Congratulations to the Swiss for printing lots of money.

Faced with a sharply appreciating Swiss Franc, the Swiss are at last reacting in a logical way: printing Swiss Francs in whatever volume is required for those who want to hold them. This will NOT be inflationary because the demand for these additional Francs is a demand to HOLD Francs, not spend them. As David Hume pointed out in his essay “On Money” two hundred years ago, additions to the money supply are not inflationary until and to the extent that the additional money is actually spent.

Hopefully the rest of the world will tumble to the latter point before we get too far into a Japanese lost decade. That is, weak demand in the US stems from a desire by the private sector to hoard or hold more money than is usual (in addition to the effect of deleveraging).

The solution to the latter problem is to print money and spend it (and/or cut taxes). And if inflation looks like getting excessive, do the opposite: raise taxes and rein in money and “unprint” this money.

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