Today a former White House official stunned King World News by exposing the shocking real reason for the historic move by the Swiss central bank.  The former presidential advisor also discussed why the 58-sigma Swiss move was tantamount to a nuclear explosion and what is left in the aftermath of the destruction.

Eric King:  “Dr. Malmgren, what about this latest move by the Swiss that shocked the world?”

Dr. Malmgren:  “It was a shocking move.  Just to put it into perspective, the implied volatility on Euro/Swiss and Dollar/Swiss had been less than 1 percent for the coming year.  Then the Swiss made the stunning announcement and the currency moved 43 percent in half an hour….

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“We’ve never seen a currency pair move like this, not even in emerging markets.  This was a truly historic event.  

Faith In Central Banks Shattered After Massive Losses Incurred

There are many consequences as a result of this and one of them is massive losses because almost everyone has been long dollars.  So now we are going to get margin calls and entities are going to have to start to figure out how big the losses are that they just incurred.

The next thing that is really important is everyone has had such great faith and belief that central banks could control outcomes.  Meaning, if a central bank decided to do something it could make it happen.  The Swiss National Bank has just proved that is not true.  They thought that they could contain the price movement to the upside on the Swiss franc, and what they did was just admit it’s impossible.

The illusion of central bank power has been shattered.  So now this has put a dent in the faith and belief across the central banks that they can choose the prices they want, the level of the currency, or the level of the inflation rate.  They absolutely can’t and the Swiss have just proved that.

Shocking Real Reason For Historic Swiss Move

Here is the harsh reality, Eric:  Most people think the reason the Swiss made this move is because the ECB is going to make a big quantitative easing announcement and that would have put upward pressure on the Swiss franc as people abandoned the euro.  That’s not what actually happened.

What actually happened was the Swiss National Bank realized that the balance sheet of the central bank’s ratio to the Swiss GDP had already reached a level of nearly 100 percent.  And given what’s going on in the world — we’ve got inflation of 23 percent in Argentina, it’s projected to be 17 percent in Russia — inflation is picking up rapidly in many parts of the world and social unrest is unfolding.  All of that gives Switzerland inbound capital flight from other countries. 

They concluded that the combination of euro quantitative easing, plus the inbound capital flight and the likelihood of more geopolitical confrontation with Russia, which also pushes money into Switzerland — all of that put them on a trajectory so that if they would have continued to defend the currency peg, the Swiss National Bank's balance sheet would have been over a staggering 200 percent of GDP within one year.To learn about Adderall and how it works please visit this Adderall online website for buying information’s and to learn about Adderall.

Here’s the kicker:  It turns out that when the central bank in Germany kicked off the historic Weimar Republic inflation, the Reichsbank’s balance was 250 percent of GDP, and the Swiss said, ‘We can’t go there.’”

58-Sigma Swiss Move Tantamount To Nuclear Explosion

Eric King:  “Can you talk more about the panic in the aftermath of the Swiss move?  One senior analyst at a bank described the Swiss move as being ‘Closer to a nuclear explosion than a 1,000-kilogram conventional bomb.’”

Dr. Malmgren:  “People haven’t yet even registered the magnitude of the losses.  Some of the calculations were showing this created something like a 58-sigma move.  There is no model that can even accommodate a movement of that magnitude.  We are already hearing about hedge funds that have incurred fatal losses because of this event.”

Mortal Threat To The Entire Eurozone

Eric King:  “How bad could this situation get when we are already seeing hedge funds blow up and derivatives that were on the wrong side of the trade?”

Dr. Malmgren:  “We will see some tremendous volatility in the derivatives market.  But I am very worried that the European Central Bank quantitative easing program won’t fix the core problem that Europe’s banks have.  The banks have all these bilateral direct loans where they can’t really do anything except write them off.  And as it becomes more and more clear that the quantitative easing won’t be used to finance those loans and the loans are still bad, then the markets will start to melt down because of the fact that the losses can’t be dealt with any other way than a pure write-off, and that’s a mortal threat to the entire eurozone.” ***ALSO JUST RELEASED: Panic At Davos After Swiss Move As Bank Runs Accelerate And Financial System Begins To Implode CLICK HERE.

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King World News - Dr. Pippa Malmgren - SignalsDr. Philippa “Pippa” Malmgren: Former Special Assistant to the President of the United States for Economic Policy, Former Member of the U.S. President’s Working Group on Financial Markets, President & Founder of DRPM Group and Authour. To buy Dr. Malmgren's new book "Signals: The Breakdown of the Social Contract and the Rise of Geopolitics" CLICK HERE or ON THE BOOK IMAGE


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The audio interviews with Dr. Paul Craig Roberts, Gerald Celente, Lord Christopher Monckton, Michael Pento, Bill Fleckenstein, David Stockman, Dr. Philippa Malmgren, Egon von Greyerz, Stephen Leeb, Andrew Maguire, John Embry, Rick Rule,  Rick Santelli, John Mauldin and Marc Faber are available now. Other recent KWN interviews include Jim Grant and Felix Zulauf — to listen CLICK HERE.

Eric King