Wednesday, July 15, 2009

The housing bubble

This could as easily be a post about several countries around the globe but this time - again sadly - it is about the real-estate and home prices in Sweden. Despite an increase in available objects on the market and despite a deep recession, prices are going up in Sweden (even if a small decrease could be shown in June). I was hoping people being highly stupid would be less in numbers, but apparently the Swedish Central Bank’s ploy with zero interest rates and the printing machine spitting out money out of thin air is “working” in the sense that people are still doing exactly what they should not do; namely buy things.

To borrow a quotation from another blogger that also uses his synapses;

If we look at the KPIF/KPIX indexes, it feels like a decent estimate that annual price inflation in Sweden is currently running at a level between 3-5%. Also remember that there is a significant “time-lag” between low interest rates and price inflation. And while I personally believe that some of the damage may be offset by the fact that the demand for cash may be temporarily higher and that banks are somewhat reluctant to make too much new loans (this is however a VERY DANGEROUS assumption, one which central banks uses in excess to justify their interest rate manipulation)

As I have said before, the real interest rates are significantly higher. Only for the reason of keeping inflation down the Central Banks interest rates should be around 4%. Add to this that Sweden really need higher levels of saving and that the commercial banks always keep a higher interest rate than that of the central bank, we are looking at an interest rate around 7-8%. And this is today. When this crisis rages on and the interest rates are kept artificially low the percentage increases for every month that passes. In the near future, with more and more people out of a job, more and more businesses crumbling and things getting worse (which they will) somewhere down the line the interest rates need to go up, way up, over 15% and with this comes foreclosures, defaulting, bankruptcies and lots of repossessions. The Swedish government has been doing pretty well, so far, withstanding the constant bombardment from amoebas wanting further stimuli and more bail-outs, but this is about to change. No politician wanting to be elected can endure tens of thousands of demonstrators and an ever increasing cry for help. So another thing coming down the line will be more monopoly money plus more borrowing and this with a deficit that already is reaching damaging heights. This combination together with the significance of world trade for the Swedish economy will plunge my birth nation into despair and darkness.

As previously stated, and this cannot be stressed enough, the cornflake economists and the central bank monkeys are destroying the Swedish economy so when the time comes and you find that perfect tree; please make sure that the rope is hardy enough to support the proper weight…

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