Niall Ferguson on debt cancellation

Well I’ll tell you what you have to do—you actually have to cancel the debt. There are historical precedents for this.

Excessive debt burdens in the past tended to be public sector debts. What we’ve got now is an exceptional level of private debt. There’s never been an economy in history that’s had so much private debt. Britain and America today lead the world in the indebtedness of the household sector and the banking sector andthe corporate sector. But debt is debt; it doesn’t even matter if it’s household debt or government. Once it gets to a certain level, there is a problem.

In the past, when excessive debt burdens were accumulated by government, they tended to do one of two things:  either they defaulted—this is the Argentine solution—where you say, “Ah, I’m sorry, I’m afraid we’re not going to be able to meet the interest payments this month, and never again will we make the interest payments.”

The other scenario is inflation, where the real debt burden is eroded because the money that it’s denominated in loses value.

I don’t think we’re really going to be out of the woods here until something of that sort happens to the huge debt burdens of the U.S. economy. Either these debts will have to be fundamentally written off in some way, or inflation will have to reduce the real burden.

From Vanity Fair

The Little Voters and Taxpayers of Iceland

 

One day as the Little Voters and Taxpayers of Iceland were scratching in a field, they found a grain of wheat.

 ”This wheat should be planted,” they said. “Who will plant this grain of wheat?”

“Not I,” said the banks and pension funds.”We can trust on bailouts from the government and our assets are price indexed. We don’t need  to help out.”.

“Not I,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We don’t have to lift a finger”.

“Not I,” said the Dog.

“Then we will,” said the The Little Voters and Taxpayers in Iceland. And they did.

 

Soon the wheat grew to be tall and yellow.

“The wheat is ripe,” said the The Little Voters and Taxpayers in Iceland. “Who will cut the wheat?”

“Not I,” said the banks and the pension funds. “We can trust on bailouts from the government and our assets are price indexed. We don’t need  to help out.”.

“Not I,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We don’t have to lift a finger”. .

“Not I,” said the Dog.

“Then we will,” said the The Little Voters and Taxpayers in Iceland. And they did.

 

When the wheat was cut, the The Little Voters and Taxpayers in Iceland said, “Who will thresh the wheat?”

“Not I,” said the banks and pension funds. “We can trust on bailouts from the government and our assets are price indexed. We don’t need  to help out.”.

“Not I,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We don’t have to lift a finger”. .

“Not I,” said the Dog.

“Then we will,” said the The Little Voters and Taxpayers in Iceland. And they did.

 
When the wheat was thretheyd, the The Little Voters and Taxpayers in Iceland said, “Who will take this wheat to the mill?”

“Not I,” said the banks and pension funds.”We can trust on bailouts from the government and our assets are price indexed. We don’t need  to help out.”.

“Not I,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We don’t have to lift a finger”. .

“Not I,” said the Dog.

“Then we will,” said the The Little Voters and Taxpayers in Iceland. And they did.

They took the wheat to the mill and had it ground into flour. Then they said, “Who will make this flour into bread?”

“Not I,” said the banks and pension funds.”We can trust on bailouts from the government and our assets are price indexed. We don’t need  to help out.”.

“Not I,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We don’t have to lift a finger”. .

“Not I,” said the Dog.

“Then we will,” said the The Little Voters and Taxpayers in Iceland. And they did.
 

They made and baked the bread. Then they said, “Who will eat this bread?”

“Oh! we will,” said the banks and pension funds. “We can trust on bailouts from the government and our assets are price indexed. We get all the bread you have and get us some coffee while you are at it.”

“And we will,” said the richest people in Iceland. “Our savings are price indexed and we’ve got plenty of cash stored in tax shelters around the world. We also went into your cupboard and took all your biscuits and most of your jam”.

“And I will,” said the Dog.

“OK, OK!” said the The Little Voters and Taxpayers in Iceland. “Enjoy the bread. We have to go and bake you a cake.” And they did.

Iceland looks to restructure $3.6bn of foreign-held debt

Iceland’s new government is working on a plan to restructure billions of dollars of its bonds held by foreign investors as part of a drive to restore confidence in its shattered economy.

Foreign investors own up to ISK400bn ($3.6bn, €2.8bn, £2.5bn) in krona-denominated bonds which the central bank fears could be dumped once capital controls imposed during its banking crisis are removed.

The Icelandic central bank has warned a huge outflow of currency would seriously destabilise the krona and these fears are one of the main reasons the capital controls are still in place.

From the Financial Times

Iceland names new interim central bank governor

 Iceland has named new leadership to its central bank on a temporary basis while the government seeks permanent appointments, the bank said on its Web site Friday.

Prime minister Johanna Sigurdardottir appointed Svein Harald Oygard, a former director of management consultants McKinsey & Co., to replace David Oddsson as the bank’s governor.

From the International Herald Tribune

A billion for Morgunbladid

Maybe we should request that we get Morgunbladid free of charge for the next 50 years?

Birna Einarsdottir, CEO of Glitnir has confirmed that the state owned bank’s write-offs because of the paper are between 1-2 billion ISK.

A Norwegian Central Bank Governor

So a few centuries after divorcing the country from Norway we now turn to them to clean up our mess. 

Svein Harald Öygard, former expert with the Norwegian Central Bank and McKinsey&Company in Norway will be the interim Central Bank Governor of Iceland. Arnor Sighvatsson, chief economist of the Icelandic Central Bank will be the Vice-Governor. 

Sigurdur Lindal, a law-professor at the University of Iceland has asked whether this is against the constitution which forbids the appointment of foreigners to such posts. 

Another reason why the constitution must be reviewed.