Patricia Aas18/ 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.
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.
But what if they’re just wrong?
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.
https://www.dn.no/makrookonomi/norges-bank/makrookonomi/norges-bank-oker-kronesalget-til-550-mill-kroner-per-dag-i-mai/2-1-1635409
35/ it’s funny how Norwegian newspapers and even the central bank are not even pretending this has anything to do with us. You want to know what numbers the Norwegian central bank is looking at to figure out if they can lower the Norwegian interest rate?
The unemployment rate in the United States of America.
https://e24.no/internasjonal-oekonomi/i/Xj6olo/viktige-jobbtall-kan-skyve-paa-rentehaapet-fed-har-tatt-feil-foer
https://www.nrk.no/ytring/det-haster-overhodet-ikke-med-rentekutt-1.16778904
36/ Turns out that the pre-Friedman King of Economy, John Maynard Keynes, agreed with me (according to the book), or the quote is about the opposite (about lowering the interest rate to make people take out loans)… but it turns out to be kind of the same for the NOK 🤪
“You can’t push on a string”
Turns out that perhaps the quote is misattributed 😅
https://en.wikipedia.org/wiki/Pushing_on_a_string
My point being: you can try to make your currency attractive, but you can’t make people buy it.
And I posit that the NOK is weak because the planet is fucked and everybody knows it.
https://youtu.be/q4k8SGmJqIA?si=MbtjKvkm6uxnl_54
How George Soros Broke the Bank of England
40/ And one sector is particularly vulnerable: construction. Because:
1. Materials (imported) are much more expensive
2. Interest rates are way up, so a lot of projects are halted due to financing
3. They are dominated by highly unionized workers and their salaries just went up (because the unions didn’t negotiate with them, they negotiated with the swimming in money export sector)
So all sorts of companies associated with construction are going bankrupt.
points out, housing prices are not going down as we expected.
https://hachyderm.io/@intarga/112719682482183505
Ingrid (@[email protected])
@[email protected] I find the interest rate situation in Norway extra annoying, because even with it not working to bring down inflation, the one silver lining it should have had was to cool the housing market. Instead, house prices are still going up because we completely stopped building 🙄🙄🙄
43/ And that gets us the whole “what is inflation?”. Because if it is that it is harder to make ends meet because everything is more expensive. Then they are actually creating MORE inflation.
Yeah, we are exposed to the exchange rate, but now we are killing the economy that’s supposed to compensate, while driving actual living costs even further through the roof.
44/ Housing is also a weird market in general, because once you’re in, you buy and sell in the same market. So that market becomes sort of disconnected from everything else. Because demand is constant and supply is pretty constrained: the people selling their homes and newly built stuff.
But with no construction the supply is even more constrained, and the people buying are mostly the people selling, so it becomes a strange closed loop system.
45/ However, if you are a renter you are also getting hit, again by different effects. The current left coalition (and previous iterations) have wanted to make it less lucrative to be a landlord. So margins have shrunk due to higher taxes etc. But a lot of this has been funded through loans, and so those margins are getting squeezed further. So landlords are either selling off their properties, which are often in the cities, or raising rents. But the housing market is undersupplied so it just absorbs these properties.
So now we have fewer rental properties, which would drive up prices on its own (according to economic theory 😅), but the remaining market is also increasing rent to compensate for higher interest rates.
So even if you rent you are getting hit by the interest rate. And actually it’s worse there, because rents will for sure not go down in the same way mortgages will if/when they reduce the interest rate.
46/ Or in kubernetes analogy (because of Cybercyn and the book The Unaccountability Machine): some stuff in our system (the Norwegian housing market) are auto-scaling in some cloud, some are manually scaled (by buying and adding new servers in our on prem data center) and once the peak in consumption is over, some things might scale down quickly, but some are stuck now with a lot of expensive hardware taking up space in our server racks.
Mortgages are in AWS and rents are on-prem in my very confusing analogy.
Pär Björklund@Paxxi From my current understanding that is an artifact of how the field was formed. It was formed around the idea that it could be reduced (correctly) to a quite simple formal model (there are a bunch of competing ones) and within that formal model they could do (quite basic) math.
The problem is, that the system they are dealing with is a complex adaptive system, and their mappings to their models are wrong, not because they didn’t find the right one, but because it isn’t possible to do.
But that also means that they haven’t developed the toolset to deal with that complexity. And they don’t realize, because… that is their field.
@Paxxi and related to that, something else occurred to me these past days: another thing such a discipline develops is a shrugging humility. They know they can’t do it perfectly. They do their best, but they don’t get hung up in fighting about who is right or wrong after the fact. They look out the window and shrug and say: oh well, looks like that storm front didn’t hit us after all.
This form of humility is tied to the fact that they know, and their peers know, that this is a complex system. You do your best, and then you see. Maybe you learn something that you can use later, maybe not.
Peter Toft Jølving@Patricia @Paxxi Most economic forecasting models are relatively simple and don't require supercomputers (because the models are oversimplified).
Steve Keen takes a System Dynamics approach and has many more feedback loops in his models. He's also one of the fiercest critics of mainstream economics I know of, for many of the same reasons @Patricia is. Worth looking up, if it interests you.