Over at Money Illusion Scott Sumner states:
The recent Swiss devaluation has led to some interesting reactions in the blogosphere. But one angle that I haven’t seen discussed is the relationship of the Swiss action and bubble theory.
Within an hour or two of the announcement we had said (in additional to the straight avoiding deflation argument):
Furthermore, it seems apparent that the Swiss National Bank views the current level of the currency as a bubble – people running to saftey see the Swiss Franc as attractive, and people who want to invest expect this to continue, leading to a self-fulfilling expectation driving up the value of the Franc.
Then when discussing the cap the next day we said:
I can understand why they did it, they felt there was an asset price bubble in their exchange rate – and they wanted to provide a lower focal point that traders could shift too (since expectations were driving the currency … note the increase in risk associated with intervention is also important).
TVHE is little, and doesn’t say much – but at least we picked up that angle immediately. And so we’re going to claim it … do we get a high five