Central Bank Money Printing Affects Nordic Countries

Norwegian Housing PricesSwedish Housing PricesMortgage Risk Under Fire in Nordics as Bubbles Fought – Bloomberg.

Yesterday, we examined how the eurocrisis is affecting even sound countries like the Netherlands. Today, we see that the effects are spreading throughout Europe to countries that do not use the euro.

Norway and Sweden are models of fiscal rectitude, but their respective central banks must keep interest rates low to counteract the effects of the ongoing central bank printfest. If these countries keep rates too high, their currencies will strengthen reducing economic growth.

On the other hand, if they keep rates low, debt bubbles begin to form. This is the option they have chosen. Low rates have caused a borrowing binge in Scandinavia with their consumers maintaining record debt loads caused by large mortgages assumed to pay for pricey housing.

The central banks idea is to raise capital requirements for mortgage loans before a bubble forms, but they are probably too late. Housing prices have doubled in the last decade, so the bubble has already formed. Larger capital requirements will decrease lending, but at the price of popping the bubble as real estate sales drop in response to the decrease in new mortgage lending.

While central bank intervention causes inflation in less advanced countries, it causes debt bubbles in the industrialized nations.

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