Sweden's Riksbank has taken a pro-inflationary step other central banks can only envy: negative interest rates. Don't ask me to explain the mechanism, but the bank is now offering an effective deposit rate of negative .25%. The move appears to have succeeded in weakening the Swedish crown against the Euro.
Inflationists in the U.S. have been debating similar ideas, and even some more surprising stuff, such as the harebrained dollar decimation scheme, in which every tenth buck will be treated the way General Philippe Pétain dealt with the French army mutineers. Because more than 80 percent of the American work force is still employed, and because Americans have a pretty broad sense that they're getting ripped off when their money is devalued (because they are in fact getting ripped off), such overt policies seem like tough sells.
But could the Fed work a negative-interest-rate scheme, whose effects wouldn't be obvious right away? Anti-Swedenism rears its ugly head, as Mish Shedlock wishes the Scandinavian kingdom bad luck — and hopes the bad luck comes soon, before we end up with another Swedish export that seems good at the time but ends up filling us with shame and regret:
The global economy is in a mess because of the lack of savings not because of an excess of it. People spent money they did not have, pushing asset prices to ridiculous levels. Banks, in belief that asset prices would keep rising exponentially, increased leverage. Now consumers everywhere are retrenching in the wake of the collapse, a much needed phenomenon.
In light of the above, punishing savers with negative deposit rates is the height of stupidity.
It would be fitting if there was an immediate run on deposits. And if that happens what will Sweden do? Halt deposits? Sweden risks (and deserves) a currency collapse and bank runs for this insane effort. Look for capital flight in Sweden.
We should all be rooting for the demise of Sweden lest Bernanke or some other Central Bank clowns try the same thing. The risk is that Sweden does not immediately suffer for this stupidity and that Bernanke tries to do the same thing.
One thing is certain. This is eventually going to blow sky high. Let's hope it does before Bernanke gets the same brilliant idea.