Hi Guys, Tell me why this 'program' will only work in Iceland, and not anywhere else... Instead of mass foreclosures and bankruptcies, southern Europe would do well to follow Iceland's exampleThe bottom line is that the government, the financial sector and the business sector collectively created a situation that leaves the financial sector with as good a result in terms of total debt collection as possible without the pain of sending most of the firms and many families into bankruptcy, unemployment and dispossession.Thanks in good part to this tempered approach to debt write-down Iceland's economy is now growing faster than most countries in Europe, and unemployment is less than 5% (having hit 9.3% in early 2010). http://www.guardian.co.uk/business/economics-blog/2012/aug/2... rk
Hi Guys,Tell me why this 'program' will only work in Iceland, and not anywhere else...I'm not familiar with broader examples of whether strategies like this work, but it is clear that politicians prefer to ignore what works and doesn't work in order to stick with policies that they want for political reasons. For example, studies have shown pretty consistently that so-called "austerity" that consists of tax increases is a recipe for failure, whereas "austerity" that focuses on spending cuts (especially government employment and transfer programs) has a much greater chance of success.http://boards.fool.com/does-austerity-work-30044575.aspxEuropean countries have been raising taxes instead of cutting spending, and the results have been poor, which shouldn't be surprising. It's pretty clear that "austerity" in the form of spending cuts in Europe has not been tried (nor do I expect it to be tried any time soon). It's unfortunate that so many people paint "austerity" with a broad brush and deem *all* austerity a failure, probably for the sake of rationalizing continued high government spending.http://boards.fool.com/austerity-in-europe-30064219.aspxAs far as taxes are concerned, in the long run, higher taxes (especially higher corporate income taxes and highly progressive personal income taxes) lead to lower economic growth. Also, not all *forms* of taxation are created equal in terms of their negative impact on economic growth. Instead of focusing on broader studies of the impact of taxes on economic growth, politicians prefer to use carefully selected anecdotes where taxes were higher for a certain period of time and economic growth was high. Unfortunately, this replaces rationality with wishful thinking that high taxes do not hurt economic growth (other things equal).http://boards.fool.com/taxes-and-economic-growth-30045166.as...This lack of regard for what has been shown to work and not work is frustrating, but it is not surprising to me any more. All I know is that I agree with Maximus from the movie Gladiator:"The time for half measures and talk is over, Senator."
Tell me why this 'program' will only work in Iceland, and not anywhere else...I can think of at least 3 reasons a logical, practical, fairly applied, justice-oriented program such as that implemented in Iceland would not work anywhere else:1. Iceland's plan allowed banks to fail, bankers to be excoriated and politicians to be held accountable. That sort of plan would never see the light of day in any country controlled by bankers and lobbyists.2. Iceland's plan required the pain of de-leveraging to be applied evenly across almost all parts of Icelandic society, with the greatest pain applied to the non-Icelandic lenders. Without even getting into the issue of whether a default on foreign banks is possible, it's highly unlikely that any other country would allow de-leveraging to inflict pain across all strata of its society. Most countries' social structure is designed to deflect pain and burdens from one segment and onto all the other segments of society.3. One must only look at the essay author's biography to see yet another reason Iceland's plan wouldn't work anywhere else: "Thorolfur Matthiasson is professor of economics at the University of Iceland and member of a parliament-appointed committee overseeing equality of treatment in debt writedowns by the Icelandic financial sector." The very idea of "equality of treatment in debt writedowns" would be inconceivable in a country such as the US where the whole bankruptcy system and the sole raison d'etre of the political class is to prevent, rather than to ensure, equal treatment under the law. That said, Iceland's recovery plan should be held up as a model of good policy, while its pre-crisis financial system structure should be held up as a model of bad policy.http://www.guardian.co.uk/business/economics-blog/2012/aug/2...At least Iceland learned from its mistakes - something the rest of the Western countries and banks have failed to do.:-o
Iceland has limited natural and human resources. Borrowing from foreign banks enable Iceland to live a rich lifestyle until it defaulted. Now that Iceland has defaulted, lenders charge very high interest rates, so borrowing is difficult. The Icelandic currency, the krona, has dramatically devalued, so imports are much more expensive than before.Iceland is being forced to live within its means, since it cannot borrow. The standard of living has dropped. This is a return to reality. It's easy to say, "They should have been living within their means all along," but people who have grown up with a higher standard of living think of it as the proper standard of living and feel the pinch more keenly than if they had never adapted to the higher standard.The Icelandic people appear to have accepted the tradeoff of default. Their people are not rioting in the streets of Rekyavik. But a similar situation of forcing Greece, Spain or Italy to live within their real (productive) means would probably trigger rioting and elections of extremists because they have not lived within their means for a lllooonnng time. All these nations are serial defaulters which have not lived within their means for over 150 years (according to "This Time Is Different").Wendy
The Icelandic people appear to have accepted the tradeoff of default. Their people are not rioting in the streets of Rekyavik. Oh but they did. While their culture is Scandinavian much of their blood is Irish from slaves brought over by the Viking settlers. Each settler was allowed to bring ten Irish slaves who soon morphed into true Icelandic’s. Any <finds that interesting> mousehttp://www.peakprosperity.com/forum/iceland-riots-precursor-...Iceland Riots Precursor To U.S. Civil Unrest? Demonstrators call for government to resign in wake of financial collapsePaul Joseph WatsonPrison Planet.comTuesday, November 25, 2008 Riots and protests in Reykjavik calling for the government of Iceland to resign have increased following a financial catastrophe that has wiped out half of the krona’s value and put one third of the population at risk of losing their homes and life savings.
But a similar situation of forcing Greece, Spain or Italy to live within their real (productive) means would probably trigger rioting and elections of extremists because they have not lived within their means for a lllooonnng time.Well then the rest of the world better resigned to the notion that they'll need to perpetually inject money into those nations so their citizens can continue to live the lifestyle they have come accustomed to.
Oh but they did (riot).Rioting usually stops when the politicians' and, in Iceland's case, the bankers' heads roll.Our proletariat know that such a satisfactory result is impossible. Instead of offering up politicians or bankers (remember MF Global) to the mob, our so much more civilized government would respond to rioters with bullets and bats.We believe in giving the people exactly what they demand - so long as the demand consists of bread and circuses. Demands for justice or restitution are met with either silence or force.Thus the sheeple live their little lives of quiet desperation, waiting for crumbs to fall from the table of the TBTF and TPTB....Just kidding (watching for drones overhead).Really... just kidding around here...honest...;-)
Well then the rest of the world better resigned to the notion that they'll need to perpetually inject money into those nations so their citizens can continue to live the lifestyle they have come accustomed to.SBOh no Bear, that is all cleared up, just saw a report on BNN that the Greek PM just personally guaranteed that Germany would get their money back?Found it: http://www.thelocal.de/national/20120823-44527.htmlGreek PM: Germans will get their money backPublished: 23 Aug 12 08:11 CETGreece's prime minister vowed in a German newspaper interview Wednesday to repay the aid it has received to help keep the debt-stricken country afloat and to deliver on its commitments.Antonis Samaras told Thursday's Süddeutsche Zeitung that much had gone wrong in Greece but it was determined to change its ways and would fulfil its commitments for €11.5 billion ($14.2 billion) of savings. The interview, a copy of which was released in advance, will be his second to appear in a national German newspaper in two days and precedes his visit to Berlin to meet Chancellor Angela Merkel Friday. "The Germans will get their money back, that I guarantee personally. And all the others will get their money back too. We will fulfil our commitments fully," Samaras told the paper. So there now aren't you feeling terrible about your mistaken cynicism now?Any <not a cynic> mouse http://www.youtube.com/watch?v=zlDBUL5digw
So there now aren't you feeling terrible about your mistaken cynicism now?I feel so bad now! Wait... "guarantee personally"? A couple of 100b or so? <Checking Forbes list for Samaras...>oops... Perhaps he was talking about freshly printed Drachmas ;-)
madcapitalist: "it's pretty clear that "austerity" in the form of spending cuts in Europe has not been tried (nor do I expect it to be tried any time soon)."++++++++++++++NO... The opposite is pretty clear. Savage cuts HAVE been made and more will be made. Problem is that those cuts mostly have been made SAVAGELY and/or STUPIDLY, striking at weak rather than powerful constituencies. Example 1: Spain (which I know moderately well) had a policy of testing for HIV and when finding HIV infected people getting them treated whether they are "in" the medical system or not. Result? Much lower spread of HIV (infected people on meds are MUCH MUCH less infectious), and so much LOWER costs in the medium to long term, and so much lower costs. They are now saving short term and costs long term will rise.Example 2: My town has 10 times more police per capita than Los Angeles, ineffectually splattered between local, regional, national and Guardia Civil (don't ask). Not one has been laid off. Not one vacancy due to retirement or death or disability has gone unfilled. They do almost nothing (except collect new and unpopular fees, fines and taxes) (at a net loss).Example 3: Enormous subsidies for the Roman Catholic Church and for Labor Union Institutes are still on the teats.Austerity in the form of cuts is no more the sole answer than austerity in the form of tax increases. What is required is BRAINS, COURAGE, and STATESMEN to explain and defend what must be done that can be paid for. Cuts, tax increases, and (gasp) even some new expenditures are all required. But they all have to be paid for and all have to make sense for the long haul. And given the staggering level of debt built up to pay for frivolities, idiocies, and the enrichment of cronies, JUST PAYING INTEREST on the debt eats up all margin.Big sigh. We are so scrod!!!david fb
All these nations are serial defaulters which have not lived within their means for over 150 years (according to "This Time Is Different").I haven't read the book. Who does the author claim has been supporting their excess for 150 years? And which nations specifically are included in "all these nations"?
suissebear:perpetually inject money into those nations so their citizens can continue to live the lifestyle they have come accustomed to***********That's the crux. That is why, for all the current happy talk and up euro markets, it all comes tumbling down.AND that is why I am very confused. Isn't this obvious? So why are the markets bu(o)ying it? Or is it really just central bank smoke and mirrors everywhere?david fb
Savage cuts HAVE been made and more will be made.I'm not sure what you mean by "savage cuts", but according to this graph, in real terms, there have been no cuts at all.http://madashelland.com/wp-content/uploads/2012/07/SpainBudg...
according to this graph, in real terms, there have been no cuts at all.+++++++++Point Well Taken -- no net cuts. But I repeat, savage budgetary cuts have been made and more well be made. On the current pattern they will mostly make matters worse in the long term.Some of the increase in expenditure shown in Mark's graph is the tail end of the insanely ill-considered, "counter-recessionary" "Plan E" (E for expansion and Espana) of the last government. Most of it, however, is in increased pension, unemployment, and related social services. As people get laid off they and their relatives form a very easily mobilized and demagogued sector (VOTERS en masse!).I repeat. It will be very very hard to make the RIGHT CUTS and RIGHT TAX INCREASES. To be able to do so without revolution I believe Spain should have bankrupted most of its banks by the beginning of this year (wiping out a huge amount of the debt owed to -- drum roll -- Germany and Britain) rather than having the government assume it; should have left the euro and then devalued the peseta; and should then have turned rigorously to the economic straight and narrow. Fat chance of any one, let alone the Royal Flush called for.I repeat. Sigh. We are so scrod.david fb
Investment opportunities we are definitely too late to get in on. Mirrors Smoke Generators :-)
At least Iceland learned from its mistakes - something the rest of the Western countries and banks have failed to do.Hmm. Iceland went on a spending spree hoovering up banks and real estate in the UK. The capital of foreign investors with Landsbanki? Disappeared down a geyser. But one thing about Iceland. It never joined the Euro. As for their learing from mistakes? Cynics might call this 'Pass the buck:'On the second day of the trial of Geir Haarde, the country's prime minister during the country's banking collapse, Bjorgvin Sigurdsson, the country's former trade minister, was sharply critical of the stance taken by former Chancellor Alastair Darling and the Financial Services Authority (FSA). "I do not know how in the world Darling thought that 300,000 people should take on hundreds of billions worth of debt," he told the court. As he took the stand on Monday, the 60-year-old economist rejected the charge that he had been negligent in the period leading up to the crisis in October 2008, when three of Iceland's major commercial banks collapsed. This burdened the Nordic island state with more than €50bn (£42bn) in external debt and forced it to take emergency loans of around $10bn (£6.3bn) from the International Monetary Fund and other lenders. http://www.telegraph.co.uk/finance/financialcrisis/9126992/I...
notehound,You left out reason #4: Icelandic financial institutions weren't as deeply into derivatives as the US and Euro-land. Derivatives are like a domino line-up/path, but we don't know where the path of dominoes leads for the US and Europe. Greece most definitely is into derivatives, as are most major financial institutions in the US and Europe that are counter-parties. Thanks you so much Goldman-Sachs!PM
Tell me why this 'program' will only work in Iceland, and not anywhere else... - loveoldcarsI'm not exactly sure about Iceland's 'program' details. In broad terms, I know the government stepped in and nationalized its major banks. The consequences of that were not benign:http://en.wikipedia.org/wiki/2008%E2%80%932012_Icelandic_fin...The financial crisis had serious consequences for the Icelandic economy. The national currency fell sharply in value, foreign currency transactions were virtually suspended for weeks, and the market capitalisation of the Icelandic stock exchange dropped by more than 90%. As a result of the crisis, Iceland underwent a severe economic recession; the nation's gross domestic product (GDP) dropped by 5.5% in real terms in the first six months of 2010. Outside Iceland, more than half a million depositors (far more than the entire population of Iceland) found their bank accounts frozen amid a diplomatic argument over deposit insurance. The government of the Isle of Man will pay out half of its reserves, equivalent to 7.5% of the island's GDP, in deposit insurance.The other consideration is that Iceland is a really SMALL country. Its GDP is something like $14 Billion (an economy smaller than that of Vermont)! The entire labor force is fewer than 200,000 people.And it's not as if the citizenry has recovered. The GDP per capita remains lower than it was in 2009.Icelanders ain't exactly rolling in clover.Here is a bunch of statistics:http://www.indexmundi.com/iceland/economy_profile.html
What is required is BRAINS, COURAGE, and STATESMEN to explain and defend what must be done that can be paid for.FB,You are right. We need statesmen. The problem is, statesmen don't get elected.Under the current circumstances, just about the only thing one can hope for is that one's country eventually faces such a sudden and unexpected crisis, that one or two statesmen emerge from the crisis. Some people think that 9-11 brought out the statesman in Rudy Giuliani. I expect that a crisis can sometimes turn a politician (or other leader) into a statesman. The problem we have now is, this is a self-made crisis, and with all the central bank manipulation, the crisis itself is dragged out into a chronic condition rather than an acute injury.It's much harder to recover from chronic conditions than from acute injuries (assuming the injuries are not fatal). Healing from wounds is very different from (and faster than) overcoming a chronic condition. Particularly if there is no cure.Anyway, the statesmen we need are probably not going to emerge - and if they did, with our luck they'd turn into tyrannical dictators.By dragging out and manipulating the inevitable crash, the world's politicians and central bankers have effectively traded a broken arm that might have healed quickly into a form of slow-but-spreading cancer that merely extends the pain until it leads to inevitable death.Default is not the worst thing in the world, after all. Many countries have defaulted and recovered throughout history. It's all this centrally-planned-and-manipulated default-avoidance that has left us with no statesmen and no hope.So much for mixed metaphors, but you get the drift.;-)
Or is it really just central bank smoke and mirrors everywhere?Yeah, that's it.
Icelandic financial institutions weren't as deeply into derivatives as the US and Euro-land. Thanks, PM.;-)
notehound,You are most welcome!PMp.s. Down w/ "fancy, new financial products" that only benefit bankers!
The Icelandic people appear to have accepted the tradeoff of default. Their people are not rioting in the streets of Rekyavik. But a similar situation of forcing Greece, Spain or Italy to live within their real (productive) means would probably trigger rioting and elections of extremists because they have not lived within their means for a lllooonnng time.As others have pointed out, there are big differences. Iceland is a tiny country with a population less than Alaska. They also had a solutions with some justice--at least some of the bankers and politicians at the heart of the scandal were charged with crimes. They spread the pain across society.In Greece, Spain, and Italy, the benefits of the bubble flowed to the top, and none of the bankers involved has even received a slap on the wrist. The people are furious because their pensions are being stripped when they were not the people who benefited from the bubble in the first place.Now, we can agree that structural reforms are needed. Railroad union employees shouldn't be able to retire at 52 due to some agreement from long ago when the railroadmen were shoveling coal into a steam engine.However, that is a long term structural problem. It didn't cause the crisis, the unions didn't make billions in profits when the bubble was blowing up. The bankers created the crisis, and no one on either side of the Atlantic has laid a hand on them. It's disgusting.So, until the pain is spread appropriately, I don't expect to see the Greeks, Spaniards, or Italians lining up to accept more cuts to their pensions.Finally, every nation on earth lives beyond their means. It's the entire purpose of fractional reserve banking and fiat currencies. In "This Time is Different" even Roghoff and Reinhart basically say the solution is to run the printing presses and allow inflation to run at 4-6% or so for the next 5 years.
<"This Time Is Different".I haven't read the book.> I suggest you read the book.<Who does the author claim has been supporting their excess for 150 years? And which nations specifically are included in "all these nations"?>The lenders supported the excesses (usually for wars, not spending on or by the average citizens). The lenders took the hit when the nations defaulted.Every nation except the U.S., Canada, Switzerland, Great Britain (and I think the Netherlands, but I'm not sure) have defaulted at least once. Some are serial defaulters that have defaulted up to 5 times (like Spain).Read the book to get the story.Wendy
<<Every nation except the U.S., Canada, Switzerland, Great Britain (and I think the Netherlands, but I'm not sure) have defaulted at least once. Some are serial defaulters that have defaulted up to 5 times (like Spain).>> The US defaulted when it went off the gold standard in Mr. Nixon's time. International debts denominated in gold were transferred to intentionally-depreciated paper currency. We also effectively defaulted in the '30s when we exchanged our paper for all the gold then immediately revalued the gold. This was a dollar devaluation, which is the same as default from the point of view of all dollar holders as well as dollar-debt holders. Our previous paper currencies from our previous central banks were also defaulted on in effect because they were allowed to expire worthless. I think it's true to say that Britain is the only country that has ever recovered from debt levels like ours without default, devaluation, or extreme inflation. However that recovery involved quite a bit of intentional, steady inflation of the currency as well as austerity, which was a stealth devaluation, which was a stealth default in effect. I think our next devaluation will actually be the fourth in US history. Ed.
You could probably get in on this one:Bright Shiny ObjectsI hear they put out incredibly attractive new ones every few days.
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