Sweden Warns Of Dire “Consequences” From Massive Housing Bubble, Heavily Indebted Households
Late last month, Sweden tripled down on QE, as the Riksbank announced it would expand its asset purchases by SEK65 billion. Or, visually:
The recent history of Swedish monetary policy is viewed by some as a cautionary tale about what can happen when a central bank attempts to normalize policy too “early.” As a reminder, the Riskbank began raising rates in 2010. Reminiscing about the bank’s decision four years later, Paul Krugman blew a gasket on the way to accusing Sweden of being a nefarious lot of job hating heretics hell bent on perpetuating global inequality by enriching creditors at the expense of impoverished debtors.
Of course Krugman needn’t have been so hard on the Riksbank. After all, they reversed course a little over a year later and since then, it’s been nothing but easing as the repo rate fell 35 bps into negative territory.
The problem, as we’ve documented quite extensively, is that Sweden’s adventures in NIRP-dom have done little to boost inflation (to be fair, unemployment has fallen).
For the Paul Krugmans of the world, that’s evidence of a hangover from the series of hikes the Riksbank embarked on beginning in 2010. For anyone who is sane, it’s evidence that, i) unconventional monetary policy is bumping up against the law of diminishing returns , and ii) when everyone is easing, no one gets the benefits.
But while NIRP may not be doing much for inflation, it sure has been effective at creating a rather scary looking housing bubble. Have a look:
We discussed this at length in “Sweden Goes Full Krugman, Gets Massive Housing Bubble.” Here’s what the Riskbank had to say about this after its September meeting:
“Low interest rates contribute to the trends of rising house prices and increasing indebtedness in the Swedish household sector continuing.
…click on the above link to read the rest of the article…
