Earlier this year, Riksbank Deputy Governor Per Jansson expressed his displeasure with comments made in April of last year by everyone’s favorite Nobel laureate Paul Krugman. The dispute revolves around Sweden’s decision in 2010 to raise rates, a move Krugman says turned the country into a Japan-style deflationary deathtrap. To wit, from Krugman’s blog:
“In 2010 Sweden’s economy was doing much better than those of most other advanced countries. But unemployment was still high, and inflation was low. Nonetheless, the Riksbank – Sweden’s equivalent of the Federal Reserve – decided to start raising interest rates.” “There was some dissent within the Riksbank over this decision. Lars Svensson, a deputy governor at the time – and a former Princeton colleague of mine – vociferously opposed the rate hikes. Mr. Svensson, one of the world’s leading experts on Japanese-style deflationary traps, warned that raising interest rates in a still-depressed economy put Sweden at risk of a similar outcome. But he found himself isolated, and left the Riksbank in 2013.”
“Sure enough, Swedish unemployment stopped falling soon after the rate hikes began. Deflation took a little longer, but it eventually arrived. The rock star of the recovery has turned itself into Japan.”
Krugman went on to accuse the Riksbank of being a bunch of job-hating heretics who don’t believe that printing mountains of fiat currency solves economic problems and who are motivated by an overwhelming desire to perpetuate global inequality by enriching creditors at the expense of impoverished debtors. They are, Krugman said, sadomonetarists.
This post was published at Zero Hedge on 09/14/2015.
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