This is an external post and expresses the writer’s opinions.
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” – Milton Friedman
If I got a krone for every time Jonas Gahr Støre said that interest rates had peaked, I would be a millionaire.
Unfortunately in Norwegian kroner. Because as everyone knows, the krone is not what it once was. Over ten years, with solid fluctuations, the trend in the krone exchange rate is clear. Cheaper and cheaper. We see it in the graph below (when the dollar rises, the krona becomes cheaper).
Anyone who bothers can observe it in the streets.
There are tourists who buy Norway on the cheap. Germans and Americans once thought that Norway was expensive, now we have become cheap. The chief economists are scratching their heads over the krone exchange rate.
According to the textbook, a country with solid government finances and a trade surplus should have a strong currency. But Norway has a treasury that is overflowing, and a very strong trade balance, but a weak currency? Why?
Economists hate to say anything about exchange rates. The currency market is efficient, which means that all information is baked into the exchange rate, and if you mean something other than the market, you will probably be wrong.
That is why economists prefer to talk about the krone exchange rate by looking in the rear-view mirror. The latest movement is explained by oil price up, interest rate differential down or risk up, or was it down? The furthest some people go is to say that the risk premium, what you would have paid to own Norwegian kroner, has increased.
More unstable and unpredictable taxes are then brought forward as the main explanation. The really good explanation is obvious: Norwegians are at spas. Let me explain. The lower the krone exchange rate goes, the more valuable the oil fund becomes. The more the oil fund becomes worth, the more public money the state can use. And when the state spends more money, the state displaces other activities. The money supply explodes, the sensible production does not.
No drunk sailor is stupid enough to spend as much money as first Erna Solberg and then Jonas Gahr Støre.
We have the world’s most expensive health care system, school system and police, and we will soon have the world’s most expensive government building, water supply for Oslo municipality, Fornebubane, runway in Bodø municipality, and we pour out one percent of the national income on ineffective, perhaps harmful aid, and we will build the world’s most expensive offshore wind.
Every time the government spends 1 kroner, it turns into many more kroner. The multiplier effect, Keynes called it. Neoclassical economists will argue that the multiplier effect is put out of play by the fact that interest rates on government bonds will rise if the government spends too much money.
We do not have that control in Norway. The government is overflowing with money, and does not need to beg in the bond market. Norway lends, not in.
So what is the future of the Norwegian krone? The armed forces should get more, the police should get more, the healthcare system should get more, everyone should get more. That is the message from both the government and the opposition
That means more kroner per unit of creative power. Then the krone will continue to fall, given that the world does not become even more stupid than Norway, and they cannot afford that. Invest in foreign currency whoever can, everyone with sense is already doing it, and those who can leave the ship. When it one day goes aground, they can pick up the remains at the fire sale of the ages.
