“Students interested in economics and finance should closely follow this new Iceland saga, for it is the most dramatic story yet to illustrate how reckless bankers let loose in a free market can destroy entire economies.” – Uwe E. Reinhardt November 3, 2008
Of all the OECD countries, Iceland is the country where taxes have increased most in the last decade. Taxes relative to GDP went from 31% to 41% from 1995-2006.
So the truth is out about the Independent Party’s real agenda, same as the Republicans’ managed to do, to make Big Goverment into Huge Governement, to service the needs of the party.
1) Don’t save your money. Borrow as much as you can. Fiscal policy rewards the borrowers.
2) Never ever allow price indexation into your country.
3) Become a business. Put all your debts into your business, keep your assets personal.
4) Don’t trust banks that pay their CEO’s absurd wages and whose owners are big owners of other businesses.
5) Become a member of a political party. It pays.
Global financial instability has sparked a surge in “monetary nationalism” — the idea that countries must make and control their own currencies. But globalization and monetary nationalism are a dangerous combination, a cause of financial crises and geopolitical tension. The world needs to abandon unwanted currencies, replacing them with dollars, euros, and multinational currencies as yet unborn.
The fact that the Icelandic government has not been willing to put the issue to the test in accession negotiations indicates that there might be something else, rather than the economic interests of the fisheries sector that has kept Iceland out of the EU.
Today the economy is in unbelievably horrible shape: The three banks – Kaupthing, Landsbanki, and Glitnir – are in receivership. The stock market has lost 90% of its value. The central bank is technically insolvent, its modest pile of assets dwarfed by a mountain of liabilities.
The currency, the krona, has lost more than half its value. GDP is expected to drop by a stomach-churning 10% in 2009, and unemployment will probably hit a 40-year high. At Reykjavík’s port sit gleaming new Range Rovers and other SUVs that are now unsellable, and newspapers are exhorting the public to buy no-frills Icelandic goods.
Above all, the nation’s future is heavily mortgaged. Claims from Britain alone amount to half of what’s left of its GDP. “It’s like a neutron bomb that has wiped out all monetary assets but left the people intact,” says Ólafur Isleifsson, a former IMF official who teaches at Reykjavík University’s business school.
