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2017-03-20 — wolfstreet.com

the "Swedish Model" is under attack. The egalitarian underpinnings, unwinding with the negative rates, are driving a wedge into Swedish society, creating extremes on both sides of the economic spectrum. The rampant consumerism, encouraged by artificially low rates, continues to widen the wealth gap. Coincidentally, the middle class deteriorated the most between 2014 and 2015: the same time that deposit rates took a dive. Furthermore, the negative savings rates are driving the average person to "gamble" on speculative investments instead of saving and building a future over the long term.

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Recently, inflation has been heating up. Near zero from 2013 to 2015, it edged up to almost 1% in 2016, and printed 1.8% in February. Much of it is supply driven: rising import prices attributed to a falling SEK. The real interest rates fell to negative -2.3% (Repo Rate minus Inflation) last month. At some point, Riksbank will either have to raise rates or the government will have to intervene to avert a currency crisis.

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It is clear that the negative rate experiment is neither sustainable nor helpful to economic growth. It only inflates bubbles while widening the wealth gap in Swedish society. A once prudent and financially conservative people are now getting drunk on debt, wrecking their future. The very premise of Swedish society is under attack. Nevertheless, it does not appear that this policy will abate anytime soon.

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