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Wrapping up a week of insanity

The turmoil and public uncertainty concerning the Glitnir takeover by the state as outlined in the last post had pretty much evaporated by the following day. The reason is simple: our economy is in dire straits to put it mildly and wallowing in blame and resentment is a ‘luxury’ that nobody can afford. All hands are needed on deck to address the crisis in which we currently find ourselves.

It’s been an insane week. Unreal. Every day there have been reports that the króna has fallen “to its lowest level yet.” A year ago one US dollar was worth around ISK 60, today it’s worth ISK 112. That’s a 100 percent devaluation against the dollar in one year if you do the math. The euro currently stands at ISK 156 [was at 120 when we were in Croatia three weeks ago]. The normal person on the street has been clinging to the hope that it would finally hit bottom and stabilize, but by the time the dollar hit ISK 115 yesterday this just stopped being funny. Most of us still don’t know what has hit us. HVAÐ ER Í GANGI? [what is going on??] is a phrase you hear frequently these days, in between ER EKKI HÆGT AÐ GERA EITTHVAÐ?? [can’t somebody do something??] – referring to the free fall of our currency.

To many of us, the government has appeared completely and utterly lame in all this. It’s like they’re just sitting around, gobsmacked like the rest of the nation, uncertain of how what action to take. That said, perhaps they have been working behind the scenes … rumour has it that they will today make an announcement concerning their efforts in securing a foreign-currency loan, which presumably will allow the króna to stabilize. [Don’t ask me how it works.] We can only hope.

Parliament reconvened last night after the summer recess and for the first time ever I actually sat riveted in front of the TV listening to the MPs’ opening speeches, which were broadcast live. It was pretty intense. Everyone is completely aware of how grave the situation is, and yet the speeches were incredibly galvanizing and the general tone was one of optimism and “we will get through this.” The fundamentals of our economy are strong, they say – the fishing industry, tourism, aluminium production *cringe* [surprisingly, no mention was made of the financial services sector this time around, ahem]. Yes, there was some blame being tossed around but much less than usual, the prevailing sentiment being that the nation and different political parties must now stand and work together. It was repeatedly pointed out that one of the major strengths of the Icelandic nation is that when crisis hits, we set aside our differences and stick together. I’ve witnessed this on countless occasions and been just as inspired and moved each time.

Meanwhile, doomsday predictions are rife – that Iceland will soon face an oil shortage, even that normal commodities like food will run dry, simply because our foreign currency reserves are almost gone so there’s nothing left to pay for imports. YT is refusing to buy into the fearmongering … if there was ever a time to stay focused in the present, this would be it.

Unsurprisingly this crisis has reawakened the discussion of whether Iceland should join the European Union. YT has been opposed to the notion so far, but must say that it is looking more and more attractive all the time. A subject for another post, perhaps.

WINTER IS HERE
It started to snow last night and I woke up to the sound of people scraping ice off their cars outside. The ground was completely white this morning and looks very beautiful, what with the sunshine we have at present. The leaves on my neighbours’ bushes are still green and look very incongruous with the snow on them. It’s set to warm up again this weekend, right now it’s 0°C [34F], sunrise this morning was at 7.43 and sunset is due for 6.48 this evening.

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  • mary October 3, 2008, 12:35 pm

    Not knowing much about money I don’t know what to say.
    Our situation in the UK is pretty awful as well but our MPs are (talking) about working together.
    My lovely romantic vision of Iceland is a bit blurred at the moment!

  • PhilippeP October 3, 2008, 1:19 pm

    Well for the moment, it seems the Euro has also his ups and downs against the Dollar…
    And our economy does not look better …
    The only everyday advantage of the Euro is not having to always have to calculate exchange rates.
    The main disadvantage beeing that the price tag is smaller and things seems cheaper.

  • Clement October 3, 2008, 1:41 pm

    Hi Alda, out of interest, has this had any impact on support/opposition for the Kárahnjúkar dam etc? I notice Alcoa is in turmoil as well.

  • Sigga October 3, 2008, 2:34 pm

    last night was the first time that I have ever sat down and listened to the Alþing at work. I had extremely mixed reactions to the posturing that was being done. Unfortunately they brought nothing new to the table and in my mind seemed to be talking the economy even further down. Still, mum is making more slátur, and the weather is really really pretty today!

  • kristjan October 3, 2008, 2:48 pm

    Unfortunately Iceland has been living in a financial fairyland. Annual economic growth rates close to 4% for the last decade – just one problem, it is dependent on foreign capital and that capital is now not available.

    So now there is currency devaluation, major banks on credit watch and no easy solution in sight.

  • alda October 3, 2008, 3:11 pm

    mary – Iceland is lovely as ever, just a lot poorer than before!

    Philippe – where are you writing from?

    Clement – the Kárahnjúkar protests have all but evaporated now – I think people see it as a done deal. The main concern these days is whether to build more smelters and consequently power plants.

    Sigga – I hope she makes lots of slátur! And yes, we can rejoice in how pretty our country is, at least.

    Kristján – excellent input, thanks.

  • meloukhia October 3, 2008, 3:25 pm

    Your economic travails sound pretty intense. It’s good to be reminded as an American reader that our economy isn’t the only one in the toilet right now. I’d also be really interested to hear more on the pros/cons of joining the EU!

  • Jessie October 3, 2008, 4:28 pm

    Yikes, I don’t know what to say about all of this, except this is terrible. I am hoping that somehow, maybe the countries affecting all of this will change their banking systems for the better, but I fear that it will affect a lot of people in the process. It will be interesting to hear about joining the EU, why Iceland has refrained from joining, etc. I wish the US would join (or the state that I live in would secede from the US and join), but we probably wouldn’t be admitted.

  • hildigunnur October 3, 2008, 5:00 pm

    The question on if to join the EU is basically not very actual, at least the Euro question, as countries have to have their money status in very good order to be able to use the Euro at all. Which we sort of aren’t at the moment…

  • Keera October 3, 2008, 6:08 pm

    Glitnir got positive press today in Norway, because it offers the highest interest rate on savings of any bank in Norway. I thought that was a bit ironic. 😉

    Bergen weather report: We’ve scraped frost off our car windows this week, too, but we call it autumn. Winter’s a lot colder and has far fewer leaves still on the trees and bushes. 🙂

  • CarolQ October 3, 2008, 8:03 pm

    What I can’t understand is why (with the 700 billion bailout on the docket in US Congress) the US dollar is rising against the Euro. What’s up with that? Good for the US but . . . ?

  • JoeInVegas October 3, 2008, 8:25 pm

    It’s all magic to me. I have no idea who puts up these prices and exchange rates and who decides what they are. And we all suffer for it.
    Ah well, but snow and ice? It’s 29c here now, expecting a low of 20c tonight. But it’s dry.

  • kristjan October 4, 2008, 1:27 am

    “Contracts on Iceland’s debt jumped to 17.5 percent upfront and 5 percent a year to protect 10 million euros ($13.8 million) of bonds.”

    This puts Icelandic debt in the “distressed” category.

    Kaupthing – price of its CDS has now gone above 2500bp, which indicates imminent default.

    Krona continues to fall against Euro and USD.

    Rapidly this is becoming not a run on the banks but a run on Iceland itself.

  • Bird watcher October 4, 2008, 8:00 am

    I sat watching our news 24 channel last night to see if sanity returned and the House of Representatives passed “that” bill, which o fcourse they did. We live in troubled but challenging times. For what it is worth if I were Icelandic I would want to be in the European Union. I am trusting that what this current crisis will have taught us Brits is that we need to ditch the close relationship with the US and embrace Europe.

  • Bryce October 4, 2008, 9:40 am

    It is strange times indeed. When I first arrived in Iceland in January one pound was 128 ISK – now it is nearly 200 !! My guess is we will start to see a BIG rise in the price of tings in the shops soon due to the amount of imports – I notice petrol is up to 173 / 177 already (cheaper than UK now LOL ! .
    Maybe Kristjan can comment but the construction industry must be in trouble – imported steel, imported cement (?), imported wood, no credit from the banks for mortgages.
    On the positive side the export industries are doing well I hear – fish, aluminium.
    Anyway I can’t worry about it – nothing us peasants can do but suck it up and pay.
    Anyway it is a BEAUTIFUL day – where are my boots and camera ??? …

  • Rozanne October 4, 2008, 4:59 pm

    Oh, dear. I really have very little understanding of what it all means (I dropped out of Economics 101 in college), which is just so irresponsible of me.

    I think you’re right, though, not to buy into all the fearmongering. There’s nothing I hate more than speculation based on incomplete information. I have a hard time believing that there will actually be food shortages.

    I think your plan to live in (and enjoy as much as possible) the present is the right thing to do. In fact, that’s probably what we should *always* do. (Can you tell I went to a Buddhist lecture last night?)

  • Dietmar October 4, 2008, 10:44 pm

    I too was mystified why the UD dollar is surging against other currencies. I found a comment by a “Rajiv” over at the itulip.com forum site that may explain the cause:
    —————————————————————————–
    1. What is the credit crunch about? A. Loss of liquidity
    2. What is liquidity? A. Possession of cash/currency
    3. What is world reserve currency? A. US $
    4. Why is there a credit crunch? A. Debt Deflation going on

    Q. So in a Debt deflation, loss of liquidity scenario, what is in short supply?
    A. Cash/currency

    Q. What happens to the price of something when it is in short supply?
    A. it goes up!

    The US$ going up is just the symptom of the grave credit crunch we are undergoing!
    ————————–
    Also, here is a pretty good analogy of the financial mess in the United States:
    http://www.eurotrib.com/?op=displaystory;sid=2008/9/25/102414/031
    —————————-
    Hard to say if the situation is as pessimistic as economist Nouriel Roubini writes in his blog:
    http://www.rgemonitor.com/blog/roubini/253853/financial_and_corporate_system_is_in_cardiac_arrest_the_risk_of_the_mother_of_all_bank_runs

  • PhilippeP October 6, 2008, 12:09 pm

    alda > Belgium