In case you thought the Swiss National Bank understands its monetary system
Posted by WARREN MOSLER on March 20th, 2009
Interesting the legendary Swiss National Bank doesn’t yet understand it’s own monetary system.
Seems their understanding has yet to move beyond the days of the gold standard.
SNB Moves Are Defense Against Deflation, Jordan Says
by Simone Meier
Mar 19 (Bloomberg) — Swiss central bank Governing Board member Thomas Jordan comments on the economic outlook, the SNB’s use of unconventional policy tools and deflation risks. He made the remarks in a speech in Zurich today.
On currency measures:
“From the SNB’s point of view, the current currency-market measures are serving as an insurance against the threat of an unwelcome strong appreciation of the franc. At the same time, they’re serving as defense against deflation.â€ÂÂ
Yes, the ‘deflation’ from lower costs of falling export prices that drive down domestic wages, profitability, and asset prices.
“The SNB’s currency purchases don’t have anything to do with a ‘beggar thy neighbor’ policy and must not be interpreted as the beginning of a currency war. It’s not about Switzerland creating advantages with a weak franc.â€ÂÂ
He can call it whatever he wants. Functionally it’s a policy to keep their currency weak enough to keep export prices from falling. ‘Beggar thy neighbor’ is not a matter of degree. It means leaning on your neighbors domestic demand for your own employment purposes.
This is what happens when those running a government don’t understand how their non convertible currency works.
“Our purchases on the currency market are only to be seen as an additional instrument in times of zero-rate policy to fight the deflation threat.â€ÂÂ
Call it what you want, mate. It’s a dead on beggar thy neighbor policy by ‘previous’ definition.
On unconventional tools:
“The use of unconventional measures doesn’t go without risks. On one hand, effects and side effects aren’t as well known as those of the conventional monetary policy.
First, they are highly unsure of the effects of ‘conventional monetary policy’ as per their own econometric research and theory.
Second, the effects of ‘unconventional measures’ are not only not well known, they are not understood at all.
Ironically, however, they are easier to understand, they alter the term structure of rates and remove interest income from the non government sectors.
And selling your currency to buy FX is an inflationary bias that drives down your currency and increases local currency prices of imports and exports.
On the other hand, it’s an intentional over-supply of the economy with liquidity.
Whatever that means in this context. Close questioning of what this means operationally reveals it’s empty rhetoric, all based on the backwards notion that the banking system needs reserves to be able to make loans.
There needs to be an immediate exit of unconventional measures once the monetary stimulus can be reduced. The assessment of the current crisis means that the SNB has to take these risks.â€ÂÂ
There are no such risks. They don’t know how their own monetary system works.
The SNB “has to already engage itself with the question of a timely exit of these measures, however. Even with all uncertainty in forecasts, there’s certainty that there will be quieter times in the future. The exit of unconventional measures has to immediately happen once the monetary stimulus can be reduced. That’s the case when tensions on money and credit markets are over and inflation risks are increasing along with an economic recovery.â€ÂÂ
“The dosage of monetary policy isn’t easy in the current environment. The assessment of current risks is clearly in favor of rather too much monetary stimulus than too little.â€ÂÂ
The SNB is “confident†it will be able “reduce liquidity†when the time comes.
This is all non-sensical.
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March 20th, 2009 at 12:59 pm
Warren,
Don’t educate them, please! I’m short the swissie!!
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March 20th, 2009 at 7:52 pm
This is what happens when those running a government don’t understand how their non convertible currency works.”
Day after day you keep complaining Warren that person after person is too stupid to understand all the complexity which is simple for you. Therefore it is OBVIOUS the system has grown too complex for the users, like throwing cavemen into a nuclear submarine.
Ron Paul says make it convertible with gold and a lot of this complexity that confuses mere mortals goes away.
Trying to teach pigs to fly was not very productive I thought. I have been reading your stuff for years and I still don’t understand how moving virtual jars of money back and forth across your trading terminal makes the world better and adds value.
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March 20th, 2009 at 8:17 pm
they are not too stupid to understand the complexity
they are looking the wrong way and make a simple thing complex as well as backwards
go back to gold and the economy goes into a real depression, like the last time we were on a gold standard. there was a reason gold was abandoned, and not because it worked so well
Read more carefully. One of my central themes is the financial sector adds no real value
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March 20th, 2009 at 10:54 pm
“they are looking the wrong way and make a simple thing complex as well as backwards”
You can design the system to either be intuitive to the user base or not. Even mike norman – who should be very well versed in your memes at this point – is correcting YOU Warren over on the foreign currency swaps posting – one of you is not “getting it”. So obviously, all this SIMPLE stuff is actually not so simple to the mere mortals – even those of us that have read your memes for MANY years now.
You are approaching the problem from one side – IE trying to make all the cavemen smarter so they can run the nuclear submarine. However post after post you keep finding more and more governments, peoples, and societies that you claim don’t “get it” Perhaps you need to stand back from the tree and look at the forest and realize they never WILL get it and start working on a system that is not so counterintuitive to dumb cavemen. KISS. Perhaps the cavemen need to be given a canoe instead of a nuclear sub.
If your whole life you teach a human to think and act under one set of rules, and then at 50 years old put him into public office and say now you make decisions based on these other rules, he probably is never really going to get it. The neural pathways just won’t reorientate like you are hoping. I am sure a human living in THX 1138 society – it all seems normal to him – it is those of us who have lived differently that don’t “get it.”
We are seeing this play out on the national stage right now, AIG wall streeters feel entitled to a BONUS, that is thier culture, a blue collar man or homeless man doesn’t “get it” and probably never will.
It’s like when I see the sada clone who has 100 suckers line up to take her on a louis vitton shopping spree, and no one line up to take me on one, I didn’t get it coming from a culture where the woman idolizes the men, I am not USED to this new culture where men are less than zero and the woman is above even God.
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March 21st, 2009 at 10:21 pm
the cave men actually did get it.
lots of history of times ere were monetary societies that did get it.
i’m just doing this because the voices in my head tell me to.
i’ll stop when they stop telling me to do it.
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March 21st, 2009 at 11:13 pm
WARREN: Is there a recommended reading where you add details about why the financial sector adds no real value?
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March 22nd, 2009 at 3:45 am
I’d guess there are quite a few but i don’t know the specifics
just seems obvious to me, and no professional economist i’ve discussed it with has come up with any reason to suspect differently
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March 22nd, 2009 at 4:12 am
“i’m just doing this because the voices in my head tell me to.”
Actions speak louder than words, move to washington, give up all that wealth and tax advantages that come with being a USVI resident.
Set your portfolio on auto pilot like Roubini, and practice what you preach and stop spending so much time allocating capital when the voices in your head tell you that teaching fellow humans the right memes are the best use of your life.
Your memes cannot infect the right people in government being so far removed from them. Larry summers may be an idiot in your eyes, but he is not off on some island living la vida loca – he got in there mixing it up with the power players. He can play golf with them, share dinners with them, trade prostitute recommendations, you can’t sitting so far away.
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March 22nd, 2009 at 4:14 pm
Zanon – it is sad Warren can’t give you any specific readings to advooate what those voices in his head say need fixing, however there are people that have done REAL WORK to fix what is broken and can give you some good ideas – here is one guy – David Korten. He goes RIGHT to the heart of the matter of what is wrong with the financial system and our entire incentive structure in modern capitalism.
and Warren – you should read his book – Agenda for a New Economy and you should be ashamed that you don’t know any readings to recommend – disgraceful.
http://www.amazon.com/s/ref=nb_ss_gw?url=search-alias%3Daps&field-keywords=david+korten
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