6 ms·

Could someone explain like I'm 5, why doesn't SNB just print (digitally) more money to weaken the Frank? Would that drive their inflation crazy?

by Varqu 7y ago

polotics 7y ago
The issue is: how do you feed in this liquidity without damaging the economy? Quantitative Easing with bonds purchases may be a least bad option, but it is still picking winners: I won't be emitting bonds to buy you lollies anytime soon.
- ReptileMan 7y ago
  Easy. You print X billion francs and then send each of the Y citizens a check for X/Y
- thepangolino 7y ago
  Get the government to finance public projects?
  - turbinerneiter 7y ago
    Heresy.
  - polotics 7y ago
    Roads bridges and tunnels to nowhere? Ghost cities Chinese style? There's no room for that in Switzerland!
  - sschueller 7y ago
    The Swiss government is already financing a lot of public projects.
    - tonyedgecombe 7y ago
      By developed country standards Swiss taxation and government spending is quite low. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
  - lrem 7y ago
    I'm having a hard time thinking of any more projects that are not funded yet and still make sense.
    - RobertoG 7y ago
      At least that all the citizens live in a perfect paradise, that shows a really lack of imagination. Even, if ideologically you are against spending the citizens money in the citizens, there are always things like basic research programs. The world could do with a few Manhattan Projects for batteries or cultured meat to help with the CO2 emissions, another spacial program or many other things.
      - lrem 7y ago
        Not perfect, but everything seems to be already on the verge of diminishing returns. The only underprovisioned aspect is daycare, but that's a societal, not budgetary problem. To the main point, yes, I didn't think of research. It definitely makes sense to pour all surplus resources into it and it won't collapse the order. Now I'm curious why is it not being done.
        cinquemb 7y ago
        >Not perfect, but everything seems to be already on the verge of diminishing returns. Very true, for example there are about ~2060 (2026 are trading above par by about %11 on avg, as of 22-08-2019) IG bonds tracked by LQD ETF with the avg maturity date of 2023-05-04, that effectively (subtracting/adding avg % of each bond trading above/below par value from its interest rate when written) yields %0.12, negative if you subtract off "risk free" rate of a UST with a 3-5 year maturity. > Now I'm curious why is it not being done. My take: Plenty of government money already goes into research, the problem is that the process of allocation today follows the opaque prestige grant funding hamster wheel process with cronyistic characteristics, and not say "cash drop" to anyone who can post sub 5 page action plan for x funds on what outcomes/targets/objectives could happen from research to a public repo that tracks said research/ fund allocation through the life-cycle (where "[future] rights" on said repos could be bought and sold by various actors with contract conditionality such that %x of transactions are used to fund y initiatives).
  - fauigerzigerk 7y ago
    Large public works projects are great if you have mass unemployment and generally a lot of slack in the economy. The Swiss unemployment rate is 2.3%. I doubt there are many qualified electricians, plumbers, civil engineers or brick layers among them.
    - petre 7y ago
      They could import temporary workers EU with 5y work visas.
      - fauigerzigerk 7y ago
        EU nationals have a right to work in Switzerland anyway, but there simply isn't a huge pool of unemployed, well educated and ready to move engineers and craftsmen anywhere in Europe. Even if these workers were available, I doubt that bringing them in would have much effect on exchange rates. Changing money supply proportional to the size of the population shouldn't do much, but correct me if I'm wrong. Migration certainly has a lot of benefits, but I don't think it's the right tool to manage exchange rates. Peoples' lives are less flexible than short term market gyrations.
- tom_mellior 7y ago
  Pay it out to residents unconditionally, or especially to poorer ones.
  - sschueller 7y ago
    UBI was on the ballot not so long ago and it didn't make it. But it was probably just too early.
    - tom_mellior 7y ago
      I deliberately didn't write UBI since this would be one-off or at least very irregular, and not necessarily an amount high enough to deserve the name UBI. This means that voters could decide differently than on UBI. Especially if these payments are financed by magic money printing rather than taxes.
s_Hogg 7y ago
It definitely can, but it's not guaranteed. Japan has been effectively printing money for ages, but it hasn't really led to inflation because demand is so weak - nothing gets bid up.
- benj111 7y ago
  Well that's easy, you just build bullet trains everywhere, and create a culture where people build new houses, rather than buy second hand [1]. That should get things moving... Snark aside, are there any good sources looking at Japanese economics, because they don't seem to follow the same rules as everyone else. [1] https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution https://www.theguardian.com/cities/2017/nov/16/japan-reusabl...
  - RobertoG 7y ago
    I would recommend looking at it from a Modern Monetary Theory perspective (1) (2). In my case, it's only then, when everything started to make sense. (1) - http://bilbo.economicoutlook.net/blog/?p=33094 http://bilbo.economicoutlook.net/blog/?p=33094 (2) - http://bilbo.economicoutlook.net/blog/?p=40250 http://bilbo.economicoutlook.net/blog/?p=40250 They (Japan) themselves are doing it: https://www.bloomberg.com/news/articles/2019-06-05/japan-worries-about-its-deficit-as-mmt-argues-there-s-no-need https://www.bloomberg.com/news/articles/2019-06-05/japan-wor...
    - s_Hogg 7y ago
      Given that even the proponents of MMT don't agree on what it is, I wouldn't. Economics as a discipline has problems(1), but I don't think MMT goes anywhere near to addressing them, nor to providing a scientific basis for doing so. (1) Source: I hold a bachelor and master degree in econ
      - RobertoG 7y ago
        >>"Given that even the proponents of MMT don't agree on what it is [..]" I'm not an economist but I have read a lot of the MMT literature, including the available textbook (1) and it's a totally coherent framework. Can you point me to some of those contradictions that you have observed? (1) - https://www.amazon.com/Macroeconomics-William-Mitchell/dp/1137610662/ref=sr_1_1?keywords=macroeconomics+mitchell&qid=1566640356&s=gateway&sr=8-1 https://www.amazon.com/Macroeconomics-William-Mitchell/dp/11...
H8crilA 7y ago
They used to do that prior to 2014 or 2015, don't remember. It was pegged to EUR by constantly printing CHF and selling for EUR. Then one beautiful day the peg was dropped without a warning. Many people and brokerages went broke in a matter of a minute.
- malteof 7y ago
  > Many people and brokerages went broke in a matter of a minute. I was here then as well, I somehow doubt many people went broke... It only went from being pegged at 1.2 dropping to around 1.0 as far as I remember. How would this cause anyone to to broke?
  - H8crilA 7y ago
    Leverage and the necessary stop losses. Much of forex trading is done on high leverage, and as such requires stop losses. For example at 10x leverage you can only sustain a 10% drop, even if it is very short, before your margin gets burned and the position forcibly liquidated. For a similar example look up the $SVXY long term chart (the event was called the volpocalypse, CBOE has a write-up on that). Naturally there is no guarantee that a stop loss can be executed at any predetermined price - the market can just fly by your desired exit point without stopping there. This leads to huge losses when the position is actually liquidated, below the desired stop loss point. The Talebs of the markets win a shit ton of money on days like that. Not sure who made money on chf/eur depegging (other than CHF deposit/bonds holders :) ), but volpocalypse was the cashout day for the mystery "50-cent trader".
  - zeusk 7y ago
    Because forex trades can be levered a lot more than the usual equity instruments for consumers.
- garaetjjte 7y ago
  >They used to do that prior to 2014 or 2015, don't remember 15 January 2015: https://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf https://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_...
fla 7y ago
Because doing this inflates the price of everything, including the exchange rate. Imagine the following (simplified) situation: Before inflation, a beer costs 10CHF, Euro is at parity: 10EUR = 10CHF = 1 beer After inflation of 10x, beer now costs 100CHF: 10EUR = 100CHF = 1 beer In the end, if you pay in EUR, a beer always costs 10EUR. The value of the CHF has not really weaken (only numerically)
- ulfw 7y ago
  That's assuming said beer is fully important vs a beer made domestically (with only domestic ingredients), which should still be closer to 10 CHF in your example (or now 1 EUR)

Could someone explain like I'm 5, why doesn't SNB just print (digitally) more money to weaken the Frank? Would that drive their inflation crazy?

by Varqu 7y ago

Could someone explain like I'm 5, why doesn't SNB just print (digitally) more money to weaken the Frank? Would that drive their inflation crazy?

polotics 7y ago

The issue is: how do you feed in this liquidity without damaging the economy? Quantitative Easing with bonds purchases may be a least bad option, but it is still picking winners: I won't be emitting bonds to buy you lollies anytime soon.

ReptileMan 7y ago
Easy. You print X billion francs and then send each of the Y citizens a check for X/Y
thepangolino 7y ago
Get the government to finance public projects?
- turbinerneiter 7y ago
  Heresy.
- polotics 7y ago
  Roads bridges and tunnels to nowhere? Ghost cities Chinese style? There's no room for that in Switzerland!
- sschueller 7y ago
  The Swiss government is already financing a lot of public projects.
  - tonyedgecombe 7y ago
    By developed country standards Swiss taxation and government spending is quite low. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
- lrem 7y ago
  I'm having a hard time thinking of any more projects that are not funded yet and still make sense.
  - RobertoG 7y ago
    At least that all the citizens live in a perfect paradise, that shows a really lack of imagination. Even, if ideologically you are against spending the citizens money in the citizens, there are always things like basic research programs. The world could do with a few Manhattan Projects for batteries or cultured meat to help with the CO2 emissions, another spacial program or many other things.
    - lrem 7y ago
      Not perfect, but everything seems to be already on the verge of diminishing returns. The only underprovisioned aspect is daycare, but that's a societal, not budgetary problem. To the main point, yes, I didn't think of research. It definitely makes sense to pour all surplus resources into it and it won't collapse the order. Now I'm curious why is it not being done.
      - cinquemb 7y ago
        >Not perfect, but everything seems to be already on the verge of diminishing returns. Very true, for example there are about ~2060 (2026 are trading above par by about %11 on avg, as of 22-08-2019) IG bonds tracked by LQD ETF with the avg maturity date of 2023-05-04, that effectively (subtracting/adding avg % of each bond trading above/below par value from its interest rate when written) yields %0.12, negative if you subtract off "risk free" rate of a UST with a 3-5 year maturity. > Now I'm curious why is it not being done. My take: Plenty of government money already goes into research, the problem is that the process of allocation today follows the opaque prestige grant funding hamster wheel process with cronyistic characteristics, and not say "cash drop" to anyone who can post sub 5 page action plan for x funds on what outcomes/targets/objectives could happen from research to a public repo that tracks said research/ fund allocation through the life-cycle (where "[future] rights" on said repos could be bought and sold by various actors with contract conditionality such that %x of transactions are used to fund y initiatives).
- fauigerzigerk 7y ago
  Large public works projects are great if you have mass unemployment and generally a lot of slack in the economy. The Swiss unemployment rate is 2.3%. I doubt there are many qualified electricians, plumbers, civil engineers or brick layers among them.
  - petre 7y ago
    They could import temporary workers EU with 5y work visas.
    - fauigerzigerk 7y ago
      EU nationals have a right to work in Switzerland anyway, but there simply isn't a huge pool of unemployed, well educated and ready to move engineers and craftsmen anywhere in Europe. Even if these workers were available, I doubt that bringing them in would have much effect on exchange rates. Changing money supply proportional to the size of the population shouldn't do much, but correct me if I'm wrong. Migration certainly has a lot of benefits, but I don't think it's the right tool to manage exchange rates. Peoples' lives are less flexible than short term market gyrations.
tom_mellior 7y ago
Pay it out to residents unconditionally, or especially to poorer ones.
- sschueller 7y ago
  UBI was on the ballot not so long ago and it didn't make it. But it was probably just too early.
  - tom_mellior 7y ago
    I deliberately didn't write UBI since this would be one-off or at least very irregular, and not necessarily an amount high enough to deserve the name UBI. This means that voters could decide differently than on UBI. Especially if these payments are financed by magic money printing rather than taxes.

s_Hogg 7y ago

It definitely can, but it's not guaranteed. Japan has been effectively printing money for ages, but it hasn't really led to inflation because demand is so weak - nothing gets bid up.

benj111 7y ago
Well that's easy, you just build bullet trains everywhere, and create a culture where people build new houses, rather than buy second hand [1]. That should get things moving... Snark aside, are there any good sources looking at Japanese economics, because they don't seem to follow the same rules as everyone else. [1] https://www.theguardian.com/cities/2017/nov/16/japan-reusable-housing-revolution https://www.theguardian.com/cities/2017/nov/16/japan-reusabl...
- RobertoG 7y ago
  I would recommend looking at it from a Modern Monetary Theory perspective (1) (2). In my case, it's only then, when everything started to make sense. (1) - http://bilbo.economicoutlook.net/blog/?p=33094 http://bilbo.economicoutlook.net/blog/?p=33094 (2) - http://bilbo.economicoutlook.net/blog/?p=40250 http://bilbo.economicoutlook.net/blog/?p=40250 They (Japan) themselves are doing it: https://www.bloomberg.com/news/articles/2019-06-05/japan-worries-about-its-deficit-as-mmt-argues-there-s-no-need https://www.bloomberg.com/news/articles/2019-06-05/japan-wor...
  - s_Hogg 7y ago
    Given that even the proponents of MMT don't agree on what it is, I wouldn't. Economics as a discipline has problems(1), but I don't think MMT goes anywhere near to addressing them, nor to providing a scientific basis for doing so. (1) Source: I hold a bachelor and master degree in econ
    - RobertoG 7y ago
      >>"Given that even the proponents of MMT don't agree on what it is [..]" I'm not an economist but I have read a lot of the MMT literature, including the available textbook (1) and it's a totally coherent framework. Can you point me to some of those contradictions that you have observed? (1) - https://www.amazon.com/Macroeconomics-William-Mitchell/dp/1137610662/ref=sr_1_1?keywords=macroeconomics+mitchell&qid=1566640356&s=gateway&sr=8-1 https://www.amazon.com/Macroeconomics-William-Mitchell/dp/11...

H8crilA 7y ago

They used to do that prior to 2014 or 2015, don't remember. It was pegged to EUR by constantly printing CHF and selling for EUR. Then one beautiful day the peg was dropped without a warning. Many people and brokerages went broke in a matter of a minute.

malteof 7y ago
> Many people and brokerages went broke in a matter of a minute. I was here then as well, I somehow doubt many people went broke... It only went from being pegged at 1.2 dropping to around 1.0 as far as I remember. How would this cause anyone to to broke?
- H8crilA 7y ago
  Leverage and the necessary stop losses. Much of forex trading is done on high leverage, and as such requires stop losses. For example at 10x leverage you can only sustain a 10% drop, even if it is very short, before your margin gets burned and the position forcibly liquidated. For a similar example look up the $SVXY long term chart (the event was called the volpocalypse, CBOE has a write-up on that). Naturally there is no guarantee that a stop loss can be executed at any predetermined price - the market can just fly by your desired exit point without stopping there. This leads to huge losses when the position is actually liquidated, below the desired stop loss point. The Talebs of the markets win a shit ton of money on days like that. Not sure who made money on chf/eur depegging (other than CHF deposit/bonds holders :) ), but volpocalypse was the cashout day for the mystery "50-cent trader".
- zeusk 7y ago
  Because forex trades can be levered a lot more than the usual equity instruments for consumers.
garaetjjte 7y ago
>They used to do that prior to 2014 or 2015, don't remember 15 January 2015: https://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_20150115.en.pdf https://www.snb.ch/en/mmr/reference/pre_20150115/source/pre_...

fla 7y ago

Because doing this inflates the price of everything, including the exchange rate. Imagine the following (simplified) situation: Before inflation, a beer costs 10CHF, Euro is at parity: 10EUR = 10CHF = 1 beer After inflation of 10x, beer now costs 100CHF: 10EUR = 100CHF = 1 beer In the end, if you pay in EUR, a beer always costs 10EUR. The value of the CHF has not really weaken (only numerically)

ulfw 7y ago
That's assuming said beer is fully important vs a beer made domestically (with only domestic ingredients), which should still be closer to 10 CHF in your example (or now 1 EUR)