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Robert Frost said:Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveller, long I stood
And looked down one as far as I could
To where it bent in the undergrowth;
Then took the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear;
Though as for that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads on to way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I--
I took the one less traveled by,
And that has made all the difference
Bloomberg said:Iceland is betting its decision two years ago to force bondholders to pay for the banking system’s collapse may help it rebound faster than Ireland.
Iceland’s taxpayers face a smaller debt burden than their Irish counterparts, where the government’s guarantee of the financial system in 2008 backfired this year when the banks came close to insolvency. Iceland’s budget deficit will be 6.3 percent of gross domestic product this year and will vanish by 2012, compared with the 32 percent shortfall in Ireland, the European Commission estimates.
While analysts expect Iceland’s recession to extend into next year, the nation’s exporters are benefiting from a 28 percent drop in the krona against the dollar since September 2008. The decline may help the nation of 320,000 people rebalance its economy faster than Ireland, whose euro membership rules out a currency devaluation. With Iceland’s OMX share index up 17 percent this year, the third-biggest gain in Europe after Denmark and Sweden, Nobel Prize-winning economist Paul Krugman says Iceland may be an example of “bankrupting yourself to recovery.”
“The difference is that in Iceland we allowed the banks to fail,” Iceland President Olafur R. Grimsson said in a Nov. 26 interview with Bloomberg Television’s Mark Barton. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”
‘Burning’ Question
The island’s bank debt remains with the failed lenders, whose creditors have yet to recoup $85 billion. Deciding who should bear the cost of banking failures is becoming a “burning” question in Europe, Grimsson said.
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The Telegraph said:Iceland has finally emerged from deep recession after allowing its currency to plunge and washing its hands of private bank debt, prompting an intense the debate over whether Ireland might suffer less damage if adopted the same strategy.
The Nordic economy grew at 1.2pc in the third quarter and looks poised to rebound next year. It ends a gruelling slump caused largely by the "New Viking" antics of Landsbanki, Glitnir and Kaupthing, the trio of lenders that brought down Iceland's financial system in September 2008.
The economies of the two "over-banked" countries have both contracted by around 11pc of GDP, but Iceland has achieved it with inflation that devalues debt, while Ireland has done it under an EMU deflation regime that raises the burden of debt.
This has led to vastly different debt dynamics as they enter Year III of the drama. Iceland's budget deficit will be 6.3pc this year, and soon in surplus: Ireland's will be 12pc (32pc with bank bail-outs) and not much better next year.
The pain has been distributed very differently. Irish unemployment has reached 14.1pc, and is still rising. Iceland's peaked at 9.7pc and has since fallen to 7.3pc.
The International Monetary Fund said Iceland has turned the corner, praising Reykjavik for safeguarding its "valued Nordic social welfare model".
"In the event, the recession has proved shallower than expected, and Iceland’s growth decline of about minus 7pc in 2009 compares favorably against other countries hard hit by the crisis," said Mark Flanigan, the IMF's mission chief for the country.
Total debt will peak at 115pc, before dropping to 80pc by 2015 in what the IMF called "robust debt dynamics". Meanwhile. Ireland's debt will continue rising for another three years to 120pc of GDP. The contrast will be very stark by the middle of the decade. Iceland may have a lower sovereign debt than Germany by then.
Iceland's president, Olafur Grimsson, irritated EU officials last month when he said his country was recovering faster because it had refused to bail out creditors – mostly foreigners.
"The difference is that in Iceland we allowed the banks to fail. These were private banks and we didn't pump money into them in order to keep them going; the state should not shoulder the responsibility," he said.
The comments came just as the EU authorities were ruling out investor "haircuts" in Ireland, making this a condition for the country's €85bn (£72bn) loan package.
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Bloomberg said:Iceland’s economic recovery is “on track” and the island’s main target should now be removing krona controls, the International Monetary Fund said.
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Iceland’s economy will grow 2.3 percent this year after contracting 3.5 percent in 2010, the Fund said.
Bloomberg said:The credit rating companies that were too slow in predicting Iceland’s economic collapse in 2008 may be underestimating the strength of its resurrection.
Fitch Ratings said in May it may take two years for the island to shed its junk status, while Moody’s Investors Service and Standard & Poor’s give Iceland their lowest investment grades. That hasn’t deterred investors from trying to buy twice the amount offered in last month’s $1 billion bond sale as the island returned to global capital markets less than three years after its banks defaulted on $85 billion in debt.
“When you look at how successful that auction was, it’s clear that investors are now crunching the numbers themselves and that the credit grades from the rating agencies are less relevant,” Valdimar Armann, an economist at Reykjavik-based asset manager Gamma, said in a July 4 interview.
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Le Monde diplomatique said:The people of Iceland have now twice voted not to repay international debts incurred by banks, and bankers, for which the whole island is being held responsible. With the present turmoil in European capitals, could this be the way forward for other economies?
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Bella Caledonia said:An Italian radio program’s story about Iceland’s on-going revolution is a stunning example of how little our media tells us about the rest of the world. Americans may remember that at the start of the 2008 financial crisis, Iceland literally went bankrupt. The reasons were mentioned only in passing, and since then, this little-known member of the European Union fell back into oblivion.
As one European country after another fails or risks failing, imperiling the Euro, with repercussions for the entire world, the last thing the powers that be want is for Iceland to become an example. Here’s why:
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Reason said:... The crisis ended almost as quickly as it had begun. The Organization for Economic Co-operation and Development expects Iceland’s economy to grow by 2 percent this year and next. That’s not enough to replace the post-2007 loss, but it’s more than enough to return to the pre-boom trend line, and it’s much stronger than the performance of Portugal, Italy, Ireland, Greece, and Spain, affectionately know as the PIIGS economies. Iceland’s long-term interest rate, a not-inconsiderable 8 percent, compares well with a rate of over 13 percent for Greece, which is astounding when you consider that Iceland endured a default that Greece, in name at least, has so far avoided. The difference in unemployment—5.8 percent for Iceland against 16 percent for Greece—is even more striking. Iceland expects to have a balanced budget in 2013.
Paul Krugman naturally draws the wrong conclusion, contending that Iceland saved itself through rapid inflation and capital controls. This is like saying the March tsunami gave the people of Tohoku a nice chance to go swimming: Iceland’s central bank tried desperately to control the króna’s collapse before giving up. Nevertheless, Erlingsdottir is right: The “grownups”—a center-left coalition led by Social Democrat Johanna Sigurdardottir—are back in charge and have done their best to double down on the bad policies of the past, including reducing fish quotas when local fishermen most need to be producing and selling. The government is also, in the face of strong popular opposition, moving toward E.U. membership, which has worked out so beautifully for other troubled European economies.
So what’s causing the recovery? The plain-sight answer is the one nobody will consider. Iceland is coming back specifically because its banks went out of business. That happened in spite of strenuous public efforts, but the removal of the tiny nation’s colossally bloated financial sector turns out not to have eliminated all that much value.
It bears repeating that banks are not creators of wealth. They are places where you store the surplus value generated by productive enterprise. In very narrow circumstances that surplus value can be loaned out at a profit, but a financial sector is the icing, not the cake. This should be common sense, but apparently it is wisdom so rare it can only be learned in countries small and remote enough to avoid the deadly medicine of the global financial markets.
Too bad it's so cold in Iceland... ICEland!
Otherwise that internet freedom / New Media Haven law would make that country attractive.
Re defaults, I am going to guess that he defaults FIRST, defaults best!
(...)while Moody’s Investors Service and Standard & Poor’s give Iceland their lowest investment grades. That hasn’t deterred investors from trying to buy twice the amount offered in last month’s $1 billion bond sale as the island returned to global capital markets
Washington Post said:On the snowy streets of this capital city, the economic panic of 2008 has mostly faded. The trendy cafes along Laugavegur brim with customers. Restaurant menus feature $40 grilled minke whale and $60 racks of lamb, and hardly a table goes empty. Boozy youths line up to pack nightclubs that thump all night. It’s even okay now to joke about the crash, or kreppa, as it’s known: “We may not have cash, but we have ash!” reads one T-shirt with a picture of the Eyjafjallajokull volcano that erupted in 2010.
Iceland’s journey from financial ruin to fledgling recovery is a case study in roads not taken and choices not made by other countries faced with economic calamity in recent years.
By the time the United States and Europe began to wrestle with the fallout of the global financial crisis in 2008, this tiny island nation was experiencing full-fledged meltdown. Its bloated banks failed. Its currency collapsed. The prime minister invoked God’s help, and protesters filled the streets.
Iceland did what the United States chose not to do — allow its biggest banks to fail and force foreign creditors to take a hike. It did what troubled European nations saddled with massive debts and tethered by the euro cannot do — allow its currency to remain weak, causing inflation but making its exports more desirable and its prices more attractive to tourists.
Three years later, the unemployment rate has fallen. Tourism has increased. The economy is growing. The government successfully raised money from investors in the summer for the first time since the crisis.
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Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.
Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”
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Fitch Ratings has upgraded Iceland's long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+,' the firm said Friday. The outlook is stable. The upgrade "reflects the progress that [Iceland has] made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding sovereign creditworthiness since the 2008 banking and currency crisis," said Paul Rawkins, Senior Director in Fitch's Sovereign Rating Group, in a statement. "... A promising economic recovery is underway, financial sector restructuring is well-advanced, while public debt/GDP appears to be close to peaking on the back of a robust fiscal consolidation programme" he added.
prosecute bankers? What does that mean? Side by side, those words appear to be from an alien language.
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In response to the failed banking system, in October 2008, Iceland’s revolution against this financial tyranny began, rather casually in the street, in front of the Icelandic general assembly.
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Hörður Torfason, a lifelong activist from Iceland, is credited with organizing the Icelandic ‘Kitchenware Revolution’, beginning with a simple vigil in front of parliament aimed at educating passersby and ridiculing the blatant crimes of the elite who worked there. When the foreign financial community (the IMF and the European Union) pressured Iceland’s Parliament to pass laws dictating repayment of debts privately incurred by bankers, the revolution was formally ignited and nearly turned violent when some Icelanders began throwing rocks at the capital, attempting to pressure the government for redress.
Torfason and his supporters knew that a non-violent approach would be more effective, and formed a “human wall” of clearly marked orange-vested citizens between angry rock-throwers and the police line. Torfason believed that in order for a movement to be effective, one must use reason and information, as well as peaceful demonstrations, to send a strong message to politicians that the people refuse to pay the bankers’ debts.
The end result of the peaceful resistance to economic tyranny is a model for all Western nations who are currently being gutted by a totally corrupt banking system.
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The proposal is a 110 page PDF called Monetary Reform - A Better Monetary System for Iceland
The proposal describes in detail the problems of deposit insurance, fractional reserve lending, and various moral hazards in a way that is easy to understand. I encourage everyone to read the document as it debunks many widely-held beliefs such as the money-multiplier theory of how money is actually created.
The money-multiplier theory is widely taught and widely believed but totally wrong as I have discussed many times.
Unfortunately, the proposal has a major flaw. It hands responsibility for the creation of money to a panel. ...
In two separate rulings last week, the Supreme Court of Iceland and the Reykjavík District Court sentenced three top managers of Landsbankinn and two top managers of Kaupþing, along with one prominent investor, to prison for crimes committed in the lead-up to the financial collapse of 2008. With these rulings the number of bankers and financiers who have been sentenced to prison for crimes relating to the financial collapse has reached 26, and a combined prison time of 74 years.
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