CHF continues to rise despite the EUR’s resilience. The SNB’s pledge to hold the CHF 1.20 cap will soon be tested. Since its inception last September it has worked, however, in the past few weeks’ market sentiment has changed dramatically. China considering greater involvement in EFSF and ESM program has done little to support currency so far.

This week we take a brief pause in our series on the choices facing the developed world to look at some items that are catching my attention. We will get back to the US next week, as somehow I think we will not solve our problems between now and next Friday, and there will be plenty left for us to talk about. So today we look at the “shift” in Fed policy, and at the balance sheets of central banks, US GDP, Portugal and the ECB, the LTRO policy, and yes, there’s even a tidbit on Greece. Plenty of ground to cover, so with no “but first,” let’s get started.

The markets will be pretty quiet this week as many traders extend their holiday. Stocks jumped last week when we learned that European banks borrowed €498 billion from the ECB. They used the proceeds to pay down more expensive debt, fortify balance sheets and to purchase short-term sovereign debt. This temporarily soothed nerves. The ECB's balance sheet has grown to a level not seen since the peak of the financial crisis in 2008. Most analysts see this as the "bazooka" they were looking for to stabilize financial conditions.

I believe that banking institutions are more dangerous to our liberties than standing armies. – Thomas Jefferson

Thanks to William Grootonk for the image.

There is a scene in the Parable of the Talents in which the returned master berates the shabbiest of his three servants. Discovering that he had buried his seed capital in the ground, the master says: “You should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.” The servant is then thrown outside “into the darkness,” where he faces “weeping and gnashing of teeth.”