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.
47/ I don’t know what the answer is, my earlier idea of constraining the supply of NOK… it looks like they did that, and it had apparently about as much effect as the interest rate (not much if any).
Maybe without these two things it would’ve spiraled out of control… but I don’t think so, because this wasn’t caused by our economy.
So maybe the best thing would’ve been to just accept it? Yeah, the NOK is weak, because the world is rough, increase salaries some and just sit tight? Maybe even stimulate internal growth to compensate?
52/ Ok, I think I get it. MMT says that a deficit isn’t a sign of government overspending, inflation is. (And here they are clearly talking about the overheated economy inflation) So as long as the spending doesn’t cause inflation, it doesn’t matter if you run with a deficit even over a longer period (she mentioned decades).
So basically she is sort of saying that deficits aren’t real because taxes aren’t real.
This is more like the water in a radiator system (my analogy). You can add in water or remove water, but the system isn’t the water. And adding water (money) only becomes a problem when the pressure in the system gets too high and water starts spilling out somewhere.
Basically, money isn’t “real”. It’s… just water in a radiator system in a building. The building and the radiators and the people living there are the real things.
(h/t @joelving and the 5 other people who have brought it up)
https://mastodon.joelving.dk/@joelving/112720891429481986
Peter Toft Jølving (@[email protected])
@[email protected] @[email protected] 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 @[email protected] is. Worth looking up, if it interests you.
https://debunkingeconomics.com/episode/does-modern-monetary-theory-make-sense
Does Modern Monetary Theory make sense? | Debunking Economics - the podcast
Modern Monetary Theory states that’s, because the government of a country is the monopoly supplier of money, it has an unlimited capacity to pay for things and...
https://en.wikipedia.org/wiki/Reserve_currency
1. Through exports
2. Printing money
3. Borrowing from banks
https://www.norges-bank.no/en/topics/liquidity-and-markets/Foreign-exchange-purchases-for-GPFG/
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.
62/ I feel so smart when I read news articles that agree with me 🤓 🤣
“And an interest rate increase will not help, he believes. - The higher the interest rate goes, the more landlords have to raise the rent, and then the interest rate increase is inflationary. It does not have the same effect as in the housing market, where prices fall if interest rates rise. The interest rate is not a good weapon to deal with this kind of inflation. It makes matters worse, he says.”
https://e24.no/norsk-oekonomi/i/93zl4d/uenige-om-leieprisene-det-gjoer-vondt-verre
65/ After spending ages on inflation, I’m apparently breezing through chapter 3 “The National Debt (That Isn’t)”
Basically, in the same way tax isn’t real (in that it is just a mechanism to remove money from the economy and/or create demand for the currency. MMT says that the deficit isn’t real. Very clear that it is the US they are talking about. To generalize to more countries she picked the UK and I would’ve preferred another more “normal” country.
BenAvelinghttps://social.vivaldi.net/@Patricia/112718351291256230
Patricia Aas (@[email protected])
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)
Patricia Aas (@[email protected])
52/ Ok, I think I get it. MMT says that a deficit isn’t a sign of government overspending, inflation is. (And here they are clearly talking about the overheated economy inflation) So as long as the spending doesn’t cause inflation, it doesn’t matter if you run with a deficit even over a longer period (she mentioned decades). So basically she is sort of saying that deficits aren’t real because taxes aren’t real. This is more like the water in a radiator system (my analogy). You can add in water or remove water, but the system isn’t the water. And adding water (money) only becomes a problem when the pressure in the system gets too high and water starts spilling out somewhere. Basically, money isn’t “real”. It’s… just water in a radiator system in a building. The building and the radiators and the people living there are the real things.
Peter Toft Jølving@Patricia @BenAveling MMT'ers would balk at your description of MMT as something you do. MMT (the theory) is descriptive and not restricted to reserve currencies.
What they mean when they say "the national debt isn't real" is that it's a misnomer designed to invoke fear, when in reality it's just the amount of private and foreign savings in USD.
The same goes for NOK. Whatever money the government has not yet claimed in taxes can hardly be called a debt, and it certainly can't be repayed.
https://hachyderm.io/@Paxxi/112722564886670819
Pär Björklund (@[email protected])
@[email protected] I remember reading about how trade deficits aren't really a problem for the US because of being the reserve currency. This covers it a little bit https://www.investopedia.com/ask/answers/061515/what-happens-us-dollar-during-trade-deficit.asp
https://social.vivaldi.net/@Patricia/112721829837311925
Patricia Aas (@[email protected])
57/ The parts of MMT that I like are the descriptive parts. Where they just talk about How Stuff Works In Practice. The problem I have (and tbh they are by far the worst here) is that when they slip over from descriptive to prescriptive it’s like they don’t even notice. They go straight from How Stuff Works to My Opinion without skipping a beat. And then I start to wonder if they can even tell the difference.
@Patricia @BenAveling @Paxxi yeah, I do seem to remember her glossing over it pretty quickly (it's been a while since I read the book).
I remain confident, even though I can't "prove" it, because I remember sooooo many discussions and Twitter before it went 💩, where critics would attack MMT saying "MMT is printing money" or "MMT is impossible to do unless so and so" and them having to untangle the monetary analysis (what they see as MMT) from what had previously been ruled out as impossible.
Weltzeitgeist
(rainynight65) has movedhttps://social.vivaldi.net/@Patricia/112720730242564693
Patricia Aas (@[email protected])
52/ Ok, I think I get it. MMT says that a deficit isn’t a sign of government overspending, inflation is. (And here they are clearly talking about the overheated economy inflation) So as long as the spending doesn’t cause inflation, it doesn’t matter if you run with a deficit even over a longer period (she mentioned decades). So basically she is sort of saying that deficits aren’t real because taxes aren’t real. This is more like the water in a radiator system (my analogy). You can add in water or remove water, but the system isn’t the water. And adding water (money) only becomes a problem when the pressure in the system gets too high and water starts spilling out somewhere. Basically, money isn’t “real”. It’s… just water in a radiator system in a building. The building and the radiators and the people living there are the real things.
@Patricia I don't follow the radiator analogy.
My simple understanding currently is (and I should acknowledge that each of these was once a revelation to me and that journey is incomplete)
1. money is debt.
2. government debt is fundamentally different to household debt.
I think we've covered the first one. (But note that it surprises people)
The second one, and maybe we're retreading ground already covered, but so be it.
cont...
@Patricia Household debt is about balancing consumption over a lifetime. We borrow to buy a car, a house, which we then use while we repay the debt.
Government debt's not like that, because governments are, for practical purposes, immortal. It doesn't need to be repaid, or if it does, it can be rolled over and funded with extra debt.
Extra debt can always be issued (printed). But there are consequences.
cont...
@Patricia The immediate consequence of printing money is that all the money you've already printed becomes worth less. (Not worthless, just, worth less)
Over simplification, but imagine you have a fixed supply of goods, and a certain supply of money. And you print a lot more money, as much again, for example.
Suddenly, you have twice the currency chasing the same quantity of goods. Absent price fixing (which is a whole 'nuther issue), the price of goods will double.
So far so good?
True that there is no limit on how much money is printed, but there are consequences.
For the US, those consequences are small, because there's so much money already printed, a bit more doesn't make much difference.
And yes, this is massively oversimplified. But lets add complications one at a time.
First, the supply of goods is not fixed.
cont...
Then we'd have the same amount of money chasing more goods - prices would drop.
Deflation. Sort of the same consequence as before, but in the other direction.
To have zero inflation, we need the supply of goods and the supply of money to grow at about the same rate.
This is still massively oversimplified of course.
Lets use the radiator model for a moment.
If we turn up the radiator, the room should get warmer, right?
But does it always?
What if someone also opens a couple of windows.
Even though we turned up the radiator, the room is getting colder. Just, not as fast as if we hadn't turned up the radiator.
Our model is insufficient, but that's different to saying it's not useful.
Harmful? Perhaps.
Cont...
67/ To be fair, I think that issue is pervasive in the whole field. They are not able to separate ideology from models of the economy. And then they infuse in morality and destiny and Right and Wrong in these models until it’s more mythology than science.
And I don’t mind ideology. I have a great helping myself. But when you’re already in a non rigorous field, mixing opinions into “models” makes the whole thing even less serious.
A complex system is what it is. You find out the shape of it empirically. You can form hypotheses, design experiments and test. You don’t sit in a corner and Devine It. You might have a famous “shower thought” but then you test.
And seriously, these people (economists) don’t test ANYTHING.
68/ I really thought I’d be more convinced by leftist economists. But they are methodically all very similar. And it is the methodology I have issue with in this whole… project(?).
This field has imo structural issues and they aren’t fixed by the practitioner being less of an ass.
The problem is they believe in these simplistic models and that is standing in the way of developing the kind of tooling, discipline and humility needed when working with complex systems imo.
https://social.vivaldi.net/@Patricia/112719504676456386
Patricia Aas (@[email protected])
When you quote me I hope you pick the best quotes: “And I posit that the NOK is weak because the planet is fucked and everybody knows it.” https://social.vivaldi.net/@Patricia/112719497998588756
RAOF
Simon Frankau@Patricia A thing that makes it more interesting/tricky is that so many of the knobs are multiplicative.
For example, in many situations, you don't care about the amount of money, you care about amount x velocity of money, as the amount of economic activity going on. And that velocity can change rapidly depending on confidence.
In another case, loans affect money supply multiplicatively via fractional reserves.
Basically, lots of opportunities for positive feedback loops.
@Patricia Also, you mention interest rates as one of the few controls available. I believe at one point people tried to target the money supply rather than interest rates. Given money supply is a lot harder to observe and manage, this was something of a mess.
IR might be slightly further from what matters, but it is at least manageable. One of the rare cases where managing what you can measure is not only a simplification, but actually works better.
@Patricia In what I was saying, I didn't mean to suggest it's the only way of intervening. More like...
If you have a patient who's dehydrated, you're better off pumping them full of fluids and watching their blood pressure, rather than trying to calculate the volume of blood they have and working off that.
For a while, IIUC, bankers spent time trying to manage blood volume.
https://en.wikipedia.org/wiki/Bretton_Woods_system
Alper Çuğun-Gscheidel@Patricia This new Ones and Tooze is about Weimar and hyperinflation.
Lessons from the Weimer Republic - Ones and Tooze
Foreign Policy economics columnist Adam Tooze, a history professor and a popular author, is encyclopedic about basically everything: from the COVID shutdown, to climate change, to pasta sauce. On our new podcast, Tooze and FP deputy editor Cameron Abadi will look at two data points each week that explain the world: one drawn from the week’s headlines and the other from just about anywhere else Tooze takes us. Check out Adam Tooze’s column at https://foreignpolicy.com/author/adam-tooze/.