The Struggling Norwegian Economy Illustrated in Charts

Submitted by Alexander Grover in Oslo, Norway

The Norwegian Economy Illustrated in Charts

Norges Bank continues to hold rates at .5%, signaling an upward bias but willing to cut if needed, depending on unforeseen external shocks like BREXIT. In my opinion, they really don’t know what to do while the country heads for stagflation (simultaneous rising unemployment and inflation).  They are in a “damned if they do and damned if they don’t situation.”

As the currency weakens, import prices rise.  If they raise rates to quell inflation, they will slow down an already lethargic economy and may burn down the housing market in the process. If they cut, inflation will continue to accelerate.  Staying put appears to be the best option, waiting for the oil sector continues to recover.  However, then they are betting against the engineering profession, determined to drive down extraction costs or make oil irrelevant. Rising rig counts in America and the return of Iran and Libya to the marketplace further dim hope for North Sea oil.

Siv Jensen (Finance Minister) stated that the Norwegian economy is “Rock Solid.”  Instead, it is more like ice (in reverse): solid only under specific (temperature and pressure) conditions and wobbly otherwise, unable to support a meaningful load.   Above the $70/barrel threshold, the Norwegian economy is invincible, able to support generous social programs while making deposits to sovereign wealth fund (referred to as The Fund). Below $70, “the ice melts;” the rate of which depends on the ambient temperature above freezing.  If the oil is only slightly below $70, The Fund could cover budget gaps indefinitely, replenishing the drawdown with capital gains, interest and dividend payments.  Perhaps they could levy some new taxes as well.  However, when substantially below the key threshold, the melting accelerates, drawing down the fund quicker than it can be restored.  

Although, The Fund holds over $800 billion, covering near-term budget gaps with ease. Waiting for $70/barrel is like waiting for hell to freeze over or the Americans to join the EU.  Also, The Fund carries various risks, investing mostly in US and European based assets.  The big question is when will Norwegian housing prices peak and reverse course. That day is impossible to predict.

The goal of this article is to give normal hardworking people insight into what is happening around them, which is difficult to comprehend. The following charts and commentary examine the underlying economy:

Real Interest Rates:

Sources: Norges Bank (The Norwegian Central Bank) and (Norwegian Statistics Bureau)

Sources: US Federal Reserve and Bureau of Labor Statistics

The real interest rate, which subtracts inflation from the nominal one, is already negative, meaning that saving is losing. The weakening currency also makes Norwegian companies susceptible to foreign takeover, sending the profits abroad. Real interest rates should be at least zero and ideally positive, enticing people to put their money into the bank.  Compared to the USA, which is also facing headwinds, Norway’s negative rate situation is accelerating.  Negative rates make it difficult to sell bonds and the public starts to lose trust in the currency. People generally want to be rewarded for parting with their cash during a given period.  Moreover, negative rates cause the public to question their government.  Central banks and Governments can normalize rates to zero either by either raising rates or quelling demand, which brings down inflation, using various methods: allowing unemployment to rise, raising taxes or “open mouth operations.” Central bankers often posture, talking a lot, attempting to maintain the delicate balancing act without actually touching anything.

In Layman’s terms: I would never lend money to any person or entity, knowing that I will get back less in the future, even if guaranteed or “risk-free.” I would prefer to invest in whiskey, cigarettes or keep my money in the mattress.  

Negative interest rates, combined with digitalized currency (most transactions in Norway are cashless), raises an important question: What is a “bank?” In the past, it was a place with a secure vault where people could deposit their cash. The banks would lend this money, after doing extensive due diligence, to those who needed to buy a home or wanted to start a business. Since there were many banks, they had to entice depositors by paying interest. If the currency is digital, potentially storable on a USB stick, on iTunes or in my Dropbox account, and bank interest rates are negative, charged to store your money, then what is the bank’s purpose? Perhaps lending? However, with peer to peer lending platforms like Viventor, an investor can lend directly to a borrower, authenticated and verified during the signup process. The investor and borrower can work out interest rates and collateral agreements between themselves or with a lawyer, arranged by the platform, signing documents at the notary or even online, using Altinn and electronic signatures.  The investor can be an individual with some “bits” socked away on a USB stick, hidden in the attic, or a cash-rich company, like Leroy Seafood Group.  So, once again, ask yourself, “what is a bank?” 

It is worth noting that it’s better to pay the one-time 2% fee (1% in and 1% out and no storage fees) with the new BitGold platform than it is to deposit money in a bank or buy bonds. (this is not a paid endorsement nor advice but a simple observation. It remains to be seen if BitGold is legitimate or another Mt.Gox). 

Real Economic Growth

Sources: Norges Bank and

Even with negative interest rates, supposedly encouraging people to withdraw their money from the bank and spend, the economy continues to decline when accounting for inflation. Stating economic growth, without considering inflation, is a common parlor trick. Although goods and services production increased, it is discounted by the cost of inputs rising faster. 

In Layman’s terms, one gets a pay raise for 200 NOK per month, but rent goes up by 210 per month.  You may feel richer, but you are falling behind. 

Oil Prices

Source: Baker Hughs and EIA

Source: Rystad Energy via CNN

As oil approaches $50/barrel, American rig counts (mainly fracking) started to recover.  The idle rigs are portable and able to be restarted with ease. The other 1400 may either end up in Ukraine or Poland or moved to new locations. This scenario is plausible since the US now has more untapped oil than Saudi Arabia or Russia. Therefore, Øystein Olsen’s (Head of Norges Bank) prediction last year, oil recovering to $65, may be another case of misplaced optimism. Although oil has recovered, it seems to be having difficulty in the high $40’s. Recently there was a surprise inventory build in the US, supporting the thesis that betting against innovation is risky at best.     

Source: and  

70% of lottery winners end up bankrupt: Sudden wealth creates a sense of euphoria, making the lottery winner think they are invincible and powerful, like Batman. They often give away too much money to friends and family. They start expecting more and more, becoming difficult to turn off the spigot and reverse course. New millionaires often neglect to seek help, managing their fortune for the long term. Norway won the lottery back in 1969. Initially, they managed responsibly, creating a The Fund, adding surpluses on the back of consistently strong oil prices.

Perhaps, to get elected or appointed, politicians told voters that they could sit back and collect the dividends when the oil is gone.  They assumed that stocks, bonds and real estate, in financial centers, are constants or absolutes and not variables, subject to natures whims.  Life in paradise would go on. Economic diversification would take care of itself.  Selling apps to iPhone users would be the new economy, replacing petroleum. There was nothing to worry about. After all, “even when it rains in Norway, the sun is still shining!” Nevertheless, the budget is more or less the same, ticking up, while tax revenues decline, falling $3 billion (25 BNOK) year-over-year, and The Fund’s holdings are at risk.  Let’s hope that Norway does not go the way of most lottery winners.   

Unemployment, Oil Prices & Inflation:

Sources: EIA (Energy Institute of America) and

The Norwegian economy mostly depends on oil and therefore unemployment rises as oil falls.  Normally, rising unemployment mitigates inflation, cooling demand, causing prices to fall. However, this inflation is from the supply side and not demand driven.  The cost of imported inputs, priced in foreign currencies, are rising regardless of demand.

Consumer Debt:


All the while, consumer debt keeps rising, mostly driven by lending for apartments. Debt levels are higher now than they were during the 2007-2008 financial crisis. If Norges Bank were forced to raise interest rates by ca. 3%, getting real rates to zero, safeguarding the Krone, it would be catastrophic to the average person. Their loan payments would skyrocket. We can expect debts to rise since many have “Champaign taste but only beer money.” There may be other troubles ahead for indebted consumers. DnB, Norway’s largest bank, reported huge and unexpected loan losses, attributed to the struggling oil sector. DnB and other banks may be forced to make this up by raising consumer rates and fees.

Trade Balance

Source: Google Finance

Sources: and EIA

Sources: Norges Bank and

Declining currency theoretically boost exports. That has not been the case for Norway. Although fish and knit sweaters have seen the benefit, the overall balance is down because no one needs expensive oil (the leading export). These charts indicate that there is an urgent need for new and substantial export related industries.

Conclusions & Thoughts:

Norges Bank, although seeming reluctant to cut rates, may have to do so, trying to stimulate the economy and postpone housing’s day of reckoning (defined as the price when real rates are zero). To correct the current imbalances, either productivity will have to grow by leaps and bounds, getting more done with less or interest rates will have to jump, guarding the Krone against people like Kyle Bass and George Soros (currency shorts).  Norges Bank has already joined the BREXIT bailout party, injecting $2.73 billion into the banks and readying rate cuts, indicating that going negative to support GDP growth is an option.  

We are also seeing the introduction of socialist solutions applied to free market problems, predicted last year.  The Oslo Municipality purchased 154 properties for ca. $60 million (514 MNOK), mostly in the more affluent west side of the city, to house refugees. The total 2016 budget for this programs is ca. $105 million (885 MNOK).  The European/Bernie Sanders approach, giving people free stuff without responsibility and incentive, does nothing to empower them. Being unemployed in a good neighborhood, where everyone knows the government pays or subsidizes the rent, could make things worse for both the refugees and society as a whole.  Consider that there are 24 hours in a day.  Eight are for sleep; two are for getting ready and meals and another two for fitness and transportation. What are the consequences of idling people for the remaining twelve hours? Let’s be honest. At the micro (personal) level, Norwegian (in general) society is not that open or welcoming.  Winters are long and brutal, further making contact difficult. Isolation, alienation, combined with not much to do in a culture that generally discourages achievement, being the best you can (Janteloven), can’t lead to anything good. Only a person with incredible will power and a strong “compass” can overcome such barriers.  If Norway is going to continue with their ideological approach, saving the world, perhaps they need to re-examine their culture at the individual level. People need the pursuit or hunt when obtaining income. It is rewarding, building confidence. The culture may need an adjustment, embracing merit, defining character through hard work and encouraging upward mobility, encouraging immigrants to get in the game and excel. The current welfare society model only works when there is money growing on trees (North Sea Oil).

In my opinion, the better approach, mimicking the US Homestead Act, would be to settle them in areas where there are labor shortages, giving them an opportunity to earn their way. Northern Norway (Nordland and Finnmark) needs thousands of people as of May 2016.  America takes refugees. In fact, it’s the top country for resettlement.  However, I never heard of refugees being settled in Midtown Manhattan - all expenses paid.  If this happened, I am sure many Americans would toss their identification, quit their jobs and line up at the refugee center, claiming to be from somewhere else.

When I was in college, I had an Afghan roommate. His parents settled as refugees in central Kansas, taking a job at a meat packing factory.  The saved their money and eventually started their own business. Through the process of work, dealing with adversity, and moving forward, day by day, they became an integral part of the community, paying taxes and adding to the economy. The process of struggle and advancement made them stronger, self-assured and, eventually, affluent. Hence, a proper integration strategy, matching economic needs and limitations, needs to be developed.

Øystein Olsen stated, in September 2015, that he has no problem with inflation hitting 3.5% and saw it moderating to 3%. He is also predicted better times in 2017 with unemployment peaking at 3.4%. It is already H2-2016, and the latest inflation print (June 2016) is 3.7%.  As of June 2016, unemployment hit 4.6%, still considered full employment. Nevertheless, the rate of increase is worrisome.   If unemployment continues to rise, the national and local governments may have to buy more apartments, supporting housing while tax and oil revenues decline. That will further stress the budget, resulting in withdrawals from The Fund.

Skepticism is very much ingrained into the Norwegian psyche. Hence, I remain skeptical that the Norwegian Government and Central Bank can deal with the coming crisis in a way where the people, who did honest work but were tricked into “drinking the Kool-Aid,” are least affected, and those responsible take the brunt of the damage. I suspect that they will tell the public to sacrifice for the greater good (banks and large corporations) without telling the whole story. 

Bankruptcy means that those who fail in business or banking must liquidate their assets, selling to those who were saving and living modestly, to get their debts forgiven. Those who got them in debt may also be at risk for irresponsible lending. They attempt to build an enterprise with a better business model at lower cost, catering to current needs. In the case of a bank failure and housing. The failed bank would liquidate their loan portfolio at a discount, passing on the benefit to borrowers. For example, the buyer of this paper acquires a loan with a 4 MNOK obligation, paying 3% interest, for a distressed price. Let’s say 2 MNOK. They could then settle with the struggling homeowner, offering a revised loan of 2.2 MNOK at 4% interest. Both sides win while asset prices move to sustainable levels. (It’s the same things as when a pizzeria in New Jersey goes bankrupt, selling their equipment for pennies on the dollar to an aspiring entrepreneur. The new guy gets into the game, starting a new business at lower cost, and life goes on. Often, he will hire failed entrepreneur because he still knows how to make a good pizza but not allow him near the cash register.) 

Oil prices (Brent on averaged $77/barrel from the beginning of 2007 to the end of 2009 whereas they are hovering under $50 per barrel today – well under the $70/barrel threshold.  Therefore, managing that crisis compared to the coming one is the difference between misplacing your wallet, finding it a few hours later with $50 missing, versus losing your job at middle age to robot automation while having a huge mortgage and spoiled kids enrolled in a private college.  Sounding an alarm, Tine Choi, Nordea analyst, located in Denmark, warned about negative interest rates leading to hyper-inflation (article in Danish). She warns that we are in uncharted territory. She warns that a massive bond sell-off would spike inflation, causing interest rates could explode. Hence, the concern is extending past those of us seen as “wearing tin foil hats.” 

I still do not foresee Norges Bank buying gold to hedge against unprecedented times or working with Stortinget (parliament) to engineer a soft landing, bringing us back to balance.  I do not see the Cultural Ministry acknowledging that the current Bernie Sander’s like approach to society lacks the necessary mathematical foundation for long-term sustainability. I only see a lot more inflation than forecast.  

So what to do?

Start by aiming your skepticism towards the government instead of those wearing tin foil hats or living in bunkers. Contact your politicians and voice concerns about the banks, potentially having a monopoly to store your digital money, at a forced loss (real negative interest rates). Also push for gold and silver to get status as money instead of as an asset, ensuring personal inflation protection. That is possible in a democracy. The British did BREXIT, and the predicted fallout appears to have been hyped. Already, Americans, Chinese and Indians are “lining up” to make agreements. The GBP is already moving back up; The Bank of England did not panic.  Moreover, don’t forget that the Icelanders voted in a new government after a major banking scandal. I have faith that Norwegians will start waking up and using their democracy, preserving the way of life.






GOLD in NOK (per ounce)




Oslo Børs (Stock Exchange)




Oslo Apartments (NOK/sqm)*




Oslo Apartments (USD/sqm - calculated)




Oslo Apartments (Oz Gold/sqm - calculated)








* Table 05963 Freeholder - average apartment price per sqm.
Price from 2015 Q4 (YE) to 2016 Q2


Source: See Links - There are alternatives to dollars, housing, and stocks.

Source: – When you buy gold, you are ”buying the inflation” and then some.