Kicked Cans Don't Roll | 111 comments (111 topical, editorial, 0 hidden)

Re: Kicked Cans Don't Roll (none / 0)

In one way I agree you're right, but I think the more important reason is the lessons of the early 90's crisis. As PM Göran Persson said, he never again would allow that the leader in Sweden would have to go to Wall Street, cap in hand, and beg for loans from smirking 20-somethings. A bit like how those who got burned during the 30's often never ever borrowed money again. With strict budget discpline, all would be well. And to tell the truth, it has all worked very well, helped by a 6% CA surplus and a floating exchange rate. The only problem is the real estate bubble. We'll see how bad that turns out. And even if it does turn out badly, due to our budget discipline and the state saving money in the good times, Sweden is one of the few states around that can spend freely in the bad times without getting into economic/political problems.

Still, your point is relevant, in that the Euro would never have worked unless there were strict budget discipline and large budget surpluses during the good times, as the interest rate weapon would work much less efficiently during the bad times, and fiscal stimulus becomes very problematic in a common currency area unless your government debt is initially very low. Maybe the cap should have been set not at 60% of GDP, but at 30%? Then we would have no EZ at the moment, as Germany would not have managed to reach 30% yet. Seems like a good outcome to me... No caps on deficits, hard caps on debt ratios which were to be waived in the event of local asymmetric shocks..

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Dec 15th, 2011 at 03:44:14 AM EST
[ Parent ]

Re: Kicked Cans Don't Roll (none / 1)

Yes, I think that was a formative moment for Persson and thus for the soc-dems and the whole economic politics of Sweden.

But from what I now understand he could have told "you and what central bank?" and got them to stop smirking. If there was a law in place to stop direct borrowing form Riksbanken they could always used Nordea that the government had taken over and borrowed as much as they wanted. Thus turning the speculators to... raw meatballs?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Dec 15th, 2011 at 10:04:54 AM EST
[ Parent ]

Re: Kicked Cans Don't Roll (none / 0)

We were not in a liquidity trap back then. Printing lots and lots of money instead of borrowing it abroad would have resulted in considerable inflation. This was not at all wanted as massive inflation during the 70's and 80's had resulted in price-wage spirals, falling competitiveness and stagnating real wages. And lo and behold, since the crisis passed we have had real wage increases of a magnitude not seen since the golden years of the 50's and 60's. I think it's important to remember that the 70's and 80's were very dark years for the Swedish economy, which culminated in the credit bubble and real estate crash of the early 90's. Since then we've been back on track.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Dec 15th, 2011 at 10:29:57 AM EST
[ Parent ]

Re: Kicked Cans Don't Roll (none / 1)

Why the need to borrow from abroad? Sweden had a positive Current Account Balance from 1994 and onwards (I am uncertain which year the famous trip was, but the soc-dems returned to power in 1994 so it is a starting point).

When it comes to the 70ies and 80ies I think the standard explanation overlooks factors like oil dependence, RoW catching up (Sweden did not have its industrial base destroyed in wwII) and demographics - Sweden avoiding wwII meant more people born in 10's and 20ies working in the 50ies and 60ies and retiring in the 70ies and 80ies. I also object to stagnation causing the property bubble of the late 80ies, I see that as caused by the deregulation of 1985:

Novemberrevolutionen (Sverige) - Wikipedia

Novemberrevolutionen är det informella namnet på Riksbankens beslut att avreglera den svenska kreditmarknaden den 21 november 1985.^[1] Beslutet innebar bland annat att bankerna fick låna ut obegränsat med pengar utan att Sveriges riksbank lade hinder i vägen.
Nationalekonomen Lars Jonung har skrivit om novemberrevolutionen: "Detta är den s.k novemberrevolutionen som markerar den mest genomgripande omläggningen av Riksbankens penningpolitiska strategi under hela efterkrigstiden.".^[2]

But we are getting into a very broad topic and of the imho interesting topic in relation to the ongoing euro crisis - did Persson need to borrow abroad and if so why?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Thu Dec 15th, 2011 at 02:45:21 PM EST
[ Parent ]

Re: Kicked Cans Don't Roll (4.00 / 2)

Note of Caution:

Have to be very careful when making conclusions based on Economic History. It's easy, with the best will in the world, to fall into "Correlation-as-Causation" fallacies.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Dec 15th, 2011 at 03:07:13 PM EST
[ Parent ]

Re: Kicked Cans Don't Roll (none / 0)

Well, that credit bubble was certainly caused by credit deregulation, but it was something of a crescendo of the mad 25 years after 1968. It's important to note that with the exception of the oil crises, all the Swedish economic problems of 1968-1993 were homegrown.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Dec 15th, 2011 at 04:07:30 PM EST
[ Parent ]

Kicked Cans Don't Roll | 111 comments (111 topical, 0 editorial, 0 hidden)

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