So, last week, in my first Notes from the depression post, I invited questions from readers – if there was anything they’d like clarified, I’d do my best.
Choan wanted to know if, since fruits and veggies have gone up by around 60 percent, could people still afford to eat on Icelandic salaries?
– I’m sure there are individual families that are having trouble making ends meet, but most people can definitely still afford to eat. Although I know all us are feeling the price hikes, I’d say my weekly shopping basket at Bonus has gone up by only about 3-4,000 kronur [USD 22-28] which is well manageable. That said, I don’t know if that’s just because they’ve still got stuff in stock at the old prices. I expect that, if our currency [whatever currency that may be] still stays so low against the euro [in which we pay for most of our imports], we’ll soon feel much more of a sting in terms of rising prices.
Andrew wanted to know what sort of ‘recession survival plan’ I’ve drawn up, and if I thought the anti-Oddsson demos would continue?
– First, yes I am positive the anti-Doddson demos will continue, and become more intense, in conjunction with demonstrations against other things. At the moment the issues being demonstrated against are all mixed up, which I think just goes to show how unfocused everyone’s anger is and also how many things have gone wrong – and ARE wrong.
As for the survival plan, whell, I’d love to claim to be organized enough to have something like that all tucked away for emergencies, but the plain truth is that we’re just muddling through day-by-day, like most people. In fact, the only concrete thing I could say EPI and I have decided on is to stop using olive oil for normal cooking and switch to regular old vegetable oil, which is just as good [I'm talking regular olive oil, not extra virgin or anything]. And by no means is this a well-thought-out strategy, but rather sprung from our shock at seeing that olive oil has gone up by 100 percent in the last couple of months. Same goes for frozen French baguettes that at one time were practically staples chez YT, but which I noticed two days ago had gone up by 100 percent – from ISK 300 for four baguettes, to ISK 600. I promptly turned around and grabbed some regular old sliced bread from the shelf [well, not old , just a figure of speech] and dropped that in my cart; it does the job just as well, at least for the time being. So I guess it’s a case of making adjustments as they become necessary.
If anything, the main adjustments I’ve made have been on a psychological level, and I guess they would constitute a survival plan. The first couple of weeks of this mess I was pretty much on an emotional rollercoaster, by which I mean my emotions were extremely volatile. I had a really thin skin and it took very little to plunge me into the depths of despair and panic, and similarly it took very little to lift my spirits if I was feeling down. I was reacting [as opposed to 'acting'] to just about everything.
However, once that initial phase of being tossed around on waves of emotion wore off and I started to get my bearings [I guess you could call it 'acceptance'], I made a very conscious decision to take one day at a time, and not to panic. I’m a devoted believer in the ‘one day at a time’ strategy. Things don’t seem that bad when you take them one day at a time, because then you’re just dealing with whatever comes up that day, and that’s manageable. Whereas if you start looking too far ahead you start to panic, and then it becomes completely unmanageable.
So, I’m aware that two months down the road EPI and I may be in serious difficulties [I don't actually think so, because we're survivors and we don't have a mortgage or car loan in foreign currencies, and we still have work... but of course anything's possible] – but for now, we’re not, and that’s all I need to focus on. I also have strong faith in our ability to find solutions, even if bad things do happen. Plus I think that approaching things as challenges rather than insurmountable problems makes everything a lot easier.
So much is dependent on our own attitudes and outlook, and I firmly believe that the greatest problems we face are usually made that way because that’s the way we see them. We buy into the notion that they are great problems. And sometimes we struggle with things that we’re powerless to change until we’re beating our heads against the wall, and overlook the simple things we can change. And now I’m getting all philosophical, and who knows where that could end?
Better quit while I’m ahead.
WIND’S PICKING UP
It’s still really damp with that strange kind of chill that gets right into your bones. Today we had a mixture of rain and sleet; I went to a funeral and when we came out of the church the snow was falling straight down in big white flakes, so peaceful and lovely. It didn’t last very long, though – a few minutes later it was sleet again, and then rain. Right now 1°C [34F]. Sunrise this morning was at 9.54 and sunset was at 4.29 this afternoon.
{ 26 comments… read them below or add one }
Well done you ! Of course you will survive!
Do you really think that the demonstration is against David o? For my parts it is against the government and the lack off plans against the situation. It is also against the corruption and to stop the hiring of old politicians and friends and relatives of powerful people in key roles (did you notice that during the last two days two such instances occurred, ISG hired one of her friends as a diplomat, despite having only one day earlier promoted cost cuts at the ministry for foreign affairs. The other one was the hiring of new chief of police at the KEF airport. She is a loyal member of the independent party and a friend of Björn Bjarnason. And why are the terrorists still working in key roles in the banks? And off course David o. still being the head of the Icelandic Central bank is absurd. Why is the head of the financial authorities of Iceland still in this position? Hasn’t he shown us how bad he is doing his job? why, why , why…… Why haven’t we confiscated the assets of the damn billionaire boys? These are the reasons I will be protesting in front of the parliament building tomorrow. David o. is only a small piece of the puzzle. BTW, your blog is excellent and I really enjoy reading your text. You seem to have a very good control over the English language and you know how to use it to make your text interesting and readable. Best regards and sorry for my rather imperfect and simple English (I’m Icelandic).
Thank you for the updates. I’m just finishing my first day here so my observations are still developing. There is no doubt that the mood is somber and everywhere I go there are what appears to be passionate discussions going on. My Icelandic is only slightly better than zero but I can hear the tone and a few familiar words and proper names to know they are talking about the situation. The infamous nightlife is very subdued compared to what I’ve read about. But the stores seem well stocked and everyone is friendly.
The exchange rate will attract the tourists indeed but if inflation comes then you’ll be right back to a prohibitively expensive destination that only the wealthy will be able to afford. I’m getting used to the local currency and how to figure out what is fairly priced but it is not easy to know what it costs me in my currency as it keeps changing. I did a debit purchase and could then tell right away from my online bank what the rate is which is different from the credit card and not the same as at the cashier. The wealthy don’t worry about it but us regular folks are always looking for the best deal just to get by. Perhaps it is time to target the middle class tourist with clear exchange rate information like they do lunch menus at the cafes. I skipped past the money booth at the airport which I assumed would not be the best place. But then I didn’t find posted rates outside the banks and didn’t go in as there were long lines of people and they didn’t look happy.
The Skyr and pylsur from the tiny bodega was delicious however.
What do you mean by “only” 3000-4000? That is just the groceries, everything else has gone up as well. 3000 kr. more a week on groceries is a big deal for a lot of families out there. And let’s not forget that a whole lot of people had trouble making ends meet before. And that without taking out loans on new flatscreen tv’s and suv’s and living beyond their means.
Icelanders have survived since the first long ships landed there..and you will continue to survive, you are a strong people who will find ways to work through this. Yes, you and many of us here in the USA will be cutting back on many things, both countries aare facing hard days, many long months of hard days, possibly years.
But we will survive, and hopefully become wiser and more careful with our own paychecks, our own spending. And Icelanders will also work their way through this, hopefully without fools turning to letting industry destroy their natural resources for a quick krona…
And as God only gives us 1 day at a time, living that way, now is a very practical way to live, look to the future, plant in the right season but live the day you are given.
And here in central IL USA it’s cooler and gray but more daylight hours than your corner of the planet and not nearly as windy..Maggie
Sorry to interupt here — a nice article by an Icelandic author living in Germany, Kristof Magnusson, on what went wrong, entitled “Inflation will pay!”
http://www.signandsight.com/features/1782.html
Alda, you’re in a good position with no mortgage or loans. In times of recession the old cliche “Cash is King” is very true.
Those with big foreign currency loans must be in a terrible situation, and I do feel for them even if they have been a little reckless. The falling pound hurts imports and makes travel expensive (I’m in Spain for 10 days over Christmas and it’s gonna be mighty expensive at £/€ 1.1) but at least almost nobody owes in Euros.
Your government are obviously helping food and oil companies, but I guess the imported non-essentials like iPods, cool trainers (sneakers), white goods, cars will become scarce and expensive. As they will here.
We’ll have to eat our own mad cows. Or the rich.
A bit more humour here:
Iceland’s First Batch Of Economic Crisis Jokes
http://www.icenews.is/index.php/2008/11/15/icelands-first-batch-of-economic-crisis-jokes/
Oh, and how did today’s demo go?
A friend in Reykjavik told me yesterday that Ben & Jerry’s ice cream tubs have gone up from ISK 500 to ISK 1000. They are £4.39 in Sainsbury’s in London – and I guess cheaper in the US. The subsequent discussion about Caramel Chew Chew and Fossil Fuel probably didn’t help…
Thanks for the input, everyone.
Arnar: – First, yes I am positive the anti-Doddson demos will continue, and become more intense, in conjunction with demonstrations against other things. At the moment the issues being demonstrated against are all mixed up. And thanks for the kind words.
Vala – I’m sure there are individual families that are having trouble making ends meet … my weekly shopping basket at Bonus has gone up by only about 3-4,000 kronur
trev – slight misunderstanding – we have a mortgage, it’s just not in a foreign currency. It’s actually debatable whether we’re in a better position, because our mortgage is indexed to inflation, so it will go up as inflation goes up, but won’t go down if our currency becomes stronger against other currencies. Alas.
Lee – we stopped buying B&J ice cream a while back, but not because of the cost … just because it’s so damn sweet! Cloying, in fact.
Alda,
one of the survival kits is humor!
Please take one from http://binnasblog.blogspot.com/
Knús
Binna
According to reports, such as by Bloomberg, 6,000 people turned out for the demo against the PM and the Central Bank head (as Bloomberg put it). That’s 2% of the population!
Did you attend?
I was there. I wouldn’t be surprised if that was 6000.
You don’t often see a serious protest that you can bring your children to. ‘only in Iceland’.
And yes I have a picture of the ‘new’ cod currency. Just one of the interesting posters to be seen.
Cod Currency, interesting idea, it may be more stable than the krona. And it’s not without precedent:
Mackerel Economics in Prison Leads to Appreciation for Oily Fillets
Packs of Fish Catch On as Currency, Former Inmates Say; Officials Carp
http://online.wsj.com/article/SB122290720439096481.html
Hmm, not exactly encouraging. Just imagine, if everybody would pay with cod, Iceland could soon be known as Smellcatraz…
Andrew, Vikingsson – Fréttablaðið today says 8,000. And yep, I was there. It was a good demonstration. Zealous, yet peaceful (save for the eggs and tomatoes that a few teenagers threw at the parliament building afterwards).
Gray –
I have been watching the Iceland crisis for some time now and I have tried to make sense of some of the measures that are suggested to create a way out of this mess.
The standard way propagated on most sites (and by the IMF) goes a bit like this: Float your currency, we’ll see what it’s worth. We will then lend you foreign currency (enough to meet your most urgent needs). The cheaper currency will boost exports and rebalance the imports/exports. As your exports become greater than your imports your currency will appreciate again.
However I look at this reasoning (which IS logical) it comes down to: Iceland’s citizens have been living beyond their means. By depreciating the currency, creating mass inflation and cutting spending the government should ‘reclaim’ this excess spending. The process takes more or less 10 years.
I was wondering if there are no other ways out of this (the IMF has received lots of criticism for their remedies). I was thinking that IF Iceland could control all currency exchanges to cover the country’s needs for essential foreign goods, giving the exporters a fixed rate of ISK in return. And if they could put limits to ISK to foreign currency exchanges at also a fixed (but slightly higher) rate. This crisis might be contained.
Next measure would be to print ISK to fund Government expenditures (that create jobs, not for welfare).
One of the preconditions for such a scenario would be a strict tightening of foreign non-essential goods. Say bye-bye to coriander Alda.
And one of the consequences would be eternal scorn of the IMF for showing there is an alternative to their hardnosed approach.
Far be it for a tourist and lover of Iceland to suggest a solution. But is it damned if you do and damned if you don’t go with a heavy handed IMF solution? Like dealing with lawyers, you try to avoid them if at all possible. I’d prefer the scorn vs bending over for the IMF anal injection.
If I had the power and funds I would trade you lots of cash and goods for massive geothermal projects. Obama and the other players could combine their own economic and energy issues into one long term plan instead of using each as an excuse to further delay the other.
And I wouldn’t be paying lawyers to analyze the laws of any country until I answered one simple question, where the hell is all that money now?
IMF solutions tend to be brutal, so if there is a workable alternative (workable doesn’t mean painless — hence, bye-bye to coriander, perhaps), that may well be preferable. But, it would take leadership and people in power able to effectively execute and manage such strategies, and it would take the rest of the global economy trusting the solution. But new leadership might help with the latter. Or, perhaps get one of the people, like Bo Lundgren, who dealt with Sweden’s financial crisis in the 1990s — what’s needed is credible leadership and guidance on the issues.
Marc, our coriander is Icelandic grown and Alda can even have her own batch in the kitchen
(I absolutely hate coriander, but have a very healthy rosemary plant, a basilicum, some parsley and chives and mint in the garden)
Probably won’t be buying a lot of parmiggiano cheese, though…
@ Marc-
If the IMF’s “way” is to float the currency why are they supporting the government’s suggestion to fix the currency at ISK 115/EUR? Why are they suggesting the central bank increase interest rates to “support the currency”?
If the IMF is willing to lend money to Iceland for ‘urgent needs’ why was the IMF loan held up while the UK and Netherlands insisted Iceland take responsibility for $8 billion in Icesave “savings” which can never be repaid?
There is no reason for Iceland to freeze its exchange rate. Keep in mind this is a political process which is 100% guaranteed to result in an overvalued currency. The way to “fix” the situation is to let the currency sink to a level appropriate for a country that is hopelessly bankrupt and choosing between a 2 year recession (if the currency is floated) or a 10 year recession (if it follows the IMF’s advice). That would probably be in the area of 250 ISK/EUR.
At that price imported goods would be very expensive, requiring substantial cutbacks. Icelandic fish and aluminum, however, would be quite affordable. Trips from New York to Reykjavik would be affordable too. Foreign currency would begin to accumulate in the central bank. The country could even have a chance to rebuild its savings and maybe repay some of these British and Dutch fools who entrusted their money to your various banksters.
There are really only two things you need to know about the IMF: 1) they are obviously captured by the UK/Dutch; b) the actions they demand of countries that borrow from them (overvalued exchange rates, impossibly high interest rates, increased taxes) are exactly the actions NOT taken by G-7 countries when they get in trouble. “Doctor, heal thyself.”
@ John Haskell
Currency depreciation or high inflation are just two sides of the same coin. You can rob your citizens by depreciating the currency, thus making it extremely obvious to them that they are being robbed. Or you can allow massive inflation, which the government then can say they can do very little about, but ends up with the same result.
The reason the loan was held up is not clear to me. It is claimed it was political (resolution of the icesave thing for uk and nl, which is believable) but it also could have been tactical. The more foreign currency Iceland spends, the more likely they are to accept whatever is offered to them.
I admit to being a cynic in money matters.
If I would live in Iceland, I would urge my government to do whatever it can to not have to accept the IMF bailout. At least not without a strong friend to negotiate it with me first.
Apparently the main purpose of increasing the interest rate, a requirement of the IMF, is to attract foreign capital to Icelend. Foreigners would buy kronur/Icelandic bonds for the high rate of return and Iceland could use this new influx of foreign (i.e. real) money to recapitalize the banks, support the ISK, and so on. Later, as the economy improves and the need for foreign currency declines, the interest rate would be lowered. Inflation is an undesirable but necessary by-product in this process, which the locals will have to deal with as best they can.
This is the IMF theory. It would work if foreign investors will buy Icelandic bonds. But in practice no foreigners with any sense would buy/loan Icelandic right now in light of what has happened. So instead, Iceland will just get the negative consequences (i.e. inflation) without the positive benefits. (Iceland knows that a lower interest rate is better for its citizens, hence the decision by The Three Stooges (oops, I mean the Central Bank) to lower the interest rate to 12% after the crisis broke out.)
The IMF really represents that 100 or so central banks and other large banks that fund it. Their main interest is to make sure that nobody ever defaults on loans and keeps paying them back at the agreed-upon rate. It is better to lend struggling countries a little more money to enable them to continue to pay back the loans than to have them default. You can’t have countries defaulting like Argentina. That would disrupt the entire system. Argentina did default and renegogiate their foreign debt, and in response the foreign banks have made sure that no one lends them any money (except renegades like Brazil, Venezuela).
The IMF will only give Iceland enough money so that they recover enough to pay off the English and Dutch and keep servicing the Icelandic national debt. That’s what the “system” wants.
Perhaps the next demand of the IMF will be that Iceland stop automatically indexing wages, benefits etc. to the inflation rate. That would have the effect of reducing the value of Icelandic property and wages. And naturally this extra money could be used to pay off foreign debt. The IMF would be quite happy is the ISK settled eventually at 300-400. Less for you, more for me.
Oh, it’s a wicked world, Watson.
Marc, urging the gov to not accept that blasted loan is exactly what a bunch of us is trying to do.
Are they listening?
no
The idiots!
The IMF is the bank of last resort and Iceland financially is on its last legs. Iceland has no choice – it is the IMF or default. You can demonstrate, shout, cry, scream or what you wish, but in the end you have no other alternative.
IMF may seem like a bad guy but in Iceland’s case they are the only hope. Yes they have draconian rules and they are quite strict, yes they interfere with sovereign decisions. Why? Because the countries they loan money to have proven in spectacular fashion that they are not capable of managing their own economies. Iceland has done this over the last decade, in the weeks since this crisis began they have done nothing to give anyone any confidence they have the first clue to solve this mess.
So bitch and complain about the IMF all you want, in the end they will help you, you may not care for the terms but their help is way better than default.
@ Kristjan
I think it would be prudent to not slip into a false dilemma where you only believe you have two choices. I think saying that the IMF is Iceland’s last resort is melodramatic. What if Iceland defaults? What if by diplomatic means agreements are met that will be amenable to everyone? I refuse to believe there only two options. I am not an economist and will not pretend to be one, however I refuse to believe there are only two options until due diligence is given to solving a problem. In my view that is some of the fuel to the protests. Icelanders do not feel their leaders are making wise decisions based upon creative solutions. (Oh, and there is that whole responsibility thing for the implosion of the economy…)
I favor consumers who who blog regularly, it is really difficult to obtain that kind of awareness almost any way. Fantastic job.