Currencies Take What the State Gives

The Norwegian state passed a generous budget this year, up 4% in expenditures, with no corresponding increase in taxation. Just about everyone was a winner.

By the looks of it, it was a free lunch for all. However, a fall in the Norwegian currency (the NOK), demonstrate the old saying about free lunches. They do not exist.

Less than 2 weeks after the budget was passed, the NOK is down 2%. This reduces the purchasing power of the average Norwegian household by a corresponding 2%, because just about everything they buy is imported. Half the free lunch is already gone, and the most likely outcome over the next 11 months is that the NOK will be down 4% or more, rendering the free lunch null and void for all.

This illustrates yet again that the state cannot create wealth. It can only push wealth around. When the state seeks to create wealth through expansion, the local currency yields all the gains back into the economy.

20 NOK bought 8 grams of gold in 1874.

It now takes 3500 NOK to buy the same amount.

By Unknown - Oslo Mynthandel, Public Domain, Link