Marc Faber, Finn Kydland, and Steinar Juel

By: J.K. Baltzersen

The mainstream media in Norway rarely report any economists disagreeing with the “solution” of bringing down interest rates.

However, last week Dr. Marc Faber paid a visit to Oslo, and he was quoted as saying that every time the government prevents a crisis, it creates a bigger one, central banks cannot be trusted, and that everyone should be “his own central bank” and own gold.

Yesterday, Nobel Memorial Laureate Dr. Finn E. Kydland, Professor of economics at the University of California at Santa Barbara, according to Dagens Næringsliv (in Norwegian), gave a talk in Stavanger here in Norway. He is reported not to believe in the “crisis packages.” He reportedly said that it is about an incredible amount of money and reminded the audience that this is the taxpayers’ money.

Dr. Rydland is quoted as saying:

It seems like the government has pushed the panic button without thinking through what the money is being used for.

The Nobel Memorial Laureate is further quoted as saying:

What you do to avoid a decline in the short term can have very unfortunate effects in the long term.

Moreover, a Principal Economist of a major Norwegian bank, Steinar Juel of Nordea, has broken with the consensus, also according to Dagens Næringsliv (in Norwegian), and according to E24 (in Norwegian).

Although Mr. Juel doesn’t dismiss the use of monetary policy altogether, does say crisis management should be done through fiscal policy rather than through monetary policy, and somehow comes up with a “normal” central bank interest rate of around or slightly above 4 per cent, the current rate being 3.0 per cent with a central bank prognosis of going further down, some of what he does say is interesting.

He is reported to have said that we are “pushing our problems ahead” and that the “growth of debt is not being lessened enough.”

He is further quoted as saying:

The past years, Norwegian households have increased their debt heavily. Too heavily, most analysts agree. The interest rate cuts in the past weeks prevent the debt growth from coming down as low as it should.

Hence, house prices fall less than optimal. House prices have risen heavily and for a long time, and we needed a correction. The correction we have had is not enough.

[I believe] that the current interest rate cut results in Norwegian debtors not learning that capital in fact costs.

If they take too big loans, they learn that [Central Bank Governor] Gjedrem always comes to their rescue. By lowering the interest rate so much as we have now, we are deprived of an important disciplining effect for Norwegian debtors.

The Principal Economist reportedly empasizes that the central banks consistently are too slow at increasing the interest rates, and is quoted as saying:

It is more popular to cut the rate. Thus, better and more concrete proof is required for increase, and the central banks therefore make increases often too late, both in Norway and the United States.

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