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How SWITZERLAND ELIMINATES INFLATION by buying STOCKS - VisualEconomik EN - YouTube
Channel: VisualEconomik EN
[3]
why is there no inflation in switzerland
[6]
as a result of the huge public spending
[7]
packages an extensive monetary expansion
[10]
carried out after the coronavirus
[11]
economic crisis the vast majority of
[13]
western countries landed in 2022 with
[16]
some of the highest inflation rates
[17]
recorded in the entire century we are
[19]
talking about the fact that in december
[21]
2021 for example year-on-year inflation
[24]
in places like spain or the united
[25]
states exceeded the 7.5 barrier and all
[29]
this of course without taking into
[30]
account that from february 2022 the war
[33]
in ukraine was going to put greater
[35]
pressure on prices however what if i
[37]
told you that there was one country that
[38]
is getting out of this whole inflation
[40]
crisis what if i told you that there is
[41]
a place where inflation has been
[43]
completely unknown for more than 10
[45]
years check it out
[47]
[Music]
[54]
as you can see in this chart the swiss
[56]
confederation seems to play in another
[58]
league as far as inflation is concerned
[60]
with price increases up to five times
[61]
lower than their western neighbours it
[63]
is almost as if the swiss live on
[65]
another planet although yes i know what
[67]
many of you are thinking this graph
[69]
shows that in 2021 switzerland had an
[71]
inflation rate of 1.6
[73]
and although this is a very low rate can
[76]
we really say that there is no inflation
[77]
in switzerland well let me tell you that
[79]
in reality this 1.6 inflation figure is
[82]
a complete exception for the swiss
[84]
country
[87]
[Music]
[89]
since 2009 inflation in switzerland has
[92]
been negative for 70 of the years and
[94]
that is not all as you can see when
[96]
positive inflation levels have been
[97]
recorded they have never exceeded one
[99]
percent translating this into technical
[101]
language we could say that switzerland
[103]
is a country accustomed to deflation
[105]
that is prices fall across the board
[107]
year after year the question is why does
[109]
this phenomenon occur why on earth is
[111]
there no inflation in switzerland does
[113]
its central bank unlike the rest of the
[115]
world not print any money at all well
[117]
hold on to your chair because here comes
[118]
the most interesting part not only is
[120]
new money being printed all the time in
[122]
switzerland but also it is being printed
[124]
at a crazy rate
[128]
to give you an idea over the past 10
[130]
years alone the swiss central bank has
[132]
increased the volume of francs in
[133]
circulation by a factor of four this is
[136]
a huge increase in the money supply and
[138]
as a comparison was almost 60 percent
[140]
higher than that of the european central
[142]
bank during the same time period so when
[144]
people tell you that printing money
[145]
inevitably causes inflation you know
[147]
that the swiss example shows that this
[149]
is not always the case in any event and
[152]
keeping all this in mind a few questions
[154]
come up how on earth does switzerland
[156]
manage to avoid inflation what does this
[158]
country have that others don't have
[160]
besides low taxes and the best watches
[162]
in the world i really wish this was
[163]
swiss is swiss deflation really a better
[165]
option than the moderate inflation
[167]
levels pursued by the other countries
[169]
well today on visual economic we will
[171]
answer these questions stay tuned
[173]
[Music]
[177]
have you ever wondered how exactly a
[179]
central bank works as many of you
[181]
already know the central bank of a
[182]
country is the body in charge of
[184]
creating new money regulating interest
[186]
rates and controlling inflation but what
[188]
is the step-by-step mechanism that
[190]
allows them to do all this work how does
[192]
the central bank introduce new money
[194]
into the system in order to control
[196]
inflation well the answer is first to
[198]
understand a somewhat surprising concept
[200]
and that is that central banks work
[202]
almost like companies they have
[204]
properties they have savings they have
[206]
debts and what's more they may even have
[208]
profits without going any further in
[209]
2020 the european central bank made a
[212]
net profit of more than 1.6 billion
[214]
euros that's 1.68 billion us dollars but
[217]
wait a minute because the swiss case
[219]
goes much further not only does the
[220]
swiss central bank make profits like any
[222]
other company but it is also listed on
[224]
the stock exchange and yes you yourself
[227]
can buy a share and receive part of
[228]
those profits every year well more or
[230]
less in any case we have already gone
[232]
into all of the details on this matter
[234]
in a visual politics video that i'll
[236]
link for you in the description but
[237]
where did these profits come from what's
[239]
more what exactly is the business of a
[240]
central bank that allows it to make
[242]
money
[243]
[Music]
[247]
well the truth is that its name makes it
[249]
very clear the central bank it's first
[251]
and foremost a bank and it earns money
[253]
through loans and investments the
[255]
question is to whom does it lend to the
[257]
money and even more importantly where on
[259]
earth does it get all of the money it
[261]
lends well you see on the one hand
[262]
central banks can lend money to
[264]
governments and on the other they can
[265]
lend it to conventional banks loans
[267]
which like any other bank are granted
[269]
with interest hence the profits the
[271]
curious thing about this whole affair is
[272]
that the money lent by the central bank
[274]
is newly created money newly printed
[276]
money so to speak so putting two and two
[278]
together the money you have in your
[280]
portfolio came out of a loan that the
[282]
central bank made to a bank or to your
[284]
government and that sooner or later will
[286]
have to be paid back for example through
[288]
taxes but here's the question what does
[290]
what i have just told you have to do
[292]
with the fact that there is no inflation
[294]
in switzerland well visual economic
[295]
viewers hold on because now comes the
[297]
best part
[301]
imagine that in a table like this we
[303]
write all the accounting movements of
[305]
the european central bank in one part
[307]
called liabilities we note the total
[309]
money created in the european economy
[311]
8.3 trillion euros which is 8.73
[314]
trillion us dollars and in the other
[316]
part which is called assets we write
[318]
down to whom all that money has been
[320]
lent specifically eurozone governments
[322]
have been lent 4.7 trillion euros while
[325]
commercial banks have received 2.2
[327]
trillion euros however just a moment
[329]
because many of you have probably
[330]
already noticed something if we add up
[332]
the money from loans granted to banks
[333]
and governments we're still 1.4 trillion
[336]
euros short of the total amount of money
[338]
issued so the question is where the hell
[340]
is that money
[342]
[Music]
[345]
well you see what actually happens is
[347]
that central banks have a third way to
[349]
introduce the money they print into the
[350]
economy a third way about which we
[352]
haven't told you anything yet the third
[354]
way consists of buying assets such as
[356]
stocks gold or even the currencies of
[358]
other countries assets that let's say
[360]
are kept in a piggy bank these savings
[362]
are what is known as the central bank's
[364]
reserves and believe me when i tell you
[366]
that they are essential for controlling
[368]
inflation and exchange rates
[372]
if a central bank has very high reserves
[375]
of gold for example when an unexpected
[377]
period of inflation or falling exchange
[379]
rates occur it can sell the gold
[380]
reserves in exchange for recovering part
[382]
of its own currency by doing so by
[385]
repurchasing its currency with gold or
[387]
other assets the central bank can reduce
[389]
the amount of money in circulation and
[390]
thus stop the depreciation of its
[392]
currency
[395]
[Music]
[399]
in other words having a lot of reserves
[400]
is an important guarantee that a central
[403]
bank will be able to control the supply
[404]
and demand of its currency or in other
[406]
words to ensure that its currency has a
[408]
stable and secure value but if you want
[410]
an explanation that is a little bit more
[411]
concrete let's go with the numbers in
[413]
the case of the european central bank as
[415]
we've already seen these reserves total
[417]
about 1.4 trillion euros that is the
[419]
eurozone has a total backing of its
[421]
currency of about 17
[423]
the question is can you guess how much
[425]
reserve backing the swiss central bank
[427]
has well hold on to your chair because
[429]
it has no less than the figure you see
[431]
on screen
[432]
91.5
[434]
more than 9 out of ten swiss francs are
[436]
backed by gold by shares of companies
[438]
such as amazon google apple or by the
[440]
assets of foreign countries and if the
[442]
reserves of the swiss central bank were
[444]
divided among the swiss citizens
[445]
themselves each of them would receive
[447]
more than 114 000
[453]
now compare this policy with that of the
[454]
central banks that are dedicated to
[456]
giving money to the government of the
[458]
day so that they can spend it on current
[460]
spending which by the way is what the
[462]
ecb and the fed itself have been doing
[464]
for quite some time now but let's not
[466]
get sidetracked we could say that the
[467]
swiss central bank is something like a
[469]
huge investment fund and take note
[470]
because we are not only talking about
[472]
the fact that their reserves are
[473]
extremely high but also that these
[474]
reserves continue to grow year after
[476]
year thanks to the returns obtained on
[478]
their investments
[481]
swiss national bank increases annual
[483]
profit as stock markets boom the swiss
[485]
national bank expects to make a profit
[487]
of around 26 billion swiss francs
[490]
28.22 billion dollars for 2021
[494]
well thanks to the enormous investments
[496]
of its central bank swiss political
[498]
institutions and the swiss economy have
[500]
two superpowers that are practically
[502]
unique in the world the first is that as
[504]
a result of the central bank's profits
[505]
the swiss state which is the largest
[507]
shareholder receives extraordinary
[509]
financing virtually free of charge each
[512]
year free money the second superpower is
[514]
that if you think about it a currency
[516]
with so much backing security and
[518]
stability is a perfect investment for
[520]
all those savers who want to have their
[522]
money well protected in other words
[523]
during periods of economic crisis or
[525]
inflation the swiss franc functions
[527]
practically like gold that is as a
[530]
perfect safeguard for the savings of a
[532]
large part of the world which by the way
[534]
explains new stories like this
[536]
the safe haven swiss franc gained on
[538]
friday as fears escalated about the
[540]
global economic impact of the latest
[542]
coronavirus outbreak in china
[545]
as you can probably imagine the fact
[546]
that the swiss franc has become an
[548]
investment commodity has catapulted its
[550]
value into intergalactic levels to give
[552]
you an idea while in the year 2000 you
[554]
could buy as little as 60 dollars with
[556]
100 swiss francs today with the same
[558]
amount of francs you can buy more than
[560]
100 the value has almost doubled in just
[563]
20 years that said now think about it
[565]
for a moment the more investors want to
[567]
buy francs the more their price will
[569]
rise the more their price rises the
[571]
easier it will be for the central bank
[572]
to buy new reserves and further
[574]
guarantee its security by attracting
[576]
more and more investors
[582]
as a result the central bank can print
[584]
more and more francs to exchange them
[586]
for foreign currencies which it then
[587]
converts to a large extent into shares
[590]
and all this without generating
[591]
inflation yes indeed the swiss franc is
[593]
a currency in a constant upward spiral
[595]
but wait a minute because we're not done
[597]
yet should i go buy some franks now
[599]
because even though the strength of its
[600]
central bank is more than enough to
[602]
explain switzerland's zero inflation
[604]
there is still a second fundamental
[605]
aspect that we have not yet addressed
[607]
can you guess what that is
[609]
[Music]
[610]
trade paradise
[613]
i'm sure many of you have heard that
[615]
switzerland is a tax haven a country
[616]
where the rich can take their money from
[619]
somewhat dubious sources and pay
[621]
ridiculously low taxes well guess what
[623]
sorry to disappoint you but after
[625]
several political scandals the oecd
[627]
countries managed to put switzerland on
[629]
the ropes for helping money laundering
[631]
with its banking secrecy and the
[632]
question is did they really get rid of
[634]
it well they did
[637]
era of bank secrecy ends as swiss starts
[639]
sharing account data under international
[641]
pressure rich people from around the
[643]
world can no longer use the alpine
[644]
republic to hide wealth
[647]
apparently at least as far as banking
[649]
secrecy is concerned no switzerland is
[651]
not a tax haven okay but what about
[653]
taxes we all know that very little tax
[655]
is indeed paid in switzerland but how
[657]
much tax exactly well take a look
[662]
in this graph you could see the
[663]
percentage that for example the swiss
[665]
and spanish governments take for each
[667]
euro earned by a worker according to his
[669]
or her income at first glance the
[671]
difference is abysmal we're talking
[672]
about almost 50 percent but to
[674]
illustrate it better let's take a more
[676]
concrete example while in spain a person
[678]
earning about 30 000 euros per year has
[680]
to pay about
[682]
5103 euros in taxes in switzerland that
[685]
same person would only have to pay about
[687]
2 800 euros this is of course without
[690]
taking into account that the swiss vat
[692]
rate is only 7.7
[694]
the social security contributions paid
[696]
by the company which in spain are among
[698]
the highest in the world and the fact
[700]
that there are no taxes such as capital
[702]
gains tax
[705]
[Music]
[707]
and yes i know what you're thinking what
[709]
do low taxes have to do with inflation
[711]
in short with switzerland's low taxes
[713]
companies from all over the world are
[714]
eager to invest in this country not only
[716]
because they will pay less in taxes but
[718]
also and above all because these same
[721]
low taxes attract highly skilled foreign
[723]
workers to the country that companies
[725]
can easily hire while in neighboring
[727]
france only 12.38 of its citizens are
[730]
foreigners in switzerland this figure
[732]
almost doubles to over 22 percent of the
[734]
population in short my friends the
[736]
demand and the value of the swiss franc
[738]
together with its low inflation is not
[740]
only due to the great security offered
[742]
by its central bank but is also
[743]
motivated by the great conditions
[745]
offered by its economy to new companies
[747]
[Music]
[753]
so knowing all of this i'm certain for
[755]
sure that you're now wishing that your
[756]
country or at least your central bank
[758]
would slowly start to imitate the swiss
[760]
model wow hold your horses why what if i
[762]
told you in reality the swiss government
[764]
does not particularly like the situation
[766]
very much and what if i were to tell you
[768]
that the swiss central bank is keen to
[770]
have higher inflation don't believe me
[772]
well judge for yourself
[775]
switzerland acts to devalue the franc
[777]
and curb its role as a safe haven
[779]
currency the swiss central bank decides
[780]
to peg its currency to an exchange rate
[782]
of 1.20 francs to the euro because of
[785]
the risk of overvaluation for the
[786]
economy
[787]
[Music]
[788]
what is certain visual economic fans is
[790]
that the deflation that switzerland has
[792]
experienced over the last few years does
[794]
not seem to be something that makes it
[795]
feel satisfied and frankly there is a
[797]
good cause to be made that continued
[799]
deflation could be much worse than
[801]
moderate inflation however that's
[802]
something we'll look at in a future
[804]
video as this one has already become a
[806]
bit long so at this point it's your turn
[808]
what do you think of the swiss central
[809]
bank's model do you think it is the most
[811]
significant reason for the frank's zero
[813]
inflation or maybe you think the key
[815]
lies in the competitiveness of its taxes
[817]
you can leave your answers in the
[818]
comments and of course don't forget that
[820]
here on visual economic we release new
[822]
videos every week so subscribe to the
[824]
channel and hit the little bell so you
[825]
don't miss any of our updates and if you
[827]
liked the video give it a like i'll see
[829]
you in the next one cheers
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