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.