World financial markets crave certainty and seek gradual, steady, and predictable solutions to monetary bumps (or mountains) in the road. But, on January 15th, the Swiss government made an unexpected move – announcing it would no longer “peg” its currency, the Swiss Franc, to the Euro. A mild panic ensued in the financial markets.
And, on the heels of that announcement, the Swiss government just became the first country to sell $242 million worth of negative yield 10-year bonds – signaling a lack of confidence that the inter-connected economies of the Euro zone will be growing in the short term.
In addition, the Swiss National Bank (SNB) recently instituted negative deposit rates on some accounts – essentially charging depositors a fee for the safety and privilege of keeping their money on account at the SNB.
The Swiss have long been considered the “smart money” – intelligent, connected in ways most cannot imagine, and often acting before a crisis by leveraging powerful, relevant, and non-public information.
These moves come as the Euro zone faces massive debt; certain economies are teetering on collapse (Greece); and there have been no substantial governmental structural spending reforms (Greece, Spain, Italy, Portugal). Massive, unsustainable spending continues in nearly all industrialized countries – looking more and more like ponzi schemes than fiscal prudence.
What do the recent series of unexpected financial moves signal from the Swiss? No one knows with absolute certainty, but it’s clear the signals are not positive.
Keep an eye on this going forward…
Three weeks ago, the government of China closed the enrollment window to join its new Asian Infrastructure Investment Bank (AIIB) as a ‘founding member’.
The AIIB, if you haven’t heard of this yet, is designed to essentially displace the Western-controlled IMF and World Bank.
And prior to last Tuesday’s deadline, dozens of nations around the world from New Zealand to Denmark signed up to join.
Even staunch US allies like the United Kingdom and Israel agreed to be part of AIIB.
This is a huge coup for China, and probably the most obvious sign yet that the global financial system is in for a giant reset.
Under the weight of nearly incalculable debt and liabilities, the United States is in terminal decline as the dominant superpower.
From Ancient Rome to the British Empire, this has happened many other times in history.
This time is not different. And everyone else in the world seems to get it. . . except for the US government.
They act as if the financial universe will revolve around America forever—that they can print money, indebt future generations, and wage war as much as they want without consequence.
But they’re completely blind.
Practically the entire world is lining up against them to form a brand new financial system that is no longer controlled by the US government.
In an editorial published in the Financial Times, former US Treasury Secretary Larry Summers summed it up plainly saying that this “may be remembered as the moment the United States lost its role as the underwriter of the global economic system.”
The consequences of this shift away from a US-controlled financial system cannot be understated.
No more endless spending. No more solving problems with more debt and more money printing.
Suddenly it will be time for painful decisions in the US—like slashing Social Security benefits, drastically scaling back the military, and selectively defaulting on the debt.
Make no mistake, this transition is going to be bumpy.
China may already be the largest economy in the world by many measurements. But the Chinese economy is in for some serious strain over the coming months and years as its massive credit bubble bursts.
So in addition to America’s fiscal and monetary challenges, the world is going to have to suffer through a potential Chinese crisis as well.
But this does not affect the long-term story. Remember, nothing goes up or down in a straight line.
On its road to becoming the global superpower in the 20th century, the United States suffered its own series of deep economic setbacks—from the Panic of 1907 to the Great Depression, and several recessions in between.
China’s path will likely be similar.
This is one of the most important trends of our time. And it’s happening right in front of our eyes.
The world is rapidly throwing off US financial domination. The global financial system is starting to reset. Global financial and political dominance is shifting.
c/o Simon Black (Sovereign Man)