"Giant Wave Of Money" Heads For Sweden, As Draghi Creates "Nightmare" For Riksbank

Tyler Durden's picture

Early on September 3, we warned that the Riksbank was at risk of making a meaningful policy “error” by not cutting rates ahead of the ECB announcement expected later that morning. 

It wasn’t that we were anxious to see Sweden plunge further into the Keynesian Twilight Zone by taking the repo rate further into negative territory. Indeed, we never recommend going full-Krugman as Sweden did starting late in 2011 after marking a sharp policy reversal. For its trouble, the Riksbank has been left with a massive housing bubble and successive rate cuts have had only a minimal effect on inflation expectations. 

But alas, in a world that’s gone Keynesian crazy, it’s either ease or be eased upon (so to speak) and when the Riksbank decided not to cut at its September meeting, it set up the possibility that a dovish Mario Draghi would cause the krona to rise, further jeopardizing Sweden’s inflation target. In other words, the Riksbank was setting itself up to take a loss in the ongoing global currency wars. 

Sure enough, Draghi raised the PSPP issue limit from 25% to 33% and then, last week, the ECB telegraphed more easing in December either in the form of a depo rate cut, an expansion of PSPP, or both. 

As we discussed in “How Mario Draghi Can Force The Swiss National Bank To Go "Nuclear" On Depositors”, this puts the Riksbank and the SNB in a tough spot. Sweden’s policy options are limited. The repo rate is already deeply negative and the Riksbank is bumping up against the upper limit in terms of how many bonds it can buy without breaking the market. Meanwhile, thanks to the fact that the SNB only applies NIRP to a fraction of reserves, rate cuts by the ECB may have an outsized impact on the EURCHF cross, a decisively undesirable outcome for Switzerland. 

Now, ahead of this week’s Riksbank policy announcement, Robert Bergqvist, chief economist at SEB in Stockholm is out warning that thanks to Mario Draghi, Sweden faces a veritable “nightmare.” Here’s more, via Bloomberg

European Central Bank President Mario Draghi said boo last week and the krona jumped.

With the ECB signaling a new wave of stimulus to prop up the euro zone, the question is how Sweden’s central bank can fight the monetary expansion coming from the south with its own, much smaller toolbox as it tries to stop the krona appreciating.


“The nightmare for the Riksbank board is maybe something like this: they are gathered in the south of Sweden, looking out over the Baltic Sea, when they see a giant wave of money coming in from the euro zone and try to fight it with a hose,” Robert Bergqvist, chief economist at SEB in Stockholm and a former researcher at the Riksbank, said by phone.


The Riksbank is due to announce its next rate decision on Oct. 28. Most economists surveyed by Bloomberg see the bank keeping its repo rate at minus 0.35 percent, though there’s speculation policy makers will need to expand their quantitative easing program. Failure to do so would lead to the krona strengthening “markedly,” Nordea Bank says.


Draghi’s stimulus measures to date have already forced his Swedish counterpart, Stefan Ingves, to resort to unprecedented measures to drive up consumer prices in Scandinavia’s largest economy. He cut Sweden’s main rate below zero for the first time in February and started buying bonds, expanding the QE program several times since. Underlying price growth has stayed below the Riksbank’s 2 percent target since the beginning of 2011.

And so, we're now beginning to see the results of the beggar-thy-neighbor monetary insanity that grips DM central banks. It's a never-ending race to the bottom and now that everyone is moving further and further into NIRP, it's not even clear that there is a bottom. After all, even if negative rates finally do make their way to household deposits causing rationale actors to simply withdraw their money, the monetary authorities can always just ban cash, which would effectively obliterate the idea of a "lower bound."

In any event, perhaps the more pressing concern here is the combination of a massive housing bubble, NIRP, and a QE program that's all but exhausted. As we noted last week when discussing Denmark, Copenhagen home prices are rising at 12% per year (or more) and yet the Danish central bank is operating on the assumption that headline inflation is half of 1%. Obviously that borders on the insane. Central banks are deliberately ignoring a sure sign of inflation on the way to citing disinflation as an excuse for doubling, tripling, and quadrupling down on the same policies that have driven housing prices into the stratosphere. The question then becomes this: when these housing bubbles burst (and they will), how do central banks in Denmark, Sweden, and Norway intend to fight the ensuing deep recessions now that they've exhausted their counter-cyclical capacity?

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kaboomnomic's picture

Imagine this 'imaginary russian submarines". There. I fix it for ya' ZH.

Boris Alatovkrap's picture

Boris is once work on "imaginary russian submarine" in Severodvinsk "imaginary russian submarine dry dock". Unfortunately, is only pay in "imaginary russian ruble". This is Soviet way.

Haus-Targaryen's picture

Food coupons, an apartment, & the promise of a Lada & perhaps a plumber in a decade to fix your shower.  The Soviet system at its best.  

Boris Alatovkrap's picture

In Soviet Russia, plumber is only dispatch for breaking shower. You want shower, you are fix own damn shower!

One And Only's picture

 how do central banks in Denmark, Sweden, and Norway intend to fight the ensuing deep recessions now that they've exhausted their counter-cyclical capacity?

...buy all the houses convert to co-ops, nationalize all the industries, and give everything away for free.

I know, I know, it sounds crazy but why the fuck not?

BarkingCat's picture

They will just import more Africans to fuck them good and hard.


_ConanTheLibertarian_'s picture

Sounds like neocommunism coming to Scandinavia.

rogue_analyst's picture

Sweden has always been a socialist state, this is just the pinnacle of it. Having arguments based on logics trying to question the (un)sustainability of

mass imigration, mass unemployment, mass endebtment, and a severely inflated housing market, will just be met with a trashing from PC people having

infiltrated the public forum and media.

Seer's picture

And meanwhile, under your own nose lurks the very same odor- growth.  Unless you're from some other world, or some remote part of the planet that we're not aware of, there's not a single economic system in operation that is not dependent upon growth.  Perpetual growth on a finite planet = Ponzi.

And no, this is not PC talk, dumbasses.

Dr. Engali's picture

It's like all the central banks are trying to blow up the system under the guise of helping , but it just keeps on going.

ATM's picture

It isn't like they are trying. They ARE trying to create a global systemic crash all at once. And it is planned by the same assholes who are teaching our kids that government is the answer to all the bad things that government produces. If only they had more government.

I'll give the Communists their due. They play chess while the rest of the world plays hopscotch.

Dr. Engali's picture

They are trying, but they aren't being successful. All this currency chaos and the system keeps on going.

hongdo's picture

It's not chaos, it's being reorderd.

roadhazard's picture

They need some tax paying refugees.

Mini-Me's picture

Why are the Swedes being such pussies?  If a negative rate of 0.35 doesn't do the trick, how about minus 35%?  If they want people spending, that'll do the trick.  

BandGap's picture

Then they get the stampede to the banks.

ThroxxOfVron's picture

"If a negative rate of 0.35 doesn't do the trick, how about minus 35%? "


The price of houses would quintuple YOY.

Sounds great if you own a house; but, if you don't already then you will never own one: and thus a generation of neo-feudalist land-owner/gentry and corresponding perpetual renter/subsistence grubbers are born that may become multi-generational..

Now, what was the plan again for all these 'migrants and refugees'?

Panafrican Funktron Robot's picture

Print more money, buy more stuff.  There is functionally no real restriction on how much can be printed, and what they can buy.  We're in an era where CB's have already been purchasing stocks/alternative investments, and GDP calculations include illegal activity.  Zero bound is indeed a complete illusion.  

taopraxis's picture
taopraxis (not verified) Oct 26, 2015 2:47 PM

I find this all rather amusing...

The banksters are trying to create inflation by means of debt, debt monetization, zero rates and negative rates and cannot seem to grasp why their plan is not working. Meanwhile, goldbugs are mocked by the banksters because they're buying gold with the notion that the attempts to create inflation will be successful. The banksters and goldbugs hate each other but, fact is, they're theoretically in total agreement...and they're both wrong.

Printing money cannot create inflation unless that money circulates. Monetary velocity is the tell, here. You are not going to get hyperinflation from negative rates. There's no money in the real economy, now. Less money will not fix that. Monetary flight will be even more deflationary. NIRP might even trigger a crash.

Want inflation? Devalue. How do you do that? Jack up rates and crash stocks and bonds. Money will flee the dollar and the price of real goods will soar. Think they're going to do that anytime soon? Not a chance...unless they lose control of the situation.

The economy is weakening. At some point, that will produce enough pressure that a policy change will become necessary.


ThroxxOfVron's picture

Certain assets are appreciating: see the price of real estate chart above..  

The propping of stocks and bonds is precisely what the whole money-printing/QEasing scheme is designed for: to keep the .GOV and Corporate Debt Markets from vaporizing.

RE prices are just leakage diversification out of the contrived paper asset markets -insurance/fear trading.

That same insurance/fear trading manifest itself as hoarding and gouging in the energy and commodities markets.  

Oil @ $160 -and now nearing $40 and you don't think those crazy high prices were created by hoarding and gouging?  

Andy Hall/Citi/Goldman/Chase/etc.. ALL had their leased tankers parked off shore, their derivatives hustles based on manipulating the market , and nice fat paydays from it...

Copper?  Stacked in warehouses and rehypothecated.  Nothing to do with industrial demand and everything to do with financial engineering cum fraudulent commercial loan emission.

Of course there is less velocity: few have real saved coin to circulate and debt is being used to prop pre-existing debt.  

Working people can't get mortgages as these low rates; but, Chinese cash buyers that ran copper scams and illegally stacked waste in leased dock-yards are paying whatever is asked to get their money safely in a row house in Manhattan or San Fran rather than buyinging Portuguese bonds or Caterpillar shares...


Pumpkin's picture

I could actually use a giant wave of money.

wmbz's picture

Sweden faces a veritable “nightmare.”

Ain't no way! Bernie Sanders sez Sweden is damn near utopia, they have all the good "free" stuff!

Surf the money wave!

Mewa's picture

All Princton trained neo Keynesians.....welcome to their nightmare....pull you money out...buy land, gold, and silver then wait for the reset.....

honestann's picture



This is yet another of the BRAIN TRAPS that virtually everyone falls into.  Just because they heard the propaganda soundbite "a weak currency is good for you" a million times DOES NOT MAKE THE CLAIM TRUE.

In fact, the claim is FALSE.


By following all these "brain traps" (propaganda soundbites), individuals (and fictitious "nations") HARM THEMSELVES.

The truth of the matter is, a modestly lower or higher currency value relative to other currencies is simply a feedback mechanism.  In fact, that feedback mechanism automatically balances the economy (whether individual, local, regional or "national").

For example.  If a currency is strong, foreign goods will appear cheaper, and so more foreign goods will be purchased on average.  The savings can be retained (saved), or invested in whatever local niches are most efficient and productive.  All good.  If a currency is weak, then orders from far away increase, which is also good.

If central-planners (government and central-banksters) just leave everyone alone, leave borrowing and lending interest rates alone to find their natural market levels, everything will be fine.  To be sure, natural and man-made events locally and in other regions will have consequences from time to time, but natural responses will bring everything back into balance in fairly short order.

But when the predators-that-be (central planners) create artificial dislocations (in their attempt to justify being authoritarian predators over everyone) to supposedly "fix" imbalances, they ALWAYS create more imbalances than they "adjust".  But since the predators-that-be also control mainstream media, they focus all attention on just a few imbalances, and ignore thousands of other important imbalances they create and make worse and worse and worse and worse... until they explode and collapse (bubbles).


Humans really need to get past the idea that everyone can be stupid and make no decisions for themselves, and allow "one authority" to take actions to "fix all the boo boos that life presents".  Because they just destroy everything and everyone... every, single, time.  The only variable being... how badly.  In the modern world full of insane "leaders" (neo-con-jobs) and "weapons" (nuclear, biological, etc)... the currently dominant model for human behavior (centralized authoritarianism) virtually assures extermination of the species.

Which sadly, is what most humans deserve for sanctioning, supporting and funding authoritarianism and the predators who dominate.

Mediocritas's picture

Your initial statement, challenging the accepted dogma that "a weak currency is [always] good for you" is something I agree with. There is no strong correlation between exchange rate and the current account (case in point Japan), despite all the logic that there should be one. But you then proceed down the course of arguing that it's a bad thing, which isn't necessarily true.

A weak currency may or may not be beneficial to the economy: it depends on many factors. It is simply wrong to say it's always wrong or always bad.

Based on your belief you then launch into a logical explanation of how exchange rates effect imports, thereby doing the very thing you belittle the mainstream for doing: making assumptions based on a belief. It seems logical that "if a currency is strong, foreign goods will appear cheaper, and so more foreign goods will be purchased on average." This is apriori thinking; where is your evidence?

Here is some actual evidence of a current account deficit (increasing imports vs exports) being directly driven by expanding bank credit. This is the very opposite of your assumption that a weaker currency necessarily inhibits imports.


You are also incorrect in asserting that authorities should not interfere just because imbalances naturally resolve themselves over time (in accordance with the second law of thermodynamics). You ignore the fact that a sufficient imbalance can trigger a state change from which recovery to the old equilibrium is not thermodynamically favorable. It also seems that you are not aware of the Maximum Power Principle, a suggested fourth Law of Thermodynamics, and what its outcomes mean in a political and economic context.

I thought you were a chemist? Was I mistaken? Because it's strange that you would not understand the social equivalent of activation energy. Tell me why intervention should not be engaged in to prevent a major change of state where the change involves significant harm that cannot be repaired? (A social exothermic reaction as it were). Should a physician not intervene with medical treatment because "the body tends to repair itself"? Fine for a common cold, not so much for a gunshot victim. It depends, doesn't it, on the severity of the imbalance and the likelihood of a major undesired reaction / system-state change. Same goes for matters economic.

Finally you again launch into your tired, psychopathic tirade against humanity with an unqualified assertion that "centralized authority virually assures extermination of the species". Again unscientific language: where is your evidence? Despite plenty of social experiments with control structures throughout history, almost all of which involving some degree of centralized authority, strangely, here we are: thriving away. Also strange that there are plenty of other social species that thrive under the most centralized authority (Queen) so where is the guarantee that Homo sapiens must do the opposite?

I don't know what level of centralization is appropriate but I'm pretty sure it's not zero given that all through nature, there is evidence of constant compromise between distributed and centralized systems. You have a central nervous system determining the end fate of all cells, yet almost every cell has a complete copy of your genome. Within the cell, the nucleus centralizes the genome and regulates gene expression with externa cues from the endocrine system, yet mitochondria maintain their own subset of genes (distributed control) with retrograde signaling.

Centralized is not always bad, nor is it always good. Maximum Power Principle suggests that the better system is whatever maximises resource conversion (energy use) over time, given the conditions (which can change), and that this is a variable upon which genetic selection occurs. If that ideal doesn't match your preferred "ideal" then it is your thinking that needs to evolve.

honestann's picture



Let me just give one example rather than attempt to pick apart everything you said in detail.

The huge financial institutions circa 2008 and beyond should have failed.

To "go bankrupt" IS a state change.  In fact, it is the ultimate state change (from "exists" to "doesn't exist").

But this phenomenon (failure and bankruptcy) is absolutely necessary for any economy to be viable (or for any justice to exist).


Centralization is EVIL... inherently evil.  For any human to force others to comply with their demands is direct predatory assault.  And that cannot be justified... EVER.

Of course predators do try, but they just lie, and do whatever they imagine will benefit themselves with no regard to the harm it causes to everyone else.

PS:  Just to be 100% clear, herein what we call "centralization" does not include voluntary interactions.