Negative Interests Rates For A Frozen Blond Economy

The Swedes are scared, with the Latvia trade currently the worse trade on the planet, with Euro land contracting and the Norwegians spending / income slashed year over year due to the CL market, its time to do something to stimulate their economy.  It appears their brain trust has been out in endless Sunlight to long.

The weak development of the economy requires a somewhat more expansionary monetary policy. The Executive Board of the Riksbank has therefore decided to cut the repo rate by 0.25 of a percentage point to 0.25 per cent. The repo rate is expected to remain at this low level over the coming year. At the same time there are several signs that economic activity will improve.

Deep economic downturn

Economic activity abroad is very weak and this hits Sweden hard. Exports have fallen substantially and the situation on the labour market is continuing to deteriorate rapidly. The information received in recent months points to the economic downturn in 2009 being somewhat deeper than the Riksbank forecast in April.

Low repo rate over a long period of time

A lower repo rate and repo rate path are needed to counteract the fall in production and employment and to attain the inflation target of 2 per cent. The Executive Board of the Riksbank has therefore decided to cut the repo rate to 0.25 per cent. The repo rate is expected to remain at this low level until autumn 2010. The Riksbank’s assessment is that cutting the rate to 0.25 per cent will not threaten the functioning of the financial markets.

The Riksbank’s assessment is that after cutting the repo rate to 0.25 per cent it will have reached its lower limit in practice, and that the situation on the financial markets is still not completely normal. Supplementary measures are necessary to ensure that monetary policy has the intended effect. The Executive Board of the Riksbank has therefore decided to offer loans totalling SEK 100 billion to the banks at a fixed interest rate and with a maturity of 12 months. This should contribute to lower interest rates on loans to companies and households.

So the solution appears to be one of forcing people to with draw their cash and jamming it into the economy via negative real savings rates.  The Central Bank of Sweden is now pushing government stimulas funds into the domestic banks to help them with the refunding losses on the Latvia Fuck Up financing event.The domestic banks are being forced to push the funds into economy to jump start it.

It is interesting that they expect this policy to be in effect for at least 1 year, and possibly longer.  The implications of the future Latvia default/devaluation on the Swedish banks balance sheet is being addressed before the event, not afterwards.  Maybe the Sweds are not so stupid, and they know something the rest of the world has not figured out yet.  Either way, we will soon be able to see if this version of pushing on a string works... or not.

If it fails to work, expect a run on Swedish banks, as anyone not stricken with Endless summer fatigue realizes this is not going to end as expected.

http://www.riksbank.com/templates/Page.aspx?id=32047

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[ronin]

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i know this is well treaded territory but i guess if your "in" the bathroom smoking with all the cool kids, you gotta stick up for them...btw, bruce, the real leverage is like 7.35:1 and you have no downside...don't lie to us that its good for the taxpayer.  good luck raising the $500mm ... just like your fund raise for your $1 bn "distressed"PE and debt funds.  

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