Swiss National Bank: Hero or Villain?

by Joseph Salerno

There has been much hand wringing among popular blogger-economists in response to the breaking of the Euro peg by the SNB. Tyler Cowen, Paul Krugman, and Scott Sumner all lament the loss of “credibility” by the SNB in the wake of its sudden change of policy regime and they darkly hint at dire consequences for the Swiss economy. But the problem with central banks is not credibility, or lack thereof. The Greenspan-Bernanke Fed and other central banks surely lost all credibility over the last 20 years by unwittingly unleashing asset price inflation on the world during the “New Economy” era of late 1990s and then deliberately stoking the inflation of asset prices as a means of stimulating recovery from recessions in 2001 and then again following the financial crisis later in the decade. Indeed the effects of the Great Recession still linger on in the U.S. more than 5 years after it officially ended. This is despite the “unconventional” and extraordinarily inflationary monetary policy of the Fed that has driven the stock and bond markets to all-time highs and rekindled the housing boom.

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