One should never celebrate or make some kind of positive statement about any kind of politician or political party. Sooner or even sooner they will disappoint. I have been praising the right-centre government in Sweden for not wasting resources and of course they almost immediately announce extra billions on this or that.
First two positive things. One; they do not spend as much as the left would do. Second; this takes the edge of the last big “argument” the socialist has since this is the only thing they might gain momentum on; promising lots of billions they don’t have. I also have a slightly higher confidence in the current government’s ability to handle state finances. In other words, tactically speaking, this is a great move. The masterful tactician* and great politician* (*not a positive judgement) that Reinfeldt is, he knows this knocks the opposition for a second count. The socialists will of course claim this isn’t enough, but not with any credibility and without the lefties really explaining were all the extra billions comes from, this issue is pretty much dead.
But there it stops. This is stupid. The idiotic Swedish government is now, before the real crisis, wasting away reserves that will be needed and making more money available. All they need now is to print even more money and have some industry sector heading towards a big crisis and Sweden will end up beside UK and America in bad positioning. From now on (well pretty much already) all Sweden can do is borrow and once a government started to go down this road you can bet your life savings it will continue. And they will “need to” because as said, this is only the beginning. We have many years ahead of us with this recession and if (which it will) this recession goes over to be a full depression the game is over. The Swedish government is consequently selling out the country for some very expensive votes.
What they ought to be doing is to cut expenditures, a lot. There is several departments and governmental project that can be put to rest forever and there is still publicly own companies to sell, it might be at a low price, but it would be worth it. And let companies and banks fall, if they cannot make it, they shouldn’t. Higher unemployment and more people on social welfare at this stage might sound bad, but the alternative is worse. Also they should encourage higher interest rates (which hardly anyone else will agree with me on). This partly so people don’t spend their last savings and instead save more and partly for preventing any bubbles in the economy from growing. Lastly, IF they want to spend money, they should do it on cutting taxes or putting money on infrastructure and research, things that will come in handy if/when the crisis turns around.
We are going to have a crisis and it is going to last for a long while. And if I’m right, this will be really really bad before we might see the light. If the world’s economies don’t stop what they are doing, it might never end. People should demand a cut in expenditures from the government and local councils should be turning down this extra money, but intellect is a scarce commodity so I have no hope for that scenario.
Interesting post, but your logic leave some loopholes. The idea that banks should go down if they make stupid decisions is pretty much what Bush did with Lehman Brothers. The current crisis in the economy is pretty much the result of that decision. Had the Bush government had a clue about how the financial system works they would probably taken precautions.
ReplyDeleteThe Swedish model, that is the government take the bank from the owners if they are incompetent, has been used in great success in former financial crisis and did not cost the Swedish taxpayer any real money. The government could sell the bank when they had cleared the toxic asserts. The American model of giving the bank owners money while leaving the incompetent owners in charge is what I think will force us to suffer much more in the future. If the owners know the government will bail them out when they screw up they will continue taking ridicules risks. Having the fear that the government will take the bank without any kind of refund is on the other hand a great motivation for the private owners to take real responsibility.
Turning to the idea of selling publicity owned companies it is a very bad idea to sell such when the price by all accounts is all time low. Many other countries has a far worse debt situation than Sweden even after the current borrowing of money. To sum up I think the fears you see are in general sound considerations, but there is very little that speaks for that the current Swedish government does not have a very good grasp of the risks and effects of the current stimulus.
Well first of all, yes the Bush administration is largely at fault for this mess, but it didn’t start there. It really goes back to the 60’s, even if Reagan fixed some of the problems. And the first mess that we see the consequent of today was created by Clinton. But as the most law-pushing and regulatory president in American history Bush should be largely at blame. But Lehman Brothers went down because of the crisis and was in no way a cause of it.
ReplyDeleteAnd yes, you are right, the Swedish model “worked” because of two reasons; first of all we had a centre-right government that understood the task at hand and second it was a smaller and more isolated crisis created mostly in-house. It was not a global recession like it is now. But “worked” it also did in the sense that this bailout created an atmosphere were businesses can take higher risks since they know that the government will bail them out. And it also “worked” to once again cover up the real problem. Basically we had the same problem in Sweden in the 80’s as US have hade the last 10 years because of regulations and to much governmental influence, but at a lesser scale. So what you are talking about might be another way of solving the US bank-problem, but it is not a long term solution and even more importantly there are a lot of other problems this time (seen from a Sweden (80’s) VS US (now) perspective ) with massive printing of dollars and massive stimulus that will for sure destroy the economy.
And I think you are wrong, it is always a great solution to sell of public companies, it is even better to give them away rather than to wait for a better price. In the end this will benefit everyone, except maybe politicians not having another board to sit in. And yes, there are countries far worse of, mainly UK that is in horrific shape. But you need to keep two thing in mind when it comes to Sweden. Firstly my home country is highly dependent on trade and the international markets, basically if others go really bad, Sweden will follow very shortly. And secondly Sweden is very immobile in every expect of the economy which means a crisis will hit as hard but last longer than for most others.
And finally, again I think you are wrong. The Swedish government is now starting to do what everyone else does, borrowing and printing money to keep a bad system running. Granted Sweden is still in a position to do this, but after this and the next bailout or stimulus that comes, it will not be. And there are a better solution as I described.
Two things about our current administration here in Sweden :
ReplyDelete1 ) I think they are playing the "game for votes" now, most definitely. But if the shit really hits the fan around 2011, I can see them taking measures to cut back. Maybe.
2 ) I think it will be very difficult for any government to borrow on the open market once the second crash hits (the inflationary one). This means that any country that needs to borrow money will have to do so from the Central Bank, and we all know were this leads. However - every day that Sweden doesn't monetize its debt and someone else does is one day closer to people seeing what it will lead to. In short - I am holding my thumbs that others will inflate and hyperinflate before we get that far here in Sweden. Really, the only thing that this crisis can lead to long term (except your ideas of big bombs and guys with small moustaches) is a global rise in interest rates.
How much did the UK government spend on bombing people in iraq ? At least we do constructive things with the money.
ReplyDeleteNo matter how much it was, it was to much.
ReplyDeleteAnd how “constructive” is it to waste newly printed paper on idiots that shouldn’t have any in the first place?