Tuesday, March 9th, 2010
“I think what is happening in Iceland proves that our own currency is very beneficial to our needs. You don’t have to go far back to see that the currency developments have increased the competitiveness of Icelandic businesses and industries”.
- Steingrimur J. Sigfusson, Finance Minister of Iceland two years after an economic collapse all but wiped out the Icelandic financial sector after years of “hot money” flowing into the country because of exorbitant interest rates imposed to battle inflation.
He is crediting the arsonist for bringing a bucket of water to the fire.
What he is really celebrating is Iceland moving one step closer to the developing world and improving our “competitiveness” through a worthless currency. Never mind the comparative loss of wealth to citizens in the developed world.
A classic argument for not joining the EU and improving the livelyhood of Iceland’s citizens.
Related posts:
- Thanks A Bucket – But Stiglitz Wants IMF Out Of Iceland
- Finance minister wants to abolish price-indexation
- UK Crackpot: McDonald’s flight shows Iceland’s policy works
Tags: Arsonist, Bucket Of Water, Citizens, Competitiveness, Crackpot, Currency, Developing World, Economic Collapse, Exorbitant Interest Rates, Finance Minister, Financial Sector, Hot Money, Iceland, Imf, Indexation, Inflation, Livelyhood, Mcdonald, Stiglitz
Posted in Iceland, Market | No Comments »
Wednesday, November 18th, 2009
Fridrik Jonsson shows two pictures on his blog today that challenge the wisdom of applying economic theories to large economies and small as if there were no difference.
The first one shows inflation from January 2001 – October 2009.
The second one shows the development of CB interest rates in the same period. Notice a trend?
Those of us who have been paying off loans in the last 8 years or so have always experienced a negative effect when the Central Bank has hiked up its rates.
The problem is a volatile currency in an open and very small economy. The outcome is going to be a lot of hot money flowing into the country and disappearing the same way if rates are lowered. Add the factor of consumer price indexation and you have a vicious circle where the rise in monthly payments for a business means a higher price for the consumer and workers constantly needing more wage hikes. All adding up to a situation where inflation keeps biting you in the arse.
Disastrously failed economic management anyone? Unfortunately, the people now in charge might not have learned anything. Or worse, maybe they are just locked in because of the failed ISK.
Tags: 8 Years, Arse, Cb, Consumer Price Indexation, Currency, Economic Management, Economic Theories, Economics, Economy, Hot Money, Inflation, Interest Rates, Isk, Loans, Notice A Trend, Vicious Circle, Wisdom
Posted in Iceland, Market | No Comments »
Monday, July 6th, 2009
Statistics paint the remarkable fiscal challenge Iceland’s people face. The central bank estimates that about 40,000 of the country’s 100,000 households took out loans to buy automobiles denominated in foreign currencies, chiefly the Japanese yen and Swiss franc. Similarly, about 80,000 Icelandic households have mortgages—all of them with payments either directly linked to inflation or, like those car loans, denominated in foreign currencies. When the krona was soaring, taking out forex loans for new Land Cruisers and condos overlooking the harbor might have seemed rational.
From about 2002, the soaring currency—buoyed by artificially high official interest rates—allowed hot money to flow over Iceland like the Gulf Stream that keeps the country temperate. Everyone from American hedge fund managers to Austrian dentists found it easy to borrow cheaply at home, or in low-rate currencies like the yen, and buy higher-yielding Icelandic securities.
From Reuters
Tags: Automobiles, Car Loans, Condos, Currency, Dentists, Estimates, Foreign Currencies, Gulf Stream, Hedge Fund Managers, Hot Money, Households, Inflation, Interest Rates, Japanese Yen, Krona, Land Cruisers, Mortgages, Reuters, Statistics, Swiss Franc
Posted in Iceland, Market | No Comments »
