I read in the news today that Iceland is rebounding nicely. I remember early 2009, when everyone was screaming that Iceland was going over a cliff, and that they had to save their banking institutions and join in the madness. At the time, I wrote this (Lessons from Iceland) :
Iceland has one advantage, and one disadvantage* : They are ahead on the curve. This means two things
- The shit has REALLY hit the fan there, and their entire financial system went bust
- Their currency crashed before others, so they are suffering from an undervalued currency as well
- They are likely to rebound before the rest, because they are already going through the hardships that we all have to endure
“Basically, when we look at Iceland, with 17% interest rates and 15% inflation, what we are seeing is actually a bit of our own future. The numbers may differ (pray for lower ones), but there is no doubt in my mind that all Western nations are going in the same direction.”
So, who was right? What did Iceland do then, to enable this recovery? Most mainstream pundits will say that they were lucky that they could devalue the Icelandic Krona, and inflate their way out. THIS IS A LIE. Because there is another country that has started rebounding, namely Latvia. Latvia also had their own currency, but chose to keep their euro-peg to be able to apply for euro-membership in 2012 (what a joke that seems now). So, Iceland went through external devaluation, while Latvia went through internal devaluation. I remember there was a debate back then which was the better way to do it. What we should all realize now is that that is not the main issue. The main issue is this :
- Flip the banks the bird, and put them through bankrupcy court
- Allow the entire economy to deflate, people to default, interest rates to go up, and the chips fall were they may
- Cut back on all that is necessary to try and balance out the government budget
- Wait patiently.
And here we are, 2 years later and the two worst basket cases of the 2008-crash are actually doing quite well. Interest rates on Iceland are down from 17% to 4.5%. How is the rest of you? US? Britain? France? Greece? Italy? Portugal? Spain? Starting to wish you had tried some more of that sour austerity-pill. Yeah, you’ll get it on the other side of bankrupcy, don’t worry. The department of “I freaking told you so” nails yet another one.
*For some strange reason I didn’t write what was the disadvantage at the time, and I can’t seem to remember my trail of though almost two years later.