Swiss gnomes blow a hole through their own economy’s head, creating a bloody object lesson that American conservatives will almost certainly ignore

Conservative economic theorist

at work

“A strong dollar is one of our greatest weapons against inflation. Anyone who doubts the value of a strong currency should look at the postwar performances of Japan, Switzerland and West Germany.”

-Ronald Reagan, economics genius of 

sainted memory, March 2, 1984

There’s got to be a secret Holy Place somewhere. You know, deep underground, in a steel vault, a shrine where the cult worshippers of Ayn Rand and Ronald Reagan go to wave their hands above their heads and speak in tongues.

I’m almost certain that, mingling in the crowed of worshippers with Tea Party congressmen and conservative presidential candidates, there is a clutch of grim-faced Swiss gnomes who fall into trances during which they see heavenly visions of gold bars and tight money.

Intoxicating vapors

This week, no doubt high on the fumes given off by a moldering copy of Ayn Rand’s Atlas Shrugged, the Swiss set the Swiss Franc  free from its limits in relation to the weakening Euro.  Why?

Chris Bailey’s Tumblr suggests, “ What they are worrying about in reality is that as the European authorities appear to have little option but to push the euro down further. Do the Swiss really want to follow the euro down and down and down progressively cutting their international purchasing power? Not at all.”

That’s the reasoning. It was about as strategic and insightful as your run-of-the-mill winner of the Darwin Awards, given to “individuals who protect our gene pool by making the ultimate sacrifice of their own lives.” They do this through their "astoundingly stupid judgment."

Who qualifies for

a Darwin Award?

One example of a potential Darwin Award winner might be this guy, who blew his own brains out while while trying to demonstrate gun safety to his girlfriend by putting a gun to his head and pulling the trigger. 

If they ever create a Darwin Award for the suicidal economic consequences of a financial decision, I would plead with the nominating committee to move the Swiss to the head of the list. The fallout from their economic decision came as quickly as a bullet out of the muzzle of a Mauser.

LONDON (Reuters) - Frantic foreign exchange trading after the Swiss National Bank scrapped its euro cap on the franc took $100 billion(65.52 billion pounds) off the value of Switzerland's blue-chips on Thursday, putting them on track for their biggest one-day fall in at least 25 years. 

The Swiss SMI index (.SSMI) slumped 10 percent, with stocks including Swatch (UHR.VX), luxury-goods firm Richemont (CFR.VX) and cement-maker Holcim (HOLN.VX) down between 11 and 15 percent in what some traders described as "carnage" 

Swatch Chief Executive Nick Hayek called the SNB's decision "a tsunami" for Switzerland's economy.

Hey, to paraphrase the late Senator Everett Dirksen, lose a hundred billion bucks here and another hundred billion bucks there and pretty soon you’re talking real money.

So now the much richer Swiss can afford anything they want from abroad with the savings they have in the bank, but it’ll be harder and harder to earn a dime's worth of Francs, as the price of their goods soar out of control on international markets. Which is actually going to make them a lot poorer.

Uh, Tea Party folks? 

Nevermind.

If the Bush-Republican economy has been so good to you, how come you feel so poor? Here’s America’s dirty little secret about inflation.

A little over a year ago, the Consumer Price index was 2.1%, according to the United States Bureau of Labor Statistics. That’s pretty comfortable, by any standards. The newspaper USAToday, probing the question of whether we had serious inflation, pointed out that at that rate it would take roughly 35 years for prices to double.
[Sorry, I'm having link problems. For the USAT article, cut and paste this: http://www.usatoday.com/money/economy/inflation/2006-10-31-inflation-usat_x.htm]

Umm, there’s a “small problem”
with those numbers

USAToday also quickly pointed to some evidence to the contrary. It tells you and me that what the Department of Commerce measures, officially, “average change over time in the prices paid by urban consumers for a market basket of consumer goods and services,” may be based on a highly fictional basket.

Or at the very least, the basket is loaded – weighted in a way that yours isn’t, resulting in a rosy glow cast over what ought to be a picture of inflationary gloom.

A tisket, a tasket, don't
trust that phony "basket"

Officially, the basket covers not only your morning corn flakes and milk, but also your clothes, rent, medical care, “apparel,” housing, transportation, and college tuition costs.

Oh yeah?

Here are some of the 20-year statistics the USAToday reporter picked up on the way to writing that inflation story:

• College tuition: up 289.5%
• Hospital services: up 280.4%
• Drugs: up 177.6%
• Medical care: up 173.5%
• Doctor services: up 137.3%
• Energy: up 131.9

Remember, at 2.1% prices should take 30 years, not 20 years to go up 100 percent, not 289 percent.

Now all this admittedly gets a little tricky. The 20-year time period covers the Clinton administration as well as that of two other Republicans: Ronald Reagan and the current Republican president’s Republican father, George Herbert Walker Bush. And some years have been more inflationary than others.

Nevertheless, the fact remains that the cost of living for real people – people who get sick, need to take medicine, want to send their kids to college, or who heat their homes and drive cars – is a humongous hilltop higher than the government would have you believe. And most of the inflation has been Republican inflation.

Republicans make the
situation worse

True cost of what living in America costs has been exacerbated by the reluctance of Republicans to increase the minimum wage to a living wage, to negotiate with drug companies for lower prices on behalf of Medicare and Medicaid patients, to provide full prescription drug coverage instead of the ridiculous current “doughnut hole” scheme, to support public education meaningfully, to impose really tough fuel consumption standards on car builders, and in many other ways.

What are Democrats
likely to change?

I’m not sure that even with a Democratic Congress and a Democratic President the system of measuring inflation will change significantly.

But at least we’re likelier to get affordable universal healthcare, a higher minimum wage, negotiated drug prices and other inflation-fighting tools.

Once the presidential nominees have been decided and we get into debates between the two presidential candidates, I hope somebody will be putting hard questions about the economy to both of them. And I hope the press won’t be settling for simplistic answers like, “I’ll cut taxes and that will help everybody.”

What do you think the odds of that are?

Don’t answer that.

How to keep the whacked-out Bush Administration's free enterprise purists from plunging us into the next Great Depression

Suppose you went to the bank to take out some of your money and learned that you couldn’t get it. Not today. And not ever again because the bank was broke.

That’s what happened in the Great Depression of 1929, and it’s one of the factors that helped make the Great Depression so “Great.” Thousands of people lost not only their jobs and their homes, but also their savings.

Could it happen here again? Before you answer, consider this appalling tale:

The brat who destroyed a bank

In 1995, a 27 year old whiz kid with too little supervision and too much responsibility brought down an international London merchant banking company that had been doing business since 1762.

The bank was Barings and the whiz kid was a too-smart-for-his-own-good trader named Nick Leeson. Before he got tangled in his own elaborate financial knitting, a bizarre scheme involving markets in London and Singapore, a bit of arbitraging and a bit of financial fudging, he had managed to lose $1.4 billion of the bank’s trading capital. Another bank snatched up the chaff that was Barings for about two bucks.

The Bank of England tried a rescue attempt but failed. Employees around the world lost their bonuses, their livelihoods and in some cases their ability to retire with any degree of security.

As for Leeson, he did okay. After doing six years in the clink, he wrote a book called Rogue Trader that sold to the movies. Hey, it’s hard to keep a good story down.

So what’s this got to do with
your future? Pal, take a deep breath,
bite hard on a stick and listen up.

This country used to have a law called the Glass-StiegelAct. It was one of those laws that closed the barn doors after the horse got out, but at least it kept the barn door closed against future financial disasters.

Glass-Stiegel, signed into law after a long string of bank failures, prevented banks from doing stock brokerage business, or stock brokers from doing most forms of banking business. What I’ve just said is admittedly something of an oversimplification, but the principle of this law was to compartmentalize America’s financial institutions.

Think of it as a giant ship called The U.S. Economy. If the ship springs a leak and there’s only one huge compartment below, the ship is going to sink. But if there are lots of little compartments in the ship and one of the compartments springs a leak, the ship still will be able to make it back to shore.

Poking holes in the life boats

Alas, starting in the 1970s Congress started undoing Steigel Glass, essentially taking the compartments out of the ship’s hold, and poking holes in the life boats while they were at it. This was initiated by people who knew more about Ayn Rand’s brand of free enterprise fiction than they did about real financial history, and by bankers and brokers with influence, who saw a short term opportunity to make a bundle through mergers that would put them in two or more businesses instead of one.

The result is a banking system that’s a disaster waiting to happen. You don’t even need a super subprime mortgage meltdown. All you need is the next Nick Leeson, suffering from the same kind of gambling fever that drives people to keep plunging quarters into Las Vegas slot machines until their pockets are empty. When an event like that does happen to an American bank, it will bring down not only banks, but also the U.S. Economy.

Imagine being insured by
a bankrupt insurance company

How can a giant bank’s failure impact the U.S. Government and all of us taxpayers? Here's how:

Bank deposits up to $100,000 are insured by the Federal Government. If a bank with deposits of, say, $500 billion goes down, it’s the taxpayers who have to pay off the depositors.

That’s the kind of money the U.S. Government doesn’t have on hand, thanks to the insane Bushonomics theory that you can start a war, cut taxes at the same time, and drive the deficit into the trillions without horrible consequences. It’s like being insured by an insurance company that’s essentially broke

When a giant bank failure eventually comes, the U.S. Treasury will be forced to print money even faster than it’s printing it now to cover the insurance payments. When that happens, the value of your money will shrink, and the government will be forced to raise interest rates to attract borrowers. This will result in a cost of everything that’ll make today’s prices look like chickenfeed, followed by a national economic collapse.

In pre-Nazi Germany, inflation of this kind literally led to people taking a wheelbarrow full of money to the grocer for a loaf of bread, and eventually led to the rise of the Nazis.

Hiding the disaster potential

The potential disaster in the United States is masked by the fact that the government hasn’t hiked the FDIC insurance rate in decades. Today, that $100,000 limit is the equivalent to only $10,000 a few decades ago.

So if you can’t stash your cash in the bank, and you want to keep it safer, what can you do? Some people are buying gold, which has inflated in price nearly 300 percent in less than 10 years.

But there are risks in buying gold, too, not least of them the risk that I’m wrong about all this.

At any rate, the purpose of this post is not to encourage you to buy gold, but to encourage you to demand financial reform. The USA needs to bring its finances under control by ending the war and by restoring tax brackets that deserve to go into the 50- or 60 percent bracket for individuals with incomes in the millions and above, and into the 90 percent bracket for individuals with triple-digit millions in annual income.

And once that happens, we’ll need FDIC insurance up to $1 million per depositor, not a paltry $100,000.