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Uh... That it makes money lose value? That it makes everything more expensive?
Why were people still mentioning Iceland as a country in trouble? They're doing the best of all, I'd argue.
Octo, Germany will pay, one way or the other. It has the choice of doing so now, or later. The selfish option is to do so later since that makes it more expensive and causes a lot of other people to suffer. Unfortunately, they seem more inclined towards the former.
Getting out of this isn't an option, and no amount of denial and delusion will change that.
My name is Addy. Please call me that instead of my username.But like the euro zone countries now on the path of austerity, the small North Atlantic nation faces a long, hard slog, with its banks still in need of repair, debts piling up and currency controls discouraging investment.
"Our main problem is that it is hard to see enough growth in the years to come," said Thorstein Palsson, a former prime minister, now chairman of Icelandic investment bank MP Bank and on the committee negotiating Iceland's entry into the European Union.
Two key problems are that domestic demand is flatlining and exports, despite a depreciation in the value of the crown, are basically unchanged compared to 2008.
The banks, which before their collapse had assets worth 10 times gross domestic product, have been recapitalised, but bad debts still make up about 30 percent of balance sheets. Assets shrank by the end of 2010 to about two times GDP.
The government and the creditors of the collapsed banks own the new banks. This distorts the allocation of capital, with banks unwilling to lend to businesses other than those they own.
"Iceland is going nowhere without an efficient financial market," said Vilhjamur Egilsson, chairman of the Confederation of Icelandic Employers.
Until the banks are divided into 'good' and 'bad' parts — the latter to manage bad loans — this is unlikely to change.
But such a move would probably mean a large number of companies, which are being kept in business only because they are bank-owned, would go bust. Unemployment, down from a peak of about 10 percent to six percent, would start going up again.
Meanwhile, many households are already awash with debt.
Chi, married to an Icelander but born in China, has seen his family's monthly mortgage payments nearly double over the last few years despite extending the loan to 70 from 40 years.
He earns less now as a taxi driver than in his former job in logistics at a transport firm, which he lost during the crisis. His wife, a teacher, has seen her salary fall around 10 percent.
"I work nights, I work weekends, I don't see my kids," he said. The family is considering moving to China where they can live rent free with Chi's parents in Shanghai.
But with negative equity of around 6 million Iceland crowns (32,000 pounds), that would mean bankruptcy and rule out being able to work or borrow in Iceland for 10 years.
The government recently said it was focused on export-driven growth, but its plan lacks detailed measures.
MP Bank's Palsson said Iceland should utilise its cheap hydro- and geothermal energy resources to encourage investment, but the centre-left government is lukewarm due to worries about foreign domination of vital natural resources and the environmental impact.
Aluminium giant Alcoa (AA.N) recently dropped long-held plans to develop a new smelter in Iceland.
Finance Minister Steingrimur Sigfusson told Reuters there were opportunities in high-tech industries, data storage and silica production. He said GDP growth of 2-3 percent annually between 2010 and 2013, the broad forecast, would not be bad.
Confidence in the currency is also something Iceland must deal with as it consider plans to end capital controls. Around 500 billion krona— about one-third of GDP — of carry-trade money is still locked up in the country.
Move too fast to end controls and the currency could slump again as this money flees its current shackles.
"This is holding back investment and growth," Jon Danielsson, Reader in Finance at the London School of Economics, said at an IMF conference on Iceland's future late last month.
But a freely tradable currency would be a big risk for such a small economy. Interest rates are likely to remain relatively high and hot money may once again slosh in and out rapidly, part of the cause of the 2008 crash.
But things could be worse.
"At least we are not Greece," said Sverrir Hermansson, a hotel worker. There, unemployment is rising steadily and looks likely to hit over 16 percent next year.
In August, Iceland exited its $2.1 billion (1.3 billion pound) International Monetary Fund bailout programme and the economy grew 2.5 percent in the first half of the year. That is slow compared to before the crisis, when the economy regularly rose 5 percent a year.
But Greece is likely to contract by more than five percent this year and won't grow until 2013 at the earliest.
Iceland expects a balanced budget in 2014 and returned to the international capital markets in March.
Apart from work on the domestic economy, joining the European Union and the single currency could in the longer term make sense, although the government is wary and the population downright hostile. Also, Iceland still faces a spat with Britain and the Netherlands over $5 billion in debts.
All this needs to be done at a time when Europe, Iceland's biggest trading partner, is facing its worst crisis since World War II, according to German Chancellor Angela Merkel.
"We have to go on and finish the work," said Palsson. "I am afraid that with the IMF now out, the government will relax too much and we will not be able to solve these difficult problems."
The article has some issues...
...but generally, Iceland can well serve as an example for other countries to look up tp.
Getting out of this isn't an option, and no amount of denial and delusion will change that.
edited 26th Nov '11 12:34:22 PM by Octo
Unbent, Unbowed, Unbroken. Unrelated ME1 FanficRE: Inflation - Good luck trying to convince a German who is well informed of history that inflation and money devaluation are not problems. They are problematic. I will argue, however, that there are worse threats than inflation.
Share it so that people can get into this conversation, 'cause we're not the only ones who think like this.If inflation keeps pace with wages, then there is no problem. You have the same amount of money relative to everyone else that you always had, but your debts go down in relative value, encouraging present spending, which boosts economic activity. * Deflation, on the other hand, is uniformly destructive. The real value of debts goes up *and* the increasing value of money over time encourages hoarding, which reduces economic activity.
Hyperinflation requires a currency that is essentially worthless in real terms, and nobody thinks the Euro is that. And despite what the boohooers would have you believe, 4% inflation is not "runaway" — it's actually entirely normal for an economy that's growing at a decent rate.
Deflation, however, tends to cause a death spiral for any country suffering it, because of exactly what I said earlier: commercial activity goes down as people hoard their money. Prices fall as a result of people not buying products. Debts become larger in real value, leading to a wave of defaults. In essence, forcing a country to undergo deflation is to force it into bankruptcy. It's that simple. And it will have cascading effects on the entire Eurozone and from there the world at large.
We have said this repeatedly, but many people steadfastly refuse to understand fundamental macroeconomics, retreating instead to the "moral hazard" clause, which boils down to, "I don't give a flying fuck about economics, and I don't care if it screws me over later, I just want those other guys to pay." You'll forgive me if I'm unsympathetic to this viewpoint.
So thanks so much, Octo, for accusing us of the exact same debate tactics you're using.
edited 26th Nov '11 7:45:30 PM by Fighteer
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Therein is the problem. Nowhere in Europe is growing economically speaking at a "decent rate". The entire continent from the Iberian Peninsula to Scandinavia to the Aegean to the Russian border is wallowing in a severe economic malaise that threatens to tip into recession/depression.
Indeed not really anywhere in the world is growing fast enough to be considered a "decent rate" when talking 4% inflation. (Maybe China and India but China probably is cooking the books given their rapidly increasing squatter problem owing to fucktons of unpaid wages and a housing bubble that's about to burst into a million pieces.)
The point is to manage expectations, Tom. Set your inflation target at 4% and you will motivate people to stop saving and start spending, because they know their money will be worth less later. The question of a "general Eurozone malaise" is beyond the scope of this conversation; if they literally have no room to grow their economies, then they're doomed anyway and all we're doing is putting fancy decorations on their coffin. But I don't think that's necessarily the case.
"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"Eh. I say let Germany sink.
Not that I want that, but they sure seem hell-bent on "proving" that they're more responsible by letting all the rest of Europe get fucked over, so, bleh, they're funeral.
They built the EU and now they want it to pay for what is in part their own sins, for thinking they could use the EU as their own little private market to build up a beautiful industrial base while everyone else rots with shitty little service economies. So, oh well, I guess. Time for the grand reset, and damn all those who suffer because we're fucking fiscally responsible, dammit!
~shakes head~
I am now known as Flyboy.Trouble is, if Germany sinks, so will Britain, and it will hit China (especially) exports both in both directions), and the USA of course — there was a Debt Graph I think I posted earlier in this thread showing (some) of what was leant where...
And the Foreign Office warns to Prepare for riots in the event of euro collapse
— there are growing feelings the End Is Nigh for the euro.
No, I don't mean I think that World War III is going to break out of this, or that the euro will collapse — the article (leaked from the FO of course — the Telegraph probably doesn't need to hack) is about to the Foreign Office warning their Embassies to prepare for Riots like the ones in Greece.
Anyway it's the usual Crazy-Prepared-ness of Government, it's part of their job to prepare for the worst-case scenario.
Keep Rolling OnI understand what Octo means. Many in Finland share same opinion. Why must we pay for fuck ups of Greece? Futhermore, reading how Greece refuses to any austerity, any work with other Euro nations, cause people to demand that we stop helping Greece and stick to ourselves. Doing so will cause troubles, but doesn't change the fact that most people jsut see lazy greeks sapping off everyone elses money.
A pure demand economy sets yourself up for failure just as badly as a pure savings economy.
You cannot ignore the supply side of the economy, at the same time you cannot discourage saving for a rainy day. What happens if somebody does exactly as you say for economic policy? (Or many somebodies?) They blow every last dime they have living paycheck to paycheck. They're stimulating the economy, what's the problem you ask? Well what if those somebodies suddenly lose their jobs when the inevitable recession hits? Now they have no savings to subsist on while searching for work leading to a massive dependence and burdening of any welfare state, and at the same time everywhere begins to suffer from a severe credit crunch because of lack of money supply. (Assuming the lack of savings wasn't the cause of the recession or symptomatic of a troubled economy to begin with.)
That's kind of how Europe is running and that's their problem. Nobody saved for the rainy days that are today and they are all paying for it with this crisis.
That's irrelevant,
If people are buying stuff, the economy is active and productive. When they lose their jobs, they get unemployment checks for a while... Since the economy is active, it won't be long before they find jobs ('cause there will be jobs).
You exist because we allow it and you will end because we demand it.![]()
Blame it on a Generation of Politicians that were around in the late-90s — Tony Blair in Britain and Gerhard Schröder in Germany, for example. They were the ones that did it...
...who left it to the next generation (that is us) to solve, and to pay for their Pensions with a lower working-age population.
You think? What if there are more unemployed than there are jobs? Or employers want experience yet won't hire people to get experience?
It's not that easy to get a job — not even a bottom-level one.
edited 27th Nov '11 6:41:12 AM by Greenmantle
Keep Rolling OnWell, that's a micro problem (at an individual level) and not a macro problem. It's not really something for policy to solve outside of making economic conditions better for job creation.
The problem, in a large part, is that too many people saved in the same way (I.E. in their home) and as such it resulted in a massive bubble that popped and destroyed a lot of paper valuation, so people lost huge chunks of what they were saving.
Democracy is the process in which we determine the government that we deserveWhat is strange to me is that Switzerland isn't part of the Euro and yet our economy is being throttled by the Euro crisis - the inverse of Astronomical Exchange Rate. You keep the debt a-Ok, and yet you pay for it.
- And can someone explain what an Greece/Italy/Germany exit is supposed to achieve?! It seems too much like "the Euro is the cause of the problem, so let's give it up and problem solved!" Um, no. An exit is not going to fix structural problems, for instance. And why would anyone work with a currency everyone expects to become Ridiculous Future Inflation?
edited 27th Nov '11 7:30:14 AM by SeptimusHeap
"For a successful technology, reality must take precedence over public relations, for Nature cannot be fooled." - Richard Feynman

^ Inflation has a tendency to start a self-sustaining spiral unless halted. Price of one thing goes up for whatever reason and makes everything else go up, then workers need higher wages to afford everything which increases costs to do business which gets passed onto prices which leads back to workers needing higher wages and so on. The cycle doesn't break unless you curb demand and/or cost.
In worst case scenarios inflation is a DIRECT cause of Funny Money.
edited 26th Nov '11 11:39:57 AM by MajorTom