Svein Gjedrem: Economic perspectives Annual address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway), at the meeting of the Supervisory Council of Norges Bank, Oslo, 11 February 2010. *  *  *  This current global crisis had its origins in an abundant supply of credit, market participants who took steadily higher risk and a lack of oversight on the part of banks, companies and authorities. This is reminiscent of a play by Bjørnstjerne Bjørnson’s entitled “A Bankrupt”. In a conversation between the main character, Tjælde, a businessman, and his daughter Valborg, she says that no man of honour would keep his family or his creditors in ignorance of the events that foreshadow a crisis. Her father rebukes her: 1 “… you don’t understand what a business-man’s hope is from one day to the other – always a renewed hope. That fact does not make him a swindler. He may be unduly sanguine, perhaps – a poet, if you like, who lives in a world of dreams – or he may be a real genius, who sees land ahead when no one else suspects it.” The conversation is also reminiscent of current discussions about accounting principles. Then, as now, the mark-to-market value of assets was under debate. Tjælde says: “[…] values are fluctuating things; and [a businessman] may always have in hand some venture which, though it cannot be specified, may alter the whole situation.” Valborg has little regard for ventures at creditors’ expense. She thinks accounts should be transparent.
The cost level began to rise, although this was related to the sharp improvement in Norway’s terms of trade at that time and a gradual pickup in growth abroad. Prices for Norwegian exports such as oil, gas, metals, minerals, fish and freight, rose markedly, while prices for imported goods fell. From 2003 to 2008, terms-of-trade gains alone pushed up national income by more than 20 per cent, or a good 4 per cent per year. Institutions and mechanisms had also been put in place to manage the sharp increase in income. Norway’s sovereign wealth fund, which is now called the Government Pension Fund Global, and the fiscal guidelines were established with the express purpose of preventing fluctuations in oil prices from feeding through to the mainland economy. Improved terms of trade, higher revenues and increased government spending contributed to a shift in real resources towards sheltered sectors and to a stronger krone, but at the same time the fiscal rule provided a basis for growth in business sectors other than just the oil industry and the public sector through the decade. Norway had a plentiful supply of labour from new EU  6  BIS Review 15/2010  countries and experienced several years of high output growth. At the same time, the inflation target for monetary policy provided a sound anchor for inflation expectations. In 2008 the expansionary period was drawing to a close. Costs had risen sharply, credit growth had been strong, the interest rate had been raised and house prices had started to fall.