Does SNB see something that we don't know?

[johnyj]

A view that the swiss franc will collapse:

http://www.safehaven.com/article/36515/the-swiss-franc-will-collapse

"The Bottom Line

The problem of falling rates is crushing everyone, but raising the rate cannot fix the problem. It should not be surprising that, after decades of capital destruction -- caused by falling rates -- the ruins of a once-great accumulation of wealth cannot be repaired by raising the interest rate."

I don't totally agree with this article, but he brought up a good question: Would it be possible to raise the rate again after so many years of near zero or even negative interest?

[johnyj]

I guess they really didn't care about losses to traders. 

Everything is connected. If they hadn't caused such an earthquake on the currency market, the CHF wouldn't have jumped so much compared to the EUR, which means that SNB's euro holdings would have lost less and the Swiss exporters would have been hurt less.

I still have no idea why they did it that way. These things never happen by accident. They knew very well what was going to happen, yet they chose to do it nevertheless. There was a reason behind it, a reason why it looked like a good idea to them. I just can't figure out what it was.

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise   

Small country's central bank often become the victim of foreign currency speculators since they are always obliged to buy or sell to keep the rate stable. If there is a difference in official exchange rate and market exchange rate, there will always be arbitraging firms making a lot of profit and the central bank will be the one who pay the bill

[Vessko]

I don't totally agree with this article

I totally disagree with it. Dr. Keith Weiner's articles often contain very weird reasoning and many economic fallacies. (For some reason, they remind me of Prof. Antal Fekete's meaningless and nutty rants.)

This particular article it so wrong in its reasoning that I just don't have the time to list all the errors in it here. For some discussion of them, see this comment.

[Vessko]

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise   

Central banks don't endanger their huge holdings and their country's economy for petty revenge like that. No, there must have been a better reason. I just can't figure out what.

[picolo]

SNB surprisingly removed the currency peg with Euro without any formal information or indication. This is a very strange move that never happened in major developed countries. It seems that they have totally lost control of their pace and don't care about causing shocks in financial markets. It might be a decision made in panic, since it is nothing comparing with something very gigantic that is approaching

This chart shows that the current fiat money system works totally different since 2008



Base money supply increased by 8 fold without any significant increase in GDP.  This scale of money supply used to be in M1 (which is only checkbook numbers in banks database. e.g. virtual wealth by just count the same money multiple times), but now it is in M0, with a large amount of debt backing. How could you pay back 8x more debt without your income increase by 8x?

Maybe they are already seeing the total collapse of the debt bubble and want to quit the money printing game first

They had to stop their stupid peg to the euro one day or the other, the ECB QE probably rushed them into stoping it now which is better than stoping it later on.

[johnyj]

Maybe they wanted to take out a large hedge fund who has tons of short positions by surprise    

Central banks don't endanger their huge holdings and their country's economy for petty revenge like that. No, there must have been a better reason. I just can't figure out what.

Don't underestimated the scale of those hedge funds. Many years ago, Soros took out the wealth of many small country by just shorting their currency.  Using leverage, those hedge funds can command a capital much larger than a country's central bank's currency reserve. He only met resistance in HongKong, which is backed by the whole USD reserve of China

I can imagine, many such funds were shorting CHF during the past year since SNB was busy buying all the Euro they can to prevent the CHF from rising, SNB made those funds' short position a risk free ride

If it was some thing much bigger that made SNB's sudden move, it should already happened, but so far nothing