Wednesday, January 15, 2014

Crisis? What crisis?

Wall Street Journal Europe editorial --

Sweden learned its lesson about runaway government a generation ago, after the country's full-service welfare system and tight capital controls wrecked the economy. After repeatedly devaluing the krona and prompting a run on the currency, the central bank briefly imposed 500% interest rates.

Typical analysis of what happened in Sweden a generation ago, as it happens from the Wall Street Journal --

Sweden's case, in particular, offers some striking parallels to the U.S. situation. After the deregulation of credit markets in 1985, lending boomed, particularly in real estate. Low interest rates, lax supervision and inexperienced lenders led to a surfeit of questionable loans. Asset prices soared, with Swedish real-estate values and stock prices more than doubling in the latter half of the decade. Amid rising inflation and a sharply appreciating currency, the boom turned into a bust in the early 1990s. Property prices plunged. Unemployment soared to 12% in 1993 from 3% in 1990. After nearly a decade of expansion, Sweden's economy shrank in 1991 and 1992. A tidal wave of bankruptcies -- and a rapid drying up of finance for the bank-owned niche operations that had fueled much of the lending -- pushed total loan losses on Sweden's biggest banks to some 12% of the country's gross domestic product and prompted five of the seven biggest banks to seek capital injections.

So it was runaway government, if by "government," you mean "banks." But of course with a banking crisis again the rationale for restructuring the state, maybe they are the government!