Noah denkt™ - The Power of Balanced Reasoning |
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Turmoil in the currency markets after Switzerland’s decision to distance itself
from the EURO
Dialogue with the Alter Ego on the Deflation angst and other fears in the Euro-zone, drafted and published on
Jan 16, 2015
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Question of Alter Ego of Noah denkt™ (AE): The specter of Japan-style deflation is haunting Europe to such an
extent that it creates unheard of turmoil in the currency markets. On Thursday, Jan 15, the Swiss Central Bank
announced that it would give up its three year peg to the EURO not the least because of it is concerned that
the European Central Bank would launch its own FED-style Quantitative Easing program. This move of the
Swiss Central bank to distance itself from the EURO led the Swiss Franc to briefly gain 25% against the US$.
Gyrations of such proportions are very rare in the currency markets. So the question is, do we need to be
concerned by that decision of the Swiss Central Bank. And it could be that there is indeed a new storm brewing
that could threaten the existence of the EURO?
Answer by Noah denkt™ (Nd): Clearly, there is worrying stress in the system. We believe though that this stress
is part due to an exaggerated concern over austerity politics and the ensuing prospect of a Japan-style
deflation for the Euro-area. It is true that prices are falling in the EURO area. But they are not only falling there.
Sweden, UK, Brazil, Chile, India, Turkey etc.., which have their own currencies aren't doing great either.
Apparently there is a bigger phenomenon going on here.
AE: What could that be?
Nd: Well, it seems to us, as if this lack of consumer confidence worldwide (apparently even US citizens harbor some
discontent with their current economic situation, see the outcome of the midterm elections) has something to do with a
widespread sense of uncertainty among citizens about their individual, professional future and the continued
manageability of the highly complex social/political order we live in. In other words, this may well go far beyond
governmental budget issues and economic policy.
AE: But public budget issues and economic policy in the Euro-area certainly contribute to the malaise that
people feel therein?
Nd: To measure that we should ask ourselves whether people in France and Italy who feel bad about their
current situation would feel less bad about it if they had their own local currency back? Would they be more
optimistic under such a scenario? Would they feel that their job security has increased, that their access to the
labor market expanded and that their competitive pressure has diminished? Or would they instead feel that the
digitization of their work environment continues as it did before, that individual narcissism persists just as much
as before, and that cultural aspirations and ambitions continue to be defined on a global rather than a local
level?
AE: Well, people would probably still be stressed out in the local currency environment. But at least they would
feel that it is a sovereign national stress they face and not a dictated foreign one. In other words, they would at
least appear to be marginally better off.
Nd: And that marginal increase in their outlook would account for what, 1 or 2% growth?
AE: That is obviously hard to say. The initial boost would probably be higher than 2%., given the fact that the
new found sovereignty would likely multiply its throughout the various markets. The real question however is
whether that original sense of malaise caused by technological advances and complex volatility would not
sooner or later kick in again?
Nd: You can bet it would. Ask people in Britain or Brazil.
AE: So what would Noah denkt™ then do if it had to manage monetary policy in the Euro-area?
Nd: Noah denkt™ would argue that quantitative easing will only have a soothing effect and that the real change
of heart needs to be orchestrated by the people itself: Perhaps the people will need some help in this from
public figures who can convincing personify the hope of being able to successfully reinvent yourself come what
may. But that is entirely doable
from the EURO
Dialogue with the Alter Ego on the Deflation angst and other fears in the Euro-zone, drafted and published on
Jan 16, 2015
-------------------------------------------------------------------------------------------------------------------------------------------
Question of Alter Ego of Noah denkt™ (AE): The specter of Japan-style deflation is haunting Europe to such an
extent that it creates unheard of turmoil in the currency markets. On Thursday, Jan 15, the Swiss Central Bank
announced that it would give up its three year peg to the EURO not the least because of it is concerned that
the European Central Bank would launch its own FED-style Quantitative Easing program. This move of the
Swiss Central bank to distance itself from the EURO led the Swiss Franc to briefly gain 25% against the US$.
Gyrations of such proportions are very rare in the currency markets. So the question is, do we need to be
concerned by that decision of the Swiss Central Bank. And it could be that there is indeed a new storm brewing
that could threaten the existence of the EURO?
Answer by Noah denkt™ (Nd): Clearly, there is worrying stress in the system. We believe though that this stress
is part due to an exaggerated concern over austerity politics and the ensuing prospect of a Japan-style
deflation for the Euro-area. It is true that prices are falling in the EURO area. But they are not only falling there.
Sweden, UK, Brazil, Chile, India, Turkey etc.., which have their own currencies aren't doing great either.
Apparently there is a bigger phenomenon going on here.
AE: What could that be?
Nd: Well, it seems to us, as if this lack of consumer confidence worldwide (apparently even US citizens harbor some
discontent with their current economic situation, see the outcome of the midterm elections) has something to do with a
widespread sense of uncertainty among citizens about their individual, professional future and the continued
manageability of the highly complex social/political order we live in. In other words, this may well go far beyond
governmental budget issues and economic policy.
AE: But public budget issues and economic policy in the Euro-area certainly contribute to the malaise that
people feel therein?
Nd: To measure that we should ask ourselves whether people in France and Italy who feel bad about their
current situation would feel less bad about it if they had their own local currency back? Would they be more
optimistic under such a scenario? Would they feel that their job security has increased, that their access to the
labor market expanded and that their competitive pressure has diminished? Or would they instead feel that the
digitization of their work environment continues as it did before, that individual narcissism persists just as much
as before, and that cultural aspirations and ambitions continue to be defined on a global rather than a local
level?
AE: Well, people would probably still be stressed out in the local currency environment. But at least they would
feel that it is a sovereign national stress they face and not a dictated foreign one. In other words, they would at
least appear to be marginally better off.
Nd: And that marginal increase in their outlook would account for what, 1 or 2% growth?
AE: That is obviously hard to say. The initial boost would probably be higher than 2%., given the fact that the
new found sovereignty would likely multiply its throughout the various markets. The real question however is
whether that original sense of malaise caused by technological advances and complex volatility would not
sooner or later kick in again?
Nd: You can bet it would. Ask people in Britain or Brazil.
AE: So what would Noah denkt™ then do if it had to manage monetary policy in the Euro-area?
Nd: Noah denkt™ would argue that quantitative easing will only have a soothing effect and that the real change
of heart needs to be orchestrated by the people itself: Perhaps the people will need some help in this from
public figures who can convincing personify the hope of being able to successfully reinvent yourself come what
may. But that is entirely doable
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| Keywords: Swiss central bank ends EURO peg of the Swiss Franc, turmoil in the currency markets after end of Euro-Franc peg, deflation in EURO-area, quantitative easing of the ECB, causes of deflation in Europe and elsewhere, austerity and deflation |