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Norway Is First European Country To Lift Interest Rates

Tyler Durden's picture




 

After interest rates had been lifted in several commodity producing countries, the rate game is shifting to the old continent, where Norway has become the first country to announce it is raising its interest rate by 0.25% and has signaled it anticipates steeper increases over the next three years as "inflation accelerates and unemployment remains low." Count the NOK as the latest currency that will be using the dollar as a short-funding vehicle.

In a bank statement that Bernanke would kill to be able to publish, the Norges Bank stated:

“It appears that unemployment over the next few years will remain lower and wage
growth somewhat higher than previously projected. This suggests higher inflation, indicating that the key policy rate should be
raised somewhat more rapidly than previously projected.” The key rate will
average 4.25 percent in 2012, compared with a June forecast for 3.75 percent,
the bank said.

In a shining example of how a stimulus package should work, Norway has shown the U.S. how it should be done:

The world’s fifth-biggest oil exporter came out of recession in the second
quarter after investment in its petroleum industry, a stimulus package
equivalent to 4.7 percent of gross domestic product and record-low borrowing
costs fuelled domestic demand. Prime Minister Jens Stoltenberg, whose coalition government was re-elected
last month, has pledged to raise next year’s spending in excess of national
fiscal guidelines even after recovery took hold.

Curiously, the threat of a much stronger currency, even after an impressive run up in the NOK, is not spooking the central bank:

The krone has gained 7.5 percent against the euro since the
end of June, making it the second-best performer of the 16 major
currencies tracked by Bloomberg in the period. A further
strengthening would hurt exporters including Norsk Hydro ASA,
Europe’s third-largest aluminum producer, and Norske
Skogindustrier ASA, the world’s second-biggest newsprint maker.

“The development of the krone exchange rate is a risk for
us” when setting interest rates, Gjedrem said at a press
conference in Oslo. “It can be a headache.”

“We believe the krone will weaken somewhat in the next
years, both because it is very strong now and because it has a
tendency to weaken when we have higher inflation than our
trading partners,” Norges Bank Chief Economist Jon Nicolaisen
said during the conference.

Exports will recover more slowly than consumer demand, the
government forecasts, rising 0.1 percent in 2010 after slumping
6.5 percent this year.

So while a prudent Norway, which never glutted itself on the excesses of a credit and housing bubble can return back to normal economic growth, the US is still caught in a vicious cycle of trying to catch the debt inflation bottom and happy to make strong countries stronger yet, by continuously debasing the purchasing power of its citizens. One wonders if the Fed was a publicly traded corporation, how long ago its CEO and BOD would have been drawn and quartered. Alternatively, since Madoff's operation is different from that of Bernanke's only by virtue of several thousands tons of ink and paper, one wonders why Bernie never invested in at least one printing press: that way he would have been able to enjoy the end of his ponziful years on some private island, not in jail. Which begs the question of just how Mr. Bernanke will enjoy the fruits of his ponzi labor as he progresses past his dollar devaluation prime.

h/t Adam

 

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Wed, 10/28/2009 - 17:19 | 113398 DaveyJones
DaveyJones's picture

They approach money supply

in direct inverse

to their approach to alcohol

(we're more hand in glove)

Wed, 10/28/2009 - 17:50 | 113428 Anonymous
Anonymous's picture

Norway has no public debt and over 50K US$ per every man woman and child in the country. Tends to give you a few more options with policy when you are rock solid to begin with!

Wed, 10/28/2009 - 18:58 | 113493 Cognitive Dissonance
Cognitive Dissonance's picture

Shame on Norway for being one of the first "civilized" countries to shine the light of economic sanity and fiscal prudence for all to see.

Time for GS and friends to carpet bomb Norway back to the stone age.

Wed, 10/28/2009 - 18:01 | 113439 Fear of the Dark
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Norway is a great country, lots of museums.

Wed, 10/28/2009 - 18:06 | 113442 Anonymous
Anonymous's picture

Folks, they are the third country to increase rates in the last few days - Australia, India and now Norway. Just maybe the tide is turning.

With rates starting to tick up, the US equity market started to turn south. Could get a little more interesting here.

Wed, 10/28/2009 - 18:31 | 113466 snorkeler
snorkeler's picture

Could get?

Wed, 10/28/2009 - 18:08 | 113446 Anonymous
Anonymous's picture

Getting a dollar loan is pretty high on my list of priorities now. I sincerely hope I can get one at USDNOK 6,50 e.g. given the dollar bounce that may be happening, but I doubt it. (Now at 5,7). A 15 or 20 year mortgage in USD may prove to be a pretty sweet deal...

Norwegian

Wed, 10/28/2009 - 18:08 | 113448 Anonymous
Anonymous's picture

oh man i smell a correlated adjacent trade!

Wed, 10/28/2009 - 18:09 | 113449 trx
trx's picture

Just like to point out a few things:

* Norway is one of the few countries where the PMI indicator is still running below the 50-level at 47.4 and 45.5 for the PMI and the orders index, respectively.

* Bankrupcy numbers are up to 4900 from 3700 12 months ago.

* Unemployment still rising.

* The national balance sheet is artificially kept in place by income from the oil industry.

* Housing prices are continously rising.

* Private debt are still increasing.

* The Norwegian Export Industry is on its way into a crisis, not out of one, says the industys chief economist.

 

Maybe it's not so rosy after all?

 

 

Wed, 10/28/2009 - 18:54 | 113491 putbuyer
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It would be super cool if you made your avatar like the FedEx logo. Thanks for the info brother.

Wed, 10/28/2009 - 21:21 | 113600 Anonymous
Anonymous's picture

Why is income from oil industry (selling oil, gas and and related oil services to the global market) more artificial than other income (like selling cheap manufactured toys to the US like China) ?

Thu, 10/29/2009 - 00:01 | 113734 trx
trx's picture

When the US is selling cheap manufactured toys to China, it creates jobs and contribute to real economic growth.

The Norwegian government ain't selling nothing. StatoilHydro does.

The government just collect its eps and dividends for owning over 60% of the company's shares. And (of cource) tax Statoil like any other business.

This financial income is then beeing used - partly - to fill up the continiously growing holes in the national budget.

By adjusting the budget, the government are also able to keep mortgage rates artificialy low. (Increase the budget on the state owned loan facilities and the commercials have to follow).

And that's mostly the reason for the countrys housing bubble, that took a little break last summer, have started to inflate again.

See my point?

But, hey, it's there bubble....and  they can probably afford it....(a couple more years)... 

 

Wed, 10/28/2009 - 18:38 | 113476 Anonymous
Anonymous's picture

The "never glutted itself on the excesses of a credit and housing bubble"-statement is really really hard for me to swallow for me, having seen housing prices rise about a tenfold over the last 15 years (not an exaggeration). We Norwegians are just shielded in a well-oiled time-capsule, lagging a few years behind the rest of the world. It is going to come down, eventually.

Wed, 10/28/2009 - 21:19 | 113593 waterdog
waterdog's picture

To echo a question raised by Gregor Macdonald, does anyone know what's the energy policy of the United States?

I bet Norway will gladly relinquish the status of 5th largest exporter of oil about the 4th quarter of 2012.

Simple calculations of what one's own needs will be in 2030 will make selling oil in 2018 foolish.

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