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Sweden Launches MOAR QE, As Krugman Paradise Quadruples Down After Dovish Draghi
Over the last six months, we’ve documented Sweden’s descent into the Keynesian Twilight Zone in great detail.
Once upon a time, the Riksbank actually tried to raise rates, only to be lambasted by a furious Paul Krugman who accused the central bank of unnecessarily transforming Sweden from “recovery rockstar” to deflationary deathtrap. Tragically, the Riksbank listened to Krugman and reversed course in 2011. Before you knew it, rates had plunged 35 basis points into NIRP-dom. Unemployment subsequently fell, but the promised lift in inflation didn’t quite pan out. Sweden did, however, get a massive housing bubble for their trouble:
Obviously, those charts beg the question of why in the world Sweden (or Denmark, or Norway for that matter... or hell, even the US) are trying to contend that there's no inflationary impulse, but let's leave that for another day.
As for the Riksbank’s QE program, things began to go awry during the summer when the central bank managed to buy such a large percentage of the stock of government bonds that market depth was affected, causing investors to reconsider the trade off between liquidity and the benefits of frontrunning central bank asset purchases. In short, government bond yields began to rise in what perhaps marked the first instance of QE actually breaking.
But that didn’t stop the Riksbank from doubling down and increasing their asset purchases just a week later.
Since then, it’s been touch and go, with Stefan Ingves looking warily south towards Frankfurt hoping Mario Draghi doesn’t do something that sends the krona soaring on the way to ushering in a deflationary impulse.
Well, that’s exactly what Draghi did last week when the ECB telegraphed either a further depo rate cut, an expansion of PSPP, or both in December. That pretty much sealed the deal for the Riksbank - either cut, expand QE, or concede defeat in the global currency wars.
Not ready to throw in the towel just yet, the Riksbank has just expanded QE by SEK65 billion while keeping the repo rate on hold (for now anyway). Here’s some color from the statement:
“There is still considerable uncertainty regarding the strength of the global economy and central banks abroad are expected to pursue an expansionary monetary policy for a longer time. An initial raise in the rate will be deferred by approximately six months compared with the previous assessment. The trend of rising inflation is expected to continue. But compared with the assessment at the previous monetary policy meeting, the inflation forecast has been revised down slightly. This depends on poorer inflation prospects abroad as well as on a new assessment that demand needs to be stronger in Sweden in order to stabilize inflation.”
And the knee jerk reaction in Swedish 10s (which are apparently risk-free even though other sovereign debt is not):
Here’s some color from various analysts via Bloomberg whose summary can be found here:
- Riksbank probably needs to buy other types of assets than government bonds if it wants to expand QE further next year, Anna Breman, economist at Swedbank, says by phone.
- Expects Riksbank to continue to expand QE in 2016
- Even if borrowing needs are raised next year, Riksbank will probably need to expand bond purchases into assets such as municipality or covered bonds; hard to see that borrowing needs would rise to extent that it could buy more govt bonds
- Riksbank’s govt bond purchases will now be “very high” at about 34% of total stock
- Development of krona will be very important for Riksbank
- Handelsbanken sees “no more changes in monetary policy in this cycle” after Riksbank expanded bond purchases while keeping repo rate unchanged.
- Given unchanged probability of additional rate cuts and repo rate closer to lower bound, “we should see low probability of additional rate cuts priced by the market”
- Still, after ECB “left the door wide open for additional stimulus at the December meeting, the Riksbank may experience trouble toward year-end”
- Says Riksbank is close to bottom regarding repo rate given concerns about Sweden’s housing market; extension of bond purchase program in 3Q to pare ECB’s purchases would therefore “be preferable if the Riksbank deems this necessary to reach the inflation rate target”
- Handelsbanken suggests buying SEK against EUR
- The Riksbank was softer and the QE expansion larger than Nordea had expected, Torbjoern Isaksson, economist at Nordea, says by phone.
- Nordea had expected additional bond buying of SEK35b while Riksbank expanded government bond purchases by SEK65b
- Riksbank is haunted by krona, soft ECB; krona important part of strategy to lift inflation.
- Nordea still believes in further repo rate cut in Dec.; doesn’t expect Riksbank to expand bond purchases further
Got all of that? Here's the short version: Sweden has to figure out a way to keep the krona from soaring now that further ECB easing looks like a virtual certainty, otherwise, inflation will flatline (the housing bubble notwithstanding). Cutting the repo rate further risks exacerbating the housing bubble but at 34% of outstanding issuance, QE is almost exhausted lest the Riksbank should break the government bond market entirely and risk another episode like that which unfolded during the summer when bond yields started to move in the wrong direction. Further, there's no way government borrowing needs in 2016 are going to translate into enough new supply to satisfy the Riksbank's appetite. So, caught between a rock and a hard place, no one knows what Ingves will do next.
While this fourth expansion of QE may have a short-term effect on yields, we doubt whether it will be sufficient to bring about sustained krona weakness given the size of Draghi's bazooka (so to speak), which means that despite the various Catch-22s outlined above, the Riksbank will likely persist in the monetary madness for the foreseeable future, and on that note we close with the following from Stefan Ingves:
"If krona was to appreciate too quickly, it would be harder to get inflation to rise to target of 2%. Riksbank has more space on repo rate, can cut rate further. Riksbank not worried about running out of assets to buy.”
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Sweden in the new Zimbabwe. QE forever.
Totally man ...
as in totally black and totally broke.
The key to QE.....is everyone has to do it at the same time.
That way you see.....hardly anyone will notice.
Put some black guy in charge no one knows anything about.....give him a Nobel Prize.....money for nothing, and chicks for free.
don't agree completely. the way I see it, the "trick" the ECB is using is to do the same as the FED... with a delay. the "trick" the Japanese central bank is using is to run ahead
the ECB is using is to do the same as the FED
That's what I just said.
have you ever raced a sailboat? that "with a delay" can become extremely important. particularly when you get a better feel for the wind just by looking what the lead boat is doing
Obfuscation......thanks amigo.
Have you ever raced a pickup truck in Montana?
Must be the 138 IQ crowd woking Gods work.
so because I am not an American and I have not raced pickup trucks in Montana... what exactly? do pickup races have strategies based on delays? I have no idea. meanwhile, is this blog, in your opinion, supposed to be a place only for people in Montana? a hint: check where ZH's servers are located
I have not raced pickup trucks in Montana
Well.....do that....and get back to me.
You're killin' me, Vince. That's freaking funny.
I've raced pickup trucks. Hell, if it's got an engine on it, I've probably raced it at some point. No idea what this has to do with anything, but I appreciate the memories.
"Dovish Draghi"
How about "pants-pissing, cowering, worm-like, freak, with an acute aversion to hot young, assertive women" ?
You know, like the rest of the NWO....
The guy in the lead uses up his tires and has to slow after a while.
there you have it. thanks. well, then pickup truck races have a similarity to the thing. question is if the FED has a feeling for what tires are
With previous rounds of QE they played pass-the-baton. U.S. would do QE for 6 months, then China would do QE for 6 months, then Europe would do QE for 6 months, then Japan would do QE for 6 months, etc. Some of these would overlap by a month or two so there was always 2 or more QE's at any given time.
Luckily, according to the CPI, QE has little inflationary effects. However, I wished they would of told that to the grocery stores and my favorite Chinese take out venue. What used to be $8.95 at this restaurant about 5 years ago is now $12.95. Someone didn't get the memo!!
Zimbabwe was,nt part of the caliphate, Sweden is
Why can't we just load Krugman into some shoddy broke-ass rocket already and fire his skeezy ass into space?
https://www.youtube.com/watch?v=iKS-pcyNERQ
Too much chance of contaminating the entire atmosphere with bullshit should something go wrong with an O-ring or booster.
Not to mention the physical challenge of getting something that dense to escape velocity; not sure any lifters in service today can do that, maybe a Saturn V, maybe.
(the idea is to use cheaply built rockets, that explode, shortly after lift-off)
(but point taken)
Throw a bag of shekels there and I'm sure he will move his ass.
He might stumble across the aliens and convince them to uttlerly destroy the world, in order to increase GDP.
Speaking of Krugman, time for the morning dump.
Those ones are especially tough to flush. That fucker just won't go down.
mostly because what he says is seen as gospel by his followers. including, of course, his usual diatribes on how "the EUR can't work, is doomed". then everybody nods, eh?
but what really makes me "love" the Krugman is when he says that what the US would need is a major war. Martians, whatever, as long as enough windows are broken
then you don't witness nodding, but roaring applause in the room
A "Krugman Dump" feels good at first ...
And then the blood and bile and burning come forth ...
The red debris left behind ...
The crimson film ...
The agony ...
I've got a ten kroner, a five kroner, a twenty kroner. No wait, that's another ten kroner. A fifty kroner? How much is that? [/David Puddy, Seinfeld]
As long as these putrid central bank fcks can print fiat currency out of thin air, then the can can be kept kicking.
I think Bill Holter said it nicely in the recent SGT REPORT interview - hyperinflation will bring the curtain down on the show and not default (as they can just keep printing).
Btw, I just managed to use the word 'can' in succession in a sentence.....WTF!
are you speaking about the FED or are you including all the other hundred-something central banks? because from their perspective, it's either follow the lead of the FED or try to get ahead of the FED
the other option... does not work
the waves of hot dollars crashing onto your shores might look damn good, for a while, but then, at the first moment of retrenching leave you with a lot of debris to contemplate
remember how, for example, the Turkish stockmarket looked like a rocket? remember... Corzine? remember... the Squid? I could go on and on...
Sweden as a fairly small currency. that's not a confortable position during a currency war
There's a difference between Sweden doing this after taxing the crap out of their citizens and the US doing it after deficit spending for decades of plunderquest.
Those 100 trillion Zimbabwe notes should be a goal for Sweden and make Krugman proud. Thought Japan would go there first.
Remember the picture of the Zimbabwe guy walking out the back with the stacks of cash? I wanna be that guy!
Hopefully he converted that into gold.....or he's got a pretty cool wallpapered living room.
No me. I plan on keeping my stacks of cash on a thumb drive.
Wow....you have Bitcoins?
For perspective, Sweden has a PPP-adjusted GDP of around $400 billion. New York City's is around $1.4 trillion while Houston's is close to $500 billion. Sweden's economy is similar in size to Hong Kong's, Mumbai's and Mexico City's. IOW, the perfect puddle for a minnow like Krugman to swim in and act like he's a big fish.
https://en.wikipedia.org/wiki/List_of_cities_by_GDP
https://en.wikipedia.org/wiki/Economy_of_Sweden
For perspective
Thank you.....we can never have too much of that.
BitCoin - most there can ever be are 21,000,000 (but are divisible into very small fractions). No QE. Above board. Freedom.
Mathematical Gold.
Mathematical Gold
But not gold......and definitely on the periodic table.
Yep, just try walking across a border with 1,000 ounces of gold - that's over 83-pounds.
Bitcoin - no problem, it can be stored in your memory. Get to where your going, sell any fraction of your BitCoin and buy gold if you want or convert it into the local fiat. Life goes on, you got your wealth out of the clutches of corrupt government and banksters.
Do you really think a border guard is going to let you pass by giving him a thumbnail drive.....really?
Better have some cigarettes, ass, and grass as a backup.
You just revealed your ignorance about anything BitCoin. You can store your bitcoins in your memory aka your mind.
Since you obviously do not know what BitCoin is, please stop flapping your gums on the subject, it only makes you look dumb.
Nice, another round.
Pay off a house with the free loot. Don’t waste your time.
A race to be the first country to hyperinflate.
When it occurs it would be sweet to see Krugman's Office filled with worthless bills. A nice message to him.
I hope the QE keeps coming. I already bought my home, and the price of it doesn't change after I've bought it. Go ahead and inflate my debt away. It's great for me, but it sucks for the millions of people who are trying to save for a down payment but have their savings inflated away.
Muslims don't like living in the woods .... you have to give them urban housing .... which costs more ?
Everytime I see a photo of Krugman I see acute dementia.
I see a financial Hilter....he has the same look and deluded belief in his warped world
I wonder if the kids realize their future is being sold. How are kids suppose to afford this insanity?
"The great triumph of Ben Bernanke was to engineer a fix that rendered trust and good faith irrelevant."
- James Howard Kunstler
Bernanke didn't engineer anything. The founders of the Fed did by getting government backing. Government guns make trust and good faith irrelevant.
anything you can do, i can do better. i can print money better than you.