Credit can be used to finance education, a car and a place to live while we are young and enables us to enjoy the benefits while earning money to pay for them. Over the past century, a modern financial system has evolved that provides ample access to credit. A welldeveloped credit market is an important part of a well-functioning economy. There is another side of the coin: Once we have incurred a debt, it remains with us. The debt must be repaid – with interest. We might say that while credit is an unvarnished good, debt is a necessary evil. Paying for bread already eaten can be tough. When we borrow money, we draw up a repayment plan with the bank. Implicit in this plan are a number of expectations – regarding our future earnings, net worth and interest rates. If these expectations pan out, the plan succeeds. We arrive at the desired outcome. And many times, the future turns out even better than expected. In recent decades, house prices have risen and with them our wealth. Income growth in Norway has been high and has benefited nearly everyone. At the same time, interest rates have fallen to historically low levels. This has made a high debt burden easier to bear. In forming our expectations, we often look in the rear-view mirror. As anyone knows who has driven a car, mirrors are important. But if you only look back in the mirror, you will land in the ditch.
They also depend upon other key players like the Ministry of Finance and they depend upon the efficient working of the financial markets. Other preconditions for Inflation Targeting can partly be met by the Bank of Albania. The full implementation of Inflation Targeting can therefore take place ONLY conditionally. One can compare this situation with the tailoring of a suit for a special occasion. Let me make this comparison. One can find a good tailor and ask him to make a suit for a special occasion. All measures can be taken, such as the length of the arms and the length of the legs. The suitable materials can be found. One needs the appropriate fabric, in the appropriate color. Upon all these preconditions of (1) the good tailor (2) the precise measures (3) suitable materials, the tailor can start the tailoring of the suit. But, there is still no guarantee that the suit will fit you perfect. Or, it may happen that you look appealing in the tailor-shop, but not at the day of the special occasion. For instance, the temperature may have fallen so that you need an additional coat, or even a different fabric. Or, the environment of the special occasion may make you look overdressed. You tried to make it perfect, but the environment is lagging behind. Factors that you could not influence yourself can make you look different from how you had wished to look with the new suit.