Iceland on the Mend
Storkur, Iceland (my photo, available under cc license)
I’ve been saying that for all the gloating people did last fall over Iceland’s collapse, that the country was actually in pretty good shape. Yves Smith observes, for example, that a small open economy like Iceland’s can just nationalize its banks and devalue its currency and put itself on the road to recovery. That’s not a fun thing to experience, but it’s a lot better than what Spain and Ireland are looking at—a sustained period of double-digit unemployment and round after round of nominal wage cuts.
Meanwhile, the other thing I’ve been saying is that currency issues aside, the fundamentals in Iceland are strong. It’s a small, quiet, peaceful, homogenous country full of healthy and well-educated people. When the global economy comes back, they’re as well-positioned as anyone else to take advantage of whatever opportunities present themselves.
21 Responses to “Iceland on the Mend”
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July 27th, 2009 at 4:02 pm
Speaking of which, do you remember when conservatives were praising Ireland as some sort of conservative paradise? You know, before the economy there tanked? Do you think they’ve retracted their statements? I honestly don’t know what to make of Tyler Cowan.
July 27th, 2009 at 4:03 pm
On the other hand, I think it also shows why Iceland probably should establish some sort of capital controls to prevent themselves or anyone else from using the country as transantional arbitrage.
July 27th, 2009 at 4:04 pm
Now that the Krona has been devalued by 50%, is an Icelandic vacation now affordable?
July 27th, 2009 at 4:15 pm
“It’s a small, quiet, peaceful, homogenous country full of healthy and well-educated people. “
The operative word here is homogeneous.
The Jews have Israel.
Blacks have Africa.
Asians have Asia.
Europeans and European Americans have Third World immigrants taking over their ancestral lands.
———–
WHAT OBONGO AND HIS FRIENDS ARE SAYING
“I would hope that a wise Latina woman with the richness of her experiences would more often than not reach a better conclusion [as a judge] than a white male who hasn’t lived that life.”
- Sonia Sotomayor
“We remain a hunted people. Now you think you have a destiny to fulfill in the land that historically has been ours for forty thousand years. And we’re a new Mestizo nation.”
“Our devil has pale skin and blue eyes…”
“We have got to eliminate the gringo, and what I mean by that is if the worst comes to the worst, we have got to kill him.”
– Professor Jose Angel Gutierrez, founder of La Raza
“Around the year 2040, whites will become a minority in the United States and, believe me, it will be payback time.”
- Pro-Immigration Activist, Jorge Sanchez
“And the one idea is, how we are going to exterminate white people because that in my estimation is the only conclusion I have come to. We have to exterminate white people off the face of the planet to solve this problem.”
- African Studies professor, Dr. Kamau Kambon
“Blond hair and blue eyes are a biological defect.”
“The white race is a disease, and the only cure is a bullet. The rule of whites is history. Soon they will be our serfs. It’s now the Age of the Brown Man.”
- Hindu nationalist, Ramesh Sharma
“I found a solace in nursing a pervasive sense of grievance and animosity against my mother’s white race.”
- Barack Hussein Obama
“Al-Qaida is not merely for the benefit of Muslims. That’s why I want blacks in America, people of color, American Indians, Hispanics, and all the weak and oppressed in North and South America, in Africa and Asia, and all over the world.”
- Al-Zawahri
“The goal of abolishing the white race is on its face so desirable that some may find it hard to believe that it could incur any opposition other than from committed white supremacists. Make no mistake about it we intend to keep bashing the dead white males, and the live ones, and the females too, until the social construct known as ‘the white race’ is destroyed–not ‘deconstructed’ but destroyed.”
- Jewish studies professor, Noel Ignatiev
July 27th, 2009 at 4:16 pm
I’ve loved Iceland ever since I read John McPhee’s The Control of Nature. One of the chapters concerns a volcano eruption that was threatening to close one of Iceland’s chief fishing harbors. The hot magma was boiling up out in the ocean and hardening into a new stretch of land. One of the things the locals did to get it to cool and thus move no closer to shore was pee on it.
July 27th, 2009 at 4:17 pm
Original post: interestingly, the Icelanders are debating whether they can survive outside of the Euro zone (or, less plausibly, Canada) while countries like Ireland are debating whether they can survive *inside* the Euro zone.
Would it be a good thing or a bad thing for California to be able to devalue its currency and get on with things after taking a big haircut to its asset values in dollar terms? (Is that what they are really up to, given that the IOUs they are issuing are, in effect, a kind of currency?)
Ireland: the property boom and bust in that country are worth investigation, actually, since many of the elements that contributed to the American situation – e.g., securitization of sub-prime mortgages – didn’t really obtain in Ireland.
Capital controls: Iceland’s banking boom was really one step away from money-laundering – lots of money from dubious Russian sources, for example. In retrospect, of course, this was a bad business to be in. But you’d have had a hard time selling capital controls prior to the bust; they would have simply destroyed the banking industry.
Vacations: YES! Iceland is not cheap, but it is a lot cheaper than it used to be, and it’s a lovely country very much worth a visit. And they would appreciate your tourist business.
July 27th, 2009 at 4:39 pm
a small open economy like Iceland’s can just nationalize its banks and devalue its currency and put itself on the road to recovery
If I remember correctly, Iceland’s banks assets were many times Iceland’s GDP, and most of their liabilities were denominated in foreign currencies; so devaluating wouldn’t help, and it would take decades to pay back those loans. Why not just renege on all that debt?
The article linked seems nothing more than another neoliberal hit job against the euro; why compare Iceland’s unemployment to the worse youth unemployment rates in the eurozone?
Crisis or not, one thing is always certain: a fixed exchange rate is the work of the Devil.
July 27th, 2009 at 4:46 pm
Capital controls: Iceland’s banking boom was really one step away from money-laundering – lots of money from dubious Russian sources, for example. In retrospect, of course, this was a bad business to be in.
Why? Some of the richest countries on Earth (Luxembourg, Lichtenstein, Switzerland…) are specialized in money-laundering, and are still doing very well.
Iceland’s mistake was to follow the example of Wall Street gangsters, much more dangerous for an economy than Russian thugs.
July 27th, 2009 at 5:08 pm
Original post: interestingly, the Icelanders are debating whether they can survive outside of the Euro zone (or, less plausibly, Canada) while countries like Ireland are debating whether they can survive *inside* the Euro zone.
As I understant it Iceland is now applying to join the Euro zone.
July 27th, 2009 at 5:31 pm
Were people really gloating about Iceland’s financial collapse? Who has it in for Iceland? The only nationalist concern I remember hearing expressed was that Putin would snap it up at a bargain price in preparation for an invasion of Western Europe, but then oil prices sank and that threat evaporated.
July 27th, 2009 at 5:56 pm
Re Brock at 3: “Now that the Krona has been devalued by 50%, is an Icelandic vacation now affordable? ”
——————
Yes. If you have time, you should explore Iceland’s natural resources:
http://www.flickr.com/photos/eythor/1152062876/
July 27th, 2009 at 6:22 pm
Matt as Kent Brockman: “I, for one, welcome our new Blue-Eyed overlords. And let me remind them, as a trusted media personality, I can help round up other Americans to work in their socialized health clinic and daycare centers.”
July 27th, 2009 at 6:39 pm
Hey, Parody Sailer, new in town?
July 27th, 2009 at 6:41 pm
Matt may or may not be right to be optimistic about Iceland’s fundamentals (I suspect he’s over-optimistic – but the Icelanders are past-masters at making the most out of a crappy hand, so it may all end happily anyway); BUT he shouldn’t pay too much attention to anything written by Ambrose Evans Pritchard. Just read the comments to his post to see how his vitriol about the EU taints all he writes.
July 27th, 2009 at 6:53 pm
One of the things the locals did to get it to cool and thus move no closer to shore was pee on it.
OT: With all due respect to those doughty Scandinavian urinators, how much difference could that have possibly made?
July 27th, 2009 at 8:12 pm
Disclosure: I am a Icelandic national, an economic historian, writing my dissertation at the University of Minnesota, and am currently working on a large research project on the reasons for the collapse of the Icelandic banking system. My views expressed here are my own.
Matt: You need to get in touch with someone knowledgeable about the Icelandic sitatuin before you continue writing about it. Especially stuff like this: “Iceland is on the mend”. Where in the world does that come from? I dont know of ANYONE who is following the situation here that things are somehow improving! The consensus appears to be precisely the opposite, namely that we are pretty screwed.
Your comments on Iceland have delighted me, but also troubled, since they seem to be inspired more by love of our country than detailed or up to date knowledge of the situation. Granted, it is difficult to figure out what is going on in Iceland, since most of the news are in Icelandic. What makes it even more problematic is that the situation is still extremely fluid, and nobody really knows where we are heading, and it is extremely difficult to figure out even what happened and what went wrong.
Aside from some anecdotes and somewhat increased tourist spending the krona is still a curse: It means the state, banks and firms, have a really hard time serving the huge loads of foreign debt, all in foreign currency, since all their income is in Krona. The young are fleeing the country for Norway, and by some estimates pretty much all businesses in the country are technically bankrupt. Serious doubts are that the state will be able to pay off the debts that followed the collapse of the oversized banking system.
And this is not crazy-pessimist talk. You should hear how the pessimists describe the situation.
Personally I think the only thing that can really save us is that the possible oilfinds turn out real. And if that happens we will be saved, since there is only 300.000 of us, and even a small oil find would make the nation again one of the richest in the world, in per capita terms.
But if that happens it will be due to good luck, not our welfare system.
This is not to say that Matt isnt right that the blow of the depression will be lighter than otherwise, due to the welfare system and strong fundamentals. Without them it would be sheer hell. But they are not sparing us the blow or opening up anykind of early recovery. That is just wishful thinking.
Also: The geyser in the picture is “strokkur” – not “storkur”, the former means “churn” the latter “stork”
July 27th, 2009 at 8:16 pm
Also, forgot to add that I generally really like your blog, and find myself in agreement with your analysis and views most of the time, so my criticism is in no way related to a difference in opinion on Scandinavian Welfare states!
July 27th, 2009 at 8:40 pm
how much difference could that have possibly made?
It stopped, didn’t it?
July 27th, 2009 at 9:26 pm
Wow, “homogenous” is a good thing????
I knew Yglesias was an idiot, I just didn’t realize he was a racist too.
July 28th, 2009 at 12:58 am
Magnus Sveinn Helgason
Thanks for the words, Magnus. I would like to officially nominate you to be our designated blogger on all things Icelandic.
Unfortunately, nominations are strictly forbidden. Defacto dictator Yglesias maintains an iron grip on all things, especially in matters concerning Iceland. Apparently he took a trip there and snapped some pictures and fell in love with your iconic land. Now, our beguiled and deluded Leader believes he alone understands the current travails of your island country.
Still, try that he may, he can’t stop you from sneaking in and posting the real skinny.
July 28th, 2009 at 10:16 am
Re Jimboslice at 19: “I knew Yglesias was an idiot, I just didn’t realize he was a racist too.”
—————
Any truth to the rumor that he’s a secret member of the occult Thule Society?
http://en.wikipedia.org/wiki/Thule_Society#Beliefs