Sweden's Central Bank Is Already Fighting the Next Bubble

Riksbank Is Already Fighting the Next BubbleWhile most of the world's central banks are still fighting the last war, it's worth noting that the oldest one, Sweden's Riksbank, has moved on to fighting the next one, possibly setting a course for other fiscal policymakers to follow. Rather than looking at conventional inflation gauges and targets, the Riksbank is looking at asset-price growth in an effort to prevent the next bubble, Bloomberg reports.

As many writers and readers on DailyFinance have often noted, while consumer prices have remained low lately, other prices are increasing rapidly. Yet central banks in the U.S., the eurozone, Japan and the U.K. are keeping interest rates at record-low levels with aggressive loose monetary policies that critics say could lead to damaging new bubbles as standard inflation gauges fail to capture asset-price growth.

In Sweden, the situation is no different: Inflation there remains below the bank's 2% target. But housing prices have moved above pre-crisis levels, rising for a 19th consecutive month in November and gaining at an annual rate of 5%, Bloomberg reports. Meanwhile, credit is growing at a 9% rate. In response, The Riksbank has actually raised its repurchase agreement rate four times since July, to 1.25% in December, trying to slow credit and economic growth in an effort to prevent another boom in house prices.

In the U.S., where housing prices just recorded another drop in October, the Federal Reserve has kept its main benchmark rate in the zero to 0.25% range since December 2008, and it added to that fiscal stimulus with two rounds of quantitative easing to keep yields low.

Not all policymakers in Europe and the U.S. agree with the current low-rate policies, and some have been quite vocal about their concerns. Kansas City Fed President Thomas Hoenig, who has consistently voted against the Fed's loose monetary policy, said this month that a "continued high level of monetary accommodation" could "destabilize the economy."

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the swedish people dont have near as much to worry about. The U.S. has always been the big (brother) bully. We take care of everyone else but our own. We could have enough gold and silver to buy most countrys but we are to busy saving the people who have been fighting since the begining of time. I say that we would be much better off if we just pulled our people out of all the foreign nations and let them fend for themselves. If America dont wake up before to long we are going to be one of the poorest in the world. This would be crazy!!!

January 10 2011 at 11:32 PM Report abuse rate up rate down Reply

Speaking as a Swedish-American, this is exactly what Swedes are good at - foreseeing problems before the rest of us do.

December 30 2010 at 1:05 AM Report abuse rate up rate down Reply

I kind of like their females - Bruhahahaha !!

December 29 2010 at 6:48 PM Report abuse rate up rate down Reply

Ms. Alazraki: I think Sweden is a very "levelheaded" country. I also like their movies.

December 29 2010 at 11:59 AM Report abuse +3 rate up rate down Reply