Comments on: The Icelandic Government program with the IMF

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Mon, 01 Dec 2008 21:57:11 +0000

[...] The Icelandic Government program with the IMF [...]

By: Knowless

Knowless — Wed, 19 Nov 2008 18:17:50 +0000

I don’t understands the markets and the ISKr.
Are there reserves of ISKr being held by Foreign banks?
If so, are there any estimates of how much?

If they are going at 400kr/€ – possibly 600/€ for bulk purchase :)
would it not be sensible for the Ice gov to buy them back with borrowed Euro before they float the Kr?

By: Gray, Germany

Gray, Germany — Wed, 19 Nov 2008 15:32:21 +0000

“fish, tourism and aluminium”
I guess the Icenews team would like to see Actavis pharmaceuticals to be added to that list!
:D
And personally, I would add online games. But, ok, I don’t really know the volume of sales those EVE folks achieve.

By: bc123a

bc123a — Wed, 19 Nov 2008 15:06:55 +0000

@julia

You are right that there are massive deflationary forces at work. But on the other side, there could be also big inflationary pressure, as the krona carry trade unwinds. There could be a lot of krona around the world, which could flood into iceland to be converted back into EUR.

One cannot know exactly how large is this force, but it could be large, judging from the amount of overvaluation of krona in the past.

The problem is, for all their import needs – and iceland imports a lot, icelanders have only the krona to offer, and EUR which comes from fish, tourism and aluminium.

If icelanders reaction to massive devaluation of krona will be frugality and massive cuts in spending, then there will be little inflation, and the deflationary forces will bring the economy in more healthy equilibrium – e.g. so the beer will not be EUR 10, but more like EUR 2 or 3, in line with prices in mainland europe.

By: Gus

Gus — Wed, 19 Nov 2008 14:48:57 +0000

The price of the Króna in the open market was 322= 1 euro last time it was openly participating of it. when the króna is put again on the market it could get as far a 400isk= 1 euro. Though that situation will not be prolonged. The only smart thing to do it to let the króna fall and touch the bottom, any intent to rescue it will totally fail. With the króna like that a large part of the workers (as has happened in Poland) will have to left the country to look for jobs in richer nations. That would gradually bring some cash to the country.

It is inevitable that this nation will have to go through the same situation as many other countries before… It will take at leas 10 years for the icelandic economy to fully recover. That does not necessarily mean that things will be the same as they where. That would be making the same mistake again. Iceland needs new economic politics and approaches. Icelandic society needs to have a realistic understanding of what is to work, save and create wealthy. High living standers based on loans is nothing but building castles on the sand. And yes! GET into the UE ASAP!!

By: mdr

mdr — Tue, 18 Nov 2008 18:04:28 +0000

Jim; no, there are next to no hockey facilities over here – a couple of British National League-standard rinks, nothing more. The sport is not popular, unusually for this part of the world.

By: Terry

Terry — Tue, 18 Nov 2008 15:57:00 +0000

@Bromley86. Rounding – now I get it -

€20,000 = 0 ? :)

By: Knowless

Knowless — Tue, 18 Nov 2008 14:56:18 +0000

The main inflationary driver now is the rate of exchange.
Of course a further rapid slide of the Kronur will naturally cause a huge rise in every import price and we can spend much less.

The main bills to pay are property /car loans which will rise accordingly as the kronur sinks. Those repayments will absorb most of the money earned in Iceland. Those people who have their mortgages paid up will probably be supporting other burdened family members.

The consumer expansion has gone and it will slow down with brakes fully applied over the next weeks.

1000,s of people will need new employment.

The trade balance has to radically shift, gaining foreign currency through fish exports/ any tourists and Icelanders working abroad sending home remittances.
The balance will be more achievable with a welcome slump in consumer spending.

By: Bromley86

Bromley86 — Tue, 18 Nov 2008 13:54:30 +0000

>You have an unique geographic location (invaded by US in WWII out of fear or German possession) that is quite strategic.

The invasion of Iceland was actually a UK triumph!

The US took over garrisoning it to free up UK troops.

By: Martin

Martin — Tue, 18 Nov 2008 13:32:15 +0000

Bravo Julia!! good comment