2009-03-04
In six months, the Swedish Krone has weakened nearly 50 percent against the dollar. The dollar is almost at 9 SEK and the Swedish State Bank is playing with the idea to weaken the krone even further.
Nobody guessed a year ago that the Krone would decrease so much in value. Fundamentals suggest a far stronger Krone - the Swedish economy and the Swedish banks are in better condition than the outside world.
What is now happening is that the smaller currencies are affected by the fear of pin down-and risk. Those who hold a lot of money wants them liquidly and the dollar is still the only world currency.
It seems that few - in addition to Swedish tourists - are concerned about the weak Krone. It is due to the Swedish history. Sweden came out of the Korea crisis in 1950 with a weak Krone exchange rate which favored the Swedish export industry. During the 1970 - and 80s, Sweden solved the problems of high costs and low productivity through devaluation. Now many believe that the same rules apply today – that the Swedish export industry will benefit.
It is not that secure. The weak Krone means in a country where so many goods are imported, that the Swedes have to lower their standards which in turn drive the consumption and delay a turnaround. Swedish export goods has a large import content, and it is only one part of the lower export price, that the weak Krone create, that can be levied. Most importantly, productivity searching tends to default when the Krone goes down.
The Swedish State bank outlines various scenarios for how the krone can use the monetary policy when interest rates become zero and thus cannot be reduced further. One way would be to set a quotation for the Krone - e.g. 12 SEK to the dollar - and promise to buy it. The purpose would be to increase inflation expectations and get people to buy now, because it will be more expensive tomorrow.
It would be a high stake. Partly because we are in fact introducing a compelled exchange rate again - and this time not as a restriction on the finance policy, rather the opposite. And also because requests for inflation too easily can be implemented.
Far left on the economic downturn, but perhaps a little hope
The economic figures in the U.S. are still dark and the stock markets are going down, despite the stimulus packages. A series of automatic factors work the wrong way: The big hedge funds - like insurance companies - often have rules that they may only have a certain percentage of the various assets. When property values are falling they can be forced to sell shares to keep the proportion.
When households are forced to withdraw money from their funds savings, the funds are forced to also sell, regardless of the stock prices.
Twenty percent of U.S. households have negative equity in their homes, i.e. that the loans are greater than the current property. Even if they can pay, there is a risk that banks will start to negotiate a greater amortization. It creates a big fear and moderation among the households.
Is there no sign of a turn in the U.S? Maybe: The figures for both consumption and prices have increased slightly. More people requests to borrow for buying houses. The bearings in several sectors (though not in the car industry) are almost empty.
The bottom is probably not reached, but Barack Obama is certainly right when said few days ago that "America will recover." USA has the world's largest economy and has historically shown great strength.