The corruption of our tax code and the inability to reign in the use of offshore tax havens by the new Royalty, is part of a long period of disintegration of our regulatory authorities. A gifted writer, Socrates. comments on the Krugman column about the Swiss National Bank currency and minus interest rate moves. financial stake in the value of the franc. For Switzerland’s monetary travails illustrate in miniature just how hard it is to fight the deflationary vortex now dragging down much of the world economy. Continue reading the main story Related in Opinion Regime Change in SwitzerlandJAN. 16, 2015 What you need to understand is that all the usual rules of economic policy changed when financial crisis struck in 2008; we entered a looking-glass world, and we still haven’t emerged. In many cases, economic virtues became vices: Willingness to save became a drag on investment, fiscal probity a route to stagnation. And in the case of the Swiss, having a reputation for safe banks and sound money became a major liability. Here’s how it worked: When Greece entered its debt crisis at the end of 2009, and other European nations found themselves under severe stress, money seeking a safe haven began pouring into Switzerland. This in turn sent the Swiss franc soaring, with devastating effects on the competitiveness of Swiss manufacturing, and threatened to push Switzerland — which already had very low inflation and very low interest rates — into Japanese-style deflation. Paul Krugman Macroeconomics, trade, health care, social policy and politics. For the Love of Carbon JAN 11 Voodoo Time Machine JAN 8 Presidents and the Economy JAN 4 Twin Peaks Planet JAN 1 The Obama Recovery DEC 28 See More » So Swiss monetary officials went all out in an effort to weaken their currency. You might think that making your currency worth less is easy — can’t you just print more bills? — but in the post-crisis world it’s not easy at all. Just printing money and stuffing it into the banks does nothing; it just sits there. The Swiss tried a more direct approach, selling francs and buying euros on the foreign exchange market, in the process acquiring a huge hoard of euros. But even that wasn’t doing the trick. Then, in 2011, the Swiss National Bank tried a psychological tactic. “The current massive overvaluation of the Swiss franc,” it declared, “poses an acute threat to the Swiss economy and carries the risk of a deflationary development.” And it therefore announced that it would set a minimum value for the euro — 1.2 Swiss francs — and that to enforce this minimum it was “prepared to buy foreign currency in unlimited quantities.” What the bank clearly hoped was that by drawing this line in the sand it would limit the number of euros it actually had to buy. And for three years it worked. But on Thursday the Swiss suddenly gave up. We don’t know exactly why; nobody I know believes the official explanation, that it’s a response to a weakening euro. But it seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive. Continue reading the main story Continue reading the main story If you ask me, the Swiss just made a big mistake. But frankly — francly? — the fate of Switzerland isn’t the important issue. What’s important, instead, is the demonstration of just how hard it is to fight the deflationary forces that are now afflicting much of the world — not just Europe and Japan, but quite possibly China too. And while America has had a pretty good run the past few quarters, it would be foolish to assume that we’re immune. Continue reading the main story Recent Comments JABarry Just now So let’s learn from the Swiss.The Obama administration and the Federal Reserve have been on the right course to avoid a Second Great... R. 9 minutes ago The Swiss do not believe in funny money of Krugman, Et Al.That is one of the secrets to their wealth! Abhijit Dutta 20 minutes ago Do you seriously think the Swissre paying the price yet ? Profitability of good products that are affected by the strength someone elses... See All Comments Write a comment What this says is that you really, really shouldn’t let yourself get too close to deflation — you might fall in, and then it’s extremely hard to get out. This is one reason that slashing government spending in a depressed economy is such a bad idea: It’s not just the immediate cost in lost jobs, but the increased risk of getting caught in a deflationary trap. It’s also a reason to be very cautious about raising interest rates when you have low inflation, even if you don’t think deflation is imminent. Right now serious people — the same serious people who decided, wrongly, that 2010 was the year we should pivot from jobs to deficits — seem to be arriving at a consensus that the Fed should start hiking very soon. But why? There’s no sign of accelerating inflation in the actual data, and market indicators of expected inflation are plunging, suggesting that investors see deflationary risk even if the Fed doesn’t. And I share that market concern. If the U.S. recovery weakens, either through contagion from troubles abroad or because our own fundamentals aren’t as strong as we think, tightening monetary policy could all too easily prove to be an act of utter folly. So let’s learn from the Swiss. They’ve been careful; they’ve maintained sound money for generations. And now they’re paying the price. A version of this op-ed appears in print on January 16, 2015, on page A27 of the New York edition with the headline: Francs, Fear and Folly. Order Reprints| Todays Paper|Subscribe Paul Krugman Macroeconomics, trade, health care, social policy and politics. For the Love of Carbon Building Keystone XL is about creating jobs, Republicans say — but it’s really about creating a richer fossil fuel industry. Voodoo Time Machine Leaders in the Republican Party seem to be wrong on everything that counts, but no amount of contrary evidence will get them to change their minds. Presidents and the Economy The Fed, not the White House, typically holds the reins. But is this time different? Karen Garcia is a trusted commenter New Paltz, NY 8 hours ago Hoarding isnt just unhealthy for the hoarders, its making the whole global neighborhood sick unto death. We should follow Pickettys advice and institute a global wealth tax to help the Swiss. Barring that unlikelihood, we might follow Elizabeth Warrens advice and just break up the banks. Unfortunately, the possessors of wisdom and the owners of obscene wealth live in different universes. The capitalist malefactors are, of course, hysterical over the market volatility and even the feeblest belated efforts to rein them in. Their response to economic turmoil has been put their legalized bribery into overdrive as they drill the already toothless Dodd-Frank law into a gaping maw of uselessness. As if that were not enough, leaked clauses in the top secret corporate coups known as trade deals reveal that the multinationals aim to destroy regulations in European (TTIP) and Pacific (TPP) countries as well. Its capitalism on crack. And as the crash from the latest orgy of unbridled excess looms, all we can do is brace ourselves. and wish that instead of listening to Jamie Dimon whine, we could be watching him and his pals do a perp walk. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism—ownership of Government by an individual, by a group, or by any other controlling private power. - FDR. Reply 163Recommend Mary Scott is a trusted commenter NY 9 hours ago Deflation deserves to be feared. The Fed should be worried and so should the President and Congressional Republicans and Democrats. President Obama is right to want to pump more stimulus into the economy. His proposal to make community college tuition free for those who earn it is a winner. Its the right thing to do - we want better educated citizens - and it would have a stimulative effect on the economy. If we didnt have a dysfunctional political party first obstructing and now controlling Congress, wed be making investments in our infrastructure and green energy, the best ways to keep our economy growing. Thats what we need now and we need the Fed to not cave to the austerians. Yellin should continue to stand tall and not tighten too soon, especially until we see how things shake out if the global economy continues to slow. Reply 127Recommend mancuroc is a trusted commenter Rochester, NY 8 hours ago One of the things that got us into this mess was not more tax and even more spend but LESS tax and even more spend, a legacy of Reaganomics and Bush II. The track record of the party that pretends to be fiscally responsible is incompetence in handling the peoples money. In Reply to MidtownDesi Reply 100Recommended Socrates Verona, N.J. 7 hours ago The European Austerian-Nihilists and their GOP cousins collective grasp of economics is limited to Obsessive-Compulsive-Debt Disorder. There is zero grasp of the devastating effect of collapsed demand on national GDPs or the inevitable worsening of national debt levels from collapsed demand, and no consideration of exploding government welfare payments to the unemployed due to collapsed labor markets. The austerian view of economics is nothing more than the continuous ringing of the debt bell to the exclusion of a collapsing reality and an economy careening into perpetual reverse. Economic demand will remain collapsed by EURO-mismanagement and sadomonetarism and debtors prisons and unemployment havens for half of Europe until the German banksters admit that economically strangling their neighbors is not a nice bedside manner. If Germany continues to keep their foot on Europes economic throat, they will break the Euro in half, which might very well be the best solution for what increasingly looks like the failed Euro experiment. The missing link is the estimated $32 trillion in global offshored tax havens. That money doubly depresses the global economy as it represents a form of stolen wages AND a massive tax evasion depriving national governments of revenue and economic velocity. The solution is to cancel their debt obsession, claw back some of the 0.1% trillions and raise taxes on the debt-mongering tax evaders who keep killing demand and the global economy.
Posted on: Fri, 16 Jan 2015 12:29:03 +0000