Sweden’s central bank punishes savers for doing the prudent thing.
Mike Shedlock points to more central banking idiocy displayed this time by the Swedish Central Bank, Riksbank. By cutting the deposit rate by a NEGATIVE .25% the bank is essentially charging people for depositing money into their bank. During a time when our economic woes, which Mike rightly points out, were due to our lack fo savings and the loose monetary policy of central banks we should rather encourage savings.
However, it’s that old Keynesian “paradox of thrift” fallacy all over again. It never occurs to our central planners that the reason people are holding back and saving is because this is correcting the overconsumption, mis-allocations of capital, malinvestment of the past. Instead the same old snake oil continues to be what is on the menu.
Will there be a run on deposits? If so, what then will Sweden do? It certainly will be interesting to see if there will be any runs on these banks or if there are any other immediate and long-term consequences which arise from this ill thought policy. Will Bernanke and other central bankers around the world follow? I certainly hope not, but I wouldn’t bet against it.
Dustin Anderson is currently working towards his BBA in Economics, Banking & Finance at Northwood University in Midland Michigan and is the owner and main contributor of Rational Conduct. To contact Dustin send him an email.
