabbit move in both directions in the stock market in the space of less than two hours.
There is absolutely no excuse for The United States to support this sort of garbage with our taxpayer backstops. These instabilities in the foreign exchange markets make it impossible for real companies to hedge costs and profits in foreign nations and do severe and irrevocable damage to these firm’s operations.
It is also reflecting into the US Commercial Paper markets and driving spreads wider there as well. This is the very same market that locked up in 2008 and triggered the equity market collapse.
The SNB’s "interest" in doing this is clear: Half of European banks are stuffed full of debt written in Swiss Francs – in nations where the currency is the Euro! These idiots (both the borrowers and the banks that offered these "products") have now seen the principal balance of these loans represented in Euros rise by 11% in the last year.
This sort of idiocy, incidentally, is one of the reasons two years ago that I said there was no chance we could possibly "inflate our way out" or play the "Keynesian game" any more and get away with it. These instabilities can and will come to the fore and force defaults and there is literally nothing that can be done about it. The more the ECB intervenes in the bond market the weaker the Euro gets and the more damage is done to debtors holding Swissy-denoted notes!
We made a critical error in 2007 and compounded it in 2008 and 2009 by building in structural deficits as a supposed "sop" to the banksters who got us into this mess – both here and abroad. We have continued to refuse to force them to eat their own cooking and close those firms that were responsible for doing this and both were and are insolvent, both here and abroad.
Now we have CENTRAL BANKS flailing around trying to stop that which is inevitable, expending tens of billions that have effective time periods measured in minutes, and yet we STILL refuse to wake up and smell the coffee.
There is no durable economic stability or recovery possible until these imbalances are forced out of the system in their entirety. This means forcing those who are insolvent to admit it and swallow their medicine.
The extreme volatility will continue so long as their jackassery by entities like Bernanke and the SNB continue, and as more and more investors and traders give up on any sort of longer-term holding due to the volatility and head to the sidelines liquidity in both equities and credit will contract until there is an all-on no-bid circumstance one day – a full, all-on crash – and this one will NOT retrace.
If you thought the "Flash Crash" was bad I hope you’re prepared for what’s coming, unless we find a leader somewhere in the world who will pull these jackasses into the dock and demand that they stop it – right now.
I’ve been warning people now for three years about snipping the fuse before it goes inside the box.
It appears it may have now done so, in which case it’s too late.