Scandinavian NIRP Bubble

A recent article at Reuters indicates that Sweden’s central planners are beginning to worry slightly about the bubble they have caused in their (so far) vain attempt to destroy the purchasing power of the Swedish crown in terms of consumer goods. They have instituted a giant QE program and reduced central bank lending rates below zero (an economic policy perversion if ever there was one). So the failure is certainly not for lack of trying, as the charts below illustrate.

While the “well-intentioned” plan to impoverish Sweden’s consumers by reducing their real incomes has failed, relative prices have of course been distorted enormously. Price inflation is simply showing up in asset prices, primarily real estate prices, in which a bubble of truly breathtaking proportions is underway.


1-Sweden, property pricesZIRP and later NIRP-induced lunacy in Sweden, as evidenced by a parabolic increase in property prices. Note that these data are as of Q1 (the most recent chart we could find). In the meantime, prices have shot up further. The latest annual rate of change amounts to 20% – click to enlarge.


A little color from Reuters:


“House buyers in Sweden have never had it so good, at least by some measures. But cheap credit and spiraling prices may be creating a bubble – one that could send the country’s economy reeling when it bursts.

Sweden now has one of the fastest growth rates of any developed economy. Inflation is near zero and official interest rates are below zero. Home buyers can take advantage of interest-only loans and a variety of tax breaks.

On the other hand, consumer debt is about 175 percent of disposable income, one of the highest rates in Europe. Housing prices keep rising – apartments in Stockholm cost around $6,350 per square meter, on a par with London’s $6,750. Most Swedes would take a century to repay mortgages at current rates.

“The prices are just crazy,” said 37-year-old Cathrin Wentzel.


(emphasis added)

It would “take most Swedes a century to repay their mortgages at current rates”? Meaning, at barely perceptible rates of interest? With household debt at 175% of GDP? Good luck ye Vikings!

More from Reuters:


The Riksbank’s decision this week to keep rates lower for longer just extends a bonanza of cheap money that has fueled the real estate prices and borrowing. But the central bank is caught in a dilemma.

Leaving rates so low only encourages home buyers. But raising them enough to tamp down the housing frenzy would also slow an inflation rate that is already flirting with zero and has dipped into outright deflation.

The concern is that Sweden might end up with a local version of the 2008 financial crisis. Homeowners saddled with enormous mortgages might see the value of the homes plummet. They would cut back on spending, try to save more – and hobble the economy.

In the last few months, concerns about a bubble have reached a fever pitch as house prices shot up still further. A government failure to clamp down on lending criteria has fed a 20 percent annual rise in the cost of apartments.

Most bidding in Sweden for flats and houses is done by text messages. Potential buyers scurry off from office meetings or dinner parties to punch in their latest offer – often upping their bids by $10,000 to $20,000 a text. Mortgage borrowing grew at its fastest pace in more than 4 years in September.

Even so, the Riksbank has slashed rates to record low -0.35 percent to rekindle inflation and may go even lower.


(emphasis added)

The alleged “dilemma” the central planners have created for themselves is of course based on an absolutely bizarre theory that holds that it would be somehow bad if consumers were to enjoy a tiny increase in the purchasing power of their income and savings. This Keynesian balderdash has been at the root of a series of credit and asset bubbles around the world that will eventually either lead to a devastating financial and economic crash, or alternatively a hyperinflationary crack-up boom (or maybe even both).

What is not going to happen is anything good. That ship has sailed long ago. There is no way this monstrous bubble can be “soft-landed” – it either keeps expanding or it crashes. The governor of Sweden’s Riksbank, Stefan Ingves remarked:


“We have scored an own goal of sorts in not dealing with the housing market properly in Sweden, and in the long term that threatens economic development.”


Maybe they should have thought of that before they did this (how hard could it have been to forecast the effects of this moronic policy?):


2-sweden-interest-rateSweden’s central bank lending rate – it currently stands at minus 35 basis points, which is utterly perverse, as such a thing as negative time preference doesn’t exist. If it did, it would mean that the categories of “sooner” and “later” no longer had any meaning for human beings – click to enlarge.


A Giant Accident Waiting to Happen

As might be expected, the introduction of negative interest rates and a QE program that has just been expanded further on October 28, have led to explosive money supply and credit growth in Sweden. Evidently the recognition of having scored an “own goal” wasn’t sufficient to stop the central planners from making an already quite scary situation even worse.


3-Sweden, money supplySweden, monetary aggregates M3 (black line) and M1 (red line). The M1 data are a bit more up-to-date and likely a better representative of the actual amount of money in the economy (broader aggregates tend to include credit transactions and time deposits that are not strictly money or part of the money supply in the broader sense). Note the most recent renewed upward spike in M1 – click to enlarge.


What we haven’t seen discussed anywhere is the fact that while household debt at 175% of GDP is already at an extreme level seldom seen in economic history anywhere, corporate debt in Sweden is even greater – by an impressive margin to boot. In other words, should the cost of credit ever increase, this giant private sector debt-berg will likely implode with a bang.


4-Sweden creditHousehold credit (blue line) and corporate credit (red line) in Sweden. Overall, private sector credit in Sweden amounts to more than 10 trillion Swedish crowns. This compares to GDP of 3.9 trillion crowns, for a private sector debt to GDP ratio of around 260% – click to enlarge.


The fact that the situation has become an uncontrollable bubble that is probably very close to bursting is illustrated by the closing paragraphs of the above mentioned Reuters article. This sheds light on how extreme the underlying bubble psychology has become by now. Typically this is observed near the final stages of a boom:


Reforms to reduce the risk of a bubble have been uneven. Until 2010, Swedes could borrow 100 percent of property purchase prices and some borrowed more to fund renovation. A new 85 percent limit is often bypassed by unsecured loans.

Four of 10 Swedes still do not pay off their loans at all, encouraged by tax breaks. The center-right, in power from 2006 to 2014, sold off public housing and abolished real estate taxes, helping to push up prices.

The Riksbank and retail banks have called for a reduction in mortgage tax breaks and other steps. But even small measures – such as a government proposal to tightening mortgage rules for new borrowers – has run into legal difficulties.

Buyers are ignoring talk of a bubble to grab a dream home before the window of opportunity closes.

“I talked with a real estate agent about that and he said it was just talk,” Wentzel said.


(emphasis added)

It is quite astonishing that the author of the Reuters article pretends throughout that there actually is no bubble yet, but just the “risk” of one forming. There is no longer any “reform to reduce this risk”. The only question that is left it whether the credit expansion will be abandoned voluntarily or involuntarily at a later stage. Once this happens, the bubble will implode. The longer it takes, the more severe the denouement will be.

However, apart from stunning little details like “four in ten Swedes don’t pay off their loans at all”, what is really illustrating the psychological momentum are the sentences highlighted at the very end, such as “buyers are ignoring talk of a bubble to grab a dream home before the window of opportunity closes.”

There is no “window of opportunity” that is closing. The only opportunity that is left is that of not losing money by avoiding to get caught up in the euphoria and thereby sidestepping the eventual crash. However, one has to suspect that the safety of Sweden’s banking system has been severely compromised, so the people of Sweden may one day well come to curse the fact that their country is a trailblazer in the “cashless society” sweepstakes.

And naturally, real estate agents are waving bubble concerns off by insisting it is “all just talk”, which is fatally reminiscent of the US NAR (National Association of Realtors) and its former chief economist David Learah. As the Chicago Tribune remarked: “In October 2005 Lereah was busy calling the bubble believers ‘Chicken Littles.’” The bubble in home prices topped out less than a year later, and another two years later it had morphed into the biggest financial catastrophe of the post WW2 era.

But it’s going to be different in Sweden, right? Incidentally, according to Bernie Sanders the Swedish socialist central planning model should be emulated by all.



Sweden and the other Scandinavian bubble countries Denmark and Norway are small economies and the danger of an implosion of their credit and housing bubbles is not regarded as a reason for concern elsewhere. When the time comes, we are fairly sure this will be the refrain. However, this would essentially be the same tune that was heard when Thailand’s currency and economy went into a tailspin at the beginning of the Asian crisis.

Meanwhile, if we were a citizen of Sweden with savings to protect, we’d be very busy making plans right now with the aim of keeping them safe before it becomes an urgent imperative obvious to all. All sorts of contingencies have to be considered in this case, including the possibility of a severe banking crisis and eventually a fiscal crisis as well (the temptation to attempt bailouts will be great). What we certainly wouldn’t do at this juncture is follow the advice of real estate agents.


Charts by: St. Louis Federal Reserve Research, TradingEconomics




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24 Responses to “Going Nuts in Sweden”

  • therooster:

    BitGold’s member numbers are increasing each and everyday … take that fact for whatever you like. Your imagination is truly remarkable. Sad !

  • therooster:

    Thank-you. The market is agreeing on gold in the currency role more and more with each passing day.

    Never forget the gifts of the magi . If you forget the significance at the beginning of that fateful story, you’re apt to be totally lost at the end.

    • VB:

      No, it isn’t. NOBODY is using gold as a medium of exchange. They used to use it in the past (even until recently in some places) and, hopefully, they will do it in the future, but they aren’t doing it presently. Which is why gold isn’t a currency.

      This isn’t something that can happen “more and more with each passing day”. Either the market agrees to use something as a medium of exchange, or it does not.

  • therooster:

    Ok, ok…. how about units of mass that are digitized by making mass the unit of account and each and every unit of mass is fully backed by bullion, 1-to-1 ??? Those units of digital mass can be transferred from one account to another. Shall we create a brand new word for that ? LOL

    Would that pass for your definition of currency or are you going to cling to the idea that a currency has to be “a promise” to deliver on the speculation of some future event of productive endeavour ?

    • VB:

      There is a brand old word for that; it’s called a “scam”.

      Currency is the medium of exchange. Nothing more, nothing less. Anything can be a medium of exchange – but until something actually IS a medium of exchange (i.e., people get paid in it and use it to purchase other things), it’s not a currency.

      • therooster:

        Digital grams (or even fractions thereof) are a market currency if the market agrees. It is LAWFUL irrespective of whether it is legal tender. Legal tender is a derivative of “the dark side” where debt is liquidity. Bullion based currency resides on the “light side” where debt-free mass is in the role of providing additional (supplementary) liquidity and the fiat measures are simply measures.

        Cross over …. and shield you eyes.

        Again, it is light that comes after darkness in the proper order of creation. Do you wish to argue about theology too ?

        • VB:

          “Digital grams (or even fractions thereof) are a market currency if the market agrees.” – yes, but since the market has not agreed and they aren’t a medium of exchange, this means that they aren’t a currency.

          “It is LAWFUL irrespective of whether it is legal tender.” – barter is lawful, too, which doesn’t mean that if you barter wood for coal, then wood is a currency.

          The rest of what you wrote is your usual meaningless drivel.

  • therooster:

    Regardless of the weight of gold that is in above ground hoards, do you not think that the mitigating factor is liquidity, in terms of how much “reach” the gold can have in a monetary application ?

    Liquidity is the proportionate product of (weight x USD/oz). We can raise the amount of weight and/or raise the market price of USD/oz. Severing the fixed peg was a watershed event in being able to arrive at a market price that can rise.

    Our solution to liquidity, while also being able to purge and manage debt, responsibly, is in the hands of the market. The catch is that people have to actually circulate those debt-free assets to created the purging of existing debt, while also supporting the economy.

    • VB:

      Just as I thought – you don’t understand what “liquidity” means. It is a measurement of the speed at which something can be bought or sold without affecting the market price.

      Liquidity is increased when both the supply and the demand increase, while remaining in balance. If they decrease while remaining in balance, or if their balance goes out of whack, liquidity decreases.

      Liquidity cannot solve a debt problem, as the central banks are learning right now.

  • therooster:

    John Galt III & VB …

    Stop and consider why the variable price of gold becomes so important.

    John, the figure of $6.60 trillion USD is the liquidity (debt-free) at the moment it was likely recorded in real-time. That figure is the product of (weight x USD/oz). Raising the liquidity is simply a matter of adding gold and/or adding to the price as measured in USD/oz.

    I hope you may see how big the freeing of the gold price was when Bretton Woods was closed when gold was pegged at $35/oz.

    Gold in circulation on the basis of scalable liquidity (see above) allows for existing debt to be displaced. This is a currency application where the debt-free assets (bullion) provide grease for the economic wheels. The higher the bullion price, the greater the liquidity and the more debt it can displace by way of its circulation.

    Gold is a market currency. Lawful.

    The dollar’s “apprenticeship” as a currency was a precursor to its application as a price measure so that prices of debt-free widgets could be compared to each other on a relative basis. This would allow debt-free widgets to trade directly for each other with no debt involved in the trade. Gold is a debt-free widget.

    When God closes a door, He opens a window.

  • No6:

    No wonder Bitcoin is making a come back.

    • VB:

      Nah, it’s just a speculative spike caused by the news that the EU has ruled Bitcoin a currency (instead of a commodity, as the USA did) and not subject of exchange taxes. It will revert back to fading into oblivion soon enough.

      A more interesting question is does Sweden allow ownership of investment-grade gold? While I was living in Iceland (most Nordic countries tend to have similar laws), I discovered to by great surprise that owning investment-grade physical gold is against the law there. I went to my bank to ask them if they were selling bullion coins and they looked at me as if I had asked them whether they were selling crack.

      If Sweden is in the same bandwagon, the Swedes don’t have many options to protect themselves from the impeding crash. Real estate and the stock market are the only other (albeit inferior) alternatives for keeping your money when the banks are trying so hard to steal it via negative interest rates, which probably explains the size of the property bubble in Sweden. Wouldn’t be surprised if their stock market looks bubbly, too.

  • John Galt III:

    So Swedes have too much debt but and buy into a housing bubble anyway and get a house. Their leftist government (just as all leftist and centrist Western European countries have figured out) has purposely imported millions of Muslims to obtain votes in exchange for freebies. Why? Because ostensibly, native Western Europeans have low birth rates. Why low birth rates? Well, free contraception, free abortions, and leftist school/university, mainstream media brainwashing that humans are destroying the planet so having babies is a sin against Mother Earth.

    So the white Swedish native has a nice house and too much debt and walks out the door one morning and is beheaded by someone named Mohammed. His wife complains to the police and is immediately arrested for hate speech and hate crimes against Islam.

    Dumbass country all the way around populated by eloi and being eaten by Morlocks. Time Machine meets Camp of Saints.

  • therooster:

    When people begin to shift their paradigm and view the fiat price model as something that can support debt-free trades, we will make progress by retiring a great deal of excess existing debt. Prices (measures) compared for any two debt-free widgets can be used to support debt-free trades where the widgets trade directly for each other with no debt involved in the exchange.

    Did an image of gold bullion happen to pop into your head when there was a mention of debt-free widgets ?

    Gold is a 21st century real-time widget …. debt-free and with fully scalable liquidity according to real-time measures.

    • VB:

      Since fiat currency isn’t debt-free, any kind of trade that involves settlement in fiat currency cannot be debt-free, even if gold is used as an attempt to preserve the constant loss of buying power of the fiat currency during the time the trade needs to settle.

      While gold is indeed debt-free and sufficiently liquid, at least when relatively small sums are involved, the existing laws make it impossible to use it as a currency. When large amounts of money are involved (think trillions of dollars), the entire gold market is so minuscule as to be unnoticeable, so the “liquidity” isn’t there, either.

      That’s not gold’s fault, of course. Had the world remained on a gold standard, the money supply and overall debts would have never increased to the insane levels that require handling of trillions of dollars.

      • therooster:

        Very nice, VB, but you didn’t account for a contrast that real-time gold provides, post Bretton Woods. When the settlement medium of gold’s debt free value can contrast greatly with the unit for pricing (fiat currency) of what it trades for, debt can easily be purged. This goes to the heart of USD/oz where we can look at it as being fixed or floating and appreciate the difference. I’ll expand but you should be emotionally prepared to “step across”.

        We are developing two kinds of liquidity …. “pools” you might say. There is a long standing debt based liquidity pool (we’ll call L1) (fiat currency) and there is a newly forming debt-free liquidity pool (L2). They are distinct and they can both support trade and economic activity.

        Whenever we put bullion into circulation (debt-free liquidity) in order to support a trade, we are actually adding to L2 and thus we are adding to the sum of L1 + L2. Based on the supplementation of liquidity, overall , we are able to remove existing debt (L1) in a responsible way, such that the economy can go unscathed. It’s a displacement.

        The actual debt reduction is based on regular ole debt servicing whether you’re paying a car loan or a mortgage or a credit card.

        Jumping back to the addition of L2, when overall liquidity is raised, this allows fiat based currency to become more available to find the hands that need it (debtors) within the marketplace, organically. Because of there being less scarcity, loans would be much easier to pay down because of the extra liquidity afforded to the economy by way of the bullion currency supplementation. It’s a matter of freeing up dollars that would then become available for loan repayment.

        We just need some yang with our yin. Just add assets and stir …. gently. :-)

        • VB:

          The only reasonable conclusion from the above meaningless drivel is that you don’t really understand what the word “liquidity” means.

          “Would”? Earth to major Tom: Bretton Woods dies nearly half a century ago. Gold is trading freely on the exchanges. How long more are we going to have to wait for that mythical “would”?

          “Loans would be easier to pay”? In gold? A deflationary currency? LOL, just LOL.

      • John Galt III:

        “The entire gold market is miniscule”

        No, actually it is not. Let me explain. If your read James Rickard’s (2) books “Death Of Money” and “Currency Wars”, he postulates that there are 170,000 tons of gold in the world. At $1,100 oz. there
        is $6.60 trillion of gold.

        All the Central Banks want 2% inflation or higher, or so they claim. So, he says the FED announces one day they are buyer’s of gold @ $7,100 oz and sellers @ $7,000.

        Now 60% of the world’s money supply is back by gold. The British backed the pound with 40% gold. Take your pick. I have seen $70 trillion as the world’s money supply. It could be more or less. Come up with a figure, have the CB’s buy and sell at a price to be calculated and a percentage to cover the money supply, let gold float and you are there. Problem solved.

        • VB:

          Ah, it doesn’t work like this.

          To begin with, the 170,000 tons of gold is contentious, at least. The estimates I’ve seen go as low as 2500 tons and as high as 155,000 tons, depending on who you ask and what their agenda is. And, remember, that’s the whole amount of gold in the world. Even if we accept your numbers (170,000 tons at $1,100 oz), that makes slightly more than $6 trillion (nowhere near 6.6). Again, that’s the whole gold in the world. Just China has more than a trillion in foreign currency reserves! Can you imagine what would happen if someone tried to buy one fifth of ANY commodity on this planet?!

          The record daily trading volume on the COMEX is less than half a million contracts. One contract is 100 ounces, yes? At $1100 oz, that’s about $50 billion. That’s small potatoes even for a medium-sized hedge fund. Where are all those guys going to park their money overnight? Certainly not in gold. Only the US Treasury market is deep enough to absorb such oceans of money.

          The only way gold could become an international currency again is for either the money supply to collapse by orders of magnitude or for the gold price to increase by orders of magnitude. Either would mean an economic disaster – which means that there is no prayer of it happening UNTIL an economic disaster.

          And my guess is that even AFTER an economic disaster the governments would rather go full retard and take totalitarian grip on the population (possibly combined with a world war or even multiple wars) that would make 1984 look like a description of a tropical resort, rather than switch to sound economics and money based on gold or anything else that would make actual sense.

          Only after that system lies in utter ruin, there will be a chance of building anything reasonable – assuming, of course, that there is anyone left to build anything whatsoever.

          • therooster:

            “The only way gold could become an international currency again is for either the money supply to collapse by orders of magnitude or for the gold price to increase by orders of magnitude. Either would mean an economic disaster – which means that there is no prayer of it happening UNTIL an economic disaster.”

            WRONG, IMO. WRONG, WRONG WRONG ….. read “the script”

            I knew you were thinking top-down all along. I would have staked my life on it.

            Gold is becoming an international debt-free currency, by application through market means every day. You have it stuck in your head that it must be by an act of fiat. That’s where you got the notion that a dramatic rise in the gold price would mean a disaster. If done by fiat, you’re right, I agree.

            It all depends on the rate of change. If the process is market driven and consciousness only seeps in slowly for the great majority of people , then the market will organically pace that rate of change so that the debt markets can absorb small shocks on route to a liquidity yin-yang. The process CANNOT be by fiat … that, I will agree with.

            Do you not think that the PTB know this ? They’re the ones who set the stage but cannot complete the task of an introduction by fiat or any legal decree. Wake up you pompous ass !

            • VB:

              Gold is not a currency, because it is not a medium of exchange, and it is isn’t becoming one.

              Nowhere did I say that the adjustment of the gold price (or of the money supply) “must” be an act of fiat. Just the opposite – I don’t believe that any government would be stupid enough to do such a thing. If either of them ever happens it will be the result of an economic disaster, as I pointed out.

          • John Galt III:

            There are so many factual errors and utter nonsense in your diatribe, I gave up after the first paragraph.

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