Iceland: Harbinger of Worldwide Collapse
Apr 17th, 2009 | By Don Stott | Category: Featured, Macro Economics
Iceland is a mess. Total mess. Bankrupt and its currency, the krona, has been abandoned by most people in the world. In Iceland it’s lost two thirds of its former value and purchasing power. Iceland is a nation that throughout its long 1100 history-year history has been extremely poor, depending on fishing for its only real source of income. It also is extremely inbred, which isn’t too good for the gene pool. Obviously, Iceland had no financial or investing experience. It knows how to catch fish. Looking at the Wall Street bubble, Iceland’s three biggest banks, with assets of a few billion dollars, made it grow to $140 billion in three and a half years. It was called “The most rapid expansion of a banking system in the history of mankind.”
These three banks were following Wall Street like a shadow, and lending money to buy stocks and real estate. While the US stock market was doubling, the Icelandic stock market went up 900%. By 2006, Reykjavik real estate prices doubled, and the average Icelandic family was three times as wealthy as it was in 2003. All this supposed ‘wealth’ was tied to the investment banking industry. Sound familiar? Naturally, the whole thing collapsed with a huge thud, when the three investment banks went bust last October.
Fishermen quit fishing, and the craze was to buy and sell stocks and real estate. For the past few years, many Icelanders engaged themselves in speculation, and seeming to be successful, they did what Americans and the rest of the world did. They bought things they couldn’t afford…on time. Since interest on their krona was 15.5%, why not buy euros or yen at a 3% interest rate and clean up? So they made huge loans of euros and yen. Then their krona collapsed, and they still owe for the euros and yen they bought. They now own $500,000 houses on which they owe $1.5 million, and $35,000 Range Rovers, on which they owe $100,000. There have been lots of fires in Iceland recently, to pay the bills of course. Lucky insurance companies. It will happen here, and already has to a small degree.
Iceland has lots of wonderful glass and steel office towers and apartment buildings, which are unfinished and empty, with gobs of money owed on them. Sort of like the rest of the world, I suspect, but it happened in Iceland far quicker. The bomb went off in Iceland quickly, because it is so small, and its speculation went to such extreme heights. Walking around Manhattan, the empty stores, streets, and taxis are quite evident I hear, and the same thing is obvious in big cities and small towns everywhere. The bomb will explode later in these places outside of Iceland, but beware: Iceland might be the prototype.
Icelanders discovered that trading bits of paper isn’t a productive enterprise. A handful of guys, who fancied themselves as financial experts, were taking out tens of billions of dollars in short term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets, such as soccer teams, cars, homes, etc. Since the entire world’s assets were rising; thanks to people of like mentality paying crazy prices for everything, the Icelanders appeared to be making money. One non-Icelandic fund manager said that its like, “You have a dog and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now, we are no longer pet owners, but Icelandic banks with a billion dollars in new assets. They created fake capital by trading assets amongst themselves at inflated values.” DOESN’T THAT SOUND LIKE THE REST OF THE WORLD’S FINANCIAL GENIUSES?
Iceland was and is, simply the extreme of what’s going on in the rest of the world, and it came home to roost in Iceland first. When traders got a whiff of what was going to happen in Iceland, guess what they did? They went short and made a lot of money. Do we think that insiders at AIG, Citibank, and the rest of the bankruptcies, knew in advance of what troubles loomed ahead? Of course they did! Can we possibly imagine that they shorted their own companies in advance of the collapses and made tons of money? And that such bonanzas are carefully guarded in the sacrosanct walnut-paneled boardrooms of these holies of holies? I think there’s no doubt about it.
Iceland looked so good to the rest of the world…for a time anyway…just like Madoff. That they “invested” heavily in Iceland, with its 15.5% interest. Germans banks put $21 billion into Iceland banks. The Netherlands gave them $305 million. Sweden kicked in $400 million. U.K. investors forked over $300 billion from various pension funds, hospitals, universities, and other public institutions. Oxford University lost $30 million. It’s all so sad that 99% of the world believes things to be true, which couldn’t possibly be true. That “experts” can do no wrong, and are to be trusted with wealth and surplus assets. A few years ago, and not in the current time frame at all, a local retired electrical contractor and his wife, who had bought gold eagles from me @ $301, and silver eagles @ $7.50, were lured by a fast talking Madoff type into “investing” $100,000 in his scheme with the promise of a ten percent annual return. They tried to get me involved and even introduced him to me. I said NO, and tried to tell them that it would cost them their $100,000. It did.
See, gold and silver don’t require “trust” and expertise to own. No degrees or licenses from experts are required to decide to buy gold and silver, which after all, are historic money throughout the ages. They’re simply a way of protecting assets from the criminal inflating of the world’s currencies. The dollar is not alone. Don’t be fooled by the “strength” of the dollar. It is strong only in comparison to other pieces of paper, which are all being printed with merry abandon by the world’s governments. People who brag about their CD making 4% rather than 2% are essentially bragging that their boat has a smaller leak in it than their neighbor’s, and is sinking more slowly.
Hope you went to a Tea Party! I went to two, and it was a blast. We sang the National Anthem, God Bless America, America the Beautiful, My Country Tis of Thee, saluted the flag, and had a grand time. In this town of 17,000 we had over 400 at one of them. People were driving by honking their horns and waving. It made tears run down my face. Sorry, I am a hopeless romantic, and I love America. It’s the current government I hate, and both parties. If the Republicans would listen to our music and pay attention, they could take both houses at the next election, but it’s doubtful they’ll wise up and think straight. How sad!
Regards,
Don Stott
Colorado Gold
April 17, 2009
Hmmm…so abandoning your primary productive activity and source of income to pursue speculation and luxurious acquisitions on debt isn’t a good plan? Who’d have thunk it?
And Don is very right, Shooters; what befell Iceland — our little canary in the globalism coalmine — is happening here.
I don’t have any government-provided statistics for this stuff, but I do hear the stories. My loved ones and acquaintances are all reporting falling standards of living. They just can’t afford all the things they’d gotten used to when credit was cheap and abundant.
Credit is a funny ol’ thing. When the market is allowed to price it, its cost reflects realistic expectations of growth. If resources are plentiful…if productive activity looks to be increasing…then those who are able to do so can lend at a cost (interest) commensurate with the perceived ratio of risk and reward.
When credit is made artificially cheap in order to “stimulate” growth, however…well, the bad decisions crop up like daisies in spring. Industries that wouldn’t normally grow add jobs to the economy that wouldn’t normally exist. Children that wouldn’t normally be conceived get added to a population that wouldn’t normally grow.
Artificially cheap credit “stimulates” the growth of the unsustainable. And Lordy, does it hurt when reality starts to poke bloody little holes in an unsustainable credit bubble! These lanced bubbles hemorrhage happiness, hope, standards of living and even lives.
A Shooter caught the same sentiment in Dan Denning’s article yesterday:
“Gary,
“Once again, we read about the population bubble. Dan Denning writes: ‘…fiat money greatly accelerates the rate at which scarce resources are depleted. Land, labour, capital, and raw commodities are allocated based on a demand that isn’t sustainable. If you do that long enough-let’s say for the last seventy years or so-you get an entire global economy (and population) that exists because of the increase in credit.’
“Well said, Dan. However, it is the Ponzi scheme of artificially expanded human population which is the core of these problems. ”
I’d say that the artificially expanded population and the artificially abundant (cheap) credit nourish each other. It’s one of those cute feedback loops that scientists go on about.
It’s not going to end well, Shooters.
“Hello Gary,
“A great American pioneer, statesman and Mormon Prophet, Brigham Young said: “The day will come when a bushel of wheat will be worth more than a bushel of gold.” This may very well be a prophesy of things yet to come? If it is true, then it may be worse than the dust bowl of the great depression. I do, however, believe gold and silver will continue to be great bargaining tools as they were after world war two and after the Vietnam War.
“However, ‘Food’ may very well be the bargaining chip of the future. The old adage, “greater than all the tea in China.” May hold a lot of weight.”
That’s a very good way to look at it. People write in all the time to chide us gently for our recommendations to stock up on gold and silver. “The only metal you’ll need is lead!” they warn. “The only things that will matter will be food and the ability to produce and defend your hold on it.”
True to a point. Specialization and exchange, however, seem to be in our nature. Notions of private property and the enforcement of contracts (no stealing, no lying) allow us to live a little better than wildebeests. An honest commodity currency fosters trade.
Point is that gold and silver will continue to have their place and probably immediately after the initial stages of the apocalypse. Make as much cash as you can — something with which we can definitely help — then trade that cash for things of lasting value…including gold and silver.
If you can, try not to be too near any major metropolitan areas, either…
And lastly, Shooters, Samantha Buker and I will be furnishing you with an account of our Tax Tea Party adventures. I implore you to do the same for us. If you attended a Tea Party, tell us about it. Send pictures if you have them. We’ll publish as many good stories and photos as we can for the entire week. We’ll get that ship sailing Monday.
Have a good weekend.
Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder
Hi Don
Icelanders are not quite 100% inbreed’s but mixed gently with Irish and scandinavian people. The Icelandic horse is though 100%, 1100 years of inbreeding and what a fine horse it is… Pure and powerful. Makes me wonder.
Not every one owns a Range Rover just a small portion of people… Just those big gamblers.
Follow the fall of Iceland wich indeed will happen but be sure to follow the rise again, first of all nations… This is not our first crisis…
At least we have pure peace, pure water (the future gold), pure nature and pure souls & minds. We are worried but not afraid.
Best regards form the land of Ice & Fire
H Tomas
ps… High Teq and Education.. Still our strongest field, dispite of few Wall Street Lookalikes
I can see that one of your readers today (to fit their dogma) along with yourself and Dan Denning (I have no idea why you two would do this) make a classic mistake of assuming a cause and effect where there is none or none is evident. Increased credit is causing a population boom? Further, that world population is a “bubble” which implies that it needs to be “corrected”? Not only that, but the reader asserts it is being done deliberately (a Ponzi scheme after all is planned and controlled; they don’t erupt spontaneously).
Native population in credit-using/abusing (developed) countries is decreasing while it is the poorer countries where it is increasing. Only immigration is keeping New and Old world countrys’ population growing at any appreciable rate. It is only the poor in the developing countries who are experiencing a rapid population increase. This would imply that using credit makes the population decline and not using credit makes it grow. This is at least a coherent argument, but in both cases there is still no cause-effect demonstrated.
In any case, the main point is that overpopulation as a problem is a complete chimera just as it has been when radicals started screaming about it in the 60s. It is clear that wealthy societies populations’ peak and then decrease over time without intervention or calamity being the cause. It is already happening. As the world gets wealthier, population will go down on its own accord. In fifty years the radicals will be screaming for laws to make people have more children. Lets focus on the real problems. Too many people isn’t one of them. Cheers all!!
Throughout the last 70 years a great percentage of western population have lost the ability to think for themselves. Education has been streamlined to regurgitation of fact void of creativity or invoking any cause for our kids to ask Why? The rampant attitude of entitlement has bred generations of people who do not know how, want to, or feel the need to work. Those who do work have become a specialized drones, supporting small compartmentalized function without the desire or need to peer into the next cubicle. Individual diversification of skills is dead. Our greatest tools and technical advancements have been marginalized being sullied by the trivial, inane, or absurd. Technology has become the greatest destroyer of interpersonal communication ever. The ability to conduct oneself during a conversation beyond a casual exchange of weather or trivia is beyond most of our populace’s capacity. The greatest sin however is to point these things out, and stand your ground. I implore all who understand this to lend their voice to the cause of reeducating, reorganizing, and revitalizing mankind. Our future depends on it.
Hey, Mike – get some sleep.
Some of the earliest writing we have is doomsayers complaining that writing will destroy the ability of people to memorize and think about the things that mattered. (Technology, did you say?)
Do you travel much? A sense of entitlement is everywhere (not everyone, but everywhere), not just the good ol’ USA. Places might differ on how much they’re entitled to, but it’s there.
And the vast majority of Americans in 1939 (i.e., 70 years ago) had only a rudimentary education, and were too busy making a living or complaining about government to think clearly. Check your history book: in 1939, FDR said “This nation will remain a neutral nation, but I cannot ask that every American remain neutral in thought” because the majority of Americans thought that Hitler was only a European problem. We had to wait for Hitler to declare war on the USA (!) shortly after Pearl Harbor for us to attack him in big numbers. Doh!
We are humans, we do dumb things, we like financial bubbles – and the same psychology of more-more-more might have helped our ancestors survive scarcity millenia ago.
So be happy. Take care of the people you love even if the future looks dark. Take advantage of your willingness to think to improve your ability to care/survive. Skip the ranting.
And hello, Hilmar!
Hi Alex,
If you are not a part of the solution, your are part of the problem.
Mike Rough called right. Too many specialists and no general thinkers.
Iceland fell most spectacularly because they followed more than anyone the Conservative Neo-Con Republican ideology of free flowing money, credit-card capitalism, and no regulations. The US is in not quite as bad shape despite the Republican wishes at the time that we follow suit so blindly.
Gold – it is silly and historically ignorant to talk of gold as some “standard”. It is just as much of a fiat currency as any dollar ever printed. Gold is not so easy a solution and indeed does require a “trust” and “special expertise” to own, that is — guns and a strong military, which is why the Spanish Armada Navy-Army was purely in the gold business from the discovery of the Americas until booted out by South American locals.
The world indeed is overpopulated. It is a problem. So David, do you believe that infinite growth on a finite planet is possible? If you do it is self evident that you don’t understand limits to nature. Cheers.
Re “Sparow hawk” Gold is in no way like a fiat currency! Gold is rare and hard to get making it impossible to inflate at will. Gold is elemental and does not deteriorate, It is eternal. Gold has held value in the eyes of people for millenia. Show me a fiat currency that can boast of these quallities? When gold was money people saved and spent wisely. Now that paper backed by nothing is money people spend foolishly. I think it is a miracle that I can purchase gold with what amounts to little more than toilet paper.
lol Republicans can re-take the congress. Doesn’t the author realize this is the republicans dream right?
This is the end game to the market for which they tried hard for 30-40 years to create.
Dems didn’t want this. They only went along since most dems are republican lite. Oh we can’t get elected, so we take moderate republicans and run them as democrats.
If anyone thinks that a repub congress can fix this then I have some beachfront property in Arizona.
Sorry, their answer is more tax cuts, more deregulation.
What got us here, the fed, tax cuts, needless wars, deregulation
What are those? All republican tenants
Rich/supply side economists = the fed = republicans
tax cuts = republican mainstay
needless wars = republicans
deregulation = republicans
You want out of this mess, simple throw to the ground the republican tenants above. But that’s not what got us here. What got us here is simple. LOW WAGES
If you make 10 bucks and hour, guess what, you are making less than 2/5 of what the minimum wage was during the depression. Which means if you make 25/hr you are working for depression level minimum wage.
Gee I wonder why everyone has to take out credit. Because we don’t pay our workers. There used to be a car industry just fine without having to finance the cars they made. But now that no one can afford anything, credit is the lifeblood of gm/ford/ ALL car manufacturers. Guess what gm/chrysler might go under. This keeps up ford/honda/toyota won’t be far behind.
Want out? Pay your workers. Simple as that. Of course it’s tough because the income disparity MUST come down to do this. So rich people took too much of the pie and everything is crashing around us. Nice. But they’ll screw themselves into middle class, and sacrifice us the whole way down.
Make no mistake, had the repubs never got control of congress, and there was no reagan revolution (reagan who TRIPLED our national debt….reagan/bush/ w. bush who as fiscal conservatives only created 90 percent of the national debt (in 3 presidents) leaving Obama with nothing but crises after crises.
The sad thing is the republican cancer has become so persuasive, it has also infected the democrats. Not as big, not as apparent. But those ‘wall street’ guys working for Obama, yeah, a bunch of republicans trying to solve the republican mess. Meanwhile the repubs you want to take over have no clue how to even change a diaper, or talk and chew gum, let alone do anything more than tank the economy as a whole.
Final thought. In the last ~125 years, did you know, that as EVERY republican president left office, he’s left office in a recession.
Why? Because rich people with money, somehow think they KNOW money. Instead, because they buy 10 dollar water, and 50 dollar appetizers, it is akin to an American idol contestant who thinks their all that, but leave the panel reeling with laughter at how bad they are. Don’t believe me, just look at the economy they created.
I do think the author is right in what is probably going to happen. Just like iceland we have tons of people who made huge riches that didn’t really do anything. In the end the rich people will wonder why they aren’t rich anymore. It’s simple, because they didn’t take care of it. You let the other rich people ruin your wealth. That’s the so-called free market. (actually a heavily rigged market under the guise of being free). Our wealth will start to evaporate, and our dollar will be worth very little. But then again inflation has been 12 percent since father bush was president. Only hedonics and a couple of other different metrics lied to us and say it’s 2-3 percent. Nope it wasn’t. Overall this is what we get when we take our eyes off the prize and our concerned with only money in zero sum terms. Money is great, the markets can be great, trading stock and stuff is fine, but when all of these things come above everything else, in short order everything turns in on itself. Welcome to the ‘turning in on itself’. Poor people getting shafted for decades, now we get to watch the rich squirm. Again, you guys brought us here, so no one to blame but yourselves. That sort of tough love truly is an american ideal. Because you can get rich, or go broke. Well after slanting everything your way, it broke, and now you will too.
Amazing though, if we just kept a decent living wage, and paid our workers what they deserved, odds are we never would have gotten here. We wouldn’t have china breathing down our necks. Also since rich people always do well when everyone does well, guess what, rich people would have made out fine. But they got greedy, and will now probably lose most of it all. I won’t cry for them, because they didn’t care when the poor was crying. What comes around goes around, and it now is. If you want out, start paying your workers to be able to BUY the goods you sell. TO be ABLE to buy AMERICAN and not just the cheapest chinese good from Wal*Mart. We had it all, and the greed cats slowly took it all away from us. While people look down and scream at welfare, the REAL looting came from the top. Get your priorities in order, and we can fix this, but be prepared to drop some big time republican ideals, as they aren’t AMERICAN. (or even from sound human mind…most revolve around greed, me and mine, etc) American isn’t about ME AND MINE, it’s about US. When we take care of US, ME AND MINE will be FINE. When we take care of ME AND MINE (for decades and an entire political party loses it’s ideals to embrace the ME AND MINE) then all of US get screwed like we just have been, and will continue to be. Trickle down economics never worked, all the money got dammed up at the top. Sure hope you were never waiting on it.
Repubilcan’s can re-take congress? For what, more of the past 40 years of reganomics that was the death knell for this country? Outsource, deregulation, tax cuts for the wealthy. Sorry to say reagan wasn’t nearly as good as advertised, and in the end, his policies (with his name attached) will go down in history as some of the looniest economic policies that were ever dreamed up. I understand the author’s frustration, but I do not in any way understand the solution. Does this guy really want Boehner up there leading the way in the house? Jesus I wouldn’t buy a car from this guy. I wouldn’t trust the stock he sold me. If he was my insurance agent, I’d be on the phone to GEICO asking for some more coverage because I know this guy couldn’t sell me a legit policy.
Trust me when I say this. As bad as Washington is right now. It’s only hope are the Dems. Because as infected as they are with republican economic ideas, enough remains independent that they won’t bend over backwards for the powers that be. If they figure it out, they are the ONLY ones to lead, because they’ll have the balls to do it. Exactly why the democrat party doesn’t have talking points, or march in lockstep, and never suffer from groupthink, is why they’ll be able to turn this around. But hey I’m 30 years old, I don’t expect this problem solved until my 40’s. You shouldn’t either. That’ IS the best case scenario, and you don’t want to know the worst.
Everyone seems to love gold so much but in reality owning gold is like owning any other commodity. If one truely wants something that will always be worth something and will always be useful, buy some land. It is truely scarce, theres very little thats being produced and it has value beyond its percieved value. Its faults are that its not portable and not easily converted to cash. But having a few acres of land as part of your portfolio will pay much bigger dividends in the future than anything else