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Lesson from Switzerland

Jan 28 2015 07:28
*Edward Ingram

ON JANUARY 15, as we all know, the value of the Swiss franc fractured. The result – the Swiss National Bank lost 38 billion francs.

READ: Swiss franc soars after currency cap dropped

But they were not the only ones to get hurt. Most businesses that deal with the Swiss and those in Switzerland now have major adjustments to make. All imports and exports are now differently priced, and those who have borrowed in Swiss francs are in terrible pain.

The Cobden Centre offers a good explanation of the process.

The resulting problems are many-sided and will affect millions of people, as usual.

When I say ‘as usual’ I am referring to the problems that are caused by the way things are done – by the economic architecture, the rules, regulations, practices, taxes, etc that are imposed upon us all, and the economic syllabus as taught at universities.

These things prevent smooth pricing and cost adjustments from taking place. They allow governments and central banks to gamble with other people’s finances and wealth. We are all defenceless.

Something needs to be done to put an end to all of this nonsense.

It should be no surprise to anyone who has followed the principles of Macro-economic Design that I have written about here at www.fin24.com over the past year or so. I have compiled an index of those essays for users here.

Some of them are about precisely this currency pricing problem. Others relate to mortgage repayment cost fixing. A third set relates to interest rate fixing. I have been busy compiling a book on the subject to bring it all together. Here are some extracts.

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“Billions of people have fallen foul of financial difficulties/crises through no fault of their own. Most of them have lost wealth to the wealthiest and most powerful people and institutions on earth in the process – through no evil intent on their part. It is the system.

"That personal and business vulnerability is what makes economies themselves unstable. It works both ways. If the people can be financially safe then economies can also be safe…
                        
"Politicians will have to deal with this book. The entire financial industry will have to adapt. Text books rewritten…

"…Uncle Charles had just bought his home when the central bank raised interest rates. House prices tumbled and his mortgage repayments jumped up out of reach. The effect on the economy was so terrible that he lost his job. If the monthly repayment cost had been calculated differently, this would not have happened.

"Grandpa took a loan in Swiss francs and his brother from India took one in American dollars.

"They did this on the advice of a professional loan arranger who said that interest rates were much lower in those currencies. Then the Swiss franc jumped up. He still had to repay the loan. He lost his pension paying it off. Businesses in Switzerland that depended on exports crashed…”

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Adjustability is key

If the value of the Swiss franc had been allowed to adjust to the balance of trade and if the facility to manipulate that currency value did not exist, this would not have happened. In fact, currency wars would not be possible either. Businesses could make plans based upon prices that could be forecast more easily and more exactly. Jobs would be safer, world trade would be easier and cheaper.

The professional mortgage arrangers did well. They got a good commission and walked away… that is not good.

Money is valued in currency and domestic transactions. The value is constantly negotiated in both cases by trade, shoppers, and wage negotiations. And the value will not alter dramatically if those are the forces working without interference from central banks and the way things are done to distort everything.

If anything is to blame I would say it is the syllabus as taught to students of economics. They are taught that these things are inevitable. They are taught to address the symptoms. And central bankers confuse financial stability with fixing rates of exchange and the value of money instead of looking for adjustability.

I would say that economics has been hijacked by the syllabus.

*Edward Ingram is a past investigative quality control engineer of complex systems, who turned to managing investments and learning all about economics and finance from the experts. Combining these disciplines has enabled him to understand what others see, but have not understood.

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edward ingram  |  switzerland  |  global economy

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