Funny Money

I recently sold my house in Norway. I did not want to do that, but the there was no other way. The taxman kept hiking the rent. It was becoming impossible to keep up.

However, it was not a bad time to sell the house. I got a full 16,000 gram of gold for it.

I wasn't paid in gold of course. I was paid in Norwegian Krone.

Still, it was an insane amount of money for a modest house, and the question that springs to mind is why anyone would be willing to pay that much for it. We are talking 20 years of savings, at least.

The only answer I can think of is that the house was in fact paid for in NOK, rather than gold. Everyone knows that the Norwegian Krone has lost 99% of its purchasing power over the last 50 years or so, and this was calculated into the price.

The assumption is that the NOK will fall a further 99% over the coming 50 years.

The assumed inflation over the next 50 years was brought forward into the calculation of the price.

However, the error in this is that the inflation has not already occurred. It's still in the future. As a seller, I am free to convert the NOKs that I got into gold, and that what I've done. After paying down my debts and setting aside some money for near term consumption, I've converted the rest of all the funny money into real money. In this way, I've locked the transaction into the present. Future changes in the purchasing power of the Norwegian Krone makes no difference to me.

No mater how one looks at it, the purchaser of my house, paid 16,000 gram of gold for my house.

He may of course still be right. Inflation may reduce his debt burden substantially. However, that relief is not going to come out of my pockets. Relative to gold, house prices in Norway are almost certainly going to go down.