Why Switzerland Matters

It seems such a waste of time
If that's what it's all about
If that's moving up
Then I'm moving out
--Billy Joel

Why did Switzerland do what it did yesterday and why does it matter moving ahead? For generations, Swiss banks and the Swiss franc were fewed as the ultimate safe money havens. Conservative banking and monetary policies that attracted worldwide capital seeking safety.

However, in the era of modern central bank extremism, even the Swiss became addicted to the money printing drug. Since 2008, the SNB balance expanded nearly 5x and currently nearly equal to GDP--making it larger in relative terms to the Bank of Japan money printers.

In short, the Swiss were printing their way to oblivion. Last summer, the money printing addiction reached a crescendo with the SNB's announcement of NIRP and a promise to keep the Swissie from breaking thru a ceiling of 1.20 per euro.

With the European Central Bank considering a massive quantitative easing program sure to crush the already pounded down euro, it appears to have dawned on the SNB that, to maintain the peg to the euro, so many Swissies would need to be created as to destroy the currency's value.

So, yesterday the SNB reneged on its promises to markets. It confessed that it was lying or in poor command of its monetary faculties when it made those previous promises.

This is significant because if market participants come to distrust promises made by central banks--promises that have funded $trillions in risk in the name of moral hazard--then we are headed toward a brave new world. And a pleasant one at that.

The journey, however, will not be for the faint of heart.