26.4.2008 | 15:35
Till debt us do part
Apr 24th 2008 | REYKJAVIK
From The Economist print edition
An island victim of the global credit crunch
![](http://media.economist.com/images/20080426/CEU227.gif)
ICELAND'S central-bank governor, David Oddsson, recently gave a gloomy speech, calling conditions harsh and often stormy. He said the headwinds were not going to wash away on the outgoing tide. Mr Oddsson's meteorological metaphors came at a moment when Iceland's much trumpeted foray into world markets was tainted by reports of financial disaster. In brief, the Icelandic economy is in trouble, thanks to a huge amount of foreign debt incurred by its banks.
The population of Iceland is just over 300,000. Except for sheep, fish and dairy products, virtually everything consumed on the island is imported. The current-account deficit is enormous (though the government's budget is in large surplus). To finance it, the island's three big banksLandsbanki, Glitnir and Kaupthinghave borrowed freely on the international capital markets, stretching themselves far beyond their modest depositor base at home.
Traditionally, Iceland has staved off inflation through high interest rates. Mr Oddsson has taken to interest-rate rises with a zeal not seen since Paul Volcker ran America's Fed in the 1980s. Yet inflation has remained at least double the bank's 2.5% targetat present it is running as high as 8.7%. And one unhelpful result of high interest rates (recently raised to 15.5%) has been a widening differential with other currencies. That made Iceland a prime target for the carry trade: borrowing in low-interest currencies to invest in higher-yielding ones. The result last year was a sharp rise in the krona.
Ignoring high interest rates and taxes, Icelanders reacted to their strong currency by spending even more. Last summer an ugly spiral developed. Inflation stayed high, interest rates were raised, the krona strengthenedand the circle was completed by unfettered borrowing. Into this toxic mix fell the global credit crunch, triggered by America's subprime mess.
Iceland's banks have actually kept clear of most subprime assets, but they have been hit hard by the global credit squeeze. Inter-bank lending between European banks has slowed to a trickle, but it has stopped altogether for Icelandic banks. Risk premiums on their debt hit record levels last year. None of the banks needed to borrow at these rates, but the market signal was clear enough: the banks were in trouble, and there was a question-mark over the central bank's ability to stand behind them.
The outcome in 2008 has been a slump in the krona, which has fallen against the euro by almost 30%, as carry traders unwound their contracts and hedge funds shorted the currency. The impact on a small, open economy has been swiftly felt. Prices of basic goods are shooting up. Double-digit inflation and a recession both look inevitable. It adds up to a sorry end to a jolly spree on the world's capital markets.
http://www.economist.com/world/europe/PrinterFriendly.cfm?story_id=11090291
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Athugasemdir
Heimskur, heimskari, heimskastur segja sumir. Ég bara trúi því varla og held að þetta sé miklu frekar hönnuð atburðarrás til að láta "gott" af sér leiða fyrir útvalda.
Björn Heiðdal, 26.4.2008 kl. 19:23
Án efa.
Eins og ég hef lýst hérna á blogginu þá eru hlutirnir lognir áfram af maskínu í eigu fjármagnsafla þangað til það er fullmettað og þá er skrúfað fyrir og á endanum eru eignir hirtar fyrir ekki neitt. Það er klassískt og hefur allt sést áður.
Maskínan samanstendur af eignum fjármagnsaflanna, það er pólitískum hórum, auglýsingaruslpósti (sem fáir kalla orðið fjölmiðla) og keyptum álitsgjöfum. Þetta er veruleikahönnunin. Hins vegar hafa áhrif þessarra lygamaskínu verið þverrandi samfara bættri almennri upplýsingu og valfrelsi sem internetinu fylgir og vaxandi örvæntingu og ofbeldishneigð hennar og eigenda hennar ber að skoða í því ljósi.
Baldur Fjölnisson, 26.4.2008 kl. 21:33
Bæta við athugasemd [Innskráning]
Ekki er lengur hægt að skrifa athugasemdir við færsluna, þar sem tímamörk á athugasemdir eru liðin.