Denmark's Economy: is the Krone in Trouble?
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- Опубліковано 4 бер 2021
- The Krone is issued by the central bank of Denmark (Danmarks Nationalbank) and this video explores whether or not is has done a good job.
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Narrated and produced by Dr. Joeri Schasfoort (University of Cape Town)
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Extended description:
To answer the main question of this video, I explore the economy of Denmark through the lens of its exchange rate (and specifically it's peg to the Euro), inflation rate, GDP growth, and financial stability issues such as: housing bubbles, government and private debt levels, asset prices, and current account imbalances. I will compare its record to neighboring economies such as those of Norway, Sweden, Finland and Germany. Finally, I will review whether current monetary policy measures such as interest rate policy, quantitative easing and the exchange rate peg are sustainable.
You may not be as flashy as Economics Explained but you’re a lot more detailed and understandable
Thanks!! I'm trying to bring a bit more flash while keeping the research rigour.
EE is a joke. He's always pushing an agenda rather than educating.
I agree. Pure quality content. Appreciated 🙏
@@MoneyMacro No, it's good as it is. EE is over the top on the outside with no quality on the inside. Yours is just about right. It's like an interesting lecture. I appreciate your effort.
@@masstv9052 Does anyone know EE's education/background? The more I watched, the more it seemed like he did not understand anything at all!
As a Dane, I'm just happy that there are smarter people than me taking care of these things. No idea what they're doing, but life is nice.
Yes
The most way danes is thinking in complex questions :)
As a Dutchman spending 45% of income on rent and unable to get a high enough mortgage for the simplest house with my modal income, I hate the ECB and my government that refuses to counteract thr low interest side effect in the property market.
My generation seems to be sacrificed. I sure wish we had a guilder which we could unpeg.
Hejsa jeg er også dansk og jeg så at denne her video var i mine recomended
@@Jajalaatmaar its same in denmark you easy spend 50% on salery on rent, apartment prices are ridicules thats main fuel of the houseing bubble if i shuld say, iam 34 yr old not the best income and small apartment, iam considering getting a older house to live in and repair it be much cheaper almost half price but yea id be in debt, always avoided but feel kinda forced as yrs go by and look at what ive spent on rent ..
spent about 4000 on rent i could sit in a house for 2/2500 a mth ...its expensive to be poor in rich countries ..
Dane here as well.
True that the household debt is high, but it's also important to notice the kind of debt.
By far the wast majority of loans is government bonds which foreign countries really love to buy since it's a safe place to put your money and the yeld is decent.
It's also worth mentioning that the housing market in Stockholm and Oslo is much worse than in Copenhagen, even though the debt factor of Sweden apparently is lower.
And actually there was a run on the Danish krone back in January 2015. There was a huge buy of Swiss Francs which was also tied to the Euro, in the end the Swiss gave up and cut the peg to the Euro. Then the attack was turned on the Danish Krone in hope the same thing would happen, but it was controlled by the Danish National Bank by massive buys, printing more money, and lowering the interest rate to make the Krone less attractive, and it worked...
Ah thanks for pointing out this run on the Krone, it slipped me by for this video. Perhaps I will mention it / make a comparison in a future video on the monetary economics of Switzerland.
Yeah it is puzzling as to why household debt is higher in Denmark ... although I did find somewhere that a lot of that household debt is concentrated among wealthy Danes... perhaps for purposes of tax avoidance ... or pure leverage of investments?
I do not fully understand your point about how household debt ... type of debt ... is government debt?
@@MoneyMacro Sorry if my original post wasn't clear - I don't have an education in finacial or economics so this is pretty technical for me as an ordinary consumer - and in a 2nd language :-)
The real estate market in DK mostly consist of bonds with fixed intrest and expiration, so you can have a 1% bond for 10 years.The mortgage lenders sell the bonds bonds to investors who of course get a profit for this.
The house owners then make loans on the sold bonds. After the 10 years the bond needs to be renewed, at this time the intrest might have gone up or down, hence giving you "new terms" for the loan.
It doesn't have to be 10 years, it can be any number of years, though I've never heard of bonds longer than 30 years. Shorter bonds are often cheaper, but longer bonds give you the security against fluctuations of the interest rates. On top of this you can also have non-installment loan (? .. not sure it's translated correctly!), but where you only pay the intrests and don't actually reduce your debt.
This option was introduced in the early 00s and of course drove up the prices. Looking back it was truly irresponsible by the government to allow this!
At the same time the banks were allowed to own the mortgage companies, which gave them an incentive to pump as much cash into society as possible....
And again: On top of this the growth in population and the number of people who want to move to Copenhagen, the lack of affordable housing, have driven up the prices higher and higher.
Just this week the Danish National Bank released a report that something needs to be done about the housing prices. I assume they have the debt rate as well.
I've found this explanation and tried to run it through Google Translate, maybe it can explain the entire system better than I've done :-)
translate.google.com/translate?hl=&sl=da&tl=en&u=https%3A%2F%2Flaan.ekstrabladet.dk%2Fobligationslaan%2F
@@MoneyMacro, I think part of the explanation for the high household debt is that you can easily get a 30 year fixed interest mortgage at a very low interest rate. This means that even if things begin to go badly, then at least your mortgage won't come back to haunt you. There are also guidelines on how much households can borrow to begin with, determined by their income and current net worth. The combination of these two factors make it relatively safe to have a high mortgage, which in turn contributes to stability.
@@MoneyMacro Dane here. I believe what you're seeing is a combination of several things. When you look at household debt in Denmark, it is most likely dominated by mortgages. With the housing prices at a record high and interest rates at a record low, it is no surprise that both mortage debt and consequently household debt are very high. The reason why this debt is concentrated among wealthy Danes is simply that 1) they are the ones who could afford to make the down payment on an expensive home, and 2) they are the ones with a large enough income that the bank was willing to grant them the mortgage. What you are looking at is thus that rich people with well-paying jobs own expensive homes with large, low-interest mortgages. The rich thus have a lot of debt on paper - but they also own real estate worth more than their debt.
On top of that, you have the high taxation of high incomes in Denmark. If you earn enough to end up having to pay the highest income tax rate, you may be better off putting the money into a pension fund (thereby avoiding to pay income tax of it now) than to pay off your mortgage. This is of course especially true when your mortgage has a very low interest rate. So you are now have rich people with high income and a lot of debt in the form of a low-interest mortgage. But the same people own real estate that is likely worth far more than the mortgage and also a fat pension fund.
When their kids move out from home, the kids can of course not afford to buy an apartment in, e.g., Copenhagen. However, if the parents own a home, it has almost certainly appreciated in value since they bought it (given the recent developments in housing prices, this is almost certain to be the case). They can then buy an apartment to rent out to their kids. This apartment may be funded 100% by mortages, since it can be backed both by the value of the apartment and by the free value available in their own home (by which I mean the difference between its value and the existing mortgage the parents had). And now you suddenly have wealthy people owning multiple pieces of real estate with mortgage in all of them.
On the other hand, you have Danes with lower wealth and income, who cannot afford a down payment or qualify for a mortgage. Even if they are "in the hole" and have expensive consumer debt, the amount of household debt they have is almost certainly an order of magnitude lower than someone with even a modest mortgage. And you have the students who may have no debt but pay rent to their parents who own the apartment and have the mortgage in their name.
TL;DR version: The main way to have a lot of debt in Denmark is to get a mortgage when buying expensive real estate. To buy that you must be wealthy. Hence the debt is concentrated among the wealthy.
@@MoneyMacro There is definitely a lot of speculation among the wealthy on using household debt to avoid paying taxes.
I remember that fairly recently some banks got served by the state because they offered as standard to wealthy people advice on tax avoidance.
The clip of the Evergreen container ship didn’t age well.
Hahaha no way...
I did age pretty well, considering the ship shown in this video is called Ever Globe, as seen on the front, and NOT Ever Given. You should have taken a better look at the clip, before making your comment... Yes the Evergreen company owns both ships, but that doesn't make the entire company bad, only the people on the Ever Given. So discrediting the entire company of Evergreen, just because of one ship, really isn't the smartest thing to do. But thank you for showing how stupid you are...
@@Dreinorh At this point, it is pretty obvious that the fault lies in the risk management of the Suez Canal Authorities. It was a fluke that it happened to the Ever Given. But when your company logo is broadcasted worldwide as the cause of a global shipping crisis people are gonna take a jab at it.
As a Dane (and international political economist), I agree with pretty much everything you say. The housing market is completely almost completely unapproachable for younger people, unless you've been one of the lucky ones that has gotten a well-paying and stable job. Even then, it's more feasible to get a house in a smaller town, than in the city or suburbs.
The housing market in Denmark suffers exceptionally from gentrification (especially since the foray of Blackstone into the market). It's a crisis waiting to happen, unless something is done about it.
To a certain extend the increase in house prices is a sign of higher demand for a product that cannot easily be produced (land). Some economist even argue, that interest rates cannot fall to zero, because the value of the land would be indefinately high, as you still get a rent (interest) if you own a patch of land and rent it to someone else.
I think a (higher) land value tax would be a very good solution for that, as those whom's land values have risen, would be paying for this increased value - and thus housing prices would not appreciate that much, as the buyer still has to pay the land value tax every year.
Besides relative to other taxes that usually decrease efficiency, it is a very effective way for the government to generate income that enables them to fund necessary expenditures (only Pigou taxes are more efficient). Also if you think it through: Land was never produced (exept for in the Netherlands and to a much lesser extend in Dubai), so why should someone own this land forever without paying a fee for being allowed to use this nature given asset?
@@timpellemeier587 I think you should expand your concept from just land to real estate as a whole. No more land is made, but more buildings are made every day.
@@christianlibertarian5488 ... That's why the price increase is due to the fact, that the value of the land rises - not the value of the house itself, because the house could easily be build again for a very similar cost than what it was build for before. Rising construction costs are not the reason, why house prices are rising so much - it's the scarcity of land, that drives the prices. In exclusive places the value of the land even falls if you build a house on it, because the rich want to plan their house by themselves.
@@timpellemeier587 I misunderstood you.
It really doesnt Help when the "fortunate" kids get an "owner apartment" from their parents. Not sure how to translate ejerlejlighed and forældrekøb
The roof apartment in Nyhavn 45 (orange house to the right at 5:16) is where I lived until I was 5 years old and my parents got divorced. My father was well of, but not especially rich (certainly NOT top 1%). Such housing is completely out of the question now for people with ordinary income that has not inherited huge sums of money. I myself live some 25 km from Copenhagen centre, well outside the city. I'm fairly well of, I'm a computer programmer, I drive a Tesla, I have four children and a large house, but I would never ever be able to afford to buy my childhood home. The rise in housing prices is just insane.
Awesome. These housing are amazing. It used to be similar here in the Netherlands. Large houses in the center of the city used to belong to lawyers, doctors, and sometimes even teachers... these days are long gone.
@@MoneyMacro yes. It was quite a deep apartment, meaning it stretches far to the back where the bedrooms were. The windows were rather poorly insulated, both for sound and temperature, so the living room with the windows out to Nyhavn was not very warm during winter. We called it "den kolde stue" meaning "the cold living room". Of course now it's a super expensive and exclusive place.
@@dschledermann Similar is happening in the USA. Even with the pandemic, housing prices are still going up, especially in large cities, and even more so in large cities that have a high tech or government industry, like LA, Certain areas of Maryland (Baltimore city and it's southern suburbs towards the nations capital DC), and NY.
@@masstv9052 it is sad. And it is not a stable situation. It cannot possibly continue like this.
@@dschledermann agreed.
and in the US, if you move where cost of living and housing is cheaper enough to afford without needing 2 or 3 decent income earning adults, then you can't find decent work.
The houses and apartments are only affordable for average working people, precisely where there are no jobs, like really rural places, like West Virginia.
The bubble is very much in the cities - and we don't have many of them. Step outside the city and into the towns and country and the prices are low enough - paid 250k and 25k for a couple of cottages and looking at a 400sq.m farmhouse for 2m. It's mostly that we have few metro-city type places and a lot of young people wanting (not needing) to live in the city. Another element of the older buyers is that with free education and so many of us being paid to attend University - we don't start our working careers as young as most others. There's also much less 'moving house for work' - so we stay in the homes we buy longer too. It's much more than finance, Janteloven isn't lost to us, there's plenty of infrastructure to hold the system up - oil money helped, producing 3x the food our population needs helps - ultimately I don't think it'd be sustainable in Britain or France but it works just fine for us.
This channel is a great new addition to my watch list! Pure thorough information without any unnecessary bling...
Great analysis. As a Dane I'd like to add a little history: In the 70's the social democrats spent like crazy, leaving DK with an ever increasing amount of debt: Unsustainable! At the same time as Reagan and Thatcher, we got a conservative government around 1980. A cpl of years later they decided to peg the KR to the Dmark. This was a painful transition period, but with a more long lasting goal. In DK that period is known as the "poor 80's". In the early 90's a massive negative export/import rate was turned postive, which it has been ever since.
I like that you also describe the benefits of NOT adopting the euro. Before the financial crisis, the politician couldn't stop talking about another referundum to join the euro. After the financial crisis, they've been dead silent on that topic. Wonder why, ha ha. Different currencies allow different countries to adjust to the international market. Poor Greece lost that option, and southern europe is suffering in general, while northern europe is thriving lige ever before. Also steeling their best young talents, which is so unfair it's unbearable to imagine the future of southern europe with such a low birth rate.....
And who raised the taxes for vehicles? I heard that was a long time ago and any gov. dares to remove that huge tax income.
@@JP-xd6fm Funny the tax on cars so often gets pulled up. Today you can buy a new car for 4 months paid salary after tax. When I bought my first car 45 years ago, i took about 6 month of average salary after tax. The car density in Denmark is 447 cars per. 1000 inhabitants, which corresponds to about 1car per. family. So apparently there is enough money to buy cars, maybe not the most expensive ones but those that can bring you and the kids from A to B.
Finally, if the money does not come from car taxes then they need to be found somewhere else. So where should it be?
@@therealmccoy2962 I get your point sir, but I think the taxes on cars are unfair for the people who lives on the country side. I will like to see the numbers in detail but I bet that is not a car per family in all denmark, I think many people who lives in the city they don't have any car because they can have access to public transportation, so I would say many families have 0 cars and many others have 2 cars because they live in the country side and they need 2 cars due to they may work in a complete different locations. I'm actually very 50-50 minded pro car taxes and against. I see good arguments in both sides. You asked where to get taxes, I'll tax alcohol even more and tobacco, then I'll legalize all drugs and tax them.
@@JP-xd6fm Dear JP
thank you for responding in a good and sober way!
No there is clearly not one car per. family, many families have 2 cars. But I think everyone who has a real need for 2 cars can afford it by saying no to other things.
I find it difficult to talk about fair and not fair in the tax system as there will always be some who lose more than others. For example, I pay a storm surge premium on my insurance without any risk of being hit by one, (itdon't worrie me :-)). The same applies to my property taxes, which are significantly higher in expensive houses than in cheap ones. And yes I have a lot of money in store when I sell, but I have never bought a house to sell it but to live in it.
If you look at the state's revenue from car sales, they were DKK 52.9 billion in 2018. If you look at the revenues for beer, wine and spirits, they were DKK 3.9 billion in 2016. Tobacco in 2018 gave about DKK 7 billion, so if we disregard drugs then the prices must increase about 5 times to get the same revenue. It will probably lower sales a lot. Ethically, I find putting taxes on the things you mention would be fine! For drugs I myself have changed my attitude to. I've had it like you before, mostly because I've been burglarised by a lot of drug addicts. But I have since read about the side effects from different drugs. For example, from smoking cannabis. A common side effect is that you lose your filters, as with alcohol. the difference is just that the filters that disappeared with the sprit are often back the next day, this does not apply to cannabis which can last even a very long time, and I find that is a very unpleasant risk.
@@therealmccoy2962 A pleasure to find someone who talks seriously on YT. Thanks for bringing numbers, I would like to know, but is difficult to guess How much money the gov. can save on patiens that have diseases due to the consumption of cigarettes and alcohol because those treatments come from tax money. So by increasing taxes on that you for sure will lower sales that will lead to a healthy people. I'm very open minded with drugs even I never used myself I want people be free to use them if they decide, but I would make it with a license, so in order to buy and use drugs at the pharmacy (paying taxes) the user must get that license and to get that license he/she must return the driver/hunt and alike licenses to ensure the safety of the rest of us bassically. I also think a country can get rid of gangs and violence related to drugs by making it legal. Tak
Dane here. If you want to solve the housing price boom in especially the greater Copenhagen area and Aarhus and a few other places you have to build more affordable housing (which the new social democratic government is doing and planning to do). Also decentralizing and moving public institutions away from the capital area making it more attractive to live in other areas. So the housing price problem is more structural and social than it is monetary.
I think your suggestion to drop the peg for a while would be suitable for some sort of sudden crisis or emergency situation. Otherwise staying on the current course or entirely switching to the euro would be the right thing for us monetarily
I came to Denmark and after 5 years of very hard work, I was able to buy a house. However, I bought it 45 minutes drive from Copenhagen, because the prices here are 1/4th of the ones in the capital city. While I still don't speak the language, I managed to build a company that makes 41.200 dollars per month in revenue, and growing. Despite all these, I do believe that one has to work very hard for the money everywhere, even in Denmark.
Good going! I hope you are doing well and that Denmark have welcomed you with open arms.
I'm not an economist, but another additional factor I would consider, pushing real estate prices up, is the (limited) investment options. The is an area where the Swedes are doing better - at least when it comes to encouraging investment in the stock market and especially start ups, with favorable taxation. If you want return on your money in Denmark, the best option is still real estate - assuming you have enough money to get in and a "bubble" doesn't pop on you.
Switzerland also did this for some time.
The main thing it did was to make our national bank one of the largest holder of Euro (for a time?).
According to them they had serious problems spending enough Swiss Franks and buying enough Euros and assets with it to keep up and it didn't even really cause any inflation.
Modern monetary systems are weird...
I believe that another factor offsetting danish household debt are the huge pensionsavings that most danes also own. Most people save between 10 and 20 percent of their income for pension. It has been like that for years and years. I wonder how total pension savings in Denmark, pr, capita, compares to fx. the low countries.
That is a good point. When looking at debts, we should also look at assets.
data.oecd.org/pension/net-pension-wealth.htm
Not sure if this is the correct data. But it seems low countries have higher pension wealth (but also high household debt). However, Belgium and Germany also have higher pension wealth... but lower household debt.
That's not completely true. 15% pensions is a very good one - and only few get 18% or 20%. The majority of lower-class or middle-class get much smaller, with few exceptions, mostly in the public sector. The majority of the population will retire on a government paid, flat-fee per month pension financed directly by taxes. The above-mentioned pension savings are administered and invested by the large pension management companies, and those investment are often abroad. In other words, the issue "that the housing market is inaccessible to young people" persists.
@@MoneyMacro The issue is the pension system in Denmark. You have a state guaranteed pension (folkepension), which is given to everybody when they reach certain age. But this system has adjustments for wealth, for example if you are poor, you will get a supplement and if you have savings/wealth, you may get deducted, as you are supposed to use your own money before asking society to pay your bills. This discourages people to save money and accumulate private wealth (except in real estate, as this is a "holy cow" in Denmark and very few politicians are willing to tax this). Additionally, the pension system is mostly financed by direct taxation. Only within the last 25 years or so were reformed made to force people to save for pension, and the state administered pension saving scheme (ATP) is a joke, as this is less than 1% of your income and has not really accumulated a measurable wealth.
@@todortodorov940 I mean... There's so much wrong with that comment it's kinda impressive
@@andersoldager1685 We can agree that even economics are a subjective matter. At least, you know my opinion.
I really liked how you used the stock footage of making sausage, it's a very apt image, no matter how good it looks on the outside, alot can be hidden inside!
Love this video as a fan of changing the peg to inflation management. The fundamental problem about changing it is that the only time it becomes part of the agenda is exactly the moment you want to reduce uncertainty and _not_ change it.
I don't like the periodic reevaluation for the same reason. We need to change it when a change would be undramatic. We don't need to create periodic uncertainty when that uncertainty might come at an inconvenient moment.
Thanks for a great video. Dane here. I cannot agree more. I am as we speak trying to change my 5 year reevaluation period on mortgage into a 30 year. I am nervous for possible increasing interest rates!
I did it the other way arround, as I will sell my home before it have to be reavaluted. Best of luck from another Dane.
@@1000rikkeful good profit I guess. But expensive times to rent right?
@@PHILPAF I will not rent again! It is getting crazy :)
@@1000rikkeful what price would you consider expensive to rent? In dkk for room / 2 room apartment
10000 DKK if it is the appartment. If not over 70 sq meters.
Room.. hm i guess all over 5000 DKK is too much.
But these er my personal limits. The prices in most of Denmark especially in the city are over this. You may find student accomedation that is cheaper.
This is absolutely true, in 2004 My parents bought a new house for about 1 million dkk, now it is valued at 2,4 million and despite this, modern houses that are tiny, under half the size and no gardens only a block away cost 3 million dkk.
Huse kan hurtigt koste 4-5 millioner kroner i Danmark.
Bondegård kan nemt koste 61 millioner.
Very nice piece. Thx :)
You appear to have it to the point and very correct. Thank you!
Seriously this blew my mind. I have had an almost conspitorial worry about why inflation was not rising. But youre right - of course its the housing market
QE swaps bonds for cash, giving asset managers/investors cash they can spend on new assets, but not new income to be spent on consumption. Hence it inflates asset prices, not consumer prices.
Would be great if you make a video exploring my country's economy, e.g. Bulgaria. We are having a huge debate wether to join the euro or not. Most ordinary people are against it, but officials are pushing for it. Would love to hear your take on this
What a super interesting video! I've often wondered whether or not the peg to the Euro was a good idea :) This video does a great job at explaining the issues and benefits of having it.
Glad it was helpful!
very informative, Thank you very much
Yes, the house prices in Copenhagen are crazy - but look outside of the capital! We've been looking at houses on Funen, where I've settled with my boyfriend (also from Funen), and I'm consistently surprised and impressed by the house prices - that is how much you get for what you pay! You can get a gorgeous, refurbished, 4 bed house at about 150m² for 2-2.5m kr. That's about £250k. The same thing in the UK would cost 400k easy.
@Money & Macro Ayy i am subscriber 676, wow i really enjoyed your videos. Keep up the good work bro
Would love to see an update on this!
Anyway ty for the videos:) !
I live in Denmark, is an economist, and have a different take on a number of things you mentioned.
- Most important is, that you probably know too little about how danish mortgages are structured. Most of it is financed with fixed rates running 30 years. Hence, increased interest rates will not be a problem, unless you have to sell you house. In that case, the buyer of your house will have to finance the house at the new high rates, and since that will drive up the buyers debt-service costs, it will lower the price of the house. However, if you just keep your house, nothing will happen if the interest rates are increasing.
- Also keep in mind the difference between the short and the (very) long 30 year interest rate. The latter is much more stable.
- The danish mortgage system is very effective at keeping the admin costs very low. Compared to, for instance, Germany, where banks are involved. For that reason, in Denmark it's much more common to own your house or flat, than in Germany. For that reason alone, the household debt, on average, is higher in Denmark. Houses are owned by the households, and not by companies like in Germany, I assume.
- The danish mortgage system has never defaulted (more than 200 years). Tried and tested.
- For that reason, we are not concerned about the household level of debt. We don't like public debt, since the Social Democrats almost ran the country in the ground, economically, during the oil-crisis in the 70's. High Government spending, high inflation, devaluations, and high public debt. Our economic "savior" was a conservative PM (Poul Schlüter, passed away in May), who "tied himself and the kroner to the mast" vs the Deutsche Mark (later Euro) and introduced economic reforms. Since then, the fixed currency rate has been religion in Denmark. I don't have a high public profile, but I know many economists with the highest possible public profile, and you are not even allowed to suggest or discuss the currency rate policy, as uncertainty might start speculations, and have the central bank work hard.
- During the previous bubble (pre financial crises) I myself wanted to discuss an appreciation of the Kroner, and potentially a higher interest rate to regulate the business cycle: The business cycle of Denmark was ahead of Germany, so the interest rate was too low). A bit like Switzerland. But no other economists wanted to recognize the possibility. Today I'm happy we kept the fixed rate, as it helps our export, compared to the situation with a Swiss-style appreciation. And a high current account surplus is sustainable for a small country like Denmark. That's only a problem for countries like Germany :)
Edit: But thanks for bringing up the topic for discussion. You won't have any Danish economists doing that :)
Thanks for you detailed reply. I had a lot of discussions similar to this when the video released. I've updated my comment thread at the top of the page with a small summary. Perhaps what you refer to is there.
You communicate clearly. I want to listen to more, thanks!
Thank you!! New video dropping this evening that might hopefully 'scratch that itch'
subbed. i would like to know more about the Danish economy since i live here. and what you said about the housing market is pretty much spot on, the housing prices in Copenhagen are insane even for above average earning people. it would be nice if you could do a vid about the reasons.
Thanks for the sub! Yes, I would like to do a more in depth on the Global / European housing market in general. It is just so crazy that it deserves a bit of a deep dive.
@@MoneyMacro i would love a video about that. Thank you.
Found you through the whats “new” feature, i swear to god that feature is going to change youtube for the better lol. Great channel like the fact that you are talking about things you have a phd in. Thats nice, so far i’ve liked all i’ve seen, i think denmark will be just fine, i think they might have to do some engineering to keep the krone stable, but tbh it doesn’t seem like the biggest problem right now. housing price’s this high is only really an issue if a collapse causes trouble paying mortgages, which it can cause but its far from a guaranteed thing to happen. However ofc its a bad thing that housing is so expensive, but u know its not the end of the world yet at least. Rent is ridiculous tho most developed places, 70 years ago you could buy a house for way less than today, but then again 50 Years before that you where lucky to share a flat with another family if you where working class, things improve even if the economic burden grows for normal working people nowadays, especially my generation, we have to spend something like 3-4million krones to buy a decent apartment here in norway, which is about 8years of 100% sallery, at a decent wage, about 15 years at the lower end of the wage spectrum, so about 20years at 50% spent on housing, or about 35 at 50% spent, well ofc if we assume intrest rates and inflation balance out, i doubt that i think we’ll see effective negative intrest over that time period but still, lets say you soend 25 years working to pay of an apartment, thats a lot at 50% of your sallery, especially when the food and other expenses are quite high as well. It would be a lot better if you could spend 30% for 15 uears or so at the lower end of a decent wage, that would actually make sense in terms of peoples every day economy, or annequivalent amount in rent ect. But yeah both of us know the housing prices are not going ti do that with this financial system no matter what tbh :p. Unless there is some unreal growth and wage growth or expansion of housing, and no i think we’ll see more inflated house prices and possible bubbles, but i do think there is a lot more margin after the 2008 crash where they reduced the amount of leverage in the system, its more robust now but still kind of sketchy.
The housing prices in Copenhagen are still more affordable than e.g. in Stockholm or Helsinki if you take salary level into account.
I dont know the prices of in Stockholm but i know that you have to be a millionaire or the kid of one to get a an apartment in Copenhagen.
@@walmcs I agree, it isn't really a viable option for most young or students to live in Copenhagen. It must be bad in Stockholm or Helsinki if this is true, but even then the living expense has already become a problem in cities with good education options in Denmark. (Granted Copenhagen is really the worst and the one I know most about) I kinda hope that an initiative will be worked on, in this or the next government, to rectify the increasing cost of housing. When looking at somewhere like England, the house market seem so dysfunctional, which I fear we are moving towards.
That was certainly some good ideas! Unfortunately the exchange rate peg is sacred in Danish monetary policy and has been since before the euro (when we were pegged to the D-mark). Also, removing the tax deduction on mortgage would be political suicide - because there is so much household debt and home owners are the large majority
Slowly phrasing out the tax deduction for mortgages probably wouldn't be so hard now, when the interest rate is low.
After all it could be done gradually.
very underrated channel keep pumping out content. pretty please?
Very interesting to get an informed and outsider perspective on the matter. I don't think the policy will ever change though, it has been a part of the bedrock of the economic recovery in Denmark from the disastrous 1970's. There is actually a saying in Denmark that we don't discuss three things: 1) The welfare state 2) The royal house 3) The pegged currency policy
I'm Danish, i've long had a theory about this, because the housing and rent prices are so incredibly high in Copenhagen. Not really the rest of the country though. Prices are usually around 100% higher in central copenhagen compared to other places.
Things are pretty great though, i can afford to travel the world on minimum salary as a student.
@D K eeehm my rent is about 2000 a month for 1 room with bathroom in the middle of the city....
@D K My guy it is absolutely possible.
I've had a lovely 19 m2 room in central CPH only 1½ years ago, for the half-decent price of 2.150/month including heat, water, electricity, alarm system, TV and Internet. Not unheard of at all! Many people rent our rooms in their houses specifically for students because it's easy income, and most students aren't really picky with accommodations. And if you travel to the likes of Ringsted (30ish minutes from CPH central) it's even cheaper, so defo doable, it's all about looking the right places my man :-)
@@PvtMiniEntertainment I am paying 12.000 per month. Although I have a full sized apartment and live alone.
How the heck are you guys finding 2000 - 4000 per month apartments in Copenhagen???
@@cjm8160 kollegie
@@cjm8160
I'm sorry, but 12000 is way higher than what you can find out there. Perhaps you haven't looked hard enough? Literally consider moving just 10 minutes further away and prices will plummet
I live in Denmark and have a 3mio DKK mortgage.
I fully agree that the tax credit for mortgage interest has to go.
Also, real estate in Denmark is an artificially good investment asset due to property taxes being too low, driving house prices even further.
From a tax perspective, cash is better spent buying a house than investing in stocks, even if house prices do not increase (although currently, they absolutely will). This seriously fucks over renters and causes real estate bubbles.
Buuuuut, no politician dares antagonize home owners. So nothing happens, even though these problems have been pointed out by economists over and over for 10+ years.
A revisit of this topic now a year later would be interesting.
Nice video. Please make a video about inflation and the effects on stock markets and bad actors using naked shorting to get good short positions.
If you like this style of research about economics, consider supporting the channel by buying me a 'coffee' via ko-fi.com/moneymacro
or gaining acces to an exclusive Discord community and extra content via Patreon: www.patreon.com/moneymacro . Also, some of the best critiques in the comment are summarized here (please don't comment here).
As some have pointed out most mortgage rates are fixed in Denmark. So, current borrowers might not immediate get into trouble if rates rise... However, they will still get into trouble if they want to move house because house prices will likely drop since this does affect new buyers, leaving them with a big old mortgage if they want to move. (if they stay put ... no problem).
@Martin Wiltstrop pointed out that you shouldn't just look at debts but also at assets especially since Danes have large pension assets. Check out data here: data.oecd.org/pension/net-pension-wealth.htm
One interesting note is that it seems the low countries have higher pension wealth (but also high household debt). However, Belgium and Germany also have higher pension wealth... but lower household debt.
I was notified of a structural difference between Danish and other mortgage markets (which I didn't mention here) by an assistant professor from Aarhus University and that is that people can repay their bonds at market value at certain intervals. I think this is a more important difference because it would mean that if house prices fall, it gives households a way to escape crushing debt... If that is indeed the case, this will make this a significantly lower risk. The ability to repay at nominal debt value .. not so much ... since sure in theory they could repay more quickly. But, in practice they don't seem to be doing too much of that given that household debt has been on the rise while rates fell.
This might be an interesting link for people wanting to read on the Danish mortgage market. I admit that I should have highlighted some of these features more. It does probably mean Danish mortgages are safer than those in other countries.... although I still stand by my main conclusions that even in a safer system risks will emerge if property prices rise too far en then fall hard. www.dlapiper.com/en/us/insights/publications/2019/04/real-estate-gazette-34/leveraging-in-denmark/
Hi it is a good video. As a Dane I think it is a good suggestion to adjust the peg ever 5th year or skip it. However I must also say that there are other reasons for Denmark not to join the euro: 1) As a non-euro country we do not need to join the EU's banking union - which is union that can end up benefiting the EU's largest banks and undermining our economy and welfare system. Time will tell what the EU's banking will turn into and until we know it is best to stay outside 2) we can decide by ourselves if we like to leave the EU's fiscal pact - a pact that is not good for our local administrative areas and limits the possibilities to create a better Denmark in the areas far away from the center. Euro countries do not have a choice. 3) Joining the euro will have impacts on Greenland and Faroe Islands and our relations with these parts of the Danish kingdom goes back to 1380. So a Danish decision should also take into account the views of the Greenlanders and the Faroes. We have one common currency and one common constitution for all parts of our kingdom. On top of this comes of course that the euro has problems in the long run - so the Danish approach is a good one.
Very detailed video. Enjoyed it a lot.
I will say though, overall, housing might have gone up, but from MY experience here, it is mostly in larger cities. Expanding in mid city is hard without ruining the aesthetics, so housing will naturally be more expensive. I live around an hour away from Copenhagen, and I have a 3 bedroom apartment for just under €1.000 and rent has gone down by a fair margain. I know this isn't the average student income (and student housing can be difficult) but to most people who study and get SU (money from the state while studying) or get apprenticeship pay (pay from work when in an apprenticeship during education) it won't really be that big of a problem. Housing is kind of expensive I guess? But I'm on year 1 of my apprenticeship and I could already see myself putting down money on a house in 2 years when I'm done with my apprenticeship and become a full time skilled worker.
Keep up the good content!
Hey Joeri :)
How about making video about Bulgarian currency board which main function is to keep the EUR/BGN peg and is doing so right for the past 20 years? But it will be interesting to explain the drawbacks of this so called currency board. Also, there is a big debate whether Bulgaria should enter Eurozone and if whether this would cause inflation. So I really thing this is interesting topic.
Dane here :)
Interesting video, always great to learn more about the economic world that surrounds us.
How do you think the financial policies passed during the covid-crisis will influence our currency and overall economic stability?
Thanks! I'm glad you liked it.
As far as I could tell, Denmark's financial Covid response is fairly similar to that of its neighbors. This makes sense from a monetary perspective because it doesn't put any upward or downward pressure on the peg.
But, in line with my view on general economic policy, I think Denmark (like most of Scandinavia, Germany, and the Netherlands) has the fiscal space to do some good old Keynesian spending out of the recession, making sure that the proceeds of such spending goes to the population fairly equally. Increased fiscal spending might also help with the upward pressure on the peg since there is increased money available for the Danes to spend and import.
You are correct. But your critics need to be more incisive, because we do not know how bad things can go. Therefore, it would be rather to make the bad adjustments more quickly than gradual movements that make things always get worse.
Very few areas in Denmark have high house prices, go into the countryside and the house prices are the same as they were in UK 30 years ago.
I live in Aarhus, the second largest city in Denmark. YES, it is a problem with the increasing housing prices. Luckily, the prices has stopped increasing as rapidly as in the spring. As a young person, I see the high prices as a problem beacuse it is difficult to get the bank to accept a loan if you do not have that much money yet. Another problem I find interesting is the negative interest rates in the banks. It makes people seek other options to place their money - which has ultimately led to an increase in the amount of money going into the stock market.
Greeting from Denmark
Successful people don't become that way overnight. What most people see at a glance-wealth, a great career, purpose is the result of hard work and hustle over time.
l advice everyone to start investing and never rely on just salary..no billionaire made it through salary.
As a forex trader, it's almost inevitable that you're going to experience some ups and downs along the way. Alertness and deciveness are both fundamental ingredients in the recipe for a successful forex trader.
Forex is a good market to raise your finance at a steady growth, you need a proper understanding and good strategy to become successful
@@franklewis2262 You can only appreciate a person who tries to teach everyone how to invest and make profit on multiple ways Ups and down
Speaking of forex trading, it's the best business in the world right now.I know a couple of friends who make a whole lot of money trading the financial market
There has been a run on the Krone, but it was futile, when the centralbank went into action
I agree with you control credit on houses Three times one salary
There was actually a speculative attack on the danish krone in 2015, which the National Bank defended against, and came out on top.
Other than that, your points are well conveyed. And yes, housing prices here in some places do seem unsustainable in the long run, and no doubt that rising interest rates could be a risk in the future. Do keep in mind that our savings are also some of the highest in the world, so we do have some leeway, if that should happen.
I generally agree with your assessments, but I feel obliged to add a little 2 cents: yes, Denmark originally declined to adopt the Euro because of soverignty, but - to this day I am not aware of convincing evidence that common currency results in larger tradeflows across borders compared with tradeflows between countries with distinct but independently stable currencies. If you, or anyone else reading this comment of course, know of any research with convincing data in favour of monetary unions for this purpose please let me know.
I do not know of the research but for my parents (small business owners) it made the difference. When I was a kid they would be dependent on big corporations that would dictate and take their big cut and now they trade directly in Spain (I'm Portuguese). But my parents business is very small, so couldn't afford the currency fluctuations and exchange rate. Because their business is very small even many business like theirs would not make much a difference in a country accounting (but makes a huge difference for my parent's business).
@@TerraIAm to be fair that might in some ways be the more important story than the grand trade union economics. A bunch of people who wouldn't have interacted got to do so, and it brought Europeans across artificial borders closer to one another. I'm happy to hear your parents got something out of it..
Felicidades!
I have one question about inflation.
The modern economy is not differet than 40 years ago particularly in developed world?
Importing from developing counries and automation created massive supply that there is no enough room for sugh a big demand even with more money in hands with people. Although there is cultural shif in these countries toward less consumerism at least among youth.
So the only consumer product that would be left is houses that people need and also can act as an asset. That is why house prices are going up.
But if these countries would creat more public housing this problem would be solve, but there is a downside and that is less profit for financial institutions and hedge funds.
Sorry I am not economist just studying it lately and wanted to have an opinion on it.
Thanks.
Yeah there is definitely a big difference with 40 years ago in the structure of the economy. To understand inflation, I think it is also critical to look at supply. If supply is very flexible then a big increase in demand of consumer prices shouldn't matter much. See my video on money printing without causing inflation. :)
As a Dane we have always told ourself that being born here was like winning a lottery and that is mostly true but most Danes does not know much about the kroner or how it works and why it is unstable thank you for this delightful video 👍
Here in Belgrade (capitol of Serbia) the housing market is also really competitive, which I find unbelievable because Serbia is (10 years ago even more) relatively poor country. Our average wage (here in Belgrade) is around 500€, but you can barely find a new apartment with square meter costing less than 1800€. Of course you can find it for a cheaper price, but you would need a car to get to your job or waste 1h (per direction) in public transportation. Just to be clear, supply of new housing (mostly apartments) is strong with new developments constantly being under construction (Belgrade Waterfront for example).
"Potential housing bubble"
Oh trust me, there IS a bubble here! Prices have been skyrocketing over the past 6-8 years. It's crazy.
Real estate prices in the capital were on the rise due to hedgefonds such as Blackstone, even though the government (and DF), sealed that loophole last year to some extent. Interesting if 1 Euro = 5 DKK, but I sincerely doubt that there ever will be political will to adjust the Euro/DKK peg - the industry and exporting private sector would have a fit. In march 2015 there was a raid on the Swiss franc, after the Swiss capitulated (the Swiss fought, but are after all not a EU memberstate), then investors went after the Danish krone but the Danish National Bank did not let the parity of the krone slide from 0,5% to 2,25% of the Euro as they could have done, I doubt they will do that anytime soon.
The danish peg is also a lot older than the swiss was, the danish is a continuation of the krone/d-mark peg, and the national bank has been far more committed to defending it.
I doubt they will do it as well. I think it would be good for Denmark & the Eurozone. But, I do understand it ... in our monetary system undervaluing your currency and trying to maintain a perpetual trade surplus is a very safe strategy. Especially, in the context of the Euro. Nobody wants to become the next Greece.
Little late, but I kinda saw an unofficial peg between the US Dollar and Disney Dollars (1:1) for the chief purpose of remaining a "coupon" or "scrip" rather than regulated as a currency.
Us dollars could be easily exchanged into Disney dollars (though not as easy the other way around) for use in the theme parks.
@@MoneyMacro
I heavily disagree that adopting the euro is a good call
Great video! Just so you know, the graph in 7:28 goes from 1991 to just 1994
Question should also be was Den ark right to keep the Krone and not join the Euro zone ? How do we evaluate that ?
If government set a policy of increasing the mortgage really high for second houses or even not giving any( execpt for new build homes) that would not be helpful for reducing house prices? I think the demand would fall and mostly people who geniounly need house would buy it or investers in new homes which is good.
Yeah what you are suggesting is making a tax policy distinction between investing in houses and living in them. I think that is an excellent starting point.
One problem plaguing many modern economies is that houses are used excessively for investment, driving regular people out of big cities and good neighbourhoods.
@@MoneyMacro The danish tax law is already doing that, if it is your primary house or flat you are selling(where you can prove you are living), the earnings is tax free, but you will have to pay tax of your earnings if it is not you primary home.
Now I understand why I saw thousand of " til salgt" on Danish roads and streets this summer 😅
The truth is - they are sold very quickly and there is lack of housing in the 3-4 large cities. The same is not true for the country side. All this has to do with urbanization and I don't see a solution to the problem. You can get a house in Denmark for 25.000 Euro - just not in Copenhagen and not near where the well paying jobs (or any jobs) are.
@@todortodorov940 a house for 25. 000 euros? Are you kidding me?
@@Ruben_mr I just saw that the cheapest house in Denmark was discounted to 80.000 kr. This is less than 11.000 EUR. That said, it is probably not big, nor in luxury condition, nor at an attractive location, and certainly located in the Danish "outback".
I think it would be helpful to create a video that defines and compares productive credit vs speculative credit.
Love it! Quality content
1) The Danish government doesn't support tax deduction of interest in the household. Actually the value of the tax deduction on the paid interest have been lowered from 33% to 25% (meaning if you have 100 dkk in interest you get 25 dkk refunded in tax. I agree that the tax deduction should vanish completely.
2) I don't see the big risk in the big loans in the housing market. More than 50% of the loans are bonds with 30 year fixed interest rate, now the rate is 1% p.a. For 30 year fixed.
So an increase in the interest is not a problem for the house owners.
1) Yeah even if you lower it .. it's still there. But, I'm glad we are in agreement.
2) That is a fair point. One that I was notified of later in a discussion with an Aarhus assistant professor after making my video. However, even though an interest rate rise might be less of a problem for current householders directly ... it will be problem indirectly because it will make it much more difficult for potential buyers to finance that house... possibly leading to faster house price decrease.
@@MoneyMacro I totally agree with you.. If/when the interest goes up in the market the house prices will go down, otherwise people can't efford to buy.
One more point is that the house owners which have fixed interest rate (e.g. 0,5% or 1% etc.)
Get a "price gain" on their bonds.
If they have a loan on 5 million DKK and the interest goes up, the price exchange on the bond goes down... Meaning they can payout there loan to another price, maybe 70% of what they initially loaned or 60% of the loan. This gain is taxfree.
All bonds loans come with a price.
E.g. You can borrow money at 1% to the price of 98. Meaning you get a loan on 1 million but get paid 970,000.
If the interest goes up the price on low rate bonds will fall..
It's like an insurance for all the house owners if the interest goes up.
If it goes the other way and the interest drops (and bond prices goes up) the house owner can always pay out the loan to the price of 100.
So the house owner loose 30,000 in my earlier example... Because the loan was initiated to the price of 97.
@@MoneyMacro The point is that you used the tax deduction of interest as an explanation to the increase in property prices. And that is a bit hard to follow when the tax deduction has been steadily lowered. The decline from 33% to 25% is just the most recent decrease. It was 73% up until 1987 and has been going down since.
From what I was able to quickly google Copenhagen currently ranks 24th among European cities in terms of property prices per square meter. That is still quite a bit behind other capitals and big cities in neighboring countries including Sweden, Norway and Finland. So even though the market is currently hot we still have some catching up to do. Prices in Denmark don't seem that high if you compare them to the rest of the northern and western parts of Europe.
Mortgage lending has also been restricted quite a lot since the financial crisis (I have been employed by a mortgage credit bank since 2005 so I know this first hand). That means that Danish homeowners are generally now much more financially robust compared to when the market crashed in 2008.
So are we really in a housing bubble now? Time will tell of course but I don't think it's a big one. At least not yet.
@@ThorRavnsborg so why is household debt so high?
But, let me clarify, I don't think Denmark has a housing market bubble (I didn't say that in the video, hopefully it didn't came across as though I did). I just think that extremely high household debt is a risk factor.
The Netherlands, where I am from is in a very similar situation. Sky high household debt. High property prices. But, I don't believe it is a bubble. I think a bubble is often characterized by exuberance / a believe that prices go up (see e.g. my other videos on bubbles. More likely that it is supply shortage this time around.
Would be interested in hearing if that might be similar in Denmark.
@@surfermike2 This is a very interesting and (as far as I know) unique feature of the Danish mortgage market. I wish I had found info on that earlier, I would have featured it in the video. Perhaps I will do a video in the future on the housing market in general and feature this interesting Danish innovation in it.
You miss the point of the special house loans in Denmark. The interest rate is fixed for the whole period. We can borrow money for a fixed interest rate of 2% for 30 years loan. We can borrow 80% of the value of the house. The last 20% is saved up. With the high social security in Denmark there is no big risk. You can still pay for your house even though you loose your job or get permanent ill. The house marked is not as risky as you think.
As a non-expert, I agree with this take ;) Even not paying off your mortgage before you retire is not a very big risk in Denmark.
how are you supposed to pay for your house if you lose your job? lol goodluck with that
Hello 👋, Are you interested in making constant income weekly true Binary trading??
It is not a big problem to lose a job in Denmark. Everyone have high level of insurance. You will often get 80% of your salary if you lose your job. You can get that for two years. Tax is also reduced so you will end op with almost the same. It is easy to find a job in Denmark. It should not be a problem to find a job within a few months. If everything fails you can get help from the state. If you have children you can get up to $3000 every month. Denmark is a nice safe place to live.
Singapore controls inflations via the exchange rate. Could you do an analysis of Singapore's monetary policy?
There are few attempts at analysing this economy.
The housing prices have been leveling off over the summer and the hope is that, that tendency will continue as we move back towards a pre-pandemic economy. People now have other things to spend their money on besides their homes again. So the bubble is currently maintaining its size, making direct interventions less immediately necessary.
Hello 👋
Thx for your video, allow a danish economist with years of experience from the financial sector to counter.
There are two major aspect of the danish economy, that are unique. One is the famed danish flexicurity model for the workforce, the other is the danish mortgage market. For more than 200 years - during several severe crises - there has not been a single occurrence of the investors not getting their money back. Because the model is extremly solid, it allows for a higher debt-income ratio in danish households than you see in other countries. It is a typical rookie mistake, when foreigners analyze the danish economy, to fail to take this into account.
Of cause rising interest-rates would be a problem, but a large part of mortgage bonds are of the fixed interest type. Fx I have financed my house with a fixed 0,5% 30-years bond, I really don't care, if rates should go up again.
Critical comments are always appreciated Rend! Even more so from people on the ground, due to me not being able to visit countries for research purposes, I am bound to miss some institutional nooks and crannies.
Still, I am aware of the very solid repayment structure in Denmark. I am not sure how different it is from the Netherlands though (where I am currently based). We have a strong mortgage tradition here as well and subsequently extremely high mortgage debt as well.
I do think that this rigid mortgage structure reduces the chance of a very sudden and big financial crash. However, I think it increases the likelihood of a sustained economic slump.
On the other hand, e.g. the United States has a very flexible mortgage system. Increasing short term fragility. But, making a strong rebound more likely. This is exactly what we have seen after the financial crisis of 2008.
Well - the danish and dutch model looks much the same, but there seems to be one major difference (I think - as I have not seen this mentioned anywhere). A danish mortgage bond are actually not just a mortgage bond, as it comes bundled with a buy-back option at nominel value. This means, that not only - as in the netherland - you refinance when rates are falling to reduce payment, but also when they are increasing, to decrease the outstanding debt. This helps to ensure liquidity in the moneymarkets as well as dampning the economic cycle.
But I don't understand. If you are aware of the high percentage of fixed mortgage bonds, why do you conclude, that the high debt-income ratio of households are a problem? No economy of cause are perfect, but fixed interest mortgage, the flexicurity model for labor and the strong economy of the danish state ensures, that the danish economy are extremly resilient against external shocks. I really don't see any need to change the danish monetary policies
@@rendmig3973 I was notified of a related structural difference by an assistant professor from Aarhus University and that is that people can repay their bonds at market value at certain intervals as well. I think this is a more important difference because it would mean that if house prices fall, it gives households a way to escape crushing debt... If that is indeed the case, this will make this a significantly lower risk. The ability to repay at nominal debt value .. not so much ... since sure in theory they could repay more quickly. But, in practice they don't seem to be doing too much of that given that household debt has been on the rise while rates fell.
But yeah, hope you have noticed in the video that I was quite positive about Danish monetary policy. But, I do stand by the fact that I think that encouraging more household lending ... is risky. Even with these safety features.
But that is exactly the point. If rates begins to increase again, you have an option. If your private economy are strong enough to handle the increased interest payment, you refinace and reduce your outstanding debt. If on the other hand you have a weak economy, you stay in your fixed rate mortgage with a low payment.
I understand your good intentions, but it would take a really high sigma event to take down the danish economy in it's present state, so high that I think buying gold outright, a gun and canned food would be a better hedge stategy. The small added security from allowing a more flexible exchange rate do not outweighs the extra costs and uncertainty, it would put on doing business in a small and open economy as Denmark
@@MoneyMacro BTW, rend is not a first name, the username means "up yours" in Danish
How about a video on managing the Rand? Great work thus far Joeri! From South Africa.
Thanks! That's an interesting one. South Africa is definitely on my radar.
Dankie Professor😇🤗💗🇿🇦
In terms of housing prices a big part is also the decision to not tax positive returns when selling.
Your content + EE's voice = perfection
I should give the Aussie accent another go then
@@MoneyMacro
At 6:52 How can a Central Bank with a Soverign Fiat Currency run out of the currency it creates?
@@pebblepod30 that section is about running out of foreign currency (for imports).
@@MoneyMacro
Oh i see, now that makes sense.
I think other ppl may have misunderstood too though.
I love your channel, thanks fo your work btw.
Heja Danmark!
As a Swede often working with Danes I think Denmark is doing fine. It is weird with our 0% interest rates but that is not a Danish thing.
The rates are negative. If you have a business bank account - negative. If you have a private bank account with some money on it - negative. If you have a mortgage with short term refinancing - negative.
@@todortodorov940 Even more absurd.
A few thoughts:
- Taking at quick glance at how the exchange rate has changed between DKK and NOK/SEK/ISK it seems like Danish currency is doing quite well.
- The DKK was pegged to the Deutsch Mark before the EU, so it isn’t surprising to me that the policy continued as Germany was and still is the biggest market.
- Household debts. Interesting insight. To my colloquial understanding it is considered “sound economic sense” to put ones money in bricks. Always been told it was a good investment. “The worst you can buy is a car and the best is a house”-kinda sayings. They make intuitive sense to me, but I am also a simpleton, so it might be nonsense.
- There certainly is a bias against government debt. It is very frowned upon. Even now after extensive relief packages no Danish politician is willing to accept that Denmark could go into negative surplus or that debt should be made. Most economists however seem very fine with it. It has calmed my nerves that economists seem to be quite content with Danish economy, even at present times.
- I can’t personally recognize the picture about personal debt. I am in my mid thirties and have never even taken a loan. My overtaxed, new car has paid in full. No one in my immediate family has any major loans either. But I am sure attitudes vary.
- Negative rates. Yes, it is causing disruptions in banking. Many banks are losing customers these years, as people moves their money abroad.
- Interesting thoughts on pegging. I think I understand the reasoning, but I am wondering if it is even being considered behind closed doors. I really don’t know.
Thanks for you insights from Denmark, much appreciated!
- what do you mean with done quite well? Has appreciated in value?
- yeah it makes sense, I totally agree. Denmark has a long history of 'pegging.' Before the Deutschmark, they pegged to the British Pound.
- You are totally right. It makes a lot of sense from the perspective of the individual. The danger in macroeconomics is that everyone is doing it at the same time.. and even then if it is not debt fuelled investment there shouldn't be too much of an issue.
- They are doing quite well! I totally agree. Very similar to many northern European countries. The only concern that I have with it is that the export driven model is becoming unsustainable. Again, here there is the problem that if one country does it ... very wise... if everyone does it ... impossible.
- I suspect it is almost all mortgage debt... That is also the case here in the Netherlands. Personal consumption debt is frowned upon. At the same time people have sky high mortgage debt.. Which is no problem as long as the housing market doesn't crash.
@@MoneyMacro If house prices in Denmark fall drastically, it only has symbolic significance for 90% of homeowners.
We have a bond loan ("kreditforening" not bank) with a term of 30 years - interest + installments is a fixed amount per. year.
@@formstrup So then, home owners would only get into real trouble if they want to switch house is what you are saying?
This is important. I agree! But, in my opinion this on its own doesn't make the economy less risky. It shifts risks from homeowners to banks....
However, a Danish prof from Aalborg pointed out to me in a discussion on LinkedIn that you have a unique mortgage system in Denmark where mortgages are made into a bond and sold onto the market.
This means that a lot of them are owned by non-bank investors. Thus, if a crisis hits and interest rates rise it is less likely that your banks implode (they are needed to support the economy) and more likely that wealthy investors have to bear the costs (they are less needed).
Very interesting. This does make the economy less risky than I thought when making the video!
@@MoneyMacro One of the things you have forgot to mention in the Video is Danes have one of the biggest capital per capita mainly because of our pensionfunds. This funds owns about 80-90% of the Realestate-bonds. This make our mortgage system even more stabil. The house and rentail prices in Cobenhagen is much lower than the prices in Stokholm, Oslo and Berlin. Because of this many greedy foregin Capitalfunds like Blackstone are baying massivly up in Copenhagen, so our goverment have reasenly make some new laws about proppertyinvestment in Denmark to protect the tenants.
Realestate-bonds is rated in the same risk-category as Goverment-/State-Bonds
@@klaushougaard8079 very interesting. Although in what way does this make your mortgage market more stable? Do your pension funds have strong incentives not to sell their mortgages? Are your pensioners willing to take the hit?
When looking at housing, you should look at the cost of the house, e.g. how high is the total amount of money you pay back.
With low yields, house prices can go up, but your cost of the house over 30 years will not change because now you pay the old house owner instead of the bank!
That’s why German housing prices appear high, but if you look at capital costs, its actually cheaper than in 2008 and the 70% appreciation is valid.
I live in Denmark but i am from The Netherlands. Only been here since april this year and i would enjoy more national information about the Danish economy, the Kroner and taxes. So if anyone here enjoys informing/teaching, i would gladly connect :)
The Faroe Islands have their own currency, which is equal to the Danish krone (Dkr).
No, they have their own banknotes, but the currency is the same, the coins are the same.
Not a lot of people outside this region are aware that the Faroe Islands is Denmark’s tax haven
Yep cracy low interest rate and cracy house pricing. I am certainly nervous regarding investing in new hosuing as the interest rate can only go up.
Fixed rate 30 year mortgage. If the interest rate goes up, the house prices will go down, but at the same time the value of the bonds tied to your house go down, so you can buy them back at a price similar to the new value of your house.
There has been allot of debate here in Iceland whether or not to join the EU and adopt the Euro. The Icelandic króna is extremely small currency and it fluctuates quite a bit, question is, would Iceland be better of with the Euro or is Iceland stronger with its Króna? Keep in mind that, we have very high interest rates and we are one of the few nations that use Indexed Linked Loans, which can do allot of harm. Further more, we are playing catch up every time our unions negotiate new salaries as prices here increase rapidly. Would the Euro help alleviate that?
Please make a video about the Swiss central bank some have said that operate like an hedge fund with the power to print money
I just found this channel. The current system in Denmark with the Krone and the Euro is not sustainable for much longer. Given the price Denmark has to pay for the currency peg. The current idea on the system that is today doesn't work in reality. There was a lot of anti-EU lies in the voting when it did come to Euro, based on the history I've been able read so far (I'm still researching this subject). I wish that Denmark just moved to Euro and stopped doing this silly thing.
I think in the longer run that will happen and as for the Euro, some thought it was a bad idea because it was done back to front on established economise but that was the only real way of doing it and in time, the Euro should help to push the countries closer together so the policies of the Euro work better across the nations using it but that takes time, decades in fact as countries move quite slowly.
Shouldn't Denmark just enter the Eurozone? Since the only mission of the danish central bank is to keep the krona pegged to the Euro why keeping the krona at all? I get the "sovereignity discourse", but if they are not excersing their sovereignity, is it worth it? It seems like paying the rent for a garage withouth owning a car.
Not paying rent on a garage without owning a car. More like paying health insurance when you're healthy like a bull.
The sovereignty is nice if the economic health of the nation starts failing, like for instance the Southern European states...
@@Troggedemic It depends, being free means that you are also free to make mistakes. It doesn't really matter if the economy is healthy or not, what matters is the degree of trust that people have in the instution. But this is self evident. What baffle me is that Denmark is out of the Euro but they keep the krona pegged to the Euro at all cost. They could do as Sweden for example but they don't, from what I understand they act like Bulgaria but Bulgaria is in the path to enter in the Eurozone while Denmark is not. Maybe there is a simple reason for this and Money&Macro just glossed over it. I hope He sees the comment and respond.
Before EU the DKK was following the D-mark. Then D-mark turned into Euros. So it has nothing to do with EU, as it is the same strategy as before EU.
@@awebmate Denmark entered the EU in 1973, so I guess the country has a lot to do with the Union.
@@gf4913 We inevitable do, by geographic and being a small country. Even GB, who left the union, does, just with a worse deal.
The reason for the exceptions is that we voted no for the Maastricht in -92. Then we got the exceptions, re-voted, and it became a yes.There has been voting for cancelling some of the exceptions, not the Euro though, i think even the politicians are happy now, that we kept our currency. We voted no every time. We do want an European cooperation, what we do not want is a United States of Europe, with decentralized decision making beyond our control. Although we already got that to some extent.
Im guessing most of the heavy hitters in household debt is in copenhagen or the rich areas around it. In jutland (the largest portion of denmark) our houses are dirt cheap compared to many western countries. 10km from the 2nd biggest city in denmark you can buy houses for pretty much nothing. To give an example my and my GF have bought a house recently and though we ended up choosing a more expensive one, we were looking at multiple modern houses with large sizes (around 300m2) with huge gardens and good energy ratings for as low as 500.000dkk which is about 66.000 euros. Now i grew up in a small village only 15 minutes from the regional (kommune) center town and before i moved (3 years ago) there were multiple houses for sale for 200.000 - 300.000 which is about 26.000 - 40.000 euros and i have been told many times that in other villages not in such decent locations it gets even lower. Compared to at least what i have been lead to understand, the other scandinavian countries as well as UK and many many others this is very cheap. According to google germany has on average much more expensive housing than denmark too (which actually came as a shock as i thought it was cheap in germany).
(now this might be wrong) but i do think that the average salary in denmark is also higher than that of most other countries and therefor the debt compared to how much people earn might be a little more balanced but i am not sure at all.
It is quite interesting subject though and as house prices skyrocket all across the western world i will be interesting to see the effect it has.
It seems somewhat similar to the Swedish Central Bank.
Sweden has the krona, negative interest and a housing bubble.
Basically we didn't join the Euro because the slogan of the nay-sayers was better than that of the pro-Euro people.
It's interesting because it looks like you have joined the Euro in a similar way than Germany and the Netherlands, in the sense that you have an undervalued currency and very (very) low interest rates.... minus the convenience of having no exchange rate and plus the flexibility to adjust ... even if that is likely not going to happen.
@@MoneyMacro True. I'm still mad at the left for joining with the nationalist right when we voted for opting out of the Euro. But I guess national pride is very important to small nations. More important than economic sense.
@@Nygaard2 Is the Euro really such a success? I consider it to be one of the greatest risks & disadvantages of living in the Eurozone vs. say Switzerland or Norway. The risks far outweigh the benefits and I agree with the sovereignty argument.
@@snterp I think you're forgetting how Europe was before the Euro... Do you remember the chaos of inflation in the late 70s early 80s?
And while both Switzerland and Norway both have special advantages that protect them from the normal disadvantage of being tiny nation neighbouring large ones (i.e. banks and oil) they are still tied closely to the Euro-zone in most regards.
The Euro isn't a 10/10 success - mainly due to the incompetence of many national parliaments - but it's far better than the alternative, especially for small to medium economies like Denmark.
The reason for the low inflation i Denmark is because you import the inflation rate of the currency that you are pegging your currency to. That curriculum on the bachelor's in Denmark. A lot of the points made in this video are very flawed as you don't even mention our realkreditsystem which plays a key role in the debt levels, as it is the safest and cheapest loaning system in the world.
You should do Italy as well as an Italian temporarily living in Denmark that would be very interesting
Hmm I live in Denmark and I seem to recalled a few years ago that there was a run on our currency, it was all over the news, something about foreign investors trying to make us drop the close bind to the euro, and that was why we have negative rates.
Yes. This is partly why I'm saying Denmark has such low rates. To defend the peg.
www.cnbc.com/2015/02/05/will-demark-depeg-the-krone.html
@@MoneyMacro As I remembered it from back then, a later analysis showed that I was mainly Danish financial institutions (pension funds and investment banks) that created the pressure, because they had to reduce their potential exposure to foreign currencies especial due to requirements to comply to legal rules for holding reserve capital in fields like FX risk.
As a foreigner living in Denmark, I basically agree with everything you say; however, with banks heavily funding both sides of the Danish political spectrum, any measure that affects their bottom line (for example, removing the ridiculous tax deduction for interests, or keeping them from charging negative interests higher than those of the DCB) is never, ever going to be implemented.
Nice vid.-
Thanks Ian!
May you do a video about the Brazilian Real devaluation?
I feel like the explanation for rising housing prices falls a little short, but you tried to show that there is a range of reasons. While low interest rates and government encouragement surely play a role, I would argue speculation and simple supply & demand disbalances due to urbanization also play a major role. The solution would be to build more housing (increase supply), especially social & low cost housing and perhaps to look at property taxes. The question is if Denmark has the space and capacity to build more in the centers of those price hikes.
But that's just off the top of my head, there may as well be more solutions.
Question. Wich are the prices that doesn't count as a consumer prices?. Houses prices are in but I don't understand very well. Could anyone answer me??? I am doing a bad scenario--> what would happen if interest rates grow up in the next years?? Thank You very much
That is a pretty tricky question Victor. Here's a good explainer for how they measure it in Europe (scroll down a little bit):
www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html
Typically, house prices are not included, but cost of living prices (e.g. rent) are.
@@MoneyMacro oleeeeeee gracias💃
Pretty huge housing bubble means that people in Denmark may use a significant portion of their high incomes for the house (by paying a high rent, or installments for many years), rather than using the money for consume and entertainment. ...i mean, that, despite average income is very high, people live very conservative compared to if someone had the same income in another (cheaper) country. That happened to me, when i was working in Denmark and had more than double salary than in my home country Greece, i could actually afford the same standard of living (living in both capitals, Copenhagen and Athens).
The perhaps most important thing is to remember that economy is like a clockwork, you change one wheel and every single other wheel turn at a different pace. Unlike a clockwork though the consequences may not always be predictable, much depends on market fluctuations, how much are people willing to spend/save and much much more.
I do get a "giggling" sensation every time someone calls us socialists, the tax rate issue is also shrouded by " personlig fradrag/personal deduction" as when it is taken into account few people realize that all low income individuals in Denmark actually pay less in taxes than you do in other European countries. I worked in Germany and Portugal, I actually payed more taxes in both countries as I had no deduction whatsoever.
You mentioned low unemployment, what's the quality like? Do you have the same increase in 0 security/benefits jobs like Uber/deliveroo and other exploitative companies?
Am I the only one who's from Denmark? Also you learn me more then school!
Could you talk about the Swedish krona and economy?
The vertical axis of the graph at 4:00 is mislabeled "% Labour Force".
I know it's an insignificant detail but wanted to point out you missed a pretty significant part of denmark in the thumbnail, an island just south of sweden! It's called bornholm :)