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Norway’s Interest Rate Conundrum
Norway’s Interest Rate Conundrum
Current Situation
The ECB recently stimulated more than expected, cutting rates by five basis points and expanding quantitative easing. It is already expected that Norges Bank (The Norwegian Central Bank) will cut rates next week, seeing accelerating inflation as temporary. They have a 2.5% inflation target mandate “over time,” giving them lee-way. They see demand falling off while the local economy, driven by exports, recovering. Therefore, they feel that they can cut rates. My previous articles challenged the assumptions that the oil sector will recover, showing that new technology reduces long term prices below offshore break-even points, and exports can make up the difference, illustrating that key sectors, like fishing, can be replicated in Canada, Maine, Russia and Japan.
We are experiencing 1970’s style stagflation, coming from the supply side, not demand. Prices are going up because Norges Bank continues to destroy the Norwegian Krone, turning it into the Nordic Peso. This is where they are “hiding” the damage to save rest of the economy. For example, housing prices will rise in NOK but fall in USD or gold (universal commodity) terms. It’s a shell game, leading to long term decline or even worse, an unexpected period of elevated inflation, requiring a rapid rise in interest rates. Housing remains at risk in this situation (Norway does not have 30 year fixed loans, most people float monthly).
I am in no position to stop them from making trips to Thailand, fruit from Spain and iPhones from California more expensive, but at least I can share my knowledge with others.
The dashboard, above, lines up key figures, showing how low rates drive inflation, gradually eroding public wealth. It is important to notice that inflation is much higher than interest paid at the bank, punishing responsible behavior. A person’s savings diminishes over time in terms of purchasing power.
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Brazil Faces Unemployment “Crisis”, As Retail Sales Plunge, Rousseff Blasts “Coup-Mongers”
Brazil Faces Unemployment “Crisis”, As Retail Sales Plunge, Rousseff Blasts “Coup-Mongers”
Brazilian President Dilma Rousseff got a rare bit of respite on Tuesday when a Supreme Court justice granted an injunction that delays a lower house vote which could have paved the way for impeachment proceedings.
House speaker Eduardo Cunha has remained defiant, vowing to exercise his “constitutional prerogative” to review impeachment requests.
Of course Cunha has his own set of problems. Allegations of corruption tied to the discovery of Swiss bank accounts have led to calls for his resignation and that, in turn, has Rousseff’s “aides fear[ing] the speaker could try to speed up the impeachment process.” As Reuters notes, if Cunha accepts even one of three impeachment petitions he has on his desk, “a parliamentary commission with representatives of all parties would analyze it and put it to a lower house vote.”
It is essentially a race against time to see if the house ethics committee will force his resignation before he can secure the lower house support to force a Senate impeachment trial.
For her part, Rousseff has accused the opposition of “coup-mongering” following last week’s ruling by the TCU that she cooked the fiscal books.
Meanwhile, as the intractable political stalemate keeps investors on edge regarding whether the government will be stable enough to enact the reforms needed to plug the budget gap, the economy continues to crumble.
We got a look at retail sales for August today and the picture was not pretty. Core retail sales fell by a larger-than-expected 0.9% month on month and July was revised lower to -1.6%. Broad retail sales fell 2.0% auto sales crashed 5.2%. Annually, core fell by 6.9% broad by 9.6% yoy. Here’s Goldman with the takeaway:
The near-term outlook for private consumption and retail sales remains negative owing to the significant deceleration of credit flows from both private and public banks, high levels of household indebtedness, declining job creation and real wage growth, higher interest rates, higher taxes (including via inflation), higher utility and transportation tariffs, heightened economic and political uncertainty and very depressed (record low) consumer confidence.
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