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ECONOMISTS have recently been wringing their hands over a supposed bubble in the Nordic area. The problem they see is that both housing prices and consumer debt have increased. A real estate collapse coupled with crippling debt levels is exactly what happened in America to trigger the financial crisis.

DENMARK has the most worrying situation. Consumers have loans equal to 321% of annual disposable income. Norwegians have debt levels which are twice their income. In Sweden it is 180%, and in Finland it is about 120%. In every country debt levels have been growing since the 1990s.

MUCH of this debt has been used to buy real estate. In Sweden, house prices are 140% higher than the 1993 lowpoint in after-inflation terms. In Denmark and Finland prices are 90% and 84% higher, respectively. In Norway values have doubled in ten years. In some cases Norway’s real estate market is especially troubling: in 2006, prices per square meter in Oslo and Stockholm were identical, but by the end of 2012 a flat in Oslo cost double than one in Sweden’s capital.

WHEN the financial crisis hit America there was a tendency in the Nordic region to tut-tut at the silly colonists. After all, we went through our own real estate-induced crisis in the 1990s and had thoroughly reformed our financial systems. Our newspapers were filled with speculation that the terrified Americans would come and beg us to tell them what to do. Just a couple of years ago we were self-satisfied and confident it couldn’t happen here, but now economists are saying it might. What happened?

MUCH of the developed West went through a retrenchment period as real estate prices fell. Banks were stuck with bad loans, so had to write off debt they couldn’t recover and raise more capital. Most of that didn’t happen here. Our real estate prices only took a modest dip and then continued to increase. Instead of being unable to service debt our consumers took on more. This is what has caused economists to scratch their heads and pound away at their modelling programmes.

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David J. Cord
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