Switzerland has pegged its currency to the euro at a level that helps it sustain a 12% current-account surplus and one of the lowest unemployment rates in Europe. This column argues that the Swiss peg involves currency manipulation that is, as far as Europe is concerned, the same order of magnitude as China’s intervention. It has had a significant impact on the euro exchange rate and a non-negligible effect on the EZ economy.
A current-account surplus is the mirror image of a capital export. A country that is running persistent current-account surpluses is thus persistently exporting capital. An important question to consider is which sector is investing abroad, the private or the public sector? If it is the public sector which invests abroad, in particular if it is done by the central bank via the accumulation of foreign-exchange reserves, this is often called ‘currency manipulation’.
Guest post by Azizonomics.
Here in the West, we have lived through a striking period of peace, prosperity and growth. Since the end of the Second World War, the major powers of the world have lived in relative peace.While there have been wars and conflicts — Vietnam, Afghanistan (twice), Iraq (twice), the Congo, Rwanda, Israel and Palestine, the Iran-Iraq war, the Mexican and Colombian drug wars, the Lebanese civil war — these have been localised and at a much smaller scale than the violence that ripped the world apart during the Second World War.
The recent downward trend is clear:
Many thinkers believe that this trend of pacification is unstoppable. Steven Pinker, for example, claims:
Violence has been in decline for thousands of years, and today we may be living in the most peaceable era in the existence of our species.
The decline, to be sure, has not been smooth. It has not brought violence down to zero, and it is not guaranteed to continue. But it is a persistent historical development, visible on scales from millennia to years, from the waging of wars to the spanking of children.
While the relative decline of violence and the growth of global commerce is a cause for celebration, those who want to proclaim that the dawn of the 21st Century is the dawn of a new long-lasting era of global peace may be overly optimistic. It is possible that we are on the edge of a precipice and that this era of relative peace is merely a calm before a new global storm. Militarism and the military-industrial complex never really went away — the military of the United States is deployed in more than 150 countries around the world. Weapons contractors are still gorging on multi-trillion dollar military spending.
Let’s consider another Great Moderation — the moderation of the financial system previous to the bursting of the bubble in 2008.
One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility.
Ben Bernanke (2004)
Guest post by Azizonomics.
Netanyahu wants a red line on nuclear proliferation in the Middle East:
Where exactly should we draw it?
As Justin Raimondo notes:
Here is a nation which refuses to even admit it acquired nukes long ago, and which disdains the Nonproliferation Treaty, making the case for war against a neighbor that has indeed signed the NPT and is abiding by its requirements.
That treaty gives Tehran the right to develop nuclear power. Furthermore, there is zero evidence Iran is embarked on a nuclear weapons program: our own intelligence community tells us they gave that up in 2003 and show no signs of resuming it. Their own religious and political leaders have denounced the possession of nuclear weapons as sinful: the Israelis, on the other hand, haven’t bothered reassuring us they would never use the nuke they won’t admit they have.
In a rational world, Israel would be in the dock, answering for its unwillingness to come out of the nuclear closet and admit what the whole world knows by now.
The West has sent out a message that the only way for unpopular regimes to avoid invasion is to obtain nuclear weapons. North Korea sought and obtained nuclear weapons and their vicious and economically-failed regime has stayed in power. Qaddafi gave up his nuclear ambitions, and was soon deposed by British, French and American airpower. If Iran is seeking a nuclear weapon — and the CIA and Mossad, as well as the IAEA agree they that they are not currently doing so — perhaps the fact that nuclear-armed Israel and the nuclear-armed United States keep threatening non-nuclear Iran with attack has something to do with it?
Lewis meets Obama. Simply must read weekend material. From Vanity Fair.
To understand how air-force navigator Tyler Stark ended up in a thornbush in the Libyan desert in March 2011, one must understand what it’s like to be president of the United States—and this president in particular. Hanging around Barack Obama for six months, in the White House, aboard Air Force One, and on the basketball court, Michael Lewis learns the reality of the Nobel Peace Prize winner who sent Stark into combat.
Even after his parachute opened, Tyler Stark sensed he was coming down too fast. The last thing he’d heard was the pilot saying, “Bailout! Bailout! Bail—” Before the third call was finished, there’d come the violent kick in the rear from the ejector seat, then a rush of cool air. They called it “opening shock” for a reason. He was disoriented. A minute earlier, when the plane had started to spin—it felt like a car hitting a patch of ice—his first thought had been that everything was going to be fine: My first mission, I had my first close call. He’d since changed his mind. He could see the red light of his jet’s rocket fading away and also, falling more slowly, the pilot’s parachute. He went immediately to his checklist: he untangled himself from his life raft, then checked the canopy of his chute and saw the gash. That’s why he was coming down too fast. How fast he couldn’t say, but he told himself he’d have to execute a perfect landing. It was the middle of the night. The sky was black. Below his feet he could see a few lights and houses, but mainly it was just desert.
Full article here.
Another must read by Grant Williams and things that make you go hmm.
“I don’t envisage, not even for one second, Greece leaving. This is nonsense, this is propaganda.”
– JEAN-CLAUDE JUNCKER, Chairman EuroGroup FinMin Committee
“When it becomes serious, you have to lie.’’
– Jean-Claude Juncker, Same guy
“‘Exit would bring down the whole house of cards, with one state falling after another: it would reach Portugal, Spain, then Italy and France,’’
– Romano Prodi, Former EU Commission chief
Investors have been busy watching the Eurocrisis events continue the drama. Geopolitical risks is something not many talk of these days, but things sure seem to be heating up over there. Is the Middle East headed towards a war? It sure looks that way. The Israeli Defense Forces (IDF) have mobilized six battalions of reserve duty troops to meet what Israelis have termed a “growing threat” on the Egyptian and Syrian borders. The Knesset, Israel’s parliament, has approved the mobilization of an additional sixteen combat battalions, should the army brass feel it necessary. Additional reading;
The market has been on a steady rise, volatility has collapsed, and we are getting all those new “smart” longs. Geopolitical risk is certainly not priced in the equity space. Oil, on the other hand (apart from the QE factor) is factoring in a possible geopolitical heat up in the Middle East. What if Israel provoked a war between the US and Iran? Meanwhile, the oil price continues the rise. Bloomberg video below.
While oil is taking new highs for the year, some thoughts by Taibbi on the “gentlemans code” developed in the US. Welcome to group think.
I’m not defending Ahmadinejad, I think he’s nuts and a monstrous dick and I definitely don’t think he should be allowed to have nuclear weapons, but to me this issue has little to do with Iran at all. What’s more troubling to me is that we’ve internalized this “gentleman’s code” to the point where its basic premises are no longer even debated.
But now the public openly embraces circular thinking like, “Any country that squawks when we threaten to bomb it is a threat that needs to be wiped out.” Maybe I’m mistaken, but I have to believe that there was a time when ideas like that sounded weird to the American ear. Now they seem to make sense to almost everyone here at home, and that to me is just as a scary as Ahmadinejad. (Full article here.)
Must listen to interview for the Saturday evening drink. Rickards has some great insight on the Chaos currently undergoing in the World.
Currency war, Trade war, Shooting War….Courtesy Chris Martenson.