Patricia AasJul 1, 2024

2/ Only barely through the introduction and the start of chapter 1, but it got interesting so I wanted to start the thread. (I’ll get back to Harvey when the polls are done)

So, the premise here seems to be that you (a country) have your own national currency. The thing she is going to get to, as far as I can understand these things right now, is that “deficits are a myth”.

And I think this is related to the Piketty (I can’t believe this is useful now) stories about how states erased their debts through inflation: Germany and France were the examples. And Germany are today apparently very skeptical of this approach.

Show threadPatricia AasJul 1, 2024
3/ The reason that I had to post is that she started talking about this question I had earlier. Basically: it seems risky to me to take out loans in a currency you don’t control since you can no longer use inflation to erase it.
https://social.vivaldi.net/@Patricia/112707420539468262
Patricia Aas (@[email protected])

24/ ok, I give up on this part and tbh I’m not sure it’s important. He has drifted into one of the features of FIAT/normal money being an instrument by which a state can eliminate its debt in that currency by tanking the value of its currency. Given this, why would anyone lend a state money in its own currency? Sweden wants to borrow money, why wouldn’t you lend them euros? It seems a bit risky to use their currency. Though I believe these “loans” are actually in the form of government bonds, so in that case the borrower has taken control of the currency in which it is expressed. I bet the developing nations debt is not expressed in their own currency, just to make sure we can erase our debt, but they sure as hell can’t erase theirs.

Vivaldi Social
Show threadPatricia AasJul 1, 2024
4/ She literally says: “and they need to refrain from borrowing, that is taking on debt, in a currency that isn’t their own”
Show threadPatricia AasJul 1, 2024

5/ So maybe we’ll get a glimpse into this mechanism.

Unfortunately, we have seen examples of countries that didn’t have this option, like Haiti and I guess also Greece (because they were using the Euro). Feel free to chime in here.

I’m also interested in how she deals with what made Germany so intent on not going through that again. I wish Piketty had spent more time on that.

Show threadPatricia AasJul 1, 2024

6/ Ok, this is fun. Basically it’s a different way to look at a national currency: for a government that can literally “print money” money only has “value” if you can do something with it. And taxes are such a thing. So taxes aren’t a way to make people pay for stuff, it is a way to create a need for your currency.

Right now the value of the Norwegian kroner (NOK) is a hot topic here in Norway. And I’ve tried to understand it but I just haven’t been able to. Maybe this will help. One of the things that I’ve learned is that the Norwegian government requires that the oil industry pays its taxes in NOK and this is actually one of the major “buyers” of NOK.

Show threadPatricia AasJul 1, 2024
7/ I really enjoy that a central part of her narrative is basically that “everyone knew this, except economists because they didn’t talk to anyone else” which tbh I think is one of the foundational problems with the “field” (read pseudoscience)
Show threadPatricia AasJul 1, 2024

8/ This first chapter was super interesting. I have to think about it for a bit, but I really recommend reading this chapter. Especially a story about chores in the beginning made sense to me.

Moving on to the next chapter which is on inflation, which I am really curious about because Norway has increased interest rates lately, but it seems to me that instead of being tied to our own economy the variables seem to be the exchange rate of NOK (which seems to be affected by a general sense of fear and not our economy) and for some reason our central bank is obsessed by numbers about the US economy. And that doesn’t make sense to me.

Show threadPatricia AasJul 1, 2024
9/ I think my sleep deprived brain won’t be able to grok inflation today. I’ve restarted the chapter probably 5 times by now. I’ll try again tomorrow.
Show threadPatricia AasJul 2, 2024
10/ I am trying to understand chapter 2 again, it is called “Think of inflation”. She is speaking very much from a US perspective, and so my attempt to map to Norway in my head is not always working. But I think Norway fits the criteria:
1. Has its own currency: NOK Norwegian kroner
2. The currency is not tied to a foreign currency (as opposed to Denmark who has now tied its currency DKK to the Euro)
3. Does not have debt in a foreign currency. (I don’t think we do, we have a massive sovereign wealth fund instead, which is only (mostly?) invested abroad)
Show threadPatricia AasJul 2, 2024
11/ I am wondering how much these “models” are suited for a global economy. The US might be able to control its inflation inside its own country, by dramatically reducing importation. But if a country is a massive importer, I don’t see how you can control inflation… or it depends on What Inflation Is. Which is… what I’m struggling with. I think their simplistic models are crashing with the Real World here.
Show threadPatricia AasJul 2, 2024
12/ People have told me before that inflation is what happens when the “economy is overheated” (too much spending/consumption) so increasing interest rates are a way to “cool down the economy”. But that makes zero sense for Norway right now.
Show threadPatricia AasJul 2, 2024
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.
Show threadPatricia AasJul 2, 2024
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.
Show threadPatricia AasJul 2, 2024
15/ And young people and families are being hit the hardest because they are either renters (and rents are increasing because of the interest rates and the cooling of construction because of the higher import costs and higher intrest rates) or early homeowners with big mortgages.
Show threadPatricia AasJul 2, 2024
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.
Show threadPatricia AasJul 2, 2024
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.
Show threadPatricia AasJul 2, 2024

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.

Show threadDan LykeJul 2, 2024

@Patricia just an ignorant 'murican here, but also: My impression is that a lot of the economy of Norway has been petroleum based?

I'd think with the drive to get off oil, that increases the risk.

Show threadPatricia Aas
@danlyke sort of, but then Germany shut down its nuclear reactors and Russia invaded Ukraine and we don’t only have oil, we have gas, and mainland Europe uses a lot of gas. So we’re (as a country) earning a lot of money off of this situation too.
Jul 2, 2024 at 7:51pmWeb
Show threadDan LykeJul 2, 2024
@Patricia yeah, after I typed that I thought about my brother in law, who's deep into a venture that involves what looks like a failing Alberta oil well, and on the one hand I'm like "that's terrible, I hope something comes from it so you can keep your house", on the other hand I hope oil in 2024 doesn't have much of a future.
Show threadBilly O'NealJul 2, 2024
@danlyke @Patricia Norway might have made money with hydrocarbons but describing it as a petrostate like this is kinda reductive
Show threadDan LykeJul 2, 2024

@malwareminigun yeah, although Statistia says oil is 23% of GDP down from 35% last year, up from 11% in 2020, which could be seen as having the potential to make the currency volatile.
https://www.statista.com/statistics/1450033/oil-industry-share-of-gdp-norway/

@Patricia

Norway: oil industry share of GDP 2024 | Statista

In 2024, Norway's oil and gas industry is expected to contribute nearly 24 percent to total GDP.

Statista
Show threadPatricia AasJul 2, 2024

@danlyke @malwareminigun this is why we have strict rules on spending it, most of it is just stuffed into the sovereign wealth fund and it only spends it abroad.

“The funds holdings in equity markets
The equity investments consists of ownership shares in about 9,000 companies world wide. On average the fund owns 1.5 percent of all listed companies.”
https://www.nbim.no/en/the-fund/Market-Value/

And that’s just the stock portfolio. In addition they have a real estate portfolio. Norway as a country is very wealthy. But that doesn’t translate to Norwegians being wealthy.

The fund's market value | Norges Bank Investment Management

The fund's market value is affected by investment returns, capital inflows and exchange rates. Learn more about the market value development.

Norges Bank Investment Management
Show threadBilly O'NealJul 2, 2024

@Patricia Right, so rather than raising interest rates, they could avoid being 'overheated' by selling some of those foreign assets for USD, then use those USD to buy NOK, thus raising the effective value of NOK.

Central bankers usually don't like doing that though because it's often very short term as a fix. For example, https://youtu.be/q4k8SGmJqIA

How George Soros Broke the Bank of England

YouTube
Show threadPatricia AasJul 2, 2024
@malwareminigun I don’t think I have heard of that being done here… instead I think they siphon off what they need before selling it off for foreign currency. I need a Norwegian economist.
Show threadBilly O'NealJul 2, 2024
@Patricia Put another way, raising interest rates is an attempt to encourage foreigners to buy NOK because they can get a better return than using their native currency. Not that I would encourage buying Rubles despite Russia's central bank offering like 20% APR. :) Selling sovereign wealth assets to buy NOK does the same thing, except the buyer is the sovereign. Either way, the money supply (in NOK) per amount of goods or services in the economy goes down.
Show threadPatricia AasJul 2, 2024
@danlyke I agree, unfortunately the Norwegian government isn’t doing nearly enough to give us a leg to stand on when it’s over. And it should be.
Show thread🐈‍⬛David SommersethJul 2, 2024

@Patricia @danlyke

I generally find the petroleum taxation and the Government Pension Fund Global (GPFG, aka "the oil fund") both confusing and fascinating.

This page has a nice overview of the whole mechanism: https://www.norges-bank.no/en/topics/liquidity-and-markets/Foreign-exchange-purchases-for-GPFG/

What I believe might be an overrated misconception is that Norway will go bankrupt quickly if we lose the petroleum tax. Yes, the investment growth will need to be less aggressive (at least for some time), but the value of the GPFG itself will just increase as the value of the investments increases. And yes, the amount used to keep the state budget deficit in balance will most likely need to be adjusted.

The overall value of the GPFG is so enormous (almost 18 × 10¹² NOK; I lack the English vocabulary for that kind of amounts), invested in closer to 9000 companies in 72 countries ... with a good management, that value will just continue to increase - as long as the government does not decide to over-spend what is available - and the parliament seems to be in agreement here. More details on GPFG: https://www.nbim.no/en/

For that amount of investments to go bad - basically the economy across the whole world would need to totally collapse quite abruptly, almost at once everywhere.

It seems the overall generic message to the public is that the petroleum tax will reduce the future investment possibilities in the GPFG. They seldom seem talk about how that fund could actually develop without the petroleum tax - except "it won't be as good as now".

That doesn't mean I think we should just shut down the petroleum based production over night; it needs to be more controlled, phasing it out over some years - to avoid too many unemployed workers at a short time, etc, etc. But I struggle to see it as a complete disaster to stop the production over time, especially due to the size of the GPFG.

We just need to think differently about how that fund is managed and what the government can spend from it for the budget deficit. Norway just need to readjust itself to new realities.

Other initiatives from the government to replace the petroleum tax with something else will happen too; we live in a capitalistic state - we always wants more.

Norges Bank’s foreign exchange transactions on behalf of the government

The Norwegian government receives revenues in both NOK and foreign currency from petroleum activities. Some of these revenues are used to finance a planned central government budget deficit. Norges Bank carries out the necessary foreign exchange transactions associated with petroleum revenue spending. These foreign exchange transactions are planned and smoothed over the year and are pre-announced each month.

Show threadPatricia AasJul 2, 2024
@dazo @danlyke oh, that’s not what I meant, I absolutely agree, but we need to invest in growing other sectors that have seen very little growth because… well, we didn’t need to. We have a highly educated population, we could be contributing a lot more to trying to prevent a global climate disaster.