Norway's Authorities Get Cold Feet
We have recently remarked on several occasions that at the borders of the euro-area, various asset bubbles have emerged as central banks in the surrounding nations have emulated the ECB by lowering their interest rates, mainly for mercantilistic reasons. This is to say, they wanted to lower the attractiveness of their currencies to investors fleeing the euro at the height of the crisis. Contrary to what Ben Bernanke has been saying, it does matter to long-lived assets such as property what the interest rate backdrop is. Bubbles in mortgage credit and house prices do not just drop from the sky, and they are also not the result of 'too little regulation'. If anything, regulations have egged them on (this is especially true in the US).
The mercantilist currency policies of the Swiss and Scandinavian central banks have not been without consequences. Property and credit bubbles have been in train everywhere and are now beginning to wobble. The latest example of authorities getting worried about this development is provided by Norway. As was the case in Sweden, the country already went through a property-bubble related crisis in the early 1990s and now wants to belatedly avert a repeat.
Norway's financial regulator is throwing its weight behind a government proposal to force banks to assign higher loss probabilities to mortgage assets as the nation looks for ways to cool its overheated property market.
The Financial Supervisory Authority in Oslo will add stricter risk-weight recommendations to a raft of measures, including curbs on covered bond issuance, all designed to prevent a repeat of the 1990s crisis that sent Norway's real estate prices plunging 40 percent and left households with unsustainable debt loads.
"The FSA shares the ministry's concern for household indebtedness and soaring house prices," Morten Baltzersen, who heads the watchdog, said yesterday in a telephone interview. "We agree with the ministry that the risk weights on house loans need to be increased."
The Finance Ministry in December proposed tripling risk weights to 35 percent, more than double the recommendation in neighboring Sweden, after Norwegian house prices and private debt burdens soared to records. The FSA's response signals banks should start adjusting to the stricter requirements, now that the measures have won both government and regulatory backing.
House prices in Western Europe's biggest oil exporter have doubled since 2002, and rose an annual 8.5 percent last month, according to the Norwegian Association of Real Estate Agents. At the same time, household debt will swell to more than 200 percent of disposable incomes this year, the central bank estimates. In the years leading up to the 1990s bubble, the debt ratio reached about 150 percent.
As central banks in the U.S., Japan and the euro area keep interest rates at unprecedented lows to aid growth, some of the world's richest countries like Norway, Switzerland and Sweden are battling overheated housing markets fueled by cheap money. Norway's central bank has kept its main rate at 1.5 percent since March last year as policy makers try to balance an overheated housing market against keeping krone gains in check.
Low interest rates have contributed to imbalances in the housing market that the FSA says can't go unfettered any longer. Banks' internal risk models have also failed to capture the threat of losses that the development has caused, according to the regulator. "We endorse the Finance Ministry's view that risk weights in the banks' internal risk models do not sufficiently capture the underlying relevant risk on residential mortgage lending, particularly the systemic risk involved," Baltzersen said.
Central Banks and Fiat Money Are a Danger to Civilization
And there you have it: "Norway's central bank has kept its main rate at 1.5 percent since March last year as policy makers try to balance an overheated housing market against keeping krone gains in check."
They didn't want their currency to strengthen, and so they allowed the biggest property and household debt bubble in the country's history to develop, just as has happened in Sweden and Denmark. And just as is the case there, the authorities are reacting far too late to the looming catastrophe. Like in Sweden, they want to 'avoid a repeat of the 1990's crisis', when obviously price distortions and household debt loads are already at a far greater level than they ever reached in the 1990s. There is nothing left for them to avert!
It is better to try to stop the bubble late than never, but it seems clear that there can be only one outcome: yet another 'crisis', a bust that will likely dwarf its 1990s precursor. Well done!
This is what the fiat money-based central bank-led banking cartel has 'achieved' all over the world - it has created conditions that can only result in major crises and depressions. It is high time to abolish this system: by now it positively endangers civilization.
We can see this in the rise of radical political parties in the countries worst hit by economic crisis in Europe. Do we really want a repeat of the upheavals of the 20th century, just because a bunch of interventionists and central planners living in the virtual reality of their 'models' believe they can do better than the free market?
Norwegian krone against the dollar (a decline means the krone is strengthening) - click for better resolution.
The krone - euro cross rate - click for better resolution.
The fjord into which all of Norway will soon fall.
(Photo credit: unknown, via topwalls.net)
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