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Riksbanken cuts interest rates again

Now at 1%

oddsock
post 18.Dec.2012, 11:15 AM
Post #1
Joined: 19.Dec.2008

Trying to fix a slowly collapsing credit bubble by generating more cheap credit.

Like a drunk curing his hangover with a morning drink.
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Essingen
post 18.Dec.2012, 11:34 AM
Post #2
Joined: 2.Nov.2008

Would be better if it was assoicated with a planned removal of ränteavdrag for private individuals and higher tax free personal allowances...in my humble opinion.
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Mib
post 18.Dec.2012, 12:25 PM
Post #3
Joined: 7.Jul.2006

So...do you expect them to leave rates higher, so the whole economy suffers even more than it really should? Do you want rates to go up instead? The rates have been lowered because the economy is being affected by the EU recession. As a result, people have less confidence and tend to hold back in spending as they don't know what is around the corner. I'm one of them! In fact, reducing the rates has 2 plausible effects...1. People will spend more, which keeps the economy moving or 2. The sensible people, save the money and reduce their mortgage and other debts. I'm saving money to pay off a chunk of my mortgage at a time I decide and as soon as my fixed rate ends soon, I will take the cheaper fixed rates on offer for another 3 to 5 years and save even more money to pay off my mortgage!

However, reducing rates is just one tool in a bag of armoury that can be used to stimulate the economy, while protecting it from the stupid people who will just spend all of their money on goods that they don't need and expect to be bailed out when the sh@t hits the fan. There is more than one way to skin a cat, but for now an interest rate cut is one that is needed as it affects business loans as well and as a bonus could weaken the kronor and help improve imports during a weak EU economy.
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byke
post 18.Dec.2012, 01:04 PM
Post #4
Location: Europe
Joined: 28.Oct.2008

I agree, it was the best thing to do.
But the greater question is why has it needed to be done in the first place.
Given the previous forecasts and statements regarding the economy.

And for me thats the issue.
Not that a remedy to a balls up has been made.
But this dragging your feet policy and using the media in an attempt to create false security.
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Yorkshireman
post 18.Dec.2012, 01:35 PM
Post #5
Joined: 22.Nov.2011

QUOTE (byke @ 18.Dec.2012, 01:04 PM) *
And for me thats the issue.. Not that a remedy to a balls up has been made.. But this dragging your feet policy and using the media in an attempt to create false security.

@byke, you seek perfection in a world that is not perfect, and predictability where it is not a perfect science.

If the economy was easy to predict then there would be no problems anywhere! Timing of rate changes require timing as there can be concequences for incorrect timing.

There is the confidence factor also that plays a large part. So yes, nothing wrong with using the media to present a sense of security, better than using the media to create a crash ...you would be complaining if they had done it the other way around wouldn't You?

A good example would be a 1 very very large Swedish company that I have as a client, in 2008 August they had an order book that was full for 5 years ahead, they were even turning away business, if you had asked them at that moment how it was, they would say excellent, 2 weeks later they had an order book that was empty. It was impossible to predict.

There has been no balls up, since the economy is unpredictable right now with any degree of certainty. And those jobs that have been lost recently, and during part of next year, who knows if they will be re-created here in Sweden or in another country once a pick-up comes.

You are quick to blame, but don't really understand the dynamics.
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Yorkshireman
post 18.Dec.2012, 01:39 PM
Post #6
Joined: 22.Nov.2011

QUOTE (oddsock @ 18.Dec.2012, 11:15 AM) *
Trying to fix a slowly collapsing credit bubble by generating more cheap credit.

That is one way to look at it, another is reducing rates for those that have variable rate loans means more disposable income in their pockets, rather than taking credit. It is more common than not that those with more disposable income, spend it rather than save and therefore stimulate the economy. Others will use it to pay off faster existing loans, reducing the debt.
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byke
post 18.Dec.2012, 01:56 PM
Post #7
Location: Europe
Joined: 28.Oct.2008

QUOTE (Yorkshireman @ 18.Dec.2012, 01:35 PM) *
@byke, you seek perfection in a world that is not perfect, and predictability where it is not a perfect science.If the economy was easy to predict then there would be no probl ... (show full quote)

Yes media security is a tool to invoke confidence and economic stability.

However I dont agree that governments should be allowed to sex up facts without question and not be held accountable for failures. As you yourself have stated, the economy is very unpredictable - yet some of the claims of future growth that have been very wooly to say the least. More so than simply getting it wrong, many would claim that to a large part simply offset through public deception via the media.

Nothing speaks louder than the quality of work based on reflection, which in turn generates confidence.
As of late confidence is at an all time low - which reflects public sentiment on the quality of work.

So yes, credit to government to attempt to clean up the economy.
But it shouldn't be working on the Swedish fika timeframe model.
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djmarko
post 18.Dec.2012, 02:11 PM
Post #8
Location: Stockholm
Joined: 18.Jan.2007

I welcome the interest rates drops, i have just purchased a new apartment and was advised by my personal banker to go for a 3 month rolling rates, the rates are even likely to drop in February 2013, at least i will have more disposable income to spend on other things, this should help to stimulate the economy, maybe this might lead to an increase in apartment prices in central stockholm who knows, one thing for sure, the economy is not doing really well and hopefully this should kick start the economy!
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Mib
post 18.Dec.2012, 02:43 PM
Post #9
Joined: 7.Jul.2006

@byke...in terms of the forward predictions by politicians...then most of them are guessing and getting it wrong in most countries. The world economy is changing quickly and so any prediction can be null and void within a very short time. The other week...one of the big German banks was found to be hiding information which changed the picture on how well capalised they really are negatively. So...until the world banking system reveals all of the relevant information that is needed to make a correct judegment, then we are in for a roller coaster ride of ups and downs for a few years. When the banking system lost confidence and stopped lending to each other, that compounded the situation and the big issues started to hurt everyone and uncertainty creates more distrust and eventually you need Governments to bail out institutions or print more money to offer cheap funding...which hurts pensions, savings etc. This is why the EU needs to get its act together as the longer it takes for them to resolve the current EU uncertainty, the greater the risk that one of the bigger economies needs a massive bail out...creating even more uncertainty out there. But they are living in a parallel universe where their budgets increase, spending as if there is no tomorrow etc etc...so it might take something big to change that attitude. Something like the UK and another country leaving the EU in its current form...the UKIP party are growing and both Labour and the Tories need to take note, otherwise they will not get into power or at best be in a coaltion

There are a lot of businesses with a lot of money stuck in a bank while the wait to see what happens. Creating confidence is key to get them to start investing again in manufacturing, buying services and employing people.

So...if I was a politician, I would err on the side of caution and lower my forecasts subject to the unkown unknowns.
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oddsock
post 18.Dec.2012, 03:01 PM
Post #10
Joined: 19.Dec.2008

QUOTE (Mib @ 18.Dec.2012, 12:25 PM) *
So...do you expect them to leave rates higher, so the whole economy suffers even more than it really should? Do you want rates to go up instead? The rates have been lowered be ... (show full quote)

So what you are saying is that they are cutting rates to make credit cheaper, so that people will use the extra money on other stuff.

Which is exactly what I implied.

I agree that this is what will happen in the short-term. The long-term effects could be more detrimental though, ultimately it is a case of kicking the can down the road a bit.

I will lead to the appearance of improvements, but ultimately these aren't real improvements. They are improvements on borrowed money.
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oddsock
post 18.Dec.2012, 03:02 PM
Post #11
Joined: 19.Dec.2008

QUOTE
The sensible people, save the money and reduce their mortgage and other debts.

Low interest rates generally discourage saving and encourage people to loan.

High interest rates do the opposite.
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skogsbo
post 18.Dec.2012, 03:24 PM
Post #12
Joined: 20.Sep.2011

QUOTE (oddsock @ 18.Dec.2012, 03:02 PM) *

you clearly live in the perfect world, next door to byke? Sweden could have the perfect plan and economy, then after 1 month of EU and other global influences it would be completely blown out of the water and it would be back to revising the plan, that is the very nature of global economics, too many factors to consider to form at lasting plan.

Even the smartest maths geeks, combined with the smartest IT geeks can't create a system that predicts global markets, so how can anybody else be expected to?

Not sure what you expect them to do? Or just do nothing?
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oddsock
post 18.Dec.2012, 04:25 PM
Post #13
Joined: 19.Dec.2008

Well Sweden could stop blaming the Euro countries for their own Swedish problems, that would be a start.

I don't know how to solve the economy. But the first step to solving any problem is acknowledging that there is a problem. There is a private debt mountain in Sweden. Lowering interest rates while not doing anything else to compensate increases the size of the private debt mountain. So clearly they have not yet acknowledged that they have a problem in this area.

Obviously since they are exporting to the Eurozone they don't want a strong currency and have to keep the SEK fairly in line with the EUR, hence they are pretty much following ECB interest rates. This is their main reason to lower interest rates, to keep exporters competitive. The flipside of this is that low interest rates create cheap credit.

An viable solution would be to increase property tax to offset the stimulus effect cheap credit has on house prices. But what has Anders Borg done since he's been minister? He's lowered property tax.

You don't have to be a genius, but a little bit of understanding of macroeconomics would help. But Borg can't be that stupid, he knows exactly what he's doing. No finance minister wants to be remembered as the finance minister who deflated a credit bubble. Better to kick the can down the road.
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skogsbo
post 18.Dec.2012, 04:48 PM
Post #14
Joined: 20.Sep.2011

QUOTE (oddsock @ 18.Dec.2012, 04:25 PM) *
Well Sweden could stop blaming the Euro countries for their own Swedish problems... ... hence they are pretty much following ECB interest rates. This is their main reason to l ... (show full quote)

So you say they can't blame the EU, then you reference EU exports as a motivation? perhaps it is you who is lacking some economic understanding. wink.gif

Export/Import within the EU is simple really, not everyone can be a major exporter, somebody has to import. Southern Europe is up $hit street and hasn't got money to spend internally, never mind abroad, that's why Northern Europe is feeling the pinch. Other global markets are picking up internally, but the EU is never going to be competitive exporting to Africa, Asia, S America... so the chances of Europe even pulling out of recession are slim.

Look at Germany as massive EU exporter, also struggling because there just isn't the money in circulation to spend.

Most economists, predict China and India will be global economic super powers, far ahead of the USA and EU within 20 years, 2026-7 was their current estimate. It's going to take that long for most of Europe to clear it's debt, some countries longer still.
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oddsock
post 18.Dec.2012, 06:05 PM
Post #15
Joined: 19.Dec.2008

QUOTE
So you say they can't blame the EU, then you reference EU exports as a motivation? perhaps it is you who is lacking some economic understanding

They can't blame the EU for the Swedish private debt problem.

When they lower interest rates to make the Krona more competitive for exporters, they also stimulate the private debt mountain that Sweden has built up, which is not the fault of the EU.

Most economists would agree that one of Sweden's biggest problem at the moment is private debt, which is nobody's fault but Sweden's.

The only country in Europe that has things sussed is Germany, where they have low debt (both public and private), a functioning and affordable housing market and a huge trade surplus. You want an example of how to run a country? Ask Berlin. They are not struggling at all.
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