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Monday, July 13th, 2020 MST

The Riksbank’s dilemma

To Keynesians, easy solutions reside for monetary and economic problems. When the economy is in recession, deficit spend. When inflation heats up (meaning rising prices, which the developed world hasn’t seen for some time), choke back the money supply. Problems solved. Recessions are averted; inflation is held in check.

So, if “managing” the economy is so simple, why do recessions still haunt economies? Basically, because no twelve persons, regardless of how many PhDs and honorary titles they hold, are smart enough to pick just the right interest rate or to know how much money to print.

Not to go into all the flaws of Keynesianism, let’s look at the dilemma that the world’s oldest central bank faces in its attempts to drive its currency lower to stimulate exports.

Riksbank, Sweden’s central bank, has decided that the krona, Sweden’s currency, is too strong; therefore, it has begun a quantitative easing program: Printing kronas (actually, creating digital kronas) to make the currency cheaper relative to the euro, against which it is most often measured.

To get the additional kronas in circulation, Riksbank is buying Swedish government bonds. The scheme calls for Riksbank to buy almost a third of all Swedish government bonds. However, it faces problems.

As noted, the krona is weighed against the euro, and the European Central Bank is implementing a QE program of its own that is twice the size as a proportion of the eurozone economy. Further, the ECB is expected to increase in size, further dwarfing the Riksbank’s efforts.

Consequently, the krona continues to rise against the euro, which is bad for Swedish exporters, but is good for the Swedish people because it increases their purchasing power. Central banks, regardless of their proclamations, do not work for the best interest the people. Central banks work for special interests.

Gold and silver are hedges against central bank printing, which inevitably results in inflation when carried on too long. With Keynesianism being the world’s accepted economic theory, Sweden has joined the US, the Eurozone, Japan and China in turning to loose monetary policies.

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