No Way to Escape for the Swiss National Bank

by Andreas Hoffmann and Gunther Schnabl

It came as a surprise to many: the Swiss National Bank announced an exchange rate target. Accordingly, the Swiss franc will be held above the level of 1.20 francs per euro. Switzerland gives up a part of its sovereignty, when the ECB makes bad press in buying trash-rated euro area government bonds to support unsustainable national budgets.

But, particularly in an environment of global excess liquidity originating in too-easy monetary policies in major advanced economies, small open economies have incentives to stabilize exchange rates. Continue reading

Stark quits ECB

by Andreas Hoffmann

This is good news for inflationists.

I am shocked that Jürgen Stark quit his job at the European Central Bank. Usually it is a good thing when central bankers quit their job – or at least it does not make a difference. But Jürgen Stark is known as an inflation hawk. Jürgen Stark – like the Mark writes Die Welt.

In my opinion, the main difference between the ECB and the Fed is that the ECB has people like Stark. Unfortunately, there are only a few.

He is opposed to cheap money policies. A while ago, he openly warned of rolling bubbles caused by too low interest rates in the media. Thus, he suggested a timely turn-around in interest rate policy. Recently he voted against further bond purchases of the ECB. More on this recent event can be found here.

Coming shortly after Axel Weber resigned due to his disagreement with Trichet’s policies, Europe’s anti-inflation block is now shattered. Something terrible must be going on at the ECB. I wonder where the ECB is heading?

Early Boom-and-Bust Theory?

by Gene Callahan

“As little as steam engines can be quelled, so little is this possible in the behavioural realm: the lively pace of trade, the rapid rush of paper-money, the inflated increase of debt made in order to pay off other debts, these are the monstrous elements to which a young man is now exposed.”
— Johann Wolfgang von Goethe, Wilhelm Meister’s Journeyman Years

The Disorderly Bankruptcy of the Welfare State

by Mario Rizzo

In his recent statement regarding the auto bailout, George Bush expressed concern that if the Big Three were not to get assistance from the Treasury there would be a likelihood “disorderly bankruptcy.” This brought to mind whether he or any other politicians are prepared for the coming disorderly “bankruptcy” of the welfare state. Continue reading