Category: Norway

The fall and decline of USA and the USD

It has been quite some time since I've written anything in this blog, primarily for two reasons:

  • I've been too busy with everything else
  • I really haven't had that much on my mind that was worth writing about

But today I felt different, so here we go with my little rant, hopefully there will be some comments to it.

USD keeps depreciating against the Norwegian Krone (NOK). We have had a 2.26% depreciation the past two days and USDNOK is now trading at 5.1899. If we look at monthly data we see that NOK gradually has appreciated since 2002, when USDNOK was at levels above 9. It passed the 1992-high of 5.20 in august 2007 and is now trading around 5.19. This marks a 46% appreciation which, I believe, most will agree with is a massive movement.

I have no doubt that we will see USDNOK continuing to decline, and we'll see the 4-number before or during 2009. I speculate that after this; presuming the US can get its act together, we'll see normalization around 2013-2015 at a 6-7-range. But we'll see if time proves me wrong or right on that one.

One thing is certain. with EURUSD at 1.5, with expectations to reach 2 by 2010-2011, USA loses international purchasing power. The upside obviously being gaining competitive strength again.

And being competitive internationally is something the US of A has neglected for quite some time. If we e.g. look at the the automaker industry and agriculture; the political reign has been dominated by protectionism and neglected modernization, supported by, to mention one factor, strong lobbying from worker's unions.

If we look at the auto-industry, consider the gas-efficiency and some americans complaining about 2-3 USD / gallon gas prices. As a comparison, the after-tax-price on gasoline in Norway is about 13 NOK a liter, or 2.45 USD / liter, or about 9.26 USD / gallon. Then, if we look at the crude oil prices, which currently trades at or above 100 USD a barrel. Or, converted for american's convenience (it is not like we can expect them to do arithmetic), 100 USD per 42 gallons of crude oil; 2.38 USD / gallon for the raw material.

I expect to see even higher oil prices in USD-terms over the next couple of years, as USD depreciates against the Euro. Taking into account an EURUSD of 2 (versus today's 1.5) we have a 133 USD/bl oil price on just forex fluctuations. An oil price in the 150-200 USD range isn't something I'd be surprised to see, and that would still be relatively stable in Euro-terms.

With an upcoming presidential elections we can only hope that Americans will take a stance for a sustainable long-term economy, rather than going for the easiest quick-fix and consequently the politician promising the most. Of course, such a hope is against my better judgement, but that is after all why it is called hope.

Until then; the BRIC countries (Brazil, Russia, India and China) are what can help the global economy by supplying increased consumption. If we look at today's situation; where USA has a net negative savings rate (being indebted on average), China has a savings rate above 50%. Politicians are already trying to bring the savings rate down and support consumption rather than savings, in order to offset negative consumption growth from the US. And we are indeed seeing a slightly higher effort in savings, if only it had happened 15 years ago.

Indirect taxes

I get increasingly annoyed by the various indirect taxes in Norway, such as the fees for state services.

Re-regisitering a car is one of them, the fee to the state for purchasing a new appartment is another. The latter fee is about 2 percent of the price. Call me crazy, but I don't think the amount of work increases linearly with the price of the apartment or house.

One of the state's largest income sources is the Value Added Tax (VAT), which is 25 percent for generic items, 11 percent for certain groceries, and a whole bunch of other numbers for various transactions, such as 8 percent for the broadcasting license

When I purchased my car the re-registration fee was about 1300 USD. The cost estimates for the same task is about 50 USD.

After intensified media attention on the subject, the government might get more openness around these fees. The Secretary of Finance and myself probably have different reasons to react, however. Her reasoning is that it is unjustified because it is paid by the common man and not "the rich", a classification she place somewhere between one third and half of the Norwegian population in.

In my opinion these services should be priced at self-cost and not serve as yet another indirect tax.