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But when a foreigner buys previously Swiss-held assets, it does increase the stock of Swiss money held in Swiss hands, potentially filtering into increased consumption within Switzerland. But a lot of that consumption may be of foreign goods. So a Swiss house owner might sell his house to a foreign inverstor and then use the proceeds to buy a German luxury yatch, in which case the net effect is to buy the German yatch with the Euros of the foreign investor. This might encourage the Swiss Central Bank to unload the reserves Euro reserves it accumulated when the foreign investor bought the swiss house.

Then when the hot money decides to leave Switzerland, the Swiss Central Bank might find itself in a pinch with stronger downward pressure on the Swiss Franc than it can allow, and without the Euro reserves to contain the pressure.

So it's complicated. But the simplistic view that all this new Swiss money must translate into a proportional increase of prices in Switzerland is not warranted.

In any case, it might be that the very fact of the Swiss Central Bank announcing its policy and giving a 20-sigma kick to the exchange rate to prove the point has discouraged people from attempting to buy Swiss Francs, and so the Swiss Central Bank will find it much much cheaper to enforce the exchange rate ceiling than one would otherwise expect.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon Oct 3rd, 2011 at 10:25:51 AM EST
[ Parent ]
Yes, if foreigners go to the trouble of actually buying Swiss real estate, you might get these sorts of effects.

But (a) it is unlikely to happen in any great volume - buying real houses involves not insubstantial transaction costs. It is much cheaper to buy bonds of various sorts, which does not do anything for the Swiss nonfinancial private sector that the SNB would not have to be willing to do in order to defend its interest rate target. And (b) as of Google's last update, the CHF/€ exchange rate is at 121, which indicates that the CHF is still under upwards pressure. Which in turn means that leakage from increasing imports of the sort you describe must be relatively minor.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 3rd, 2011 at 10:32:50 AM EST
[ Parent ]
On that see Swiss real estate will become the new gold, which I find not entirely convincing.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon Oct 3rd, 2011 at 10:36:17 AM EST
[ Parent ]
What, you mean massively overpriced and lacking any convenient industrial use?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Oct 3rd, 2011 at 10:40:45 AM EST
[ Parent ]
Currency speculators & etc. fleeing the euro for the "safe haven" of the CHF aren't about to tie-up the money buying real estate.  Nor are they going to take their newly purchased CHF and buy Hungary -- whose real estate has all too much exposure to the CHF.

Currency speculation is a business and like any business the business stays in the business it is in.  Nobody expects MicroSoft to take it's billions o' bucks Cash Reserve and buy coal mines in the Ruhr but idiots some people think Deutsche Bank will get into the Real Estate Management business?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Mon Oct 3rd, 2011 at 11:58:54 AM EST
[ Parent ]
Given that actual mortgage lenders avoid real estate management like the plague (hence the huge foreclosure backlog here in the US), no one with two brain cells to rub together would expect anyone else to jump into that game.  Which means there are a lot of people out there with just one brain cell.  At most.
by rifek on Wed Oct 19th, 2011 at 02:33:09 PM EST
[ Parent ]
There goes Switzerland. The dirty underwear of economics will haunt also swiss.
by kjr63 on Tue Oct 4th, 2011 at 05:45:53 PM EST
[ Parent ]


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