It is almost completely absent from mainstream discourse, but there is a developing theme that is wholly “unexpected” to the political class. Sweden is not known for representing the highest forms of instability, maybe an avatar that it hasn’t fully earned apart from media sensationalism, yet that is exactly where we find the Nordic nation at the moment. As of this morning, the government has resigned after an election less than three months ago.
At issue is economics; more specifically, true economics in the etymological sense of the word (from the Greek, meaning household management; oikos [house] nemein [management] = oikonomia [household management]) rather than what is practiced in the far more remote central planning type.
Sweden’s center-left government will seek broad political talks over how to address soaring household debts in the Nordic country and on ensuring financial stability, FinancialMarkets Minister Per Bolund said on Friday.
Swedish authorities have taken steps to rein in household debt levels which are among the highest in Europe as a percentage of disposable income, but the central bank has urged further action to stem the tide.
That is a downright curious formulation, where the Swedish central bank, Riksbank, is urging less debt? At the very same moment the very short-lived government has collapsed the nation’s central bank is itself engaged in a very much relevant and predicate argument about whether or not ZIRP is enough or whether Riksbank should follow the ECB below that zero bound into negativity (either nominal or real).
What should a central bank do next when it already has zero interest rates and arguably still faces the threat of Japanese-style deflation? If it’s the Swedish Riksbank, it should keep cutting, and do so soon, says Lars Svensson.
Svensson no longer has a say; he quit as a deputy Riksbank governor last year after failing to persuade fellow board members to cut rates aggressively. Last month, they heeded his advice, lowering the repo rate to 0 percent and pushing back the official forecast for when the Riksbank will start tightening monetary policy again to mid-2016.
Yet, for all the commentary here about politics, monetary politics (is what it really is, as central banking of this variety do not really act out oikonomia, openly admitting that households should act against their own best interest by punishing saving and encouraging unfettered debt accumulation or Krugman’s “free money”) is divorced from the message. It’s as if these are two separate worlds, where debt is out of control but the central bank needs to keep “stimulating” more debt. The pervasion of circular logic like this is a bright signal of the end of the road.
Unlike previous bouts of economic dissatisfaction, there were no obvious electoral rebukes – the gentleness of the compliant “people” remained undisturbed by all those priestly credentials and glowing media enamoration with them. Now it is almost global in its reach, as dissatisfaction, almost exclusively “economic”, has reached country after country. The US electorate was unphased by the proclamations of “inarguable” recovery seven years after initial eruptions, instead moved to angrily affecting such displeasure in no uncertain terms. Japan is about to follow on that course, and the UK’s election next year is a total turnaround from what it might have been had it taken place this year instead.
Apart from the final acknowledgement that stories of global “economy” have been more relevant to fiction than actual news and journalistic observation, this curious divergence remains. Sweden is in political turmoil about debt and but especially lack of income growth, its central bank openly talks about needing to create even more debt, yet what passes for journalistic observation has erected a Chinese wall between them despite the obviousness of the correlative causation.
What happens is that these “economic” problems are classified as “exogenous”, a matter of deficient in the economy itself rather than of policy or its execution (secular stagnation means, quite literally, central bankers saying “it’s not our fault”). The elite prescription did not fail, the economy did of its own despite all such “aid.” When I last referred to the poor Swedes, they were doing their part to maintain the status quo Krugman Keynes:
That seems to be the developing theme across the developed world (and a huge problem for the “emerging” world). Central banks have sprung the trap upon themselves where they have no choices left; they cannot admit failure and try something with an actual prayer of success because the simple act of doing so would lead to systemic disorder and disruption. When you try to rebuild the entire economic foundation on monetary competence, and nothing else, the slightest rebuke blows it all up. The only “choice” left is more bubble, with fingers crossed.
The onslaught of electoral rebuke is exactly that, a defiance of such proclaimed “monetary competence.” So “Sweden” supposedly, as the media would tell it, argues against itself saying it has had enough debt, but also in desperate need of more. Of course, that is not what is taking place at all, only that mainstream commentary cannot let go of its position in the orthodox hierarchy. The media, as economists, would rather contradict themselves and argue in circles then to acknowledge that Sweden, as in the US and Japan and elsewhere, are coming to grips with so much “monetary competence.” It has been a slow process, but this is as much a warning as oil prices, US treasury curve shape or sinking euros and nominal yields across Europe.