Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. Today it was the Swiss central bank’s turn, and it didn’t pull any punches with regard to Russian billionaires seeking a safe haven from the ruble-rubble in Moscow or investors from all around its borders fleeing Mario Draghi’s impending euro-trashing campaign. The essence of its action was that your money is not welcome in Switzerland; and if you do bring it, we will extract a rental payment from your deposits.
For the time being, that levy amounts to a negative 25 bps on deposits with the Swiss Central bank – -a maneuver that is designed to drive Swiss Libor into the realm of negative interest rates as well. But the more significant implication is that the Swiss are prepared to print endless amounts of their own currency to enforce this utterly unnatural edict on savers and depositors within its borders.
Yes, the once and former pillar of monetary rectitude, the SNB, has gone all-in for money printing. Indeed, it now aims to become the BOJ on steroids – -a monetary Godzilla.
So its current plunge into the netherworld of negative interest rates is nothing new. It’s just the next step in its long-standing campaign to put a floor under the Swiss Franc at 120. That means effectively that it stands ready to print enough francs to purchase any and all euros (and other currencies) on offer without limit.
And print it has. During the last 80 months, the SNB’s balance sheet has soared from 100B CHF to 530B CHF – – a 5X explosion that would make Bernanke envious. Better still, a balance sheet which stood at 20% of Swiss GDP in early 2008 – -now towers at a world record 80% of the alpine nation’s total output.
This post was published at David Stockmans Contra Corner on December 18, 2014.