14/ What is a problem is that the NOK to USD/Euro exchange rate weak. So imports are more expensive. But to “fix” that the central bank has raised the interest rate. Which means people who were already struggling with higher prices now also get hit with higher interest rates.
13/ I don’t see any sign of the Norwegian economy being “overheated”. What I see is the opposite tbh. People seem to be struggling financially much more than I’ve seen in decades.
18/ In my opinion the most logical thing is that the NOK is down for the same reason gold is way up: people are scared. Russia invaded Ukraine, Israel is pushing for a regional war in the Middle East and… let’s be honest here: the US might elect a fascist dictator in a few months.
Basically NOBODY will make the decision to buy NOK no matter what the interest rate is. They are putting their money where they think it’s safe and that isn’t a tiny economy by the polar circle.
17/ So basically, I don’t see that the interest rate is the appropriate tool for strengthening the NOK. Except to put on a show for people who think Milton Friedman is a person who had anything reasonable to say.
16/ Meanwhile the politicians are on TV saying “Well Actually The Economy Is Going Great”. But the only sectors that seem to be doing great are those who are exporting (being paid in foreign currency) and that’s because they are raking in on the NOK being weak, and that’s not “the economy” that’s just gambling.
21/ I am getting increasingly disillusioned with economics as an explanation model for anything other than a bunch of powerful people who like to hear themselves talk.
20/ To be honest, I’m not even sure that MMT would work for a tiny economy based mostly on imports of household goods and selling bottled up carbon emissions to the world.
24/ but I think the currency lens is probably the right one, but not MMT (or maybe I’ll change my mind when I’m further in). From the little I have read we (the Norwegian government) are both the biggest buyers AND the biggest sellers of our own currency: we sell massive amounts of NOK to the oil companies, because they need it to pay tax, but now we have a lot of NOK that are mostly going into our sovereign wealth fund, which invests (mostly/exclusively?) outside of the country (I think this decision was specifically to not “heat up” the economy with too much money). But to invest abroad the sovereign wealth fund needs to sell a lot of NOK.
23/ One thing that is very Norwegian, and relevant here, we are a high-trust society. On every level. But for this particular matter: we trust our government much more than most other populations. And if they say the interest rate has to go up, we say: OK.
27/ Looking at the NOK vs USD and Euro and the gold price in dollars. When people are all in on gold they’re not buying the currency of “the capital of Sweden” (old joke about nobody knowing we exist)
26/ And all indicators are showing that it’s not working. The price of the NOK isn’t really being affected by the interest rate. It is being affected by What Everyone Else Is Doing. This weakness of the NOK doesn’t seem to have much to do with Norway at all. We’re just a too esoteric (and small) currency for a global market whose risk appetite is low.
25/ so maybe we CAN influence the NOK, but not through interest rates, but rather by… reducing foreign investments by the sovereign wealth fund instead. Funnily enough this idea is based on the most basic economic theory: supply and demand.
29/ It’s clear to me now why they are using the interest rate. It is the only tool they have. They have one single knob, one single variable, so they have to use it even if they know that it won’t work against the problem they’re facing. Because it was never meant to solve the problem they’re facing.
More generally, I don’t know that importing a Friedman model from the US, which has a massive economy and The Most Popular currency, makes any sense for us.
32/ Lol, looking at all these graphs together… it doesn’t seem to matter either. So maybe the problem is rather that there is no market for NOK right now. Only what we force into existence by making oil companies pay us in NOK for taxes.