Sweden's central bank to pay retail banks to take money

by eastvanray | August 27, 2009 at 04:40 pm

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This is a great example of why bailing out banks was a stupid idea. The banks have the bailout money but they are just sitting on it so it is doing absolutely no good. Now they are going to be using more money to, in essence, bribe banks to lend out more money than they are currently. If they had just taken the money for the bailout and given it directly to the people that money would have hit the economy immediately and ended up in the banks anyway.

Bankers watch as Sweden goes negative
By Andrew Ward in Stockholm and David Oakley in London

Published: August 27 2009 19:48 | Last updated: August 27 2009 22:41

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For a world first, the announcement came with remarkably little fanfare.

But last month, the Swedish Riksbank entered uncharted territory when it became the world’s first central bank to introduce negative interest rates on bank deposits.

Even at the deepest point of Japan’s financial crisis, the country’s central bank shied away from such a measure, which is designed to encourage commercial banks to boost lending.

But, as they contemplate their exit strategies after the extraordinary measures of the past two years, central bankers will be monitoring the Swedish experiment closely.

Mervyn King, the Bank of England governor, has hinted he may follow the Swedish example as the danger of a so-called liquidity trap, where cash remains stuck in the banking system and does not filter out to the wider economy, is an increasing concern for the UK.