Shades of Things to Come?

[chefdennis]

Bernanke sent Turbo Tax Tim was in Sweden not to long ago to see how they are dealing with their finanical and economic problems and to gather ideas....so maybe this is in our future:

Sweden Cuts Deposit Rate to NEGATIVE .25%

There has been a lot of ludicrous recommendations recently to combat deflation by making deposit rates negative. I did not think any central bank would be dumb enough to try it. I thought wrong.

Today, Riksbank, Sweeden's central bank cut the deposit rate to -0.25% effectively charging savers interest on deposited money.

DATE 2/07/2009
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.

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.

Deposit Rate

The decision on the repo rate will apply with effect from Wednesday, 8 July. The deposit rate is at the same time cut to -0.25 per cent and the lending rate to 0.75 per cent.
Sweden Attempts To Boost Lending

Please consider Sweden cuts rates to new low, offers banks loans.
Sweden's Riksbank cut interest rates to a fresh record low on Thursday and offered banks 100 billion crowns ($13.2 billion) to boost lending as it strives to reverse the country's worst recession since the 1940s.

The central bank lowered its key interest rate by 25 basis points to 0.25 percent in a surprise move, putting official rates at their lowest since records began in 1907, and said it expected rates to remain at that level until late 2010.

"It's a double whammy, or even a triple whammy," said Roger Josefsson at Danske Markets.

"The deposit rates are actually negative now. In some sense they are creating a money machine for banks. You can lend all you want, but don't put that back into the central bank."

Sweden was plunged into recession late last year as the global financial crisis pulled the plug on market demand, leaving firms such as world number two truck firm Volvo scrambling to cut costs and shed jobs.

The central bank forecast the economy will contract 5.4 percent this year and return to tepid growth of 1.4 percent next year.

Broadening its arsenal of policy measures, the Riksbank said it would offer banks loans at a fixed rate as was done recently by the European Central Bank, although it offered unlimited amounts.

The Riksbank will offer 100 billion crowns of fixed interest loans with a maturity of 12 months. It said supplementary measures would ensure monetary policy had the intended effect.

"This should contribute to lower funding costs for the banks and lower interest rates for companies and households," it said.

Deputy Central Bank Governor Barbro Wickman-Parak told a news conference that offering loans at fixed rates to the banks was judged more suitable than purchasing government or mortgage-backed bonds, at least for now.

"Sweden has a very bank-based system," she said.

"Company borrowing, in contrast to the United States, is carried out through the banks and in light of that it is reasonable for us to look first to moving through the banking system when we want to ease credits."

The ECB ended up pouring 442 billion euros ($622 billion) of funds into money markets in its first such operation with a term as long as one year, pushing some bank-to-bank borrowing costs to new record lows.
Punishing Savers

The global economy is in a mess because of the lack of savings not because of an excess of it. People spent money they did not have, pushing asset prices to ridiculous levels. Banks, in belief that asset prices would keep rising exponentially, increased leverage. Now consumers everywhere are retrenching in the wake of the collapse, a much needed phenomenon.

In light of the above, punishing savers with negative deposit rates is the height of stupidity.

It would be fitting if there was an immediate run on deposits. And if that happens what will Sweden do? Halt deposits? Sweden risks (and deserves) a currency collapse and bank runs for this insane effort. Look for capital flight in Sweden.

We should all be rooting for the demise of Sweden lest Bernanke or some other Central Bank clowns try the same thing. The risk is that Sweden does not immediately suffer for this stupidity and that Bernanke tries to do the same thing.

One thing is certain. This is eventually going to blow sky high. Let's hope it does before Bernanke gets the same brilliant idea.

By the way, in case you missed it, here is Bernanke's Deflation Preventing Scorecard.

Mish's Global Economic Trend Analysis

[LDB]

Another liberal tax disguised under another name.

[OntarioVanMan]

It would be silly to deposit money in a savings account anyhow...There are other opportunities that pay a better rate of return....Maybe it is a smart move to get people to invest and get money moving around...It is far better to pay off credit cards then save anyways.

[chefdennis]

even with unemployment at the record highs, americans are saving more then they have in the last 15 yrs...that is not what barry wants, he wants them spending...but they see the worse is yet to come and feel the need for a cushion when it does:

Americans saving more, spending modestly - Stocks & economy- msnbc.com

[OntarioVanMan]

Americans should be paying off credit cards and paying down any debts...There is no money in saving. They'll save more by paying off a 10% credit card then making .5% interest....If and when this turns around inflation may run rampant and interest rates will rise and create yet another problem.

[greg334]

Sweden some time ago had a big tax revolt seeing that their taxes reached over 80% for the average swede. Their entire system of finance is different from ours and in no way should we be comparing notes with them outside of how we can open more IKEA like stores because that is the only success that the Scandinavians have.

It would be silly to deposit money in a savings account anyhow...There are other opportunities that pay a better rate of return....Maybe it is a smart move to get people to invest and get money moving around...It is far better to pay off credit cards then save anyways.

Not true, when you look at the risk and all that, investing falls short. The Obama administration is moving towards an FDIC type system where the investor has no or little risks involved and this will put us in line with government controlled markets to the point like FDR did in the mid-30s which gave us the great recession in the depression.

[OntarioVanMan]

Not true that people shouldn't be paying off 10-15% charge cards? What idiot that owes any debt would save at a miserly ..25-.50% interest?

[chefdennis]

Ahh i hate to say it, but the avg american is buried in Credit card debt to the tune of close to 30 grand...and their interst is often in the 20% area and they don't care as long as there is still credit line available and they can make the payments... they are now saving because they see a small amount of writing on the walls, but they aren't smart enough to figure out that they are buried in the credit card debt....its the american way and it will be the ruin of more then a few of them when the SHTF....

LOL, why do you think that there is soo much advertising for credit card debt consolidation?!? Americans are buried in it!!!

[OntarioVanMan]

So when the SHTF it is no ones fault but those Americans themselves...and when they go belly up they'll be squelling like a stuck pig wanting the gov to help them help...

[Moot]

So when the SHTF it is no ones fault but those Americans themselves...and when they go belly up they'll be squelling like a stuck pig wanting the gov to help them help...

That also my Canadien friend is the American way!

[OntarioVanMan]

I just don't get it....Why in Sams bells would anyone SAVE at.25% on a savings account or even a 6 month CD at 1% when they have credit cards charging 15-20% per month on the unpaid balance? Even $500 on a balance will save more in 1 month then if put in a savings account for a year!

I know I am Scotch...am I frugal, economical or plain cheap?

[OntarioVanMan]

That also my Canadien friend is the American way!

Americans sure do lack basic math skills....

[Moot]

I know I am Scotch...am I frugal, economical or plain cheap?

You're intelligent. Like you said, its the American way. I have never carried over any credit card debt although I use two different credit almost daily. I pay my bills in full monthly. If I ever found myself in debt due to credit cards, first priority would be to pay it off, NOW!

[OntarioVanMan]

You're intelligent. Like you said, its the American way. I have never carried over any credit card debt although I use two different credit almost daily. I pay my bills in full monthly. If I ever found myself in debt due to credit cards, first priority would be to pay it off, NOW!

*LOL* No YOU said it is the American way...

When I become a citizen..Is there a requirement that I have to get stupid like that?

[Moot]

*LOL* No YOU said it is the American way...

Yeah, I guess I did! Oh well.

When I become a citizen..Is there a requirement that I have to get stupid like that?

Only if you drink fluoridated municipal water. It will give you nice teeth, unlike your Scottish ancestors. But it will also soften your brain.