The Federal Reserve made a whopping $98 Billion in 2014. That’s a huge amount of money. How big is it?
– It’s about equal to the state budgets of NY, California and Texas.
– It comes to $300 for every man woman and child in the country. It is equivalent to $600 for every worker.
– It is more than the top TBTF banks make in a year.
– The profit is equal to 175% of the Fed’s equity. Way-to-go!
I could on with this; $98B is a big pile of money. But it’s chump change compared to what is going on in Switzerland.
The Swiss National Bank earned an incredible $38B in 2014. Compare that to the Fed’s results:
– On a GDP comparison the SNB earned 9Xs what the Fed did.
– It comes to $5,000 per person, and $9,000 per worker.
– The SNB’s earnings cover half of the entire Swiss budget. The Fed’s profits are only equal to a half of one percent!
So if you worry about the size of the Fed’s balance sheet you should be horrified by what is happening in Switzerland. These incredible numbers from the Central Banks are not a sign of health – They are a sign of weakness and distress.
I bring this up because there has been a development. In today’s Neu Zuricher Zeitung (NZZ) there was an article featuring one of the Swiss “Wise Men” –Ernst Baltensperger. The following quotes are close to a stake in the heart of the Swiss National Bank:
– the National Bank to abandon the rigid connection of the franc to the euro.
– The rate floor has been served excellently Switzerland. But it was always clear that it also involves costs and risks.
– it would be desirable if the SNB might loosen their minimum rate policy, at least in the foreseeable future.
– you could replace the current minimum rate by a lower limit for a basket of currencies, for example, each is half dollar and euro.
– (the change to a basket) would create the possibility that the Swiss franc appreciates against the euro in a certain degree.
And finally, the question about the SNB profits in 2014:
-It would be very dangerous to keep this asset to normal.
I said on 12/19, that the SNB’s resolve to defend the Peg would be tested in January. Baltensperger’s comments will stoke the fire. The fact that this discussion appeared in the most influential newspaper in Switzerland adds to its significance. I also said that the test of the SNB’s resolve would have far reaching consequences to the concept of the All Powerful Central Banks.
Baltensperger was asked what will happen if the ECB initiates a QE program, his answer:
– Quite possible that the rate floor (EURCHF Peg) is then retested.
Mario Draghi will announce an ECB QE plan in eight trading days. The EURCHF FX rate is a small factor in the global markets. It might soon take center stage at the big circus.
Images: Flickr (licence attribution)
About The Author – Bruce Krasting
I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.