The Swiss Franc Will Collapse…”It’s not only pathological, but terminal. This is the end.”
SilverDoctors.com
February 6, 2015
The Swiss 10-year yield was as high as 37 basis points on Friday January 2. It has been nonstop free-fall since then, currently to -26 basis points.
The Swiss situation is truly amazing. One has to go out to 20 years to see a positive number for yield—if one can call 21 basis points much of a yield.
It’s not only pathological, but terminal. This is the end.
What can explain this epic collapse? Why is the entire Swiss bond market drowning?
There are several harbingers of financial and monetary collapse. The first is when the interest interest rate on the long bond goes to zero. A falling rate destroys capital, and that lower rates mean a higher burden of debt. If the long bond rate is zero then the net present value of all debt (which is effectively perpetual) is infinite.
Debtors cannot carry an infinite burden. Any monetary system that depends on debtors servicing their debt must collapse when the rate goes to zero.
I think the franc has reached the end. With negative rates out to 15 years, and a scant 33 basis points on the 30-year, it is all over but the shouting.
I would not be surprised if the process of collapse of the franc began next week, nor if it lingered all year. This kind of event is not susceptible to a precise prediction of when.
What is clear is that, once the process begins in earnest, it will be explosive, highly non-linear, and over quickly (I would guess a matter weeks).
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