Monday, June 29, 2009

Norway Swapping Government Debt For Mortgages

Long perceived as a bastion of stability due to their oil-extraction based economy, and socialist system that the US can only dream to emulate, today the Norwegian Central Bank conducted a Dutch auction in which it exchanged NOK10 billion of government securities for residential and commercial mortgage loans. And not just any loans, but including those denominated in SEK, DKK, EUR, USD, GBP and CHF (well, in retrospect, looks like pretty much any loans). Exchange swaps will cover maturities between December 2012 and 2014. But aside from the specifics, it seems that even the Vikings are starting to monetize MBS: a process demonstrated to work phenomenally well at propping up a hollow economy by the likes of economic alchemists such as Bernanke and Geithner.

What is scarier is that the global "game theory" is starting to unravel: first it was the SNB that defected with regard to the US Fed's dollar devaluation policies, next China's constant posturing about USTs, Russia and OPEC's posturing about the dollar, and now Scandinavia. While we do live in a world where nobody trades with anyone else anymore, and every capital market and every asset class is merely an intraday casino operator's dream, this practice can last a while, but as the foundation at this point is rotten beyond measure, the eventual drop once capital markets catch up with asset fair values, will be enough to permanently and completely discredit the likes of such planted "optimists" as Kudlow and Kneale.

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