Monday, 2 June 2014

Norway, Just Another Boom Bust Country: Money Supply Growth Rate Jumps to Highest Level Since September 2011

The money supply growth rate for Norway, as measured by M2 money supply excluding Money Market Fund Shares, increased to 7.5% for April compared to same month last year according to numbers just released by Statistics Norway. This was the highest year on year growth rate since September 2011.

Though the current growth rate is nowhere near the peaks from 2000 and 2007, the monetary inflation in Norway remains substantial and the money supply is up by 28.2% since January 2009. During the last two months, the growth rate has jumped above the longer term average of 7.1% for the first time since October 2011.

Looking at the credit data supplied by Statistics Norway, the growth in the money supply appears to be driven by increased credit granted to General Government and Households, which grew by 7.5% and 7.3% compared to last year. Overall, credit expanded 6.2% in April compared to last year with the 3.9% growth rate in credit granted to Non-Financial Corporation pushing the overall growth rate down.

A few days ago Robert Jenkins, who recently served on the Financial Policy Committee of the Bank of England, wrote
The banking system freezes when losses threaten to overwhelm banks’ loss-taking ability. And their loss-taking ability is determined by the degree to which their risk taking is funded with equity versus debt. In other words, financial stability hinges on the amount of capital in bank balance sheets. 
Unfortunately in Norway, credit expansion and money supply continue to expand relentlessly, even as domestic bank balance sheets remain weak and highly geared.

Such expansion inevitably leads to the, by now familiar to all, boom bust cycle - a boom created by an increase in credit not backed by a commensurate amount of prior savings leading to an increase in the quantity of money which sooner or later must end in a bust.

It's about time the Norwegian government, financial regulator and Norges Bank all listen to what the central banker of all central bankers, Jamie Caruana, the head of Bank of International Settlements, has to say on this subject: 
"the crisis is not an exogenous shock; rather, it represents the inevitable collapse of a previous unsustainable boom – the bust phase of a financial cycle". 


Norway's Biggest Bank Poses Serious Threat To Financial Stability