View Full Version : Anyone here in iceland now?

14th November 2008, 07:17
I want to know how icelanders are doing in thier day-to day lives,with thier economic crash and all.How much is thier food,gas,clothes...is silver worth more there?Are they converting thier silver into kronos and paying off thier mortgages?......cars???...so when our dollar collapses ill know what to expect.

14th November 2008, 07:19
I want to know how icelanders are doing in thier day-to day lives,with thier economic crash and all.How much is thier food,gas,clothes...is silver worth more there?Are they converting thier silver into kronos and paying off thier mortgages?......cars???...so when our dollar collapses ill know what to expect.

Those are all excellent questions and I've been wondering he same thing.

14th November 2008, 07:22
thanky mainevent1...they are our model if tshtf here in the states

14th November 2008, 07:31
Just take a look at Zimbabwe and Argentina as examples. The reason I like Iceland as the defacto example is that their economy was much like ours, not what I'd consider 3rd world if you know what I mean.

14th November 2008, 14:19
How Bad Could The Crisis Get? Lessons From Iceland

By Jon Danielsson
13 Nov 2008 at 07:00 AM GMT-05:00

Iceland’s banking system is ruined. GDP is down 65% in euro terms. Many companies face bankruptcy; others think of moving abroad. A third of the population is considering emigration. The British and Dutch governments demand compensation, amounting to over 100% of Icelandic GDP, for their citizens who held high-interest deposits in local branches of Icelandic banks. Europe’s leaders urgently need to take step to prevent similar things from happening to small nations with big banking sectors.

LONDON (voxEU.org) -- Iceland experienced the deepest and most rapid financial crisis recorded in peacetime when its three major banks all collapsed in the same week in October 2008. It is the first developed country to request assistance from the IMF in 30 years.

Following the use of anti-terror laws by the U.K. authorities against the Icelandic bank Landsbanki and the Icelandic authorities on 7 October, the Icelandic payment system effectively came to a standstill, with extreme difficulties in transferring money between Iceland and abroad. For an economy as dependent on imports and exports as Iceland this has been catastrophic.

While it is now possible to transfer money with some difficulty, the Icelandic currency market is now operating under capital controls while the government seeks funding to re-float the Icelandic krona under the supervision of the IMF. There are still multiple simultaneous exchange rates for the krona.

Negotiations with the IMF have finished, but at the time of writing the IMF has delayed a formal decision. Icelandic authorities claim this is due to pressure from the UK and Netherlands to compensate the citizens who deposited money in British and Dutch branches of the Icelandic bank Icesave. The net losses on those accounts may exceed the Icelandic GDP, and the two governments are demanding that the Icelandic government pay a substantial portion of that. The likely outcome would be sovereign default.

How did we get here? Inflation targeting gone wrong

The original reasons for Iceland’s failure are series of policy mistakes dating back to the beginning of the decade. The first main cause of the crisis was the use of inflation targeting. Throughout the period of inflation targeting, inflation was generally above its target rate. In response, the central bank keep rates high, exceeding 15% at times.

In a small economy like Iceland, high interest rates encourage domestic firms and households to borrow in foreign currency; it also attracts carry traders speculating against ‘uncovered interest parity’. The result was a large foreign-currency inflow. This lead to a sharp exchange rate appreciation that gave Icelanders an illusion of wealth and doubly rewarding the carry traders. The currency inflows also encouraged economic growth and inflation; outcomes that induced the central bank to raise interest rates further.

The end result was a bubble caused by the interaction of high domestic interest rates, currency appreciation, and capital inflows. While the stylized facts about currency inflows suggest that they should lead to lower domestic prices, in Iceland the impact was opposite.

Why did inflation targeting fail?

The reasons for the failure of inflation targeting are not completely clear, a key reason seems to be that foreign currency effectively became a part of the local money supply and the rapidly appreciating exchange-rate lead directly to the creation of new sectors of the economy.

The exchange rate became increasingly out of touch with economic fundamentals, with a rapid depreciation of the currency inevitable. This should have been clear to the central bank, which wasted several good opportunities to prevent exchange rate appreciations and build up reserves.

Peculiar central bank governance structure

Adding to this is the peculiar governance structure of the Central Bank of Iceland. Uniquely, it does not have one but three governors. One or more of those has generally been a former politician. Consequently, the governance of the central bank of Iceland has always been perceived to be closely tied to the central government, raising doubts about its independence. Currently, the chairman of the board of governors is a former long-standing Prime Minister. Central bank governors should of course be absolutely impartial, and having a politician as a governor creates a perception of politicization of central bank decisions.

In addition, such governance structure carries with it unfortunate consequences that become especially visible in the financial crisis. By choosing governors based on their political background rather than economic or financial expertise, the central bank may be perceived to be ill-equipped to deal with an economy in crisis.

Oversized banking sector

The second factor in the implosion of the Icelandic economy was the size of its banking sector. Before the crisis, the Icelandic banks had foreign assets worth around 10 times the Icelandic GDP, with debts to match. In normal economic circumstances this is not a cause for worry, so long as the banks are prudently run. Indeed, the Icelandic banks were better capitalized and with a lower exposure to high risk assets than many of their European counterparts.

If banks are too big to save, failure is a self-fulfilling prophecy

In this crisis, the strength of a bank’s balance sheet is of little consequence. What matters is the explicit or implicit guarantee provided by the state to the banks to back up their assets and provide liquidity. Therefore, the size of the state relative to the size of the banks becomes the crucial factor. If the banks become too big to save, their failure becomes a self-fulfilling prophecy.

The relative size of the Icelandic banking system means that the government was in no position to guarantee the banks, unlike in other European countries. This effect was further escalated and the collapse brought forward by the failure of the central bank to extend its foreign currency reserves.

The final collapse was brought on by the bankruptcy of almost the entire Icelandic banking system. We may never know if the collapse of the banks was inevitable, but the manner in which they went into bankruptcy turned out to be extremely damaging to the Icelandic economy, and indeed damaging to the economy of the United Kingdom and other European countries. The final damage to both Iceland and the rest of the European economies would have been preventable if the authorities of these countries have acted more prudently.

While at the time of writing it is somewhat difficult to estimate the recovery rate from the sale of private sector assets, a common estimate for the net loss to foreign creditors because of private debt of Icelandic entities is in excess of $40 billion.

The Icelandic authorities did not appreciate the seriousness of the situation in spite of being repeatedly warned, both in domestic and foreign reports. One prominent but typical example is Buiter and Sibert (2008). In addition, the Icelandic authorities communicated badly with their international counterparts, leading to an atmosphere of mistrust.

The U.K. authorities exasperated with responses from Iceland overreacted, using antiterrorist laws to take over Icelandic assets, and causing the bankruptcy of the remaining Icelandic bank. Ultimately, this led to Iceland’s pariah status in the financial system.

British and Dutch claims on the Icelandic government

The current difficulties facing Iceland relate to its dispute with the Netherlands and the U.K. over high interest savings accounts, Icesave. Landsbanki set these savings accounts up as a branch of the Icelandic entity, meaning they were regulated and insured in Iceland, not in the UK or the Netherlands.

Icesave offered interest rates much above those prevailing in the market at the time, often 50% more than offered by British high street banks. In turn, this attracted £4.5 billion in the U.K. with close to one £billion in the Netherlands. Landsbanki operated these saving accounts under local U.K. and Dutch branches of the Icelandic entity, meaning they were primarily regulated and insured in Iceland, although also falling under local authorities in the U.K. and the Netherlands. Hence the Icelandic, British and Dutch regulators approved its operations and allowed it to continue attracting substantial inflows of money. Since the difficulties facing Landsbanki were well documented, the financial regulators of the three countries are at fault for allowing it to continue attracting funds.

Landsbanki went into administration following the emergency legislation in Iceland.. The final losses related to Icesave are not available at the time of writing, but recovery rates are expected to be low, with total losses expected to be close to £5 billion. The amount in the Icelandic deposit insurance fund only covers a small fraction of these losses.

Both the Dutch and the U.K. governments have sought to recover the losses to their savers from the Icelandic government. Their demands are threefold. First, that it use the deposit insurance fund to compensate deposit holders in Icesave. Second, that it make good on the amounts promised by the insurance fund, around €20,000. Finally, that it make good on all losses. The last claim is based on emergency legislation passed in Iceland October 6, and the fact that the government of Iceland has promised to compensate Icelandic deposit holders the full amount, and it cannot discriminate between Icelandic and European deposit holders.

Read it all here:


14th November 2008, 17:40
great read....but still didnt answer the quesion