If it walks like a duck and quacks like a duck . . .

Whenever something really bizarre happens some people look for deep explanations.  Conspiracy theories.  There must be inside information.  Etc., etc.  Sorry, but sometimes the obvious explanation is the right one.

Yesterday I read dozens of comments from pundits all over the world on the SNB’s surprise abandonment of the currency peg. Every single one thought it was a stupid move.  The markets thought it was a stupid move.  I thought it was a stupid move.

Many of the theories I see commenters putting forward are based on public information.  Keep in mind that everyone knew the ECB was likely to do QE.  That was already priced into the euro/dollar exchange rate.  And the markets still expect deflation in the eurozone, despite the recent depreciation of the euro caused by expectations of QE.

The explanation for the SNB move is quite simple—stupidity.  It’s stupid to throw away 3 1/3 years of credibility.  I won’t even say “hard-earned credibility,” as it was pathetically easy to peg the SF for 3 1/3 years.  The SNB will now miss their price level target.  (Actually they were already going to miss it—the currency was too strong at 1.2.)  They’ve also thrown away one of their most powerful monetary policy tool, exchange rates.  They will now rely more on QE, exactly what they were trying to avoid with the currency peg.  Even if they thought the SF needed to be a bit stronger for some bizarre reason, why not appreciate it by 5% and then re-peg?  Why let the SF rise by more than 15% against a currency that is itself plunging into deflation?  That makes no sense.

I sometimes receive back channel communication from very-well informed people in Europe. Believe me, just as with the earlier nonsense in Sweden, there is no “rational explanation.”  People are appalled.

But there is a lesson here. Just as war is too important to leave to the generals, monetary policy is too important to leave to the central bankers.  Once again we see the markets are way ahead of the central bankers.  One more example of why we need market monetarism.  Let markets determine the money supply, interest rates and exchange rates.  Peg your currency to NGDP futures prices. And if you are not going to do that, then for God’s sake level target SOMETHING.

PS.  After writing this post I came across a Tyler Cowen post that speculates the SNB might know something we don’t know.  I could not disagree more strongly.  There are very few secrets in the world of central banking.  The Swedes didn’t know something we don’t know a few years ago when they foolishly tightened to stop “bubbles.”  Nor did the ECB when they tightened monetary policy sharply in 2011.  Nor did the BOJ when they tightened in 2000 and again in 2006.  Tyler says the following:

The Swiss central bank, had it continued the peg, probably would have had a balance sheet larger than Swiss gdp.  But does this matter?”

Actually, growth of the balance sheet slowed sharply after they adopted the 2011 peg.  Without the peg they’ll have to rely on QE.  So Tyler’s worry about the size of the balance sheet is actually an argument for keeping the peg.  (And/or also an argument for a higher inflation target in Switzerland.) 

PS.  If you’ve ever wanted to boss me around, here’s your chance.  (If MF or Ray get the job, I’ll shoot myself.)



76 Responses to “If it walks like a duck and quacks like a duck . . .”

  1. Gravatar of Jorge Larangeira Jorge Larangeira
    16. January 2015 at 06:40

    “Let markets determine the money supply, interest rates and exchange rates.”

    Huh?? That’s what they just did by unpegging the CHF! In fact, I couldn’t agree more about the unwisdom of leaving exchange rates in the hands of central bankers. History has shown, time and again, that this is ultimately an exercise in futility!

  2. Gravatar of John Becker John Becker
    16. January 2015 at 06:51

    The idea of central banks having a balance sheet is really quite a joke. I wish my business could print up unlimited “owner’s equity.” It kind of makes your liabilities look unimportant doesn’t it? If a private business had that ability, they would buy everything in the world and then sell it back piece by piece for a large profit every year (since everyone had tons of money the business created which they could spend).

  3. Gravatar of The Swiss go bezerk! | Historinhas The Swiss go bezerk! | Historinhas
    16. January 2015 at 06:54

    […] Update: Scott Sumner rightly calls the action “pure stupidity”. […]

  4. Gravatar of Ashton Ashton
    16. January 2015 at 07:01

    Scott, I’ve always appreciated how you described the causality between the Recession and the Financial Crisis. I always thought that the Recession, beginning in Dec. 2007, caused the Financial Crisis, beginning in Sep. 2008 with the failure of Lehman Brothers.

    But what about the seizure of activity in BNP Paribas in August 2007? Was it at all significant? Most of the literature I’ve seen just allows for a big year-long gap between the actions of BNP Paribas and the failure of Lehman.

    Essentially, I’m asking if the actions of Paribas in August 07 contributed to the financial crisis in any way? I’d assume it’s still irrelevant to the Recession, for the same reasons Bernankean disintermediation doesn’t matter so long as AD is maintained.

  5. Gravatar of Why did the Swiss break the peg of the franc? Why did the Swiss break the peg of the franc?
    16. January 2015 at 07:03

    […] Addendum: Here is Dean Baker’s dissent, although I think the stock market does not agree.  And Scott Sumner comments. […]

  6. Gravatar of Market Fiscalist Market Fiscalist
    16. January 2015 at 07:04

    I’m a great admirer of this blog but for once can’t accept “The explanation for the SNB move is quite simple””stupidity.”.

    The CB of one of the most successful nations on Earth are clearly not stupid. Even if this turns out to be a stupid move they must have some sort of model in their head of why this makes sense. Any idea of what that model is ?

  7. Gravatar of foosion foosion
    16. January 2015 at 07:07

    I’m concerned that the SNB move not only trashes its credibility, it harms the market’s perception of the credibility of all other central banks. Given the importance of monetary policy, this is not good.

  8. Gravatar of Todd Ramsey Todd Ramsey
    16. January 2015 at 07:11

    Your post contrasts with my prior understanding of your ideas that central banks should implement a rules-based approach like NGDPLT. Just to be clear, I’m not arguing, I’m honestly seeking understanding:

    Isn’t it unwise and ultimately impossible for economies with different fiscal policies to maintain currency pegs? For example, the failure of Bretton Woods, early 2000s Argentina, Friedman’s prediction of failure for the Euro.

    Over time, as Switzerland’s business climate changes relative to the EU countries, don’t the terms of trade have to change? Doesn’t the SNB ultimately have to choose between a Euro peg and the optimal monetary growth path for Switzerland?

    Per this viewpoint, China was able to effectively maintain a dollar peg because they were willing to loan back the currency they gained from the trade imbalance.

    Hong Kong’s ability to maintain a dollar peg for so long confounds this theory, however…as I said, I’m seeking understanding.

    If anyone can point me to a post (without too much math) where I can gain greater understanding, much appreciated.

  9. Gravatar of ssumner ssumner
    16. January 2015 at 07:30

    Jorge, First you need to peg something (I propose NGDP expectations) and then let the market decide the rest.

    John, I agree, the “balance sheet” is pretty meaningless.

    Ashton, I’m not qualified to answer that question. Sorry.

    Market Fiscalist: You said:

    “Even if this turns out to be a stupid move they must have some sort of model in their head of why this makes sense. Any idea of what that model is ?”

    You misunderstood me. Yes, they presumably have a model, but it’s a stupid model. I’m not sure what the model is. Maybe they feared eurozone QE would lead to Swiss inflation. Maybe they thought a strong currency would stop their balance sheet from rising. Whatever the model, it’s wrong.

    foosion. I agree. Fortunately the spillover effects are not likely to be too large.

    Todd, You are right that I’d prefer NGDP targeting to a currency peg. But here’s the problem—if the SNB wants to target NGDP they need to DEPRECIATE the SF. Instead they appreciated it by more than 15%. That’s nuts.

  10. Gravatar of Nick Nick
    16. January 2015 at 07:45

    Ok … Since you’ve so thoroughly dismissed the ‘secret info’ theories how about this crazy theory: The SNB has decided the Euro is doomed. No secret info, they just disagree with the market / conventional wisdom on the political situation in Europe.. They are scared. They don’t want to hold anymore euros.
    Think about it this way: the European macro establishment at large believes the dissolution of the euro is unthinkable. So their groupthink is very strong. This is the one issue where prominent Swiss economists might sharply diverge from their cousins views … Perhaps so sharply that they can’t even really make sense of each other’s actions anymore.
    Hence everyone prof sumner calls is baffled.

  11. Gravatar of foosion foosion
    16. January 2015 at 07:47

    Scott, “Fortunately the spillover effects are not likely to be too large.”

    Why not?

  12. Gravatar of ssumner ssumner
    16. January 2015 at 07:48

    Nick, In that case they’d keep the peg but buy dollar assets instead of euro assets.

  13. Gravatar of Kyle Hale Kyle Hale
    16. January 2015 at 07:49

    Yeah, buffing your currency when you’re on the lower side of your price target is irresponsible.

    But assuming they were deadset on appreciation and exiting the peg, my question is why they didn’t do this in stages? They knew there was a lot of frothiness underneath the peg – their balance sheet is 45% euros! If they’d just shifted their peg up to 1.25 and indicated a soft exit from the peg as the ECB ramped up QE, or if they had said we’re going to try to shift down to a balance sheet of no more than 33% euros or some scenario where they could have

    a) maintained their credibility
    b) (more importantly) maintained their ability to manage the franc
    c) avoided a lot of global volatility

    No one would be talking about it.

    So my theory is that they did this as a kind of collective shrug at the elected politicians who were forcing their hand – you want it, you got it. Not the most responsible of behaviors, but it does diminish their stature in the Swiss economy, which presumably they and the politicians both want.

  14. Gravatar of ssumner ssumner
    16. January 2015 at 07:49

    Foosion, I’m not sure, but if they were it would have shown up in asset markets in the big countries, and it did not. Euro area stocks actually rose. Even Denmark was not forced off the peg, and Denmark is the closest analogy.

  15. Gravatar of ssumner ssumner
    16. January 2015 at 07:51

    Kyle, Good points. But didn’t you mean 1.15? going to 1.25 is a weaker SF.

  16. Gravatar of Charlie Jamieson Charlie Jamieson
    16. January 2015 at 07:56

    Agree with Nick.
    The Swiss are willing to go against the conventional wisdom because they see the Euro is doomed.
    It’s not that they know something the rest of us don’t, it’s that they interpret the information differently. And they have the independence and the ability to act on that. Most of the other market participants in Europe are stuck going down the drain in the current system.

  17. Gravatar of Kenneth Duda Kenneth Duda
    16. January 2015 at 08:13

    Off topic, there’s a new Brookings article advocating NGDP targeting:



  18. Gravatar of ssumner ssumner
    16. January 2015 at 08:26

    Charlie, See my reply to Nick, Even if true (I doubt it) that would not justify this action. At worst switch the peg to a basket, or the US$. But not this!

    Ken, That’s great, but I don’t like the “target growth” line. It implies RGDP targeting in many peoples’ mind, and NGDP targeting is quite different (and better.) But this does support my recent post claiming NGDP is the next logical step, and the profession is and will continue moving in this direction.

  19. Gravatar of Vaidas Urba Vaidas Urba
    16. January 2015 at 08:41

    Scott, great analysis. Although with hindsight, it seems markets have misunderstood the views of Swiss central banks, currency options were too cheap.

  20. Gravatar of Charlie Jamieson Charlie Jamieson
    16. January 2015 at 08:54

    I suspect the key factor here is what you believe about the central bank’s balance sheet.
    There are some who believe the size of the balance sheet in meaningless in and of itself.
    Lay people, of course, (which I am one) do tend to believe it is important. We believe that if the central bank is printing money, then it must be ‘paid back’ in some sense. Or, if we are convinced the size of the balance sheet doesn’t matter we wonder if we could be the benefit of that largesse ourselves. Why is the central bank bailing out mortgage bond holders, we worry, when it could bail out unemployed auto workers?
    And perhaps because economists know the public worries about central bank balance sheets, they tend to shy away from explaining why it doesn’t.

  21. Gravatar of collin collin
    16. January 2015 at 08:58

    Maybe the Swiss Central Bank felt the peg had its point of diminishing returns and felt an increase of their balance sheet and huge amounts of reserves would create a larger crisis. (And hasn’t the Russian/Ukraine political crisis made the ruble enormously undervalued flowing to the Euro and Franc?) Switzerland ain’t that big and the rest of the economy would have trouble covering a Financial crisis in the nation. (And where in Switzerland do they need enormous investment?) This would have been like Greenspan increasing rates in 2002 in the US and fearing the housing bubble. It probably would caused a double dip in 2003.

    Anyway, the Central Bank set the rate at -.75% so it is like they are setting high rates.

  22. Gravatar of John Hall John Hall
    16. January 2015 at 09:13

    I’m with you on the let it go 5%, then peg again, and evaluate when to let it go further. Rather astounding that they didn’t think it through (or more fairly, maybe someone mentioned that this could happened and the advice was ignored).

  23. Gravatar of Jason Smith Jason Smith
    16. January 2015 at 09:16

    Ok, this is probably an odd take …

    The SNB makes me think of the ECB (which is also universally seen as doing a bad job). The ECB tried a little bit of QE and got zero macroeconomic response, then they tried some more after a double dip recession seemed imminent. Still no macro response. So they gave up on QE:


    The US did QE and saw a response from NGDP, so the Fed kept at it.

    There could be all kinds of reasons why there was a response in one case and not the other: it was all fiscal policy in the US, the ECB lacked ‘credibility’, the QE moves weren’t large enough (the initial QE from the US was pretty big but subsequent increases were smaller and didn’t seem to have an effect on NGDP).

    The SNB, like the ECB, tried a policy and then gave it up when it didn’t seem to be doing anything to inflation or NGDP.

  24. Gravatar of Doug M Doug M
    16. January 2015 at 09:17

    First of all…what is SF?

    What do the Swiss gain from having a peg? Why fight the market. The Swiss economy is so much stronger than its neighbors, let the CHF appreciate.

  25. Gravatar of Cory Hoffman Cory Hoffman
    16. January 2015 at 09:51

    Professor Sumner,

    Congratulations on the new gig at the Mercatus Center. May you fulfill your inner urge to serve humanity through the advocacy of NGDP Level Targeting, NGDP Futures, etc. While you are not yet in Sunny California, I hope you enjoy the great fortune of getting paid to evangelize your passion.

    Paul Krugman has weighed in on the SNB and I suppose uses it as evidence as to how “hard” it is for Central Banks to “Credibly Promise to be Irresponsible.”

    I took the opportunity to ask him to post about whether NGDPLT might constitute a sufficient “regime change” that would avoid the credibility problems he often alludes to:

    Professor Krugman,

    I am an avid reader of your blog. While we cannot get off the gold standard again, the FED could adopt Nominal GDP Level Targeting as some leading monetary theorists advocate as an attempt to institute a sufficient “regime change”.

    Perhaps you might consider putting up a post on whether or not the adoption of Nominal GDP Level Targeting as folks like David Beckworth, Scott Sumner, Lars Christensen and other Market Monetarists advocate for (I believe Mike Woodford and Christy Romer are also amenable to Nominal GDP targeting, no?) would constitute a credible regime change.

    If NGDP Level Targeting would constitute a credible regime change that would obviate the need for Congress to be competent in the face of crisis, why not make a Clarion Call for NGDP Level Targeting???

    Even if you don’t think that Central Banks can “Print the NGDP they want,” do you think NGDP Level Targeting would be a sufficient regime change mechanism? Or, do you think it would destroy the Fed’s Credibility at fighting inflation?

    It seems that the adoption of NGDP Level Targeting avoids the problem of making incredible promises/inducements to the market where the SNB has failed. Doesn’t the adoption of NGDP Level Targeting prevent similar wimp-outs?

    Anyway, while you have recently engaged in the debate over fiscal v. monetary policy at the zero bound again, I think it would be great to hear your take on the specific policy proposal of NGDP Level Targeting.



    Seems to me professor Krugman keeps skirting this issue. Maybe one day he will dive right in. Could his refusal to bring up NGDLT be a case of “Not Invented Here” Macro like he accused Richard Koo of doing?

  26. Gravatar of Steven Kopits Steven Kopits
    16. January 2015 at 10:13

    Quoted in the FT today.


    Also, note the surge in consumer sentiment (link), and tell me it’s not all about oil:


  27. Gravatar of Donal Pretari Donal Pretari
    16. January 2015 at 10:35


    I just want to point out that the Swiss Movement ( Trying to make it real compared to what? ) is why Milton Friedman rejected alternative 2 ( The second alternative is to have discretionary management of money on the part of a group of managers. ) in the above paper.

    This led him to alternative 3 ( 1 was a gold standard ) which amounts to this:

    “And if you are not going to do that, then for God’s sake level target SOMETHING.”

    My own view about what to target ( money stock, price level, etc. ) is purely empirical and pragmatic. If we’ve tried the money stock and it didn’t work, then I believe we should try something else, and I think Friedman would agree.

  28. Gravatar of Why the Swiss National Bank’s broken policy matters to you | Fabius Maximus Why the Swiss National Bank’s broken policy matters to you | Fabius Maximus
    16. January 2015 at 11:12

    […] “If it walks like a duck and quacks like a duck…“, Scott Sumner (Prof Economics, Bentley U), 16 January 2015 […]

  29. Gravatar of Floccina Floccina
    16. January 2015 at 12:05

    @John Becker, your business could issue unlimited shares of stock which is similar to the central banks. You would not do that because the share price would fall the central banks will not issue unlimited money because the value of the money will fall. It is not as dissimilar as you think.

  30. Gravatar of Johannes Fritz Johannes Fritz
    16. January 2015 at 12:06

    In my view, the SNB wanted to switch instruments but grossly overestimated the power of negative IORs. In Thursday’s press conference, SNB director Jordan referred to a “substantial impact in the money markets” of December’s introduction. I also recall a talk in Zürich last fall where ECB GC member Ewald Nowotny expressed his satisfaction with negative IOR’s effects on the exchange rate.

    The two bits may be unrelated. Also, I have to date been unable to relate either statement to data (my fault, but theirs).

    The public discourse here generally doesn’t view the peg as an extension/alternative to interest rate targeting, but as an unrelated policy e.g. an export promotion/cushion programme or “price manipulation”. Although I find it hard to believe the SNB directors share this confusion.

    What the directors may share is the underestimation of the value of a clearly quantified monetary policy goals. Hence the misguided attempt to switch instruments. If the replacement turns out to be massive QE as you expect, people could learn. Btw, a full resignation of the directorate could build a bridge to a new peg, no?

    No surprise that the ECB shares the dismissive view of the clear target. The latest remarks by people like ECB GC member Benoit Coeuré refer to the size of the QE program, but I doubt they are thinking of even an Evans-rule-style target. PLT, never.

    Discretion is (like) gold over here.

  31. Gravatar of LK Beland LK Beland
    16. January 2015 at 12:08

    If NGDP prediction markets progress, I can imagine that we might get estimates of NGDP growth for various periods in the future (a forward NGDP growth rate curve).

    Which one of those rates should the central bank peg? Should it try to peg to whole forward rate curve?

  32. Gravatar of TallDave TallDave
    16. January 2015 at 12:32

    On reflection, the size of the balance sheet seems like one those concerns that can’t logically be real.

    If the balance sheet was too large, that would mean too much money had been supplied, in which case inflation would be too high. So if inflation is not too high, the balance sheet is not too large.

    I think concerns about the mechanics of supplying money and managing the resulting assets are valid concerns, but are too much like what accountants call “letting the tax tail wag the investment dog.” The credibility of monetary policy is much too important to be ruled by such relatively petty concerns as what the effect is on the CB’s balance sheet.

    At any rate, to the extent such large balances exist think must tend to be the product of the tension between actions, intentions, and expectations, that is to say credibility — by the Chuck Norris effect, permanent large balances shouldn’t have to exist, they are, in some sense, some portion of the markets saying they don’t believe the CB and are willing to bet against them.

    And as had been pointed out before, in a practical sense, these countries could be effectively retiring their national debt, or even establishing national savings, perhaps to offset their demographic problems.

  33. Gravatar of TallDave TallDave
    16. January 2015 at 12:34

    sorry, s/b “At any rate, to the extent such large balances exist they must tend to be the product of the tension between actions, intentions, and expectations, that is to say credibility”

  34. Gravatar of Charlie Jamieson Charlie Jamieson
    16. January 2015 at 12:47

    I think the question is one of perception vs reality.
    The perception is that bonds on the Fed’s balance sheet must be redeemed somehow. After all, if Joe Public held the bond, he would be made whole when the bond is matured, either by tax revenues or the issuance of more bonds. … But the reality I that the Fed will figure out a way to destroy the bond, either with some accounting trick to maintain the fiction that it wasn’t printing money, or by else admitting that T-bond are ‘money’ and deficit spending is money printing.
    We have a system in which we pretend that we’re not printing money.
    Once we admit that we can print money, then either there will be a big shock to the system, or we can happily line up the trough and elect leaders who will give us our share, with inflation being the only constraint. I think the central banks understand that if we reach that point, inflation will certainly follow, because it won’t be easy for government officials to turn down that free money, even if inflation results.

  35. Gravatar of ThomasH ThomasH
    16. January 2015 at 14:07

    Rather than showing that NGDPL targeting (or even PL targeting) is superior to the present system, I think it shows just how hard politically it is to have and stick to any policy that violates the desires of politicians for tight money during recessions. It’s part of the same problem that politicians believe that there should be “austerity” during recessions and so insist that expenditures that will increase future income (in discounted present value) be reduced.

    I agree that abandoning the peg was stupid, but “stupidity” is probably not the positive explanation of the decision. I’ll think this even if the minutes of the SCB board adduce some stupid reason for the move as the question will then be why did it claim to believe the stupid reason.

  36. Gravatar of ThomasH ThomasH
    16. January 2015 at 14:14


    If SCB is worried about the value of the euros is buys to maintain the peg it could buy some other currency or buy euros and resell them for assets denominated in other currencies.

  37. Gravatar of Jim Glass Jim Glass
    16. January 2015 at 14:24

    Hitler has some comments about the Swiss in his rant about ECB policy…


    Not entirely on topic yet not entirely off.

    For people who need cheering up in the face of the horrors of bungled monetary policy.

    Subtitles not suitable for young children.

    Via that video clip that never quits. 🙂

  38. Gravatar of Goofy_cb Goofy_cb
    16. January 2015 at 15:10

    The Swiss CB has the reputation of a conservative CB. One reason why they chose to abandon the peg instead of re-pegging may simply be their desire to end something that is economically not sustainable in the long run. The looming ECB decision just determined the timing. They just lost their guts to buy ever more euros. Certainly their move was not in the interest of the country, which is why the word stupidity is absolutely justified.

    You said they now have QE as a monetary policy tool left. The market for Swiss government bonds is almost inexistent, also because the outstanding amounts are not big enough for big investors. As a possible monetary policy tool left they now only have restrictions on capital movement or even more negative interest rates, but not “classical” QE. Buying forex without an official goal would still be possible, but the quantities of money they would have to use would be even bigger. I doubt they would do this if they are not willing to maintain the peg for fear of having to buy euros.

  39. Gravatar of Nick Nick
    16. January 2015 at 15:20

    I’m not sure what the difference is between maintaining the peg and using the euros to buy non euro assets and getting rid of the peg and doing QE in non euro denominated assets. Well I see a ‘credibility’ difference with regard to future forex pegs, but I tend to waive that off. If the SNB wants to introduce a new peg at some future date they will be able to.
    And why revolve your QE around this peg? Why not get rid of the peg, see what mr market says, and then design your new asset purchase regime?
    As I read prof sumner doing it the way I suggest could result in a much larger balance sheet. But as I also read prof sumner the size of the balance sheet does not matter much.

  40. Gravatar of Chuck Chuck
    16. January 2015 at 16:19

    I still think they’re going to print in the end. Anyways the solutions is simple: abolish central banking.

  41. Gravatar of Ben J Ben J
    16. January 2015 at 17:16

    Insightful analysis Chuck, perhaps you could tell us more about your daring plan!

  42. Gravatar of Jon Jon
    16. January 2015 at 17:24

    It was the gold referendum. Okay it lost 70/30 but apparently SNB took a very public role in the fight against it which was unheard of and the Swiss media emphasized how shocking it was that SNB would speak on a political issue.

    This gave them shaky legs on the peg. They thought the peg needed to go or their independence would go.

  43. Gravatar of ssumner ssumner
    16. January 2015 at 19:24

    Vaidas, Yes, I’d guess you are right.

    Charlie and Collin, Again, this will not lead to a small balance sheet, if anything just the reverse.

    Jason, You said:

    “The ECB tried a little bit of QE and got zero macroeconomic response, then they tried some more after a double dip recession seemed imminent. Still no macro response. So they gave up on QE:”

    This is a very odd way of describing the ECB’s tight money policy that CAUSED the double dip recession. The ECB is the arsonist, not the firefighter.

    Doug, You said:

    “First of all…what is SF?
    What do the Swiss gain from having a peg? Why fight the market. The Swiss economy is so much stronger than its neighbors, let the CHF appreciate.”

    1. Swiss francs.
    2. They weren’t fighting the market, they were doing monetary policy. Central banks can’t not do monetary policy, and hence can’t “not fight the market” in your lingo.
    3. The US was way stronger than its neighbors in 1929. (And no, I’m not predicting a Swiss depression, but the stock drop suggests an unwelcome slowdown.)

    Cory, I’ll take a look, but a few comments:

    1. The SNB was not trying to be irresponsible under the peg.
    2. Central banks should never try to be irresponsible.

    Johannes, Interesting observations.

    LK, I’d say one or two years out is about right.

    Thomas, You said:

    “I think it shows just how hard politically it is to have and stick to any policy that violates the desires of politicians for tight money during recessions.”

    I doubt very many politicians favor tight money in a recession. They don’t get re-elected.

    Things that completely blindside the market are freak occurrences, from which we can learn little about conventional politics.

    Jim, That clip is a classic (I actually saw that film when it came out.)

    Goofy, Of course it was sustainable.

    Jon, It lost 77-23. That’s not even close.

  44. Gravatar of Ray Lopez Ray Lopez
    16. January 2015 at 21:04

    @Sumner – LOL, do you not have a say on who gets picked as your assistant? I did apply, and am offering to work for free if you don’t mind me being online and from the Philippines.

    @Cory – nice post to Krugman, but I think he’s already adopted Target NGDP in a prior column as a ‘next best option’.

    @goofy_cb – you are correct. Recall the central bank of England had to cave in to George Soros. Central banks, contrary to what people think, are not all powerful. You can fight the Fed.

  45. Gravatar of Ray Lopez Ray Lopez
    16. January 2015 at 22:01

    @Donal Pretari – you misread the Friedman paper. From the paper, M. Friedman: (1) “The continued threat of outflow of gold is forcing on us a tight money policy, again for the same kinds of purposes: to try to hold foreign balances here,and to reassure foreigners that we are not going to change the price of gold.” and (2) “Many economists have been in favor of the rule that the System be instructed to keep a price level stable. I myself think it is not a good rule. I think the relation between the stock of money and the price level, while close, is too loose, in short intervals and over short periods, for that rule to specify precisely what the Federal Reserve System or any other governmental authorities should do. It still leaves a dispersal of responsibility and the possibility of major mistakes being made.” and (3) “So I am led to suggest as a rule the simple rule of a steady rate of growth in the stock of money: that the Reserve System be instructed to keep the stock of money growing at a fixed rate…”

    What Friedman is saying from the above is: (1) it’s OK for a central bank to sterilize a gold standard when gold is leaving the country (I’m violently against this, and this is why a fiat ‘managed’ gold standard did not work during the 1930s, rather, we need either hard gold coins in circulation, or a constitutional mandate not to mess with the gold stock), (2) price level targeting (which our host will say is not the same as NGDP targeting, though they look very similar to me) is NOT the way to go, and, (3) a rule like “increase the money supply by a constant rate” is preferred (Friedman later repudiated this constant rate suggestion).

    As for your suggestion of “target something, anything, see what works”, this is bat shiite crazy, though seductive (I myself think it’s kind of cool). This mentality will create uncertainty. Only an academic or somebody with zero business experience (often same thing) will want to do this.

  46. Gravatar of Stanza Stanza
    16. January 2015 at 22:52

    A. Balance sheet matters, because head line losses matter because regardless of what you believe about negative equity being meaningless for a central bank, the SNB is exposed to political risk. The Gold initiative showed clearly, even though it was defeated, that there was considerable discomfort with the SNB turning itself into a giant hedge fund, with all the associated financial and currency risks. While public discomfort may be of little consequence in other polities, the Swiss have the instruments to put rather big spanners into the works if they get motivated.

    B. The Eurozone is doing Japan 2.0, including the missing structural reforms, massive monetization of debt, and while you may be right that super expansive monetary policy is the correct policy and will solve all the problems, 10 years down the road, you may be wrong as well, and the SNB obviously disagrees with you.

    C. The roof was arguably the correct policy at a time in 2011 when events were moving very quickly, the Eurozone needed time to sort itself out and the momentum of the CHFEUR appreciation had to be broken somehow. Now it is clear the Eurozone will not be sorting itself out any time soon and the roof is de facto a peg. The choice then became either getting out now, with hopefully acceptable collateral damage, or wait longer with the damage guaranteed to increase as time goes on, especially since the SNB would have to expand it’s balance sheet even more.

    D. Switzerland was overheating, and the pressure was showing up in immigration and real estate, both tricky political areas with big potential ramifications. The economy will slow down, but this is will cool things down and hopefully prevent impending collateral damage on the policy side.

    E. The “peg” was a massive moral hazard and half the problems that will be coming up was due to people getting too comfortable with the status quo. Now the pressure is back, and the structural reforms that were shelved will be dusted off again, as they must. Reality is that reforms don’t happen without pressure, the SNB took the pressure out for too long as it is.

    F. Historical precedent. The SNB has been here before, when the SNB tried to catch the falling knife of the USD on it’s way to junk status. After 10 years, heavy losses and negative equity, they gave up. You can’t fight CB’s that are several orders of magnitude larger, and the longer you do the more expensive it gets. Draghi now has a free hand and who knows what he will pull out his hat next, but it is clear that there is no political will for deep structural reforms. This means there will be no “normalization” for many years.

    G. Last but not least, this may sound crazy but Switzerland needs deflation. Consumer Prices but also wage levels are heavily out of kilter with the surrounding areas. It is unsustainable in the long run with integration as deep as it is. The alternative, inflation, is even worse since the Swiss are heavy on financial assets due to the mandatory pension savings and most the debt is carried by a comparatively small segment of the population.

  47. Gravatar of TJR TJR
    17. January 2015 at 01:15

    Your arguments clearly indicate that you are not part of the real world but obviously ensconced in your academic tower. Why don’t you do an empirical study of countries with floating exchange rates economic performance versus those locked into fixed currency zones? Compare Britain with the EU or against Ireland, compare Australia and New Zealand performance versus each other and any other comparable countries that you want to nominate. Having floating exchange rates, outside the control of Central Banks and therefore governments has led to improved performance rather than negatives for the economy. I am an Australian and I have been overseas when the Australian dollar was worth less than $US0.50 and more than one dollar US. My personal circumstances change on each trip but the Australian economy just kept ticking over with very little impact. The international trade exposed sectors are in nearly all countries smaller than the nontraded sectors of the economy e.g. retailing, health services, education etc.

    Look at what works elsewhere and the Swiss most likely have, and have recognised that a floating exchange rate provides the buffer for the real economy. Spain, Italy and Greece are sacrificing the jobs of so many people by locking themselves into the euro.

  48. Gravatar of A A
    17. January 2015 at 01:38

    Nick, is it so clear that the SNB can easily reinstate a peg? Any currency user and trader will have to update their model of an SNB reaction function.

    It is somewhat interesting to see the same people who insist on ZLB primacy, now claiming that the SNB through away credibility. If monetary policy is “pushing on a string” at the ZLB, then what was lost?

  49. Gravatar of Nick Nick
    17. January 2015 at 03:52

    It’s not clear. Many people fret about central bank credibility endlessly. I tend to think the only credibility that matters for a CB is keeping ngdp growth relatively smooth. Not a very widespread opinion.
    But I just don’t see how the SNB could fail to reset abolish a peg if it wanted to. What’s a little credibility loss compared to the power of the printing press? Maybe forex traders will pish a bit harder or a bit long next time but how does that matter?
    But anyway I don’t know why I’m throwin all these dumb theories out there … It does look and quack like a duck to me too. I guess I just feel like the most important bankers in Switzerland might know something about economics that I dont…

  50. Gravatar of Major.Freedom Major.Freedom
    17. January 2015 at 05:27

    “But there is a lesson here. Just as war is too important to leave to the generals, monetary policy is too important to leave to the central bankers. Once again we see the markets are way ahead of the central bankers. One more example of why we need market monetarism. Let markets determine the money supply, interest rates and exchange rates. Peg your currency to NGDP futures prices. And if you are not going to do that, then for God’s sake level target SOMETHING.”

    It is comments like this one that repeatedly prove Sumner is either incredibly obtuse, or purposefully deceitful, neither of which are an enviable position.

    Let the market decide the money supply, interest rates, and exchange rates? Excuse me, but in “market” monetarism, which is not any more market driven than orthodox price targeting monetarism, if there is a central bank targeting ANYTHING, either prices or spending on final goods, then mathematically they are determining every other nominal variable. Sumner believes this of course because even if a central bank engages in price targeting, he will still blame the central bank for letting NGDP fall, and will claim they are still controlling it, even if they are not officially targeting NGDP.

    If Sumner’s logic is consistent, which it isn’t but for argument’s sake let’s assume it was, then he should have blamed “the market” for the collapse in NGDP 2008-2009. For his logic dictates that if the central bank is targeting another nominal variable, for example prices, then the market is responsible for all other nominal variables the central bank does not officially target.

    So if the central bank merely changes its target from prices to spending, which is what Sumner wants, then he is contradicting his own past logic by claiming that “the market” will then be blamed or congratulated for what happens to the other nominal variables the central bank is not officially targeting.

    In other words, if it is true that “the market” will determine prices in a world of central banks targeting spending, then it must also be true that “the market” determines spending in a world of central banks targeting prices. If the latter is not true, then neither is the former.

    The fundamental problem with Sumner’s beliefs is that he thinks socialism and markets overlap. He wants desperately to present his solution of absolute central bank omnipotence over final goods spending as not having any affect, and thus partial control, over every nominal variable in which spending is a factor, such as…prices, spending, and interest rates, which are precisely the variables that Sumner is FALSELY advertising as “market driven” in his ideal central plan.

    As long as a central bank exists, as long as they are asked by Sumner to print more when people spend less, and print less when people spend more, such that the resulting spending goes according to Sumner‘s plan, rather than the actual market’s plan, then there cannot be market determined prices or money supply or interest rates.

    The only way that “the market” can decide what prices, money supply and interest rates are, is if and only if “the market” can also decide final goods spending, or NGDP. But Sumner does not want “the market” to decide this, and contrary to his false advertising, the truth is that “the market” cannot determine the other nominal variables either! Not as long as there is a central bank overruling it for NGDP!

    I notice at the end if his blog post he made the comment that if I were to have that position, he would commit suicide. Well, if I had Sumner as an employee, I would not shoot myself. I would help him to the extent that my time and resources, and view towards the competition, allows. I would help him realize the errors in his logic. But something tells me that he would not appreciate that, because he has too much pride and values his self-image more than truth, given he believes in the above explained flaws.

    Sumner, off topic, but I am not your enemy. What I want, will not be a call for anyone to initiate aggression against your person or property. Just because what I want will make your desire of an institution created and maintained by aggression an impossible to satisfy one, that does not mean I am the enemy and you are the friend. It means you cannot become the enemy of anyone who respects your property rights, including me.

    I hope you don’t kill yourself if I told you the following: In your day to day life, you are ACTING as an anarcho-capitalist. In fact, I would say everyone who comments on this board are acting in accordance with anarcho-capitalism. You are all not initiating force against other people’s persons and property.

    As far as what you personally think is the best code of conduct, why you have taken in as a guide to your own behavior, which is what most reveals your core thoughts, it is who you are, you and I are of identical practical beliefs. Maybe that is what makes you recoil with disgust. It is the fact that what you preach, is not what you practice. I continue to show that is the case. You don’t behave in your own life what you claim is the right thing to do in terms of money as such.

    You say “they” ought to do such and such, and that “we” ought to do something else. You want two different sets of ethics for two distinct groups of people. The ethical norms for one group are moral, good, prudent, pragmatic, etc. Those same ethical norms of conduct are immoral, bad, imprudent, and anti-pragmatic for the other group.

    You are calling for ethical privileges to some people, but made illegal for everyone else. The same actions are both moral and immoral depending on whether the person has this privilege.

    What I want is for everyone to be constrained to the same moral code of respecting my property rights. To me it makes no difference whether the trespasser or thief or looter is wearing a badge or not. Every individual should be afforded the same ethical rights and protections.

    This is not just the right thing to do, it is the only way you can avoid the very contradictions you keep making. If one group of people control the money, and they set ANY rule for themselves, including rules of how much spending on final goods there occurs over time, then if that group of people decide on a rule that takes into account various statistics such as how much money would otherwise be held versus spent by the other group, is not a release of control of those variables from that group to the second group. Those variables are still controlled by the first group with the ethical privilege in being the sole issuers of essentially unlimited money.

    You treat that as exactly the case if the first group set a rule of money printing that “took into account” the prices the second group would otherwise set. Here you still identify control of NGDP to the first group, and you continue to do so now, today, for all such examples of central banks that target prices.

    I am a better thinker than you Sumner. I noticed it from the first posts I have read on your blog. Why do you think I keep posting here? It is because I know I have something to contribute to your knowledge, and because what you want, which you don’t act upon yourself, is a real threat to innocent people, to liberty, to happiness, and to prosperity, when actually acted upon. You are an enemy of peace. You want perpetual civil war, where one side is duty bound to obey the other side so that it appears clean to you.

    Everyone here who attacks me verbally, who find it necessary to protect you verbally, are anarcho-capitalists in practice, but who want the same perpetual civil cold war. That is why I must be characterized here as bad/wrong. The same tribal ideology was necessary to drum up war and killings against innocent civilians in Iraq.

    You are vocal supporters of destruction and impoverishment, whereas I am preaching what I am practicing.

    I am the better man than you.

  51. Gravatar of Ben J Ben J
    17. January 2015 at 05:29

    “I am the better man than you.”

    And yet too cowardly to post under his own name…

  52. Gravatar of Jamison Jamison
    17. January 2015 at 06:22

    NGDP targeting or any other academic attempt to control, manipulate, monetary policy and economies will end as every other collectivist concept has; in failure and massive transfers of wealth. How about the bourgeoisie idea of relying on markets to clear and to do their job? It’s pleasing to see central bankers “throwing away their credibility”. How they have any at all at this point is a mystery in itself.

  53. Gravatar of ssumner ssumner
    17. January 2015 at 06:44

    Stanza, I’m afraid we disagree about just about everything, and you have mischaracterized my views.

    a. Even if balance sheets matter (and I never said they didn’t for Switzerland) it has no bearing on this move. Indeed this move will result in an even larger balance sheet in the long run.

    b. I never advocated a “super expansionary monetary policy.” The policy before this change was deflationary, in both Switzerland and the eurozone. That won’t change with eurozone QE.

    c. It was perfectly OK to switch from the euro peg to a different policy. It’s not OK to switch from the euro peg to no policy at all. Again, this will not solve the balance sheet problem.

    d. Neither the inflation nor the NGDP numbers for Switzerland showed any signs of “overheating.” It’s not the central bank’s job to worry about real estate.

    e. Monetary policy has nothing to do with “moral hazard.”

    f. Nobody is asking the SNB to “fight central banks” that are much larger. I don’t even favor fixed exchange rate regimes. Again, the problem is not ending the peg, it’s letting the SF appreciated 16% overnight.

    g. You said:

    “Last but not least, this may sound crazy but Switzerland needs deflation. Consumer Prices but also wage levels are heavily out of kilter with the surrounding areas.”

    Is this some sort of weird black humor? Raise the SF from 1.20 to 1.00 somehow makes their labor more competitive against neighbors? Surely you are joking.

    TJR, I oppose fixed exchange rates.

    You said:

    “Look at what works elsewhere and the Swiss most likely have, and have recognised that a floating exchange rate provides the buffer for the real economy. Spain, Italy and Greece are sacrificing the jobs of so many people by locking themselves into the euro.”

    I agree.

  54. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    17. January 2015 at 07:51

    Off topic (but it often has been here at TMI) Peter Wallison of AEI has set off the Housing Cause Denialists with publication of a new book Hidden In Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again.

    The denialists are out in force in the review section trying to discourage anyone from reading it;


    Fortunately there are a few dissenters, which includes Cato’s Mark Calabria, who can speak with some authority, as he has a background with the Senate Banking, Housing and Urban Affairs committee, as well as HUD. His review comes from this Cato post;


    With the release of Peter Wallison’s new book, Hidden in Plain Sight, I suspect the debates over the role of Fannie Mae and Freddie Mac in the financial crisis may heat up again (I suspect Joe Nocera is working up a nasty review). Anyone interested in the financial crisis should read this book. It is extensively documented and well-written. While the narrative is similar to other of Wallison’s writings, he musters far more evidence for his case here. The amount of contemporaneous material from advocates, HUD and the GSEs (Fannie and Freddie) is impressive.


    As a staffer on the Senate Banking Committee when HUD proposed to increase the housing goals in 2004, I was extensively lobbied by Fannie and Freddie on the goals. Whether they can be believed or not, at the time, both claimed that the proposed goals would endanger their business and result in substantial losses. I would characterize the GSE attitude toward the goals in 2004 as one of near-panic (not that the GSEs were immune to exaggeration). I also recall a meeting with Freddie CEO Dick Syron (either in 2006 or 2007) in which he claimed the goals were killing the company and that he needed political cover to improve lending standards.

    I haven’t gotten to Wallison’s book yet, but when I do, I’ll review it on my blog.

  55. Gravatar of John Becker John Becker
    17. January 2015 at 08:03


    If your business could create equity at will, would you ever have negative equity? No. I don’t think central banks will either. Also, I think central banks are the only organizations in the world that can increase their equity without any changes in ownership shares.

    Declining equity would only become an issue when there is higher than desired inflation and the central bank is selling assets (probably bonds declining in value due to rising interest rates). In this scenario, I think anyone paying attention would probably be more concerned with controlling inflation than whether the finances of a central bank are being run like a profit-seeking business.

  56. Gravatar of Ray Lopez Ray Lopez
    17. January 2015 at 08:14

    @Major.Freedom – Your definition of ‘anarcho-capitalist’ seems to be different than in Wikipedia? http://en.wikipedia.org/wiki/Anarcho-capitalism

    @Patrick R. Sullivan – the dot-com stock market crash of 2001 was roughly the same, in money lost in the USA ($7T) as the housing crash of 2007 ($ to 10T). Why then would housing set off a severe recession and not the 2001 stock market crash? Clearly something else is at work, such as the finance sector being more involved in housing that in stocks. So the Great Recession was the result of the failings of the finance sector, as Rogoff et al say, not housing per se.

    @ everybody – interesting piece at Vox (http://www.vox.com/2015/1/17/7559111/inflation-opportunity) on how deflation is threatening Yellen’s Confidence Fairy. Time for Scott Sumner to start a jeremiad…

  57. Gravatar of Donald Pretari Donald Pretari
    17. January 2015 at 09:44

    Ray Lopez: I’m sorry, but I can’t understand what you’re saying most of the time. There’s no point in our discussing anything. Again, I really don’t enjoy saying that. As for me, I ran a successful business for twenty-five years and retired when I was fifty, in order to read, write, study, and get more involved in civic issues. Prior to that, I was a philosophy graduate student studying under John Searle, Hubert Dreyfus, Gregory Vlastos, George Lakoff, and Paul Feyerabend. I also sat in on courses taught by Foucault and Habermas. Even though these men are/were academics, they were brilliant and well worth studying under.

  58. Gravatar of Willy2 Willy2
    17. January 2015 at 11:18

    The reason the SNB dropped the peg to the Euro was the growth of their balance sheet. To keep the peg the Swiss needed to buy A LOT OF euro denominated bonds. If there was a crisis in the Eurozone then those bonds would destroy the credibility of the SNB and with it the Swiss monetary system.

  59. Gravatar of Willy2 Willy2
    17. January 2015 at 11:21

    If the SNB is TRULY worried about the size of their balance sheet then I am sure they won’t execute QE to weaken the CHF. Although a rising CHF is very deflationary.

  60. Gravatar of Willy2 Willy2
    17. January 2015 at 11:56

    @Scott Sumner:

    There’s NO need for the ECB to “Do QE”. Because a weakening Euro already is inflationary for the Eurozone !!!!

  61. Gravatar of Don Geddis Don Geddis
    17. January 2015 at 14:37

    @MF: “Why do you think I keep posting here?

    Oooh! Oooh! I know this one!

    Because you’re a self-deluded arrogant ignorant twit, who loves to hear himself talk?

  62. Gravatar of Don Geddis Don Geddis
    17. January 2015 at 14:43

    @Donald Pretari: Impressive that you studied under Searle and Dreyfus, but kind of a shame at the same time. They’re really smart guys, but totally wrong (and sloppy thinkers) about AI. The enormous popularity of Searle’s Chinese Room thought experiment is rivaled only by the overconfidence of those who think it is actually a compelling argument. Bummer that you didn’t hook up with a cognitive philosopher like Daniel Dennett instead.

  63. Gravatar of Major.Freedom Major.Freedom
    17. January 2015 at 17:19

    Ben J:

    “And yet too cowardly to post under his own name…”

    I said “man”. The concept of man has no proper name. I prefer to stay anonymous so that my ideas are addressed rather than me personally. I am concerned with ideas, and take them very seriously.

    If I am a coward for using “MF”, then wouldn’t that make you a coward for posting under “Ben J”? As if that nickname tells us who you really are!


    “Your definition of ‘anarcho-capitalist’ seems to be different than in Wikipedia?”

    As far as I can tell, I think they are the same. What did I say that you think is different?

    Don Geddis:

    “Because you’re a self-deluded arrogant ignorant twit, who loves to hear himself talk?”

    Do you even think at all before you write? First, I cannot hear typed words. Second, if I only wanted to read what I write, I would simply write in a personal journal. Obviously me writing here means the reason is something more than my responses and comments and questions. Third, you have not shown how anything I said is “deluded”.

    The reason I post here is not all that controversial. I do so to learn and educate, and to have fun. Yes, the fun is at the expense of many of your ideas, but then again your ideas are warped and depraved anyway. Remember your call for me to be shot? You’re a closet psychopath. I should pretend you’re something else because….?

  64. Gravatar of Major.Freedom Major.Freedom
    17. January 2015 at 17:24

    John Becker:

    “If your business could create equity at will, would you ever have negative equity? No. I don’t think central banks will either.”

    If your business could print the currency that your debt holders, and those with liability claims against you, accept as payment, then would you ever choose to have negative equity? Yes, and I think central bankers will as well.

  65. Gravatar of Don Geddis Don Geddis
    17. January 2015 at 19:29

    @MF: “The reason I post here is…to learn and educate

    Nope! That’s not it. Just another thing you’re wrong about. (Hence the “self-delusion”, BTW.)

  66. Gravatar of Ray Lopez Ray Lopez
    17. January 2015 at 23:06

    @Don Geddis – you seem to be Sumner’s right hand boy, and since you’re a bit more articulate than your master, I guess you can help clarify Sumner’s obscurity. So with that in mind, how do you interpret G. Selgin’s “productivity norm” as outlined in his 1997 Hobart Paper book “Less Than Zero”? Sumner himself says ‘productivity norm’ is ‘close’ to Targeting NGDP, so you can’t be too critical of it, though to me it seems radically different (for one thing, it allows for falling prices, which I bet is anathema to Sumner). Let’s see if you blow me off like you did David de los Angeles Buendia in the other thread, who posted thoughtful critics that you largely ignored.

  67. Gravatar of Ben J Ben J
    18. January 2015 at 00:25

    “I said “man”. The concept of man has no proper name.”

    Unusually low-rent drivel, even for you MF – weaseling out of your own insults.

    If you only wanted your ideas to be addressed, you wouldn’t post attention seeking, off topic rants about how you’re a better man than our host.

    If you claim you’re the better man, post under your true identity. If you won’t do that, practice what you preach and let the ideas do the talking, without the cowardly insults.

  68. Gravatar of ssumner ssumner
    18. January 2015 at 06:35

    Thanks Patrick, That sounds interesting.

    Willy2, The new Swiss policy will make their balance sheet larger than the old policy.

    You said:

    “There’s NO need for the ECB to “Do QE”. Because a weakening Euro already is inflationary for the Eurozone !!!!”

    This confuses cause and effect. It was expectations of QE that depreciated the euro.

    Ray, You said:

    “Sumner himself says ‘productivity norm’ is ‘close’ to Targeting NGDP, so you can’t be too critical of it, though to me it seems radically different”

    And this comes a few days after the “slap on the face” remark. You really are shameless. I’m in awe of your ability to shrug off personal humiliation.

  69. Gravatar of Jon Jon
    18. January 2015 at 10:48

    Scott, 77-23 is not close, but the psychology is there. See a similar point in the FT linked by Tyler this morning.


  70. Gravatar of Jim Glass Jim Glass
    18. January 2015 at 18:24

    @ Ray Lopez

    @Patrick R. Sullivan – the dot-com stock market crash of 2001 was roughly the same, in money lost in the USA ($7T) as the housing crash of 2007 ($ to 10T). Why then would housing set off a severe recession and not the 2001 stock market crash? Clearly something else is at work, such as the finance sector…

    Sure. And such as the price of oil rocketing to $145/b, up $72, more than doubling, in 12 months.

    With all the obvious resulting deflationary/recessionary effect, while also increasing headline ‘inflation’, which caused the Fed to hold tight to contain inflation even amid that deflationary pressure (and even after the Lehman failure!) compounding even greater deflationary/recessionary effect.

    Nothing any like which occurred in 2001 either economy-wise or Fed policy-wise.

    Considering how back *at the time* the public and economic discussion was so dominated by oil — “oil is going up to $200, $300, forever … we need Congressional investigations into profiteering speculators and evil oil companies … Peak Oil has arrived … oil will crush the economy … the Mini is America’s car of the future!” — it is remarkable how memory of oil has dropped out of the public mind as a cause of the recession, so now it was all just those evil bankers, who somehow have all managed to escape prosecution, which further proves their evil power…

  71. Gravatar of Morgan Warstler Morgan Warstler
    19. January 2015 at 13:05

    Everyone tweet at Sadowski to be Sumner’s boss:


  72. Gravatar of Ray Lopez Ray Lopez
    21. January 2015 at 09:48

    On targeting NGDP pioneers, cited by Selgin (1997) in paper “Less Than Zero”: “See, among others, Bean (1983), Bradley and Jansen (1989), Frankel and Chinn (1995), Haraf (1986), and McCallum (1987,1995).” – no mention of Sumner. And what happened to all these other Targeting NGDP pioneers? Seems that they are in the dustbin of history. Again, if NGDP targeting was such a good idea, it would have been done already (Krugman). It’s entirely possible that those fancy AS and AD curves found in IS-LM models don’t work or really exist outside of textbooks, or perhaps outside of a short time during stable economic upcycles.

  73. Gravatar of ssumner ssumner
    21. January 2015 at 14:28

    Ray, You said:

    “Again, if NGDP targeting was such a good idea, it would have been done already (Krugman).”

    Back in 1975 Ray was saying “if inflation targeting was a good idea it would have been done already.”

    And your final sentence is one of the most bizarre I’ve ever read—it’s one of those beyond true or false things, reaching the level of complete meaninglessness.

  74. Gravatar of Ben J Ben J
    22. January 2015 at 01:40


    AS curves exist in the real world – I’ve seen them myself. There are farms with whole fields of them growing in the Mid West. They quiver in the morning sun. A beautiful sight to behold.

  75. Gravatar of Major.Freedom Major.Freedom
    22. January 2015 at 21:20

    Don Geddis:

    “Nope! That’s not it. Just another thing you’re wrong about. (Hence the “self-delusion”, BTW.)”

    Actually that is it. I know more than you when it comes to me, thanks.

    What you are saying is just a reflection of your own self-image.

    I am here to learn and to educate, and if that makes you mad, so be it.

  76. Gravatar of Credibility, Commitment, and Capital | azmytheconomics Credibility, Commitment, and Capital | azmytheconomics
    27. January 2015 at 10:44

    […] reading Cowen on why the Swiss broke the peg Sumner calls it how he sees it Francis Cappola on how bad breaking the peg was Maybe it was for balance sheet reasons. Sounds like […]

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