People on the far left often exaggerate the extent to which all the world’s problems are caused by bad US policies. On the other hand, I suspect that the average American does not know how much the US abuses minorities. For example, I hear people say that foreign countries are “taking advantage” of the US in trade deals, when the opposite is true. We use our economic power to enforce trade agreements from smaller countries. And in terms of GDP at market rates, all nations are “minor nations”.
Over the past few decades, Switzerland has repeatedly slipped into recession, partly due to a very strong currency. Here is the Swiss inflation rate from Trade Economics:
Because Switzerland has a flexible economy, these short periods of inflation did not cause significant macroeconomic damage. However, in order to prevent sliding into a deep recession, the Swiss National Bank is often forced to cut interest rates to a very low level, and buy assets (QE) many times larger than anything done in the US or. EU. Here it is Financial Times:
Central bank intervention continued the sale of newly minted Swiss francs in an attempt to avoid the effects of strong deflation. This intervention increased the SNB’s balance sheet to a peak of about 140 percent of GDP.
Back in 2022, the SNB lost the equivalent of 17% of GDP when interest rates rose and bond prices fell. So why doesn’t the SNB implement a monetary policy that would lead to a weak currency, to avoid being forced to have very low interest rates and a very inflated balance sheet? Part of the problem seems to be that the SNB doesn’t quite understand the root cause of their problem (an issue I discuss in detail in my the latest bookBut another factor is the tyranny of the US government, which pressures Switzerland to strengthen the franc even more:
Since rate cuts are unlikely to move the dial, and capital controls are unthinkable, the choice is between more intervention and a true free float. In 2020 the US Treasury – rightly so – called Switzerland a currency manipulator, putting official pressure on the SNB to stop.
Stop and think for a moment about the strange nature of this situation. 50 years ago, no currency was stronger than the Swiss franc. Nothing. And how is the US government responding to this situation? By exploiting Switzerland to make its money it is even stronger.
If you have done something to a greater extent than any other country on Earth, and you are told that your problem is that you are not doing enough of that thing, that is a sign that you are getting advice from people with higher degrees. a flawed economic model.
I always argue that low interest rates and massive QE programs do not represent easy money, and that many mainstream economists confuse cause and effect. But why should anyone believe my contrary take?
Back in January 2015, I said Switzerland made a mistake when it allowed its currency to appreciate too much, after successfully pegging it to the euro for more than three years. I suggested that this would bring Switzerland back into recession. Mainstream economists suggested that this action was necessary to avoid a large increase in the SNB’s balance sheet. All my fears came true. Switzerland soon went back to deflation, which led to a policy of negative interest rates. As investors realized that the Swiss franc could gain against the euro, demand for the Swiss currency increased sharply. The SNB responded by expanding its balance sheet to 140% of GDP.
Switzerland is not the only country where the US has exploited the currency reduction. Our government also pressured the Japanese to strengthen the yen, with similar results.
PS. It is interesting to look at some current account balances (for 2024), as a share of GDP (from the Economist magazine):
Singapore: 19.7% of GDP
Taiwan: 14.2% of GDP
Netherlands: 8.6% of GDP
Switzerland: 7.3% of GDP
Germany: 6.6% of GDP
Japan: 3.2% of GDP
Euro area: 3.1% of GDP
China: 1.2% of GDP
Which country has the smallest trade surplus of this group, as a share of GDP? Which country’s trade deficit is the focus of the US media? Which country has the most political parties and media outlets to call the US an enemy? Notice a pattern? (The Chinese real surplus may be somewhat larger than 1.2% of GDP due to measurement errors, but it is still much lower than most other nations.)
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