I felt I was remiss not to share the beautiful currency of Iceland which at the moment is frozen for the purposes of international exchange.
Today's news from Iceland is the big jump in the national interest rate from their central bank from 12% to 18%. It was just 2 weeks ago that the rate was cut from 15.5 to 12%. This 50% increase is the result of conditions imposed on Iceland by the IMF who has tentatively offered $2 Billion to the besieged nation. Meanwhile Prime Minister Geir Haarde is on a tour of other Nordic capitals hat in hand seeking additional loans. Back in Reykjavik there is a display in a shopping mall of Icelandic "Terrorists" photographs: pictures of women and children in colorful native garb mocking Gordon Brown's use of terrorist legislation to freeze Icelandic assets in the UK. Icelandic citizens are pretty angry at what the nations incompetent and greedy bankers have done to their country. A particularly good column by guest columnist Hafdis Erala Hafsteinsdo'ttir in today's icelandreview Daily Life section shows the resentment of the government using the image of the ship of state Tjo'darsku'ta, to excuse their blundering. The image portrayed by the nation is that of a ship encountering an unforeseen storm. Hafdi's is having none of it nor is a good part of the nation that is increasingly demanding accountability for the mess that has led the country to the brink of bankruptcy.
Back on the continent the latest shoe to fall is the currency crisis involving the huge losses of European banks who had recklessly lent to emerging('submerging") markets in Asia, Latin America, and Eastern Europe and not so emerging nations like Iceland and Russia. And the losses are immense: an estimated $4.7 TRILLION with the bulk of the losses held by European banks. The losses in Switzerland are equivalent to 50% of the entire GNP of Switzerland. Austria with an estimated 85% of GNP was hit the hardest. But Germany, the UK, Sweden and Spain all have losses approaching 25% of their respective GNPs. Source: BIS. If there is any good news for the US, our losses to submerging markets only amount to about 4% of our GNP. The US has other ways to lose money. The list of the emerging markets perilously close to default is growing daily and IMF is shuttling from one capital to another imposing harsh terms as it doles out its billions. The IMF which amounts to what seems like an International Federal Reserve Bank is going through it's reserves of $200 Billion at a rapid clip and the big question is where will it obtain additional funds when the reserves are depleted. It's Faustian choice is drawing from donor nations or the printing press. In the midst of world deflation is the spectre of future world INflation. Neil Mellor at NY's Mellon Bank says that this is "biggest crisis the world has ever seen." Those are strong words and I hope Neil's hyperbole followed an evening of drowning his sorrows at a local pub. Meanwhile back on the campaign trail nary a word from erratic john who has long admitted he knows nothing about economics but that hasn't kept him from telling crowds he will bring the economy and the markets back if he's elected. Barak is finally starting to drop hints that sacrifice and pain may be in the nation's future. It's high time someone starts stating the obvious. Nowhere do we hear from our politicians the magnitude of the financial collapse which I have dubbed The Panic of 2008 and what it means to our nation's future. Maybe they know better. TS Eliot said "Mankind cannot stand very much reality."
I hope Barak can bring the nation to the table to discuss our dwindling options going forward, constrained as we are by shrinking resources and catastrophic debt. Sadly, all I see are solutions using the same way of thinking that got us to this precipice in the first place: more lending, more credit, more cheap printing press liquidity, more lack of oversight, more drilling, more energy independence, more infrastructure and more destruction of our children's financial future by larding on yet more debt and deficits. In the midst of the biggest housing collapse in the nation's history, McCain and others are calling for a bailout of profligate irresponsible house buyers who took the free money and bet the farm.....and lost. Responsible American homeowners will keep their homes. Bailing out the foolish and the overextended home buyers is ludicrous and all talk of such a bailout should stop. We must let real estate values revert to the mean. When they do, at least our children might be able to afford a home of their own someday. It's a zero sum game and it should be. What to do about the 18 million vacant houses in the US is any body's guess. Jim Kunstler in "The Long Emergency" called the huge American suburban housing build out with it's network of highways and ring beltways "the biggest misallocation of resources in the history of the world." John McCain calls it the American Dream. If you want a definition of "unsustainable" it's living in a distant 3000 square foot vinyl sided chipboard McMansion accessed only by automobile on failing bridges and crumbling highways. That is not a dream. It is an American nightmare and with soaring energy prices in our future, it is an unsustainable nightmare. We have dug a hole for ourselves and it's time to stop digging. The country will need good jobs, good housing, good transportation and good communities but with a new model . We need a national inventory of critical transportation hubs and links, critical housing stock and critical food growing areas and resource and energy regions. Perhaps it could be modeled after the Pentagon base closing model. Some highways and airports and suburbs will have to be abandoned or downscaled for different uses. The Interstate corridors offer an obvious route for a national Interstate Electrified Rail network which would be vastly cheaper to build and maintain than the sprawling interstate concrete and asphalt highway system. We will always have steel. We are running out of cheap asphalt very rapidly. Fortunately, we will always have gravel. Moving cargo by rail is significantly cheaper than by truck per ton mile and rail networks and steel bridges are far less expensive to build than huge fragile short lifespan rebar and concrete highway bridges which are destroyed in only a matter of years by salt and heavy trucks. That's my vision for the future for the US. It will require a massive upgrade of the electrical grid and changing how we travel and live and work and eat but what we have now wont work very well for much longer. I hope we can make this change. Don't ask me where we will get the money. This little financial thing kinda caught me by surprise.
The picture to the right is my wife Karlene in the Rome terminal by the Eurostar.
And finally click on the youtube link to hear a great blues singer from Iceland:Lovisa Sigrunadottir singing her hit "please don't hate me".