Swiss Deflation
"It’s every bit exactly about an economical consensus every bit you lot tin get: Deflation is bad for an economy, too fundamental bankers should avoid it at all costs."
I differ, every bit does Milton Friedman's "Optimum quantity of money." And my "who's afraid of a footling deflation" in... The Wall Street Journal.
"Then there’s Switzerland, whose steady increment too rock-bottom unemployment is chipping away at that wisdom."
"At a fourth dimension of lively global fence almost depression inflation too its sick effects, tiny Switzerland—with an economic scheme 4% the size of the U.S.—offers a fascinating counterpoint, amongst some fifty-fifty pointing to what they telephone shout out upwardly 'good deflation.' ”
Indeed. The 1970s had stagflation. Now nosotros convey the opposite, "good deflation." The Phillips crease lives on inwards "consensus."
Switzerland likewise is a expert representative for exactly how powerless fundamental banks are to practice much almost it.
I don't intend at that spot actually is such a matter every bit monetary policy whatsoever more. Money too regime bonds are perfect substitutes. At that point, fundamental banking concern involvement charge per unit of measurement setting is the same matter every bit if the Treasury only decreed the charge per unit of measurement it volition pay on regime debt. When (if) the Fed raises involvement on reserves, too Treasury involvement goes upwardly similarly, it volition live exactly every bit if the Treasury announced it volition pay 1% on curt term debt. (p. 77-78 of Monetary Policy amongst Interest on Reserves or p. 6-7 ungated here makes this betoken amongst equations.)
But you lot convey to live careful when you lot laid a price. If you lot laid the incorrect price, you lot are either overwhelmed or starved amongst demand.
That's how I read recent events: The Fed talks almost raising rates, a bounding main of unusual majuscule starts to desire to purchase the States debt at that higher rate. The treasury is non offering an elastic render -- they're setting both cost too quantity. So amongst the involvement charge per unit of measurement fixed, the dollar goes up. Then the Fed has to dorsum down. The Fed can't heighten rates if it wants to.
Switzerland likewise taught that lesson when its fundamental banking concern tried to peg to the Euro too was overwhelmed.
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