Sweden Cuts Deposit Rate To Negative .25%

[6538]

It was Astrid Lindgren back in 1976. Her marginal tax rate had risen to 102%.

That's the chick.

[BROF]

http://www.thelocal.se/20748/20090717/

Baltic losses force cuts at Swedbank

Swedbank announced it will slash 3,600 jobs after a bigger-than-expected second quarter loss of 1.8 billion kronor ($228 million), as it felt the impact of massive provisions related to its Baltic business.

The bank said that it would cut around 3,600 staff by the end of 2010, to adjust to tougher economic conditions.

Five hundred jobs will go in Sweden, although these will mainly come through natural retirements, Swedbank’s Group Press Manager Anna Sundblad told The Local.

“It’s too early to say whether there will be any targeted retrenchments,†she said.

It is the second quarterly loss in a row for the bank, signaling a sharp turnaround in the Swedbank’s Baltic business, with the region having been decimated by the financial crisis.

The loss compares with a profit in the same period last year of 4.6 billion kronor.

According to Reuters, analysts had expected a smaller operating loss of around 1.25 billion kronor, although Sundblad told The Local that the figure was in line with the bank’s expectations.

Loan losses, which include provisions for possible future non-payment of borrowers’ debts, were 6.67 billion kronor, compared to expected losses of around 6 billion kronor.

These huge provisions once again reflect the dire economic situation in the Baltics, which has seen double-digit contractions in the economies of Latvia, Lithuania and Estonia, where the bank has major operations.

How did the markets react?

Swedbank +11,57%

Oh, that's allright then

[Executive Sadman]

It was Astrid Lindgren back in 1976. Her marginal tax rate had risen to 102%.

didnt we once have a effective marginal tax rate of 107%?

Top rate was 83% plus a 'surtax' or 'supertax' or similar...

[copydude]

Maybe preparation for a Latvian devalution?

'Is Latvia the new Argentina?':

http://www.voxeu.org/index.php?q=node/3683

That is a weally, weally, wonkish article you linked to, but I think I understood some of it.

It was also referenced by 'A Fistful of Euros', which has also been trying to make sense of the situation between the IMF, the EU and the luckless Swedish Banks.

Evidently the IMF and the EU can't really agree about Latvia. In fact the IMF is now fussing with the conditions.

A propos Argentina, many are convinced that Latvia will go under later rather than sooner in the same way, after a few more loans have been blown.

Next up: Lithuania and Estonia. More bad news for Scandinavian banks.

[ZeroSumGame]

It seems a nothingburger to me because the Riksbank hasn't implemented QE yet. The reserves in the Swedish banking system should be balanced, and looking at the latest Riksbank balance sheet, on 23 June they only had SEK 43 million outstanding on their overnight deposit facility. In other words, no bank is going to be paying this negative rate in reality.

If Sweden were to go down the QE route, the deposit and lending rates would likely be sidelined and the Riksbank would pay a zero or positive interest rate on all reserves, just as the Fed and the BoE are doing now. No-one really knows what would happen if a banking system with hugely excessive reserves had a negative interest rate imposed on those reserves, but it's easy to imagine scenarios where you reach extremely high inflation very quickly as banks play pass-the-parcel with reserves. Monetary velocity could quickly get out of control.

IIRC - the one government that actually managed to sort out a previous banking disaster of the early 1990s was the Swedish one.

So I have a lot more confidence in Sweden's central bank than I have in either the FED or BOE. I'll try and dig out a linky.

http://www.nytimes.com/2008/09/23/business...ss/23krona.html

Edited July 17, 2009 by RockingHorse

[Mammon]

There was update to this in the FT yesterday..

For a world first, the announcement came with remarkably little fanfare.

Sweden is entering subzero interest rates, the first country to do so.

Sweden is entering subzero interest rates, the first country to do so.

But last month, the Swedish Riksbank entered uncharted territory when it became the world's first central bank to introduce negative interest rates on bank deposits.

Even at the deepest point of Japan's financial crisis, the country's central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending.

But, as they contemplate their exit strategies after the extraordinary measures of the past two years, central bankers will be monitoring the Swedish experiment closely.

Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.

Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006.

Japanese banks refused to lend, in spite of central bank stimulus, because of fears over the dire state of the economy.

If this continues to happen in other economies, central bankers may be left with little choice but to follow the Swedish example. John Wraith, head of sterling rates product development at RBC Capital Markets, says: "The success of the UK's quantitative easing experiment hinges a lot on whether the banks will use the extra money they are getting for lending to individuals and businesses.

"If there is no sign of this over the next few months, then the Bank of England might consider a negative interest rate. In essence, it is a fine on banks that refuse to lend."

In the UK, for example, nearly £140bn has been injected into the economy through central bank purchases of government bonds and corporate assets, mainly from the commercial banks.

However, since the QE project was launched on March 5, a lot of this money, which in theory should be used by the commercial banks for lending to businesses and individuals, has ended up at the Bank of England in reserves.

Commercial bank deposits have risen from £31bn in early March to £152bn at the end of July -- the latest figure.

This in itself is not a problem as the banks could be using this big increase in their reserves to step up their lending to the private sector. The more the banks have in reserves, the more they are allowed to lend.

However, there is no sign yet that they are using their much bigger reserves to lend on. The latest money supply figures for lending are still fairly anemic.

It is why Mr King did not rule the possibility of negative interest rates when asked about the Riksbank model this month following the unveiling of the quarterly inflation report. "It's an idea we will certainly be looking at, whether the effectiveness of our asset purchases could be increased by reducing the rate at which we remunerate reserves," he said. His comments are one reason why yields on short-dated UK government bonds have fallen to record lows and why sterling has been under pressure in the currency markets.

Initially, Mr King gave QE six months before it would start taking effect. That time limit is up next week. If there are no signs in the money supply numbers, particularly in the key M4 lending excluding financial institutions, then the policy may start to look a distinct possibility.

In Europe, the European Central Bank is considered less likely to introduce negative interest rates.

This is because it has maintained higher official rates than other banks and used money market operations to act as a stimulant instead. For example, it offered commercial banks unlimited funds for one year at the end of June.

But it does have the same problem as the Bank of England in assessing the success of its policy. Like the UK, commercial bank deposits at the ECB have shot up in the past few months.

At this stage, the US also seems unlikely to introduce the policy as there has been little debate on the matter and no hints from policymakers about it being an option.

At the Riksbank, which now has a deposit rate of minus 0.25 per cent, the most vocal advocate of the policy is deputy governor Lars Svensson, a world-renowned expert on monetary policy theory and a close associate of Ben Bernanke, chairman of the US Federal Reserve, since they worked together at Princeton University.

According to the minutes of the Riksbank's July meeting, Mr Svensson dismissed the "zero interest rate mystique" that had "exaggerated the problems" associated with zero or sub-zero rates.

"There is nothing strange about negative interest rates," he said.

Henrik Mitelman, chief fixed income strategist at SEB, the Swedish bank, said that the negative deposit rate, combined with a cut in the repo rate to an historic low of 0.25 per cent, sent a powerful signal to the market that the Riksbank intended to keep rates close to zero until economic recovery was well under way. "What the Riksbank did was very brave. They decided to see if markets could cope with it and the markets have."

Carl Milton, fixed income analyst at Danske Bank in Stockholm, cautions that the Riksbank decision was not as pioneering as some have portrayed. The Bank routinely keeps its deposit rate 50 basis points lower than the repo rate to regulate liquidity in the market, he says. When the repo rate was cut to 0.25 per cent, the deposit rate was automatically forced into negative territory. "It was not something put in place to punish banks or to force them to lend," he says.

Moreover, Swedish banks make relatively little use of the central bank deposit facility, limiting the impact of negative rates.

But by breaking the taboo surrounding sub-zero rates, the Riksbank may have set an important precedent that others could use to greater effect. Don Smith, economist at Icap, says: "Sweden's policy is certainly very interesting. We will have to wait and see what happens there. This is certainly a very unusual policy, but these are very unusual times."

[Dubai]

Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.

Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006.

Oh my.... we really are into newspeak now..... saving is bad, nay, you're a HOARDING EVIL BEAST!!!

So what do they think will happen? Anyone worth a bob or two will be straight down the bank, withdraw their life savings and nip into the Ford showroom??

Are they completely nuts? Buy shares in manufacturer's of safes.... with your hoardings.

Edited August 29, 2009 by Dubai

[IMHAL]

Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.

Hoarding is exactly what happened in Japan earlier this decade when the Bank of Japan implemented quantitative easing between 2001 and 2006.

Oh my.... we really are into newspeak now..... saving is bad, nay, you're a HOARDING EVIL BEAST!!!

So what do they think will happen? Anyone worth a bob or two will be straight down the bank, withdraw their life savings and nip into the Ford showroom??

Are they completely nuts? Buy shares in manufacturer's of safes.... with your hoardings.

The idea is to put a gun to the heads of what currently appears to be right thinking banks so that they lend. This then puts a gun to every savers head to spend their money now or face competing with everyone that can fog a mirror and get a loan for free.

Its another warning shot to savers - you spend or we take away your buying power.

[Jack's Creation]

The idea is to put a gun to the heads of what currently appears to be right thinking banks so that they lend. This then puts a gun to every savers head to spend their money now or face competing with everyone that can fog a mirror and get a loan for free.

Its another warning shot to savers - you spend or we take away your buying power.

Rather than lend the money out, the commercial banks will sell off their sterling and deposit it somewhere else to achieve a positive rate. It will only work if :-

A. All central banks do the same at the same time.

B. The Government introduces currency controls for the big banks ( they've already introduced them for the little people)

You cannot force people to take on debt, if people believe that in an uncertain trading environment they are more likely to lose the money itself or the ability to repay that money. Which is the current situation.

All these options introduce Large moral hazard into the market which, like water in a badly plumbed house will emerge somewhere else with unintended consequences.

Value is perceived not dictated.

[IMHAL]

Rather than lend the money out, the commercial banks will sell off their sterling and deposit it somewhere else to achieve a positive rate. It will only work if :-

A. All central banks do the same at the same time.

B. The Government introduces currency controls for the big banks ( they've already introduced them for the little people)

You cannot force people to take on debt, if people believe that in an uncertain trading environment they are more likely to lose the money itself or the ability to repay that money. Which is the current situation.

All these options introduce Large moral hazard into the market which, like water in a badly plumbed house will emerge somewhere else with unintended consequences.

Value is perceived not dictated.

So either a currency collapse - driven by our own banks - which ignites inflation.

Or an intentional or otherwise 'leak' which ignites inflation.

And yet the problem remains - the debt will still be there - they just hope to disguise this with rising asset prices.

[Jack's Creation]

So either a currency collapse - driven by our own banks - which ignites inflation.

Or an intentional or otherwise 'leak' which ignites inflation.

And yet the problem remains - the debt will still be there - they just hope to disguise this with rising asset prices.

Yes, it would be easier to pay off the debt if they print their way out, however raising money in the bond market would then become very difficult. They would have to raise rates to stop hyper-inflation (like Volker did) this would send taxes sky high from an already high base- equals = more capital flight.

The negative effect this would have on the economy could be mitigated by slashing welfare and government spending at the same time. This, however, would probably create civil unrest.

That piece of filth Brown just sentenced your kids to a third world standard of living.

Edited August 29, 2009 by Jack's Creation

[Guest Parry aka GOD]

If they try this shit in the UK, that's ******ing it!

Fvckin' crack heads and their dollar bills!

[interestrateripoff]

Sweden’s monetary drama could turn noir

Government sticking to policy negative interest rates and QE - despite economic growth of 3pc

[zugzwang]

Sweden’s monetary drama could turn noir

Government sticking to policy negative interest rates and QE - despite economic growth of 3pc

Wow, another thread that's been under the mattress for a while!

[LondonIsFallingDown]

It seems that the Swedes have developed even more of a taste for borrowing since interest-rates were cut so much. Good job everything is under control there......

Yesterday we had new data on this front so how is that going?

The growth rate of housing loans increased by 0.3 percentage points and had an annual growth rate of 7.7 percent in July.

Thus we see that housing loans are booming which according to the Deputy Governor poses a problem if we consider this.

Their debts have increased more than their disposable incomes since the middle of the 1990s and the debt ratio is now at just over 170 per cent, which is a record-high level

Unless disposable incomes are increasing at an annual rate of 7%+ then we can say that was a record high but is no longer!

https://notayesmanseconomics.wordpress.com/2015/08/28/the-swedish-economic-experiment-of-negative-interest-rates-in-a-boom-goes-on/

[bankstersparadise]

Carney will be taking a good hard look at this Swedish expermient to see whether their lunch is entirely free or not.....

[zugzwang]

The myth of a perpetually self-restoring economy requiring only the occasional nudge to bring back to equilibrium. Of all the lunatic ideas bequeathed to the world by the economics profession this must be the worst.

[LondonIsFallingDown]

Carney will be taking a good hard look at this Swedish expermient to see whether their lunch is entirely free or not.....

Perhaps we will get a hint tomorrow afternoon when Governor Carney speaks at a Jackson Hole discussion.

[Democorruptcy]

Stefan Ingves a contender to replace Mark Carney when his work is done? Osbanker must be drooling over Sweden's household debt figures.

http://www.riksbank.se/en/The-Riksbank/Organisation/The-Executive-Board/Members-of-the-Executive-Board/Members/Stefan-Ingves/

[Snafu]

Swedes are nuts for HPI. At least in Stockholm.

[interestrateripoff]

In Risky Move, Riksbank Holds Rates But Warns Will Cut If ECB Boosts QE

9

Riksbank won’t be passive if ECB makes big changes in its policy, Riksbank Governor Stefan Ingves says at press conference.

[interestrateripoff]

Meanwhile, In Sweden, Banks Are Refusing To Open Savings Accounts

"I think it's pretty bad style"...

[200p]

Ah, this comes back to the Rich Dad Poor Dad, of what it means to have an asset and what it means to have a liability.

An asset puts money in your pocket each month, whilst a liability takes money away. A savings account is a liability to the bank, especially in a low yield world, and you are a creditor. A loan is a an asset to the bank - you pay interest in addition to the capital repayment.

The banks don't want anymore saving's accounts - they are liabilities! No more parasites who want an income from their savings!!! LOL

https://www.youtube.com/watch?v=jTc3n58EWaU

In an unusual recent pairing - Anti NWO Alex Jones talks to Robert Kiyosaki. He's aged a bit - too much sun bathing?

Edited September 4, 2015 by 200p

[interestrateripoff]

Top Bank Lobbyist Says Sweden Needs Urgent Housing Market Fix

Sweden urgently needs to give its financial regulator powers to force more homeowners to pay down their mortgages amid soaring housing prices and ballooning debt.

One Chart That Will Keep Sweden's Central Bank Up at Night