The Riksbank of Sweden cries “More,More,More” in a type of “never ending story”

Today quite a few themes of mine have been in evidence already and I would like to take you back to last Friday. I wrote a post about Euro area monetary policy with this title.

Mario Draghi “It’s no use going back to yesterday, because I was a different person then.”

Please mark that thought as there is an institution of which the Lewis Carroll quote is even more applicable to as they were previously labelled as sado-monetary masochists. In the same article I pointed out this.

Right now the and Swiss National Bank are rubbing Mario Draghi off their Christmas card list!

Good job I put the worlds oldest central bank the Riksbank of Sweden at the front of the list! Today is an anniversary for it as this time last year it cut interest-rates to 0% so ZIRP in a literal sense but here is the crux of the matter this was on the basis of a very positive -especially for these times- economic forecast.

GDP is expected to grow at a rate of 1.9 per cent this year and 2.7 per cent next year. During 2016 and 2017, GDP will grow by 3.3 and 2.3 per cent respectively.

Okay so if you accelerate into a boom what could go wrong? Well I was on the case.

Household indebtedness is high in both a historical and international perspective……..which is reflected in rapidly rising housing prices.

The justification was low inflation but I pointed out this as a counterpoint.

However even the most fanatical of central bankers do not believe in interest-rate cuts having an immediate effect with the leads and lags for a full effect being in the period 18/24 months ahead.

So it could impact at exactly the wrong moment and in fact as the Riksbank has been about as successful as forecasting the future as the Bank of England that was in fact likely. Having set the scene here is the first issue do they care?

What happened next?

In a nutshell they decided to sing along to Elvis Costello and the Attractions.

Pump it up until you can feel it.
Pump it up when you don’t really need it.

Sweden found itself with an interest-rate of -0.35% as the Riksbank plunged deeper into the icy cold world of negative interest-rates and it also started an aggressive QE (Quantitative Easing) program. This posed its own question as a year ago I pointed out that the Swedish ten-year bond yield was 1.22% so what was going to be gained by pushing it even lower? The evidence from elsewhere was that such moves had achieved little as otherwise Japan would not have had two lost decades. The Riksbank ignored such reality and in fact continued to add to its original program.

Today’s news

At first there was a sigh of relief that there was not another interest-rate cut but there was a development that central bankers consider to be important. We got some Forward Guidance and the emphasis is mine.

The repo rate is left unchanged at −0.35 per cent but an initial raise in the rate will be deferred by approximately six months compared with the previous assessment.

Here we see another theme of these times as policy tightening seems to be always just around the corner until we get there when it is just around the next corner and repeat. It is particularly interesting that the Riksbank has said that on the day of the US Federal Reserve announcement as it is quite a plain judgement if you think about it.

Also there is the issue of the fact that just like QE negative interest-rates seem to be going “on and on and on” to coin a phrase. Of course we need to take some care as the history is still relatively short but the danger sung about by Coldplay is at yellow alert.

Oh, no, I see
A spider web, and it’s me in the middle,
So I twist and turn,
Here am I in my little bubble,

Indeed in an echo of the hints of Mario Draghi of the ECB we were told this today.

The repo rate can be cut further, which is reflected in the repo rate path

-0.45%, -0.5%? Oh and before I move on does anybody really believe that 0.1% interest-rate moves have any beneficial impact? After all if they did we would not be where we are.

Extraordinary monetary measures


The Executive Board has therefore decided to extend the government bond purchasing programme by an additional SEK 65 billion so that purchases will amount to SEK 200 billion in total by the end of June 2016.

So all it took was one hint from the ECB and the Swedes decided to act first? We get a clear extra theme here as this is plainly a currency issue as we mull the way that the Euro affects its neighbouring currencies. Five years after the original currency wars statement they appear to be raging still in spite of the fact that it is a zero sum game.

There is another significant matter too as Sweden is on its way to the number one spot. From Erica Blomgren at SEB.

Riksbank will buy ~40%. But considering that free float is much lower, the amount is substantial.

Of course we expect more now from the ECB and the Bank of Japan is chomping through the JGB (Japanese Government Bond) market like it is playing Pac Man but for now the Swedes lead. Conceptually QE has followed this from the Matrix Reloaded.

Agent Smith: The best thing about being me… There are so many “me”s.

We also got something of an echo of the Funding for Lending Scheme of the Bank of England.

Moreover, the Riksbank is prepared to launch a programme of lending to companies via the banks.

The details are vague right now presumably because the Bank of England experience has been one of failure or as it prefers to put it counterfactual success.

Also it would not be the Riksbank if they did not echo Agent Smith and his cry of “More!”

The Riksbank still has a high level of preparedness to quickly make monetary policy even more expansionary if the inflation prospects deteriorate, even between the ordinary monetary policy meetings.

What about the housing market?

There is only one implication for asset prices here which is summarised for us by Yazz.

The only way is up, baby
For you and me now
The only way is up, baby
For you and me

Actually as of the latest numbers they were motoring anyway.

Real estate prices for one- or two-dwelling buildings increased by 4 percent during the third quarter 2015 compared with the second quarter 2015. Prices increased by 10 percent on an annual basis

indeed only yesterday we learnt that the mortgage market was singing along to Lets Go Crazy by Prince.

The annual growth rate of housing loans increased by 0.2 percentage points compared with August and amounted to 8.0 percent in September…..

Oh and is this the sort of business lending that the Riksbank wants to boost?

Most of the loans to non-financial corporations comprised loans with multidwelling buildings as collateral.


There is so much to consider here. In a way the situation surrounding the Euro area is a bit like the Domino Theory applied to South-East Asia in the 1970s. Who will fall next? if we look at the currency issue we see that the Riksbank has responded very quickly to the way that the Euro was pushed lower by Mario Draghi on Thursday. That went well for about an hour then the Krona rose, so whilst it is of course very early days it would appear that 65 billion Krona does not buy much these days.

As to interest-rates both the ECB and the Riksbank seem set to plunge further into the icy cold waters of negative interest-rates. Again we see that the “lower bound”seems to be getting well lower! Also the feature looks ever more permanent. No wonder that “dedicated follower of fashion” Mark Carney seems to getting ever colder feet about his promised interest-rate rise. Moving onto QE we see that it is a bit like the never ending story.

Life as a first time house buyer in Sweden is going to get grimmer and grimmer. But let me leave you with another thought. Exactly the same issues will be being discussed in the boardrooms of the Swiss National Bank and Denmark’s Nationalbanken.

“My dear, here we must run as fast as we can, just to stay in place. And if you wish to go anywhere you must run twice as fast as that.”

Forward Guidance

This from Martin Enlund is rather eloquent on the subject.

Some have compared it to Donald Trump’s hair.


25 thoughts on “The Riksbank of Sweden cries “More,More,More” in a type of “never ending story”

  1. Shaun, you mentioned Japan’s lost decades in there. That set me wondering, when 2 or more economists shall be gathered together what exactly do they tell each other that is different for us compared to the Japanese and why we (ie, Europe generally) are not going to lose a few decades too? Economics is all about mental models of how the world works, and the cognitive dissonance caused when reality is “wrong” has to be rationalized away (or, god forbid, the economist admit they were wrong!) so what is the popular rationale for why The Vapors were wrong in saying

    That’s why I’m turning Japanese
    I think I’m turning Japanese
    I really think so

    Because I really think so too.

  2. Shaun, a reply to yesterday’s question about the situation in Portugal. An unholy mess is the answer! The left wing parties have 122 votes in parliament and the existing right wing 108. Never the less the right leaning president Cavaco Silva has reappointed Coelho as the prime minister of a minority government that is expected to last a couple of weeks. When it falls the president is expected to appoint a caretaker government that will keep the minority right in power until next March. Just to complicate things, the president is due to stand down in January and as a result is prevented from dissolving parliament and calling new elections. That would fall to the new president who will not be appointed until March next year and given the lead time elections would not be until June and a government sworn in some time later! Portugal could be without a functioning government until next summer or later. Meanwhile the unions have threatened action if the minority right try to force any legislation through. Sounds like a recipe for paralysis.

    • Shaun, another bit of info that is of interest, the Portuguese Consumer Association DECO has published a report indicating that more than 50% of Portuguese families live on a family (not individual) income of less than E1,000 and that the Portuguese have suffered the most in the Euro group due to policies of austerity. The Greeks might argue with that but the Portuguese economy is not going anywhere.

      • They did but I think there may have been a bit more cooperation from all sides in Belgium. There definitely isn’t in Portugal (or Spain – the next interesting election).

        • Hi Pavlaki and thanks for the information on Portugal.

          I was going to cover the economics of it today but the Riksbank got in the way so to speak. Meanwhile as Draghi talks the Euro down and currency markets seem willing to take the “next time” of Janet Yellen seriously, at least for now, the UK Pound £ has nearly made 1.40 versus the Euro.

          Mario will be smiling at that and a 1% fall today versus the US Dollar.

    • Thanks for the insight Pavlaki.I’ve read a host of articles on the subject and you’ve explained it better in 100 words.

      Super post.Thank you.

  3. Thank you Shaun for another riveting read.

    This looks like it is the last throw of the dice for zombie capitalism.
    It must be obvious that expansionary monetary policy isn’t helping, and that all means of expanding credit to the masses have failed.
    I know that ever-more money is going to B-T-Lers, but it’s not helping the economy in general.
    There is no income from savings, pensions are tanking, and when mortgage equity is withdrawn, far less of it is for luxury spending.
    All types of financial shenanigans are employed to expand GDP, some embarrassingly fraudulent, as Govt. borrowing is measured against it, and backed by it.
    Sucking in people from all over the World, in the hope they’ll make some sort of contribution, and hammering social provision because the Govt knows most of them won’t, can’t.
    Govt. economic policy is the product of the foolish or the desperate.
    These people are nasty, not foolish, so desperate it is.
    TPTB know their policies aren’t working, but it’s all they have and it’s delaying the inevitable, just as we delay death.
    The sooner the system finally crashes the better, AFAIC, as TPTB don’t care what happens to the rest whilst they delay.

    • Is this the UK or Sweden you are talking about? I don’t recognise Sweden from your description which is a socialist Government (although it tolerates private industry in it’s economy) with excellent social provision. Lessons could actually be learned from Sweden on how to make a successful economy whilst protecting the vulnerable, remember the Swedish economy is demonstrating robust growth, unlike the more right wing capitalist modelled economies.

      • heh

        reminds me of that little joke for Americans,

        There are two countries beginning with S , one has the least government and regulations, the other has strong regulation and government involvement

        Which would you like to live in ?

        For some reason most choose Somalia over Sweeden …..

        ( the other variation is – “which is the richest? ” )



        Ps Shaun, is 47$ cheap for oil ? call me when we’re in the low 20’s 🙂

      • Sweden is as socialist as China is capitalist.
        As for Sweden’s “robust growth”, when it cuts the currency wars, then we’ll talk.
        Sweden knows full-well that its growth is dependant upon NIRP.

  4. Hi Shaun

    As others have said there is a whiff of desperation about this, and for that matter the ECB, move which it is trying to counter. However, as Draghi’s bazooka is much bigger than the Riksbank it hardly seems possible that these measures will have more than a very short term effect, in whch case it’s back to square one.

    It seems we are to go on until the final end game blows the whole thing up.

    • Hi Bob J

      It is revealing I think that the Riksbank acted today as central banks proclaiming easing mostly do. Over the past week it is 2/3 and Mario Draghi may later make it 3/3. However this evenings “next time” for a policy tightening from Janet Yellen and the US Federal Reserve is also familiar as it never seems to arrive.

      The Riksbank clearly felt there were no point in cutting interest-rates even further until the ECB does so too.

      However all the easing makes your point. After all if things are as good as they proclaim why do we get ease after ease?

  5. it does make you wonder what the end game is with these currency wars , they’ve never worked in the past

    and what the end game is with asset pumping , namely housing . Where do you live if every property is out of reach ?

    Subs by the HMG means , well , back to council housing ? except its owned by national government and not local ?

    or is it the only solution to rent fro private landlords?

    is that fair? or just a waste of resources ?

    I still think this is all moves to prevent a “covered” recession turning into a depression like 1903’s and I see no effective policy or means to back us out, except to save the Banks ( again)



  6. Shaun, Excellent trips around western Europe. It is great to see versions of the future in other economies. With the mainstream media being so inward looking they view next week and next month as un-predictable for the UK when, as you point out admirably, the Netherlands and Sweden make quite a strong signpost for what comes next….

    • Hi Paul C and thank you

      if we switch this to music I remind myself from time to time of Andrew Baldwin’s comment that Mark Carney is a “dedicated follower of fashion”. Carney tells us he will follow the US Federal Reserve which this evening has done nothing again.

      Meanwhile we in the UK often follow Sweden with social issues being examples where we are regularly told they do better than us. Economics too?, Well we would also be following the Danes, Swiss, ECB, BoJ and maybe even Norway as it promised to cut further. So our dedicated follower of fashion would be comfortable in a pack perhaps…


    Stockman has a super read
    ‘At the end of the day, however, the monetary mayhem that was unloosed in September 2008 is the responsibility of two professors of economics who got the causes of the 1930-1933 collapse of the US economy completely wrong.

    I refute the two great myths that still pop out of journalists’ keyboards whenever the events of September 2008 are touched upon.

    To wit, first, the Fed did not cause the banking crisis of 1930-1933 by failing to undertake a massive bond-buying campaign; and secondly, the banking system was rotten to the core with bad loans and insolvency after the artificial boom of World War I and the follow-on bubbles of the Roaring Twenties. It could not have been fixed with a 1930s version of QE or any other massive intrusion of the central bank. ‘


    Pettis also has an interesting post talking about balance sheet mismatches resulting in instability.
    It puts some perspective on the issues Shaun alludes to I think.

    ‘Minsky is important not so much for the “Minsky Moment”, a phrase he never used, but rather because of his profoundly intuitive balance-sheet oriented understanding of the economy, something that set him completely apart from most contemporary academic economists who, for the most part, have barely begun to incorporate balance sheet dynamics into their analyses. Minsky’s insights include his now-well-known description of accelerating financial fragility, along with his explanation of why instability is inherent to the financial sector in a capitalist economy.

    Most insightful of all, Minsky characterized the economy as a system of interlocking balance sheets, and because he taught us to think of every economic entity as effectively a kind of bank, with one entity’s assets being another’s liabilities, it follows that economic performance is partly a function of the direction and the extent in which the two sides of each balance sheet are mismatched. Because these mismatches vary as a consequence of past conditions and future expectations, when institutional distortions are deep, balance sheet mismatches in the aggregate can be systemic, in which case they determine how an economic system behaves and responds to exogenous and endogenous shocks.

    Minsky’s framework made it especially easy to predict the difficulties that China would face once it began to rebalance its economy. China can be described as an extremely muscular illustration of Minsky’s famous dictum that “stability is destabilizing”.’

      • Hi Dutch

        We were never in equilibrium although at times it may have looked like it. At that point economic models start to diverge from reality and of course it is far from alone in causing that.

        Thank you for the links. I have not forgotten your suggestion of a forum for this sort of thing.

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