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"Rope Burn"

     I have frequently waxed eloquent, here and elsewhere, about the impotence of the central banks in the face of the Forex market. The first of my (I suspect, many) vindications is at hand.

    But first, some simple theory: The fact that any central bank (or for that matter, any 3 central banks) cannot overrule currency markets is just common sense. These markets represent the sum of the push and pull of every person with access to currency, weighted for their productivity. The central banks will Always be smaller than this. They are an appendage of the economy, not its master. For them to think otherwise is for the tail to think to wag the dog. Yet they persist in the exercise, wrapping themselves in illusions of potency, and telling themselves, "It's different this time!"
    For those hiding out under a rock, the Swiss national bank has of late been laboring mightily to protect . . . the Euro (?), by hoovering up any euros left lying around, generating huge overnight swings in the CHF/EUR, and scaring the shorts off of, well, shorts. They have also been expending a lot of cash to do this, AND been failing to make any lasting impression on the world's Forex traders, as the Euro is now lower than when they started. This means they have, a) built up Euro holdings to a value of something like US$1,000/citizen, and b) have huge market losses on those holdings (estimates are over $8 b-b-b-BIllion - which is a lot for a teensy country like Switzerland).
    And now, they've given up. All that effort and capital expended in the attempt to ensure they could still export to the broke Eurotards . . . wasted. As parents throughout history have said, "Well, I hope you at least learned something!"
    Robert Prechter said things would get bad, but when even the Swiss are getting tangled up in things, and losing money at it, this early in the game, I tremble for the future. 

     Bless You Switzerland, long may you stand! And may your leaders in the future have even swifter, but less expensive, learning curves.