The situation the country is in, Cervenka explains in this week’s Sweden in Focus podcast, out this Saturday, is in some ways worse even than what it was in the run-up to the 1990-1994 Swedish financial crisis. 

“In the beginning of the 90s, we had a huge real estate and housing bubble that burst and sent Sweden into the deepest financial crisis since the Second World War, and we’re still actually feeling the effects of that,” he says. “What’s happening now is roughly the same, only the numbers are bigger.” 

Girig-Sverige, which won Cervenka Sweden’s most prestigious journalism prize last year, tells the story of how the decision to scrap a string of taxes on wealth and assets combined with years of zero or negative interest rates to make Sweden dramatically more unequal as a society, while turning its people and companies into the most indebted in the world after Hong Kong and Luxembourg.

For Cervenka, the Riksbank bears a lot of the blame for this depressing development.

“All parts of the state should be evaluated on their results. And the result is: have they fulfilled the target of inflation? No, in practically no period over the last 15 years have they been able to stabilise at around 2 percent. Has something else happened in society? Well, we have become the most indebted country in the world.” 

The bank, he believes, has been wrong to turn a blind eye to the extreme inflation in assets like property and equities, while focusing exclusively on consumer prices. 

“There’s obviously a lot of talk about inflation these days. But in fact, we have had inflation in Sweden for quite a long time, not in consumer prices, but in assets,” he explains.

“That’s rising prices of property, stocks, land or all kinds of financial assets, and that’s been quite explosive for a long time, which benefits people who own assets, and specifically people who own assets that they financed with debt.”

Normally, central banks only use negative interest rates as a last resort when the economy is in a deep recession, but the Riksbank has had them in place while the economy has been booming and unemployment low, changing the balance between rich and poor in Sweden.

“The central bank is supposed to be an apolitical institution. But low interest rates do create inequality in the way that they actually transfer money from people who don’t own things, who don’t have mortgages, to people who do. And that’s been a huge transfer of wealth.” 

The central bank has not acted alone, however. Parties of both left and right have acted to reduce the taxation on assets. 

“Sweden is still a very high-tax country when it comes to taxation of labour. We’re not number one in the world, but we’re still in the top five. But when it comes to taxes on assets and property, we’ve been abolishing a lot of taxes,” he explains.

Someone making a million kronor from dividends and rising stock prices would only have to pay about 7 percent tax on that income, he estimates, whereas someone making a million kronor in salary would pay about 35 percent. 

For Cervenka, it is not only the indebtedness in society which is a problem, but the way gross inequality slows economic growth and leads to rising crime and health disparities, while the near-impossibility of getting rich through earning a salary skews people’s choices. 

“The difference between a very high taxation of labour and relatively low taxation on assets definitely alters your incentives as a citizen,” he says. “It’s been much more profitable to own a house over the last 10 years than to work.” 

Soaring house price inflation has also led to segregation, with the young, immigrant populations, and other groups priced out of upmarket parts of Sweden’s cities. 

“If you look at the centre of Stockholm, you can almost have a sign saying, ‘If you’re young, don’t bother coming here, because you can’t afford it’,” he says. 

“It also affects, you know, ‘can you afford to have kids?’, ‘What kind of job should you be looking for?’ If you’re living in Stockholm, if you are a teacher, a nurse or a policeman, it’s almost like an economic sacrifice because the cost of living is so extremely high.”

“In the US, they talk a lot about gated communities, and in Sweden, we have that, but we have something much more effective than walls or barbed wire, we have high square metre prices.” 

Those who haven’t managed to get a mortgage or benefit from the low rates have ended up crammed together in the same segregated areas, he adds, fuelling some of the problems Sweden has had with gang crime. 

“The people who don’t own anything, they all stay in the same area and that creates some social problems and just this crazy tension in the fabric of society.” 

So will the economy have a hard landing? Cervenka believes the high level of indebtedness, both in the population and in the corporate sector, makes Sweden vulnerable. 

“I would say we are one of the most rate-sensitive economies in the whole world,” he says. “The Swedish state has very low debt, but the private sector is very highly indebted, so the rate increases have much more impact on Sweden than on a lot of other countries in Europe.” 

A huge proportion of many people’s income already goes to paying off their mortgages, he adds. 

“A lot of people in Sweden are practically working for their banks now, because that’s where the the lion’s share of their income goes. We talk a lot about how the price of eggs or butter has increased 20, 30, 40 percent. But interest payments have maybe gone up by 300 to 400 percent – four or five times what you used to pay – and a that’s a huge increase.” 

In the near future, Cervenka predicts, we will discover whether Sweden’s economy is in for a soft landing or a devastating crash.

“Right now, the markets are betting that we can avoid the worst-case scenario. But the jury’s still out, and I think the next six months will be quite crucial.”