Tag Archives: Iceland

Is it a real crisis?

I must admit that I have seen this financial crisis unfold. I have had mixed feelings. On one hand, I have not lost any sleep over giant banks and rich financiers loosing some of their clout and some of their money. Also it is good for the poor that oil prices are falling. On the other hand. Rapidly rising interest payments, lack of credit for ordinary people and the collapse of the Icelandic economy has had me worried.

The moneycrisis. Thanks to scriptingnews for sharing under Creative commons
The moneycrisis. Thanks to scriptingnews for sharing under Creative commons

Now, it seems that the lack of credit is transforming the crisis from a finacial crisis to a real economy crisis. Solid businesses lack liquidity to keep in business, and shops lack the credit to take in new goods. Now reports are coming in that this hits food as well. The BarentsObserver.com writes:

Now the chain has ruptured with banks now longer willing to offer the credits. Subsequently, the wholesalers are no longer able to buy the foodstuff from the producers and then sell it on to the supermarkets, newspaper Komsomolskaya Pravda reports. Consequently, the shops are emptying.The situation has now made Russians line up in the shops and secure their necessary products. The result is an even more rapid decrease of good in the stores.

Russia certainly has the money to shore up its banking sector and get credit moving again. I’m less certain about Iceland, even though they are trying to loan a couple of billions from Russia. Reuters had a wire the other day stating that:

Iceland has food stocks for about 3 to 5 weeks, but needs quickly to restore a proper foreign exchange market so importers can get back to normal business and avoid shortages, importers said on Wednesday […]The problem for importers was uncertainty about whether they would get foreign exchange, which they now have to apply for under a rationing system begun by the central bank.

I don’t actually believe that we will see food riots or starving in either Iceland or Russia. Neither country i Zimbabwe. But this is an instructive lesson into how modern capitalism works. And it works through credit. Get Rich Slick puts it this way:

There WILL be plenty of food around but it would be a matter of the truck driver having the credit to buy the fuel for his truck to get the food from the farm to your grocer. It will be a matter of the grocer to have credit to pay the trucker for his services. It will be a matter of the fuel station to have the credit to buy fuel from big oil and so on…..

When access to mony stops, everything stops. Still the worlds production capacity is the same. When it comes to food, oil, steel, transport, fertilizer. Nothing has changes. This gives us one very clear signal. The market must not govern us. We must have democratic elected governments that regulates, oversees, produces and makes sure that a crisis in the market place do not ever spill over into a crisis that affect food, health or security. I believe, naively maybe, that the Nordic welfare state has come close to finding an equilibrium where entrepreneurship and safety coexists in a way that maximizes productivity, welfare and security. Recent crises in Norway stems from deregulation not overegulation. If we take Iceland as an example, the crisis stems from a total deregulation of the banking sector.

This crisis shows, yet again, that we need to govern the market, not be governed by it.

Norway must aid Iceland

Iceland has major financial problems. The currency is in free fall, and interest rates rises sharply. Iceland has already nationalised the third largest bank in the country.

This has triggered a debate in Iceland about EU membership and adoption of the euro as currency. I do not not have strong opinions about how Island should arrange themselves in relation to the EU, but I think that it’s time for that Norway do what we can to help Iceland in this situation. Norway is in a very strong financial position. We can make sure that the icelandic government and central bankhave to money and credibility to back up it’s currency and contribute to get the Icelandic economy back up.

The BBC writes today:

The country’s credit rating was slashed after the Glitnir nationalisation. The Icelandic krona, which had lost more than half its value since last summer, lost a further 14% this week.

The government is openly divided on whether to keep the currency or ditch it – and adopt the euro.

There’s a growing sense that this country, with just 300,000 people, is too small to cope. Sigurdur Kristjanson, an MP from the prime minister’s party, disagrees.

I’m no economist, but I’m sure that Norway has the ability to back up a neighbour in need. The Norwegian primeminister and minister of finance should let the Icelandic government know that we are ready to help if they need it.

It’s the least we should do.

The Icelandic economy is in uproar, picture borrowed from Wikipedia
The Icelandic economy is in uproar, picture borrowed from Wikipedia

Updated:
I found an interesting blog here