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The Magic Cafe Forum Index » » Not very magical, still... » » The Gnomes of Zürich have had enough! (0 Likes) Printer Friendly Version

tommy
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The currency war has begun it seems with the Gnomes of Zürich making the single largest foreign exchange move ever seen. Which no doubt will cause some crazy action in the markets.

http://uk.reuters.com/article/2011/09/06......20110906
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Woland
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Thanks for the link, Tommy.

Very disturbing report out from UBS today (at least I saw it today) - a Swiss financial services companby, by the way -- on the possible consequences of the collapse of the EURO:

Quote:
The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war.


Whoa.

Quote:
If we consider fiat currency monetary union fragmentation, it is fair to say that the economic circumstances that create a climate for a break-up and the economic consequences that follow from a break-up are very severe indeed. It takes enormous stress for a government to get to the point where it considers abandoning the lex monetae of a country. The disruption that would follow such a move is also going to be extreme. The costs are high – whether it is a strong or a weak country leaving – in purely monetary terms. When the unemployment consequences are factored in, it is virtually impossible to consider a break-up scenario without some serious social consequences.



With this degree of social dislocation, the historical parallels are unappealing. Past instances of monetary union break-ups have tended to produce one of two results. Either there was a more authoritarian government response to contain or repress the social disorder (a scenario that tended to require a change from democratic to authoritarian or military government), or alternatively, the social disorder worked with existing fault lines in society to divide the country, spilling over into civil war. These are not inevitable conclusions, but indicate that monetary union break-up is not something that can be treated as a casual issue of exchange rate policy.



Even with a paucity of case studies, what evidence we have does lend credence to the political cost argument. Clearly, not all parts of a fracturing monetary union necessarily collapse into chaos. The point is not that everyone suffers, but that some part of the former monetary union is highly likely to suffer.



The fracturing of the Czech and Slovak monetary union in 1993 led to an immediate sealing of the border, capital controls and limits on bank withdrawals. This was not so much secession as destruction and substitution (the Czechoslovak currency ceased to exist entirely). Although the Czech Republic that emerged from the crisis was considered to be a free country (using the Freedom House definition), with political rights improving relative to Czechoslovakia (also considered to be a free country), Slovakia saw a deterioration in the assessment of its political rights and civil liberties, and was designated “partially free” (again, using Freedom House criteria).



Similarly the break-up of the Soviet Union saw authoritarian regimes in the resulting states. Of course, this was not a change from the previous status quo, but that is not the point. The question is not how a liberal democracy develops, but whether a liberal democracy could withstand the social turmoil that surrounds a monetary union fracturing. We lack evidence to support the idea that it could.



Even the US monetary union break-up in 1932-33 was accompanied by something close to authoritarianism. Roosevelt’s inauguration was described by a contemporary journalist as being conducted in “a beleaguered capital in wartime”, with machine guns covering the Mall. State militia were called out to deal with the reactions of local populations, unhappy at what had happened to the monetary union (and specifically their access to their banks).



Older examples are less helpful, as they tend to be more akin to fixed exchange rate regimes under a gold standard or some other international monetary arrangement. Nevertheless, the Irish separation from the UK, or the convulsions of the Latin Monetary Union in Europe (particularly around the Franco-Prussian war in 1870 and its aftermath) saw monetary unions fragment with varying degrees of violence in some parts of the union.



Writing in 1997, the Harvard economist Martin Feldstein offered a view that seems to be somewhat chillingly precognitive. He said “Uniform monetary policy and inflexible exchange rates will create conflicts whenever cyclical conditions differ among the member countries... Although a sovereign country... could in principle withdraw from the EMU, the potential trade sanctions and other pressures on such a country are likely to make membership in the EMU irreversible unless there is widespread economic dislocation in Europe or, more generally, a collapse of the peaceful coexistence within Europe.”
Woland
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The Swiss franc lost 9% of its value versus the Euro and the dollar in 15 minutes . . . .
tommy
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Good news! Everything is coming up roses according to the latest Fed Beige Book:

http://www.federalreserve.gov/fomc/beige......ault.htm

"Although poor weather dampened growth in some areas" Smile

On this news the markets shot up and gold shot down.
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Woland
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Actually the markets in Europe are up quite a bit today, evidently relieved that the German Federal Constitutional Court will allow more payments to be made to bail out Greece.
tommy
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Good for Greece but Germany will now have less.

Communitarianism is what that is. It seems to me.

Should the USA be forced to share its wealth with Mexico, a big company with a small one or a rich man with a poor man and so on?
If there is a single truth about Magic, it is that nothing on earth so efficiently evades it.

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Woland
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Why don't you begin by sharing your wealth with me? In fact, I invite all of the socialists and liberals who truly love their fellow man to share your wealth with me. I will be satisfied with 50% of your net.
tommy
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Because I personally am not into Communitarianism. I would let the Greeks pay for their mistakes.
If there is a single truth about Magic, it is that nothing on earth so efficiently evades it.

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We're already sharing with Mexico. We took all their wealth, they took all our jobs.*

* - Yes, Mexico is one of the top destinations of outsourced jobs. Cheaper shipping costs than China.
Self-proclaimed Jack-of-all-trades and google expert*.

* = Take any advice from this person with a grain of salt.
tommy
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If the Greeks, or anyone else, have been swindled, which they have been, then let them arrest them that did it and get their money back from them.

http://www.youtube.com/watch?v=UQ2-ceEvOcw
If there is a single truth about Magic, it is that nothing on earth so efficiently evades it.

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Woland
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I don't think "we" took any of "Mexico's" wealth. If California, Texas, and Arizona had not been ceded to the United States in 1848, they would now be in all likelihood places that emigrants were fleeing from and not places that immigrants were flocking to. (If you will forgive the inelegance of the dangling preposition.)
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