by Sweden’s vanishing debt feeds urgent calls for a spending boom Sweden now has so little debt that many are starting to wonder why the government isn’t spending a lot more … The biggest Scandinavian economy, which relies on global trade for about half its output, is slowing down. But the government has so far appeared reluctant to use its fiscal leeway to fight that trend. That’s drawn criticism from analysts, with some even referring to the government’s penny pinching as a form of “insanity.” Swedish government debt is at its lowest in 40 years and falling. According to the National Financial Management Authority, debt will sink below 35 percent of gross domestic product this year and breach 30 percent in 2021. At that point, the government will be
Topics:
Lars Pålsson Syll considers the following as important: Economics
This could be interesting, too:
Lars Pålsson Syll writes Klas Eklunds ‘Vår ekonomi’ — lärobok med stora brister
Lars Pålsson Syll writes Ekonomisk politik och finanspolitiska ramverk
Lars Pålsson Syll writes NAIRU — a harmful fairy tale
Lars Pålsson Syll writes Isabella Weber on sellers inflation
Sweden’s vanishing debt feeds urgent calls for a spending boom
Sweden now has so little debt that many are starting to wonder why the government isn’t spending a lot more …
The biggest Scandinavian economy, which relies on global trade for about half its output, is slowing down. But the government has so far appeared reluctant to use its fiscal leeway to fight that trend. That’s drawn criticism from analysts, with some even referring to the government’s penny pinching as a form of “insanity.”
Swedish government debt is at its lowest in 40 years and falling. According to the National Financial Management Authority, debt will sink below 35 percent of gross domestic product this year and breach 30 percent in 2021. At that point, the government will be required by law to explain to parliament why debt is so low.
Yes indeed — the government’s penny pinching is insane.
Today there seems to be a rather widespread consensus of public debt being acceptable as long as it doesn’t increase too much and too fast. If the public debt-GDP ratio becomes higher than X % the likelihood of debt crisis and/or lower growth increases.
But in discussing within which margins public debt is feasible, the focus, however, is solely on the upper limit of indebtedness, and very few ask the question if maybe there is also a problem if public debt becomes too low.
The government’s ability to conduct an ‘optimal’ public debt policy may be negatively affected if public debt becomes too small. To guarantee a well-functioning secondary market in bonds it is essential that the government has access to a functioning market. If turnover and liquidity in the secondary market become too small, increased volatility and uncertainty will, in the long run, lead to an increase in borrowing costs. Ultimately there’s even a risk that market makers would disappear, leaving bond market trading to be operated solely through brokered deals. As a kind of precautionary measure against this eventuality, it may be argued – especially in times of financial turmoil and crises — that it is necessary to increase government borrowing and debt to ensure – in a longer run – good borrowing preparedness and a sustained (government) bond market.
No matter how much confidence you have in the policies pursued by authorities nowadays, it cannot turn bad austerity policies into good job creating policies. Austerity measures and overzealous and simple-minded fixation on monetary measures and inflation are not what it takes to get our limping economies out of their present-day limbo. 
They simply do not get us out of the ‘magneto trouble’ — and neither does budget deficit discussions where economists and politicians seem to think that cutting government budgets would help us out of recessions and slumps. In a situation where monetary policies have become more and more decrepit, the solution is not fiscal austerity, but fiscal expansion!
We are not going to get out of the present economic doldrums as long as we continue to be obsessed with the insane idea that austerity is the universal medicine. When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces aggregate demand. Lower aggregate demand means lower tax revenues. Lower tax revenues mean increased deficits — and calls for even more austerity. And so on, and so on …