–The lessons Sweden taught us — misinterpreted.

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Sweden survived the recession better than most countries, and now the economists try to explain why (also known as predicting the past). Here are excerpts from an article in the Curious Capitalist blog.

STOCKHOLM — Almost every developed nation in the world was walloped by the financial crisis, their economies paralyzed, their prospects for the future muddied. And then there’s Sweden, the rock star of the recovery.
[. . . ]
The overarching lesson the Swedes offer is this: . . .

1. Keep your fiscal house in order when times are good, so you will have more room to maneuver when things are bad. In 2007, before the recession, the U.S. government had a budget deficit equivalent to 3 percent of its economy, as did Britain. Sweden, meanwhile, had a 3.6 percent surplus.

So when the recession hit, that surplus gave its government a cushion in the downturn and it didn’t run up the huge debts that in other advanced nations have now created the risk of a future crisis.

Sweden is Monetarily Sovereign. Surpluses do not provide a cushion to a nation with the unlimited ability to create money. Surpluses only destroy money. But there is an important point here. I often have pointed out that surpluses lead to depressions (See: Introduction) So how did Sweden not only survive its surpluses, but thrive. The answer: A positive current account balance.

If you go to list of countries and territories by current account balance, based on the International Monetary Fund data for 2007 you will see that little Sweden had a $21 billion positive balance, while the U.S. had a $561 negative balance.

When money flows into a nation, that nation can destroy money (aka “run a surplus”) and still grow. When money flows out of a nation, that nation must create money (aka “run a deficit”) in order to grow.

2. Fiscal stimulus can be more effective when it is automatic. Sweden didn’t do much in terms of special, one-off efforts to spend money to combat the downturn. There was some extra infrastructure spending and a well-timed cut to income tax rates, but the most basic response to the government was to do what the nation’s social welfare system — lavish by American standards — always does: Provide income, health care and other services to people who are unemployed.

Yes, these are the very things the Tea (formerly Republican) Party objects to. These oh-so-patritic folks do not believe needy people should be rewarded for “indolence,” nor should the sick receive special help, just for being sick. The Tea/Republican Party’s cold-hearted ignorance has worsened and lengthened everyone’s pain from the recession.

In the United States, the battle over whether to use government spending to cushion the blow of the downturn became a divisive one. Whether to try to stabilize the economy became one more battle in the longer term war over the proper role of government.

And because the $800 billion fiscal stimulus that Congress and the Obama administration enacted in early 2009 consisted mostly of special, one-time programs, it took months for many of them to begin pumping money into the economy, thus kicking in months or even years after the economy had collapsed, and the spending expired without regard to whether the need remained.

Exactly correct. The smartest stimulus we did was the first one – those $500 checks sent directly to taxpayers. Perfect. Give people money, and they will spend or save it. Either way, the economy is stimulated. At the time I said it was too little, too late, and that proved correct. Had the government sent $5,000 rather than $500, the recession would have ended. The unfounded fear of debt (federal money creation) trumped concern about the real recession.

3. Use monetary policy aggressively. The Federal Reserve has won both plaudits and criticism for responding aggressively to the financial crisis, pumping money into the financial system in epic fashion. But by one key measure, the Swedish central bank was even more aggressive.

Like the Fed, the Riksbank lowered its target short-term interest rate nearly to zero. But it also expanded the size of its balance sheet more than the Fed did relative to the size of its economy, flooding the financial system with even more cash during the height of the crisis.

In summer 2009, the Riksbank had assets on its balance sheet equivalent to more than 25 percent of the nation’s gross domestic product. For the Fed, that level never got much over 15 percent.

Fortunately for the Swedish, they do not suffer from the Tea/Republican Party’s erroneous views.

The Scandinavian nation of Sweden has accomplished what the United States, Britain and Japan can only dream of: Growing rapidly, creating jobs and gaining a competitive edge. The banks are lending, the housing market booming. The budget is balanced.

Should have read, “Despite the balanced budget.”

4. Keep the value of your currency flexible. Sweden has declined to adopt the euro currency, and in hindsight that looks wise. The changing value of the Swedish krona was a helpful buffer against the economic downdraft of the past few years.

In the depths of the financial crisis, the krona fell in value against both the dollar and the euro, as global investors sought the safety of putting their money in the most widely circulated currencies. That helped make Swedish exporters more competitive at a time when global demand was collapsing, working as a sort of pressure valve.

And now that the Swedish economy is looking up, the free-floating nature of the Swedish krona could hold a different advantage: Neighbor Finland, which also is experiencing solid economic growth, uses the euro. With other parts of Europe in deeper economic distress, it could face inflation, because the European Central Bank sets policy based on the whole of the 17 nation currency zone. By contrast, Sweden’s monetary policy is based only on Swedish economic conditions.

While most of Europe committed financial suicide by adopting the euro, Sweden kept the single most valuable asset any nation can have: Monetary Sovereignty.

There is a lesson here for the United States as well: Maybe being the global reserve currency isn’t all it’s cracked up to be. During the crisis, the value of the dollar skyrocketed as world investors sought a safe place to put their cash.

That put American exporters at a distinct disadvantage in the global marketplace at the very moment the economy was at its weakest.

I long have told doubting debt-hawks that being the world’s reserve currency was not an advantage, but actually was meaningless. As the author states, under some circumstances, it even can be a disadvantage.

5. Bankers will always make blunders; just make sure they don’t doom the economy. Swedish banks didn’t make it through the 2008 crisis without major losses. To the contrary, they had lent heavily in the Baltic nations of Lithuania, Latvia and Estonia, which suffered an economic collapse.

Swedish financial officials don’t point to any single magic bullet in their regulatory approach. Rather, the Swedish banking system seems to have held up okay because the pain of the early 1990s was severe enough as to scar both bank executives and regulators, leaving them with little temptation to go into risky real estate lending in the mid-2000s, even when the rest of the world was doing just that.

In other words, although bank bailouts might be necessary to save an economy, it’s also important that bankers not be so cushioned from the consequences of their unwise decisions as to go straight back to the old ways as soon as it’s over. They need to at least have their mouths burned.

Actually, it’s the old-time economists who should have their mouths burned, for it was their ignorance that has led to the every-five-year recessions and the slow recovery. The facts sit right before their eyes, but these respected folks refuse to learn – and the world suffers.

The author of the article attributes Sweden’s success to “keeping the fiscal house in order,” i.e. to running a surplus. Nothing could be further from the truth. Sweden survives the same way Germany survives (though the former is Monetarily Sovereign and the later is monetarily non-sovereign). It survives by having money come in from outside its borders.

In short, a growing economy requires a growing supply of money. The key is not whether that money comes from government deficit spending or from a positive current account. The key is money growth, whatever the source — and not listening to the debt hawks. They are leech doctors, who apply leeches to bleed an anemic patient.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.

Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”


7 thoughts on “–The lessons Sweden taught us — misinterpreted.

  1. Hi Rodger – Everything your saying makes sense but I would sell your ideas in much simpler terms for the laymen. A currency issuer’s debt (aka. governement debt) is not remotely analogous to currency user’s debt. Just as every asset has a corresponding liability in accounting, the currency issuer’s debt is dollar for dollar equal to the currency user’s savings. The issuer’s debt is not a financial constraint or burden of any sort, it’s simply the result of the users’ decision to save rather than spend. All savings by users in banknotes, deposits, or treasuries create a corresponding liability with the issuer as a matter of double-entry accounting. The issuer’s debt, or liability, exists as a convenience to those users who choose to save risk-free instead of invest or spend in the private sector. Why? The issuer operates financially independent of it’s users as the monopoly producer, lender, and price setter of money. On the surface this may sound somewhat intuitive but what exactly is going on? Well….check out my site to learn more – DollarMonopoly.com

    it’s a work in progress so bear with me


  2. Of course the current account surplus forces the central banks hand. Unless the domestic private sector is running up dangerous levels of private debt, they are forced to create more and more Krona and swap it for foreign money otherwise the Swedish export chain would collapse due to a lack of Krona to pay its staff,etc.

    Germany is more interesting. They can’t create the local money, so instead they have taken a great deal of local money from Portugal, Greece, Ireland and Spain – pushing the non-sovereignty pain onto those nations.

    So it’s ok to create central bank money to fund an export market, but not ok to create central bank money to fund a domestic market. Madness.


  3. This is the same situation as Canada was in in the late 90s. We often hear that Canada at that time period was an excellent example of how a government can grow the economy by running surpluses. But what gets forgotten (or ignored) is that Canada is an exporting nation that maintained a positive current account balance during that time period. In spite of its surpluses it still had a net growth of money.


  4. Australia is a perfect example of the private sector running up dangerous debt levels in order to allow the Federal Government to run surpluses, despite the country typically running a trade deficit. They ran a surplus for about 11 years in a row from 96 through 2007, funded by a spectacular increase in private debt levels which from memeory now exceed even the USAs on a per capita basis, and has given the country the mother of all housing bubbles.


  5. The austerity policies bites different if you start from an high level like Sweden and Germany or you are on Greece or even worse Baltic level. The Greece problem in competition is all about its place in industrial value chain not about overvalued currency or exorbitant living standard. If one look at export in goods and services in constant money value Greece increased its export from 2002 to peak year 2008 by 40%, during the same period it was among Euro Mediterranean countries that managed almost best in the tourist sector (non residents staying in collective accommodations), Italy did better. Greece tourist sector managed the financial crisis best of them. After the export peak year everybody did take a great hit, not a specific Greek or Piigs issue.

    I happened to look at Sweden, Germany, Greece and Argentina’s export of goods and services in constant money value, what one can see is that it takes off in a steep upward curve from the shift 80/90s, there is some minor dents here and there but over all steep upwards. A similar pattern for all of them. Despite Carlos Memens dollar fix the curve was steep upwards with a minor dent 1999. One can then wonder how this could happen when all experts say that Greece and Argentina was so uncompetitive on the global market. There is of course a huge difference in nominal values of Sweden, Germany and Greece and Argentina’s export. My speculation is that something happened in the shift 80/90s that made it easier for a lot of countries to import, then there is of course other factors in the currency account balance that have cased troubled currency account in e.g. Greece and Argentina.

    To create the net export wonder economies in Sweden and Germany they implemented harsh (permanent) austerity policies that hampered the domestic market and created huge amount of permanent unemployment and underemployment (open and a large part hidden) and miss functioning public services. In Sweden building up a mounting need for repair and investment in all kinds of public infrastructure. There is a large part of the Swedish population that has paid a very high price for the economic net export “success”.

    The crisis Swed “success” was saved by the muscles from EU and IMF that in some way convinced Baltic/Latvia to keep the Euro peg and in practice socialize the losses from Swedish banks frivoled business there. Probably afraid of containment to core EU.

    The foreign surplus do balance the fiscal surplus but it doesn’t shower even remotely flat over society. And it doesn’t promote employment and work rather the opposite:
    Sweden unemployment and export surplus:

    In an advanced industrial nation as Sweden (and I presume Germany) the export industry produce more and more with fewer and fewer people employed. In an advanced industrial nation the export sector is also the largest importer and currency fluctuations is highly overvalued as economic savior.

    What so called internal devaluations and/or currency deprecation primarily do is hamper peoples import for consumption, increasing net export by cutting imports not so much boosting exports. A slow or negative domestic economy will of course boost export relative GDP.

    The result of the Swedish “success” economy is gigantic accumulated public dead surplus, expected to be over one trillion SEK 2014 while there is open unemployment of app 8% and public infrastructure in great need of reparations and investment. This while 70-75 % the assets of the country now is in the hands of less than 10% (among the highest in the world) and an growing housing dept bubble among the rest, since year 2000 only about 30% of all mortgage debt have been for buying a home. The rest is cashing in on the “ever growing” housing piggy bank. That is according to some the cause of a major part of the consumption growth in Sweden, then another significant part of overall growth is net export. An important part of the housing debt the banks got from foreign capital not from Swedish money. One can wonder how large part of that money and the banks adventures in Baltic is effects of the net export surplus. The Swedish people have paid to be net export champion and a surplus nation by sacrificing living standard and high unemployment. First they sacrifice with fiscal austerity and then households have to borrow money to create the fiscal surplus. Between 1993 to 2009 there had been approximately a total accumulated export surplus of round about 2009 years GBD in inflation adjusted value.


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