Tuesday, March 27, 2007

Swedish Money Supply Growth Accelerates

Swedish money supply growth rose to 17.3% in February, far higher than in other Western countries. This again illustrates the strong cyclical content in Swedish economic growth.

Update: I see Euro-zone M3 growth accelerated to 10,0%, a record high. While being lower than in Sweden it is certainly far too high, strengthening the case for more agressive tightening of monetary policy.


Anonymous Anonymous said...

What does that mean practically with 17% money growth. Are we doomed, or what will it mean for us ordinary people?

Is the money growth a depth explosion, or how can it grow so much?
Thankful for a blog on theese matters for us non economists.

Kenneth H

3:12 PM  
Blogger stefankarlsson said...

Well, I wouldn't say that "we're doomed" as that sounds like we're gonna be killed, but the current Swedish boom is indeed doomed. Sweden is so far in a relatively early stage of the boom. The current double digit level of money supply and credit growth started after the Riksbank rate cut to 1.5% in the summer of 2005. Given that booms of this sort often last 4-5 years and given that the impact on consumer prices so far have been relatively limited, I don't expect the boom to turn into a bust this year. Probably not next year, either.

However, the high level of monetary growth does mean that an increasing debt overhang is being created, which implies that the bust when it comes will be relatively severe. Already household debt relative to disposable income is larger than it was at its previous peak in the late 1980s and the relative debt burden will continue to grow during the rest of the boom.

4:43 PM  
Anonymous Anonymous said...

Does that mean buying Long term Swedish Government Bonds in 2009 at high interest rates is a verry good deal?
How likely is it that the Swedish krona weakens in the downturn?
In that case, against wich currency should one hedge?

Göran Högberg, Sweden

6:07 PM  
Blogger stefankarlsson said...

"Does that mean buying Long term Swedish Government Bonds in 2009 at high interest rates is a verry good deal?"

Well, that depends on just how much long term interest rates rise and how attractive alternative investments will be.

"How likely is it that the Swedish krona weakens in the downturn?"

Very likely. Near certain, in fact.

"In that case, against wich currency should one hedge?"

Well, I think that is too early to say. The downturn is unlikely to come before 2009 and we don't have enough information yet to determine what currency will at that point have the most promising prospects.

6:47 PM  
Anonymous Anonymous said...

Thank you (about SEK-bonds in 2009)

A good investment? When comparing one have to compare with investments with the same low risk.

Interest rates will be higher than in Euro-bonds and the bust more severe. Consequently SEK-bonds will be a good investment. The risk is the SEK...

9:43 AM  
Anonymous Anonymous said...

Maybe "The Gold Dinar" will be the currency to hedge the SEK against in 2009?

3:17 PM  

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