The situation in Iceland

Kitco Bullion Dealers Forum
Forum Member "appel"
10-28-2008, 09:40 AM

The situation in Iceland

I've not written anything about the situation in Iceland for just over a week now. Here is the latest from my perspective as an Icelander.

- The Central Bank lowered interest rates last week from 15,5% to 12%. However, because of agreement with the IMF before the weekend, interest rates were raised to 18% today.
This means companies and individuals, that are already struggling to pay loans, will suffer even more. No new loans at all from anywhere.

- The IMF agreement last week gives us $2.1 billion to prop up our currency. This is not enough, and we're seeking an extra $4 billion from other countries, the Fed, ECB and Scandinavian CB's.

- It is estimated that economic contraction will be around 10%.

- It is estimated that 20% of companies will not be able to pay payroll this month. I have a feeling a lot of companies are just "ghost" companies, people still working, but the company is essentially bankrupt.

- Massive layoffs in the construction industry, and the banking sector of course.

- Inflation roared to 15,5% this month, expected to rise.

- Our currency is still worthless and still not traded overseas. Although there was a news today that hinted there was some trade with the ISK, where it was less than half the value that our CB claims.

- I must note that there are no shortages (yet) of food, fuel and medicine, or much else I've noticed. But if current situation continues then we could see some shortages, but not of necessities. However, because of rationing of foreign currency other importers are not able to import new supply of e.g. clothes, industry material etc. I expect many companies not being able to continue their operations because of import restrictions.

- The sovereign state has not yet defaulted on any loans, despite statements in the foreign media. It requires a lot of help to get back on it's feet, and seems to be getting it soon.

- A lot of families are "stuck" in their homes, cannot sell, cannot move, cannot buy. The mortgage debt is around 10-40% higher then the value of their homes. Home value is expected to drop significantly in the coming months.

- The government owns all the banks, and indirectly owns all the media, and all the debt of the people. With taxes and debt payment the people are in a state of servitude to the government. Not many realize this.

- Some conspiracy theories are on the icelandic forums that the government is censoring the media, directing them to mitigate the news. They own all the media after all!

- Many are considering strategies out of this, e.g. husband and wife divorcing and allowing one of them to default on the debt and go bankrupt, while the other one keeps a clean slate. Some are thinking about fleeing to another country.

- The government has been able to offer a temporary freeze on payments on mortgages, 4-6 months. The depression is expected to last at least 1 year, maybe 2 years.

- There are some protests, but they seem to be minor. There is general calm, but still anxiety, frustration, over the situation. I expect things to get a lot worse when people lose their jobs and have nothing better to do than to protest.

I think the coming friday/monday is the big reveal moment, e.g. who pays the payroll and who doesn't. Just then we'll realize how serious the situation is. I expect thousands to lose their jobs.

How does once a free-market capitalist system, with the highest standard of living in the world, the most freedom of the press in the world, the happiest people in the world and least corrupt people in the world turn into a Orwellian fantasy almost overnight is beyond me.

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Stunned Icelanders Struggle After Economy’s Fall

By SARAH LYALL
Published: November 8, 2008

REYKJAVIK, Iceland — The collapse came so fast it seemed unreal, impossible. One woman here compared it to being hit by a train. Another said she felt as if she were watching it through a window. Another said, “It feels like you’ve been put in a prison, and you don’t know what you did wrong.”

This country, as modern and sophisticated as it is geographically isolated, still seems to be in shock. But if the events of last month — the failure of Iceland’s banks; the plummeting of its currency; the first wave of layoffs; the loss of reputation abroad — felt like a bad dream, Iceland has now awakened to find that it is all coming true.

It is not as if Reykjavik, where about two-thirds of the country’s 300,000 people live, is filled with bread lines or homeless shanties or looters smashing store windows. But this city, until recently the center of one of the world’s fastest economic booms, is now the unhappy site of one of its great crashes. It is impossible to meet anyone here who has not been profoundly affected by the financial crisis.

Overnight, people lost their savings. Prices are soaring. Once-crowded restaurants are almost empty. Banks are rationing foreign currency, and companies are finding it dauntingly difficult to do business abroad. Inflation is at 16 percent and rising. People have stopped traveling overseas. The local currency, the krona, was 65 to the dollar a year ago; now it is 130. Companies are slashing salaries, reducing workers’ hours and, in some instances, embarking on mass layoffs.

“No country has ever crashed as quickly and as badly in peacetime,” said Jon Danielsson, an economist with the London School of Economics.
The loss goes beyond the personal, shattering a proud country’s sense of itself.

“Years ago, I would say that I was Icelandic and people might say, ‘Oh, where’s that?’ ” said Katrin Runolfsdottir, 49, who was fired from her secretarial job on Oct. 31. “That was fine. But now there’s this image of us being overspenders, thieves.” << Note: isn't that how Americans are already perceived around the world? >>

Aldis Nordfjord, a 53-year-old architect, also lost her job last month. So did all 44 of her co-workers — everyone in the company except its owners. As many as 75 percent of Iceland’s private-sector architects have probably been fired in the past few weeks, she said.

In a strange way, she said, it is comforting to be one in a crowd. “Everyone is in the same situation,” she said. “If you can imagine, if only 10 out of 40 people had been fired, it would have been different; you would have felt, ‘Why me? Why not him?’ ”

Until last spring, Iceland’s economy seemed white-hot. It had the fourth-highest gross domestic product per capita in the world. Unemployment hovered between 0 and 1 percent (while forecasts for next spring are as high as 10 percent). A 2007 United Nations report measuring life expectancy, real per-capita income and educational levels identified Iceland as the world’s best country in which to live.

Emboldened by the strong krona, once-frugal Icelanders took regular shopping weekends in Europe, bought fancy cars and built bigger houses paid for with low-interest loans in foreign currencies. << Note: sounds familiar. >>

Like the Vikings of old, Icelandic bankers were roaming the world and aggressively seizing business, pumping debt into a soufflé of a system. The banks are the ones that cannot repay tens of billions of dollars in foreign debt, and “they’re the ones who ruined our reputation,” said Adalheidur Hedinsdottir, who runs a small chain of coffee shops called Kaffitar and sells coffee wholesale to stores.

There was so much work, employers had to import workers from abroad. Ms. Nordfjord, the architect, worked so much overtime last year that she doubled her salary. She was featured on a Swedish radio program as an expert on Iceland’s extraordinary building boom.

Two months ago, her company canceled all overtime. Two weeks ago, it acknowledged that work was slowing. But it promised that there would be enough to last through next summer.

The next day, everyone was herded into a conference room and fired. <<Note the apparent dishonesty of the employer, up until the last minute.>>

Employers are hurting just as much as employees. Ms. Hedinsdottir has laid off seven part-time employees, cut full-time workers’ hours and raised prices. The Kaffitar branch on Reykjavik’s central shopping street was perhaps half full; in normal times, it would have been bursting at its seams.

While business is dwindling, costs are soaring. When the government took over the country’s failing banks in October, Ms. Hedinsdottir’s latest shipment of coffee — more than 109,000 pounds — was already on the water, en route from Nicaragua. She had the money to pay for it, but because the crisis made foreign banks leery of doing business with Iceland, she said, she was unable to convert enough cash into foreign currency.

“They were calling me every day and asking me what the situation was, and they got really nervous,” Ms. Hedinsdottir said of her creditors. They got so nervous that they sent the coffee to a warehouse in Hamburg, Germany, where it now sits while she tries to find the foreign currency to pay for it.

Her fixed costs are no longer fixed. Five years ago, the company built a new factory, borrowing the 120 million kronur — about $1.5 million — in foreign currencies. But the currency’s fall has increased her debt to 200 million kronur. This summer, her monthly payments were 2.5 million kronur; now they may be double that — the equivalent of $38,500 in Iceland’s debased currency.

“My financial manager is talking to the banks every day, and we don’t know how much we’re supposed to pay,” Ms. Hedinsdottir said.

In a recent survey, one-third of Icelanders said they would consider emigrating. Foreigners are already abandoning Iceland.

Anthony Restivo, an American who worked this fall for a potato farm in eastern Iceland and was heading home, said all of the farm’s foreign workers abruptly left last month because their salaries had fallen so much. One man arrived from Poland, he said, then realized how little the krona was worth and went home the next day.

At the Kringlan shopping center on the edge of Reykjavik, Hronn Helgadottir, who works at the Aveda beauty store, said she could no longer afford to travel abroad. But the previous weekend, she said, she and her husband had gone for a last trip to Amsterdam, a holiday they had paid for months ago, when the krona was still strong.

They ate as cheaply as they could and bought nothing. “It was strange to stand in a store and look at a bag or a pair of shoes and see that they cost 100,000 kronur, when last year they cost only 40,000,” she said.

In Kopavogur, a suburb of Reykjavik, Ms. Runolfsdottir, the recently fired secretary, said she had worried for some time that Iceland would collapse under the weight of inflated expectations.

“If you drive through Reykjavik, you see all these new houses, and I’ve been thinking for the longest time, ‘Where are we going to get people to live in all these homes?’” she said.

The real estate firm that used to employ Ms. Runolfsdottir built about 800 houses two years ago, she said; only 40 percent have been sold.

By Icelandic law, Ms. Runolfsdottir and other fired employees have three months before they have to leave their jobs. At the end of that period, she will start drawing unemployment benefits. << Note: no such generosity among U.S. employers, who usually insist that fired employees leave immediately. >>

Meanwhile, her husband’s modest investment in several now-failed Icelandic banks is worthless. “They were encouraging us to buy shares in their firms until the last minute,” she said.

She feels angry at the government, which in her view has mishandled everything, and angry at the banks that have tarnished Iceland’s reputation. And while she has every sympathy with the hundreds of thousands of foreign depositors who may have lost their money, she wonders why the Icelandic government — and, in essence, the Icelandic people — should have to suffer more than they already have.

“We didn’t ask anyone to put their money in the banks,” she said. “These are private companies and private banks, and they went abroad and did business there.”
Despite all this, Icelanders are naturally optimistic, a trait born, perhaps, of living in one of the world’s most punishing landscapes and depending for so much of their history on the fickle fishing industry. The weak krona will make exports more attractive, they point out. Also, Iceland has a highly educated, young and flexible population, and has triumphed after hardship before.

Ragna Sara Jonsdottir, who runs a small business consultancy, said she had met for the first time with other businesses in her office building. “We sat down and said, ‘We all have ideas, and we can help each other through difficult times,’ ” she said.

But she said she was just as shocked as everyone else by the suddenness, and the severity, of the downturn. When the prime minister, Geir H. Haarde, addressed the nation at the beginning of October, she said, her 6-year-old daughter asked her to explain what he had said.

She answered that there was a crisis, but that the prime minister had not told the country how the government planned to address it. Her daughter said, “Maybe he didn’t know what to say.”

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Avala said:

I wish to live in a country like Iceland. So rich and free, that they actually can whine when not having something.
Everything is in individual perception.

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Bobo08 said:

Avala said:

I wish to live in a country like Iceland. So rich and free, that they actually can whine when not having something.
Everything is in individual perception.

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Individual perspective is everything. You cannot say the Icelanders don't deserve to vent their frustration because their sufferings are somehow "less" than those of other people elsewhere (if that's what you implied). Their experience of falling from "top of the world" is life-changing and they do deserve sympathy.

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Kitco Bullion Dealers Forum
Forum Member "appel"
10-28-2008, 09:40 AM

How does once a free-market capitalist system, with the highest standard of living in the world, the most freedom of the press in the world, the happiest people in the world and least corrupt people in the world turn into a Orwellian fantasy almost overnight is beyond me.
source: _https://www.kitcomm.com/showthread.php?t=26956

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Iceland goes bankrupt

That’s an amazing sentence: Iceland goes bankrupt. But that’s exactly what happened yesterday (see BW piece here. See NY Times piece here). That’s a clear sign that the global financial crisis is entering a new and vastly more dangerous phase, where we are paying the price of the lack of a global financial regulator and global central bank.

What ‘bankrupt’ means is just that: The country cannot pay back its external debts, and the Icelandic currency, the krona, has become essentially valueless in the rest of the world. That means the country can no longer pay for imports.

[...]

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Riots In Iceland Due To Financial Crisis

Riots take place in Iceland today due to the current financial crisis. People have gone on the streets of Reykjavik revolting against the financial crisis, corrupt ministers and he authorities who caused it.

France 24 reports that thousands of Icelanders demonstrated in Reykjavik on Saturday demanding the resignation of Prime Minister Geir Haarde and Central Bank Governor David Oddsson for failing to stop a financial meltdown in the country.

This is the latest in series of protests in Reykjavik since the financial meltdown that crippled the island's economy.

Here is the report from France 24 on the financial riots in Iceland.

Police in riot gear used pepper spray to drive back an attempt to free the protester during which several windows at the police station were shattered. The protester was later released after a fine he had been sentenced to pay was paid.

Iceland's three biggest banks -- Kaupthing, Landsbanki and Glitnir -- collapsed under the weight of billions of dollars of debts accumulated in an aggressive overseas expansion, shattering the currency and forcing Iceland to seek aid from the International Monetary Fund (IMF).

This week, the North Atlantic island nation of 320,000 secured a package of more than $10 billion in loans from the IMF and several European countries to help it rebuild its shattered financial system.

Despite the loans, Iceland faces a sharp economic contraction and surging unemployment while many Icelanders also risk losing their homes and life savings.

A young man climbed onto the balcony of the Althing building, where the president appears upon inauguration and on Iceland's national day, and hung a banner reading: "Iceland for Sale - $2.100.000.000", the amount of the loan Iceland is getting from the IMF.

The rally lasted less than one hour and as daylight began to wane, demonstrators drifted away into the nearby coffee shops where the price of a cup of coffee has shot up to 300 kronas in the last few weeks, up by about one third from before the crisis struck, as the currency has tumbled.

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Econo-riots rock Iceland

Icelandic protesters clashed with police in Reykjavik Nov. 23 during a demonstration against the government's handling of the country's severe financial crisis. Several hundred gathered outside the city's main police station to demand the release of a man arrested in a previous protest. Five were injured when police used pepper spray to disperse the group after some tried to storm the building.

Over the past year Iceland's currency, the krona, has fallen by 50% as the Scandinavian country nationalized its three biggest banks to prevent their collapse. It has also received emergency loans from the International Monetary Fund (IMF). The UK used anti-terrorism laws to freeze money deposited by British savers in Icelandic banks. (InTheNews.co.uk, BBC News, Nov. 23)

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LONDON (Reuters) - If you're looking for happiness, go and live in Denmark.

It is the happiest country in the world...

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Following behind Denmark came Switzerland, Austria, Iceland and the Bahamas.

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Iceland inflation soars to 17.1%

The annual rate of inflation in Iceland has escalated to a record high of 17.1% as the country battles the worst financial crisis in its history.

The Icelandic statistics agency said prices rose in November alone by 1.74% compared to the previous month.

Food prices increased fastest, up 30.6% over the year, as the country's currency plummeted.

The agency warned that inflation rate could rise beyond 20% in the future, threatening the economy.

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Iceland Protests

...Trade in the Icelandic currency - the crown, has all but halted and the country is relying on a $10 billion aid package.

[...]

Another protest was held today in downtown Reykjavik. Mostly peaceful and the same demands as before - election as soon as possible and new governors at the Icelandic Central Bank. It is cold here - around the minus zero celsius. But there were around ten thousand people downtown.

Toilet paper was thrown at the parliament building and also eggs and tomatoes. People also gave the few policemen that were downtown flowers and were very kind to them.

This financial crisis is also hurting them.

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REYKJAVIK, Dec 3 (Reuters) - Facing sky-high funding costs, a weak local currency and difficulties with normal foreign exchange transactions, Icelandic business seems to have made up its mind -- the island needs the euro.

The Icelandic crown currency has lost more than two-thirds of its value against the euro in the past year -- much of that since October when three top banks collapsed under the weight of the global credit crunch.

Euro adoption would be a huge leap for the non-European Union member, which has publicly mentioned several longer-term options for its currency, including ditching it and unilaterally switching to the euro without the EU's consent.

Companies have borne the brunt of the crown's fall, which ate away Icelanders' buying power and exposed the dangers of the country's reliance on cheap foreign funding.

The economy of the North Atlantic island, with a population of just 320,000 is set to shrink by 10 percent next year and more than half of its companies are considering layoffs.

"The No. 1 task is a stable currency," Knutur Signarsson, Secretary General of the Federation of Icelandic Trade, told Reuters. "And that means the euro as soon as possible."

[... much more ...]

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AFP said:

Tue Jan 5, 2:43 PM

REYKJAVIK (AFP) - Iceland's president on Tuesday refused to sign an unpopular bill to compensate Britain and the Netherlands over the failure of Icesave bank, triggering anger in London and The Hague.

President Olafur Ragnar Grimsson said in a televised speech that he would put the bill to a referendum instead.

"I have decided, according to Article 26 of the Constitution, to refer this new Act to the people," he said. "The involvement of the whole nation in the final decision is therefore the prerequisite for a successful solution, reconciliation and recovery."

In a swift response Britain insisted that the compensation deal must go through, while The Netherlands said it was "unacceptable".

Fitch Ratings immediately downgraded Iceland's long-term debt rating from BBB- to BB+, citing a "renewed wave of domestic political, economic and financial uncertainty".

The agency said the president's decision "represents a significant setback to Iceland's efforts to restore normal financial relations with the rest of the world".

Icelandic Prime Minister Johanna Sigurdardottir has staked her political future on passage of the bill, saying in the past that her government could step down if it were blocked.

She told a press conference the government would start preparing the referendum and that she would be meeting with members of her governing coalition on Tuesday to decide what steps to take to ensure the survival of the government.

"We express disappointment with our president's decision," she told reporters, adding "the president's decision could have great consequences for the economic plan with the IMF".

Sigurdardottir, a Social Democrat elected in an April 2009 election triggered by the meltdown of Iceland's banks, added in a statement Iceland's government was "committed to ensuring that Iceland honours its international obligations".

The dispute over the Icesave compensation scheme had delayed the disbursement of funds under of a 2.1-billion-dollar IMF standby loan arranged in November 2008 following the collapse of Icelandic banks.

The IMF announced on December 14 it had reached an agreement with Iceland on the release of a third instalment of the loan.

The Icesave bill, narrowly approved by the Icelandic parliament on December 31, calls for the payout of 3.8 billion euros (5.4 billion dollars) to the British and Dutch governments for having compensated more than 320,000 British and Dutch savers who lost money in the collapse of the Icelandic bank.

The payout has stirred up resentment among many ordinary Icelanders hard hit by their country's financial meltdown in October 2008.

About 60,000 people -- about a quarter of the country's electorate -- have signed a petition protesting against the bill and calling for the issue to be put to a referendum.

"Public opinion polls indicate that the overwhelming majority of the nation is of the same opinion," the president said in his speech.

A poll taken in August suggested that nearly 70 percent of Icelanders were against the Icesave deal, the compensation amounting to about 12,000 euros for each citizen on the small island nation.

However, a spokesman for Britain's Treasury said: "The UK government expects Iceland to live up to its obligations."

"The Treasury will consult with colleagues in Iceland to understand why this bill has not been passed and will work with them, the Netherlands and within the EU to resolve this issue as soon as possible."

In the Netherlands finance ministry spokesman Ruud Slotboom told AFP: "We are extremely disappointed."

"The Netherlands maintains that Iceland is compelled to pay back the money. We expect of the government of Iceland to give us an explanation in the short term of the situation now created and the steps to be taken," said Slotboom.

An earlier hold-up in implementing the Icesave compensation scheme had threatened to complicate Iceland's bid to join the European Union.

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Brigitta Jonsdottir on _www.tarpley.net said:

A Call to the People of the World to Support Iceland Against the Financial Blackmail of the British and Dutch Governments and the IMF

Birgitta Jónsdóttir
_www.tarpley.net
January 6, 2010
Birgitta Jónsdóttir is the leader of The Movement

[Note: Birgitta Jónsdóttir is the leader of The Movement, a group within the Icelandic Parliament which has emerged from the mass struggle of Icelanders against the financial blackmail brought to bear against their country by the governments in London and The Hague, with the backing of the IMF, in the wake of the insolvency of three large Icelandic banks in the midst of the Lehman Brothers-AIG world financial panic of September-October2008. Birgitta Jónsdóttir is a courageous leader in the fight for national sovereignty, independence, dignity, and the economic well-being and future of her country.]

January 5, 2010 is a historical day for Icelanders. The Icelandic President Olafur Ragnar Grimsson had a tough decision to make, and difficult choices to make. To listen to the 23% of the nation that signed a petition calling on him to put the state guarantee for 5.4 billion dollars to be paid to the British and Dutch governments to a national referendum. Or to ignore the nation and sign the bill for the government, after the bill had been passed through the parliament with a narrow vote on December 30, 2009 after months of acrimonious debate, tainted with secrecy and dishonesty on the part of the government. Every day throughout the debate, new information would emerge and documents would leak to local media or wikileaks. Yesterday, the people of Iceland finally had a chance to have something to say about their fate, because if the state guarantee is accepted it will mean that Iceland will become like a third world country, spending its GDP largely on paying interest on foreign debt. Last summer, a bill for a state guarantee was passed that had a significant meaning not only for Iceland, but also for other nations around the world facing the same problems of private debt being forced on taxpayers. The bill included a reasonable and fair way of handling the interest and the debt: Icelanders would pay, but only a certain percentage of their GDP, and if there were to be another financial black hole, they would not pay during that time. Thus it comes as no surprise that the Dutch and British governments reacted so swiftly with a condemnation of Iceland’s citizens for having the audacity to think they have the right to exercise their democratic rights in deciding for themselves what is in the best economic interests of their nation.

Let’s also put this debt into perspective: 320.000 people live in Iceland, each and every person on the island, including children and the elderly, the disabled and the poor, would have to pay around $30,000 under the bill. The danger if Icelanders will accept this enormous burden is that the entire welfare system would simply collapse with no money to run it. On January 5th the Icelandic president had the courage, backed up by his nation, to place the interest of the people before that of the banks.

Of course there has been an incredible spin by the government controlled media, attacking the nation and the president for this simple and fair demand. The UK and Dutch media were also full of misleading news, saying the nation had demanded not to pay, and that we would become isolated and there were even suggestions that the British navy should flex its muscles against this nation which has no military. As if the terrorist act they imposed on us was not enough during the darkest hour of our crises to bring us further down!

The spin is failing because people around the world are finally starting to hear our side of the story, and other suppressed nations have perhaps seen this as a sign that they can also rise up against the corpocracy in our world where those with the money have as a rule always won. Let’s hope the nation will not been coaxed into fear of isolation and let’s hope the people of the world will join in this experiment of letting the interest of the peoples rise above the interests of banks, corporations, and international bullies such as the IMF. We need your support. I will soon issue a comprehensive report on the entire Icesave saga.

Love and rage from Iceland
Birgitta Jónsdóttir
Party group chairman for The Movement in the Icelandic Parliament

Documentation: I append links to the files about Icesave that were leaked to wikileaks, and which show how the EU member states blackmailed Iceland into the same corner the government helped push into by accepting the Icesave bill. This file also contains letters between the main financial adviser to the Iceland Finance Minister and Mark Flanagan of the IMF:

http://file.wikileaks.org/leak/icesave-eu7.pdf

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[size=11pt]Save the People of Iceland - the Official Petition

Target: Icelandic nation
Sponsored by: Save the people of Iceland
Dear Icelanders, please don't sign the petition, it's for people who are not from Iceland to support the Icelandic people.

Iceland may be the first Western democracy to be forced into South-American style debt-slavery. The IMF, in concert with the UK and the Netherlands, has attempted to strongarm the recently impoverished Island of 317,000 into paying over 3.6 billion pounds ($6.3bn) -- $86,000 per Icelandic family -- at 5.5% interest for the next generation. The money is not conventional government debt, but arises from the collapse of a private multi-national bank during the financial crisis.

The issue is so serious that the entire nation will vote on the issue towards the end of February 2010.

On December 30, 2009, after extraordinary diplomatic threats, Iceland's parliament passed narrowly a bill agreeing to pay the onerous terms. Only a few months earlier parliament had agreed to the full amount, but under more reasonable conditions.

The people of Iceland must be internationally supported, so they can feel safe in voting down debt-slavery. If Iceland falls, it won't be long before other countries suffer similar financial extortion.

http://en.wikipedia.org/wiki/Icesave_dispute

http://www.jubileedebtcampaign.org.uk/UK%20must%20take%20some%20responsibility%20for%20Iceland%20crisis%205341.twl
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