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Epsilon Capital Management Economy Reviews

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  • Switzerland’s economy expanded more than forecast in the first quarter, with consumer spending helping it perform better than the neighboring euro area.

    Gross domestic product rose 0.6 percent from the fourth quarter, when it advanced by a revised 0.3 percent, the State Secretariat for Economic Affairs in Bern said in a statement today. Economists predicted a rise of 0.2 quarter-on-quarter, the median of 19 estimates in a Bloomberg News survey showed. “We expected half that growth,” said Cornelia Luchsinger, an economist at Zuercher Kantonalbank. “It’s a positive surprise.”

    The Swiss National Bank (SNBN) set a cap of 1.20 per euro on the franc in 2011 to ward off deflation and a recession. Along with consumer demand, that ceiling has helped shield Switzerland from the six quarters of recession that have afflicted the euro area, the destination for nearly half its exports. Germany, the bloc’s largest economy, expanded only 0.1 percent in the first quarter.

    An easing of tensions in the euro area caused the euro to rise 0.8 percent in the first quarter against the franc, which investors tend to buy when they seek safe assets. The Swiss currency was little changed at 1.2433 at 9:05 a.m. in Zurich. Against the dollar it climbed 0.3 percent at 95.94 centimes. Falling Prices

    While Switzerland has managed to escape an economic slump, consumer prices are still falling. In April, they recorded their 19th straight month of annual declines, and last week SNB Presi...

  • Epsilon Capital Management Economy Reviews The huge fiscal and monetary stimulus dispensed in recent years has staved off the onset of chronic deflation. For now.

    The deficits created by this spending would be inflationary only if the measures occurred in a period of full employment and created excess demand. That isn't the case in the US, where the large budget shortfalls are a response to private-sector weakness that has depleted tax revenue.

    Indeed, even with persistent trillion-dollar deficits and huge monetary-easing programs, the slack we see in the economy reflects the huge size and scope of the offsetting deleveraging in the private sector that I noted in yesterday's column.

    Monetary Stimulus: The Federal Reserve and other central banks have been extremely aggressive. First, the Fed pushed the short-term rates they control to almost zero - with little effect. Then it turned to quantitative easing, the enormous purchases of government bonds and other securities that have been tried by the Bank of Japan for years without notable success. The Fed, with its dual mandate to promote full employment as well as price stability, is using a very blunt instrument to try to create jobs.

    The central bank can raise or lower short-term interest rates, and buy or sell securities. Those actions have little to do with creating more jobs. In contrast, fiscal policy can be surgically precise, aiding the jobless by extending and expanding unemployment benefits.

    Mortgage Rates The Fed...

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