Magazine article The American Conservative

The Iceland Goeth

Magazine article The American Conservative

The Iceland Goeth

Article excerpt

Last year, the United Nations Human Development Index named Iceland the most developed country in the world. This year, like a South American banana republic or African kleptocracy, the North Atlantic island nation has had to turn to the International Monetary Fund for a rescue package--estimated at $6 billion, including contributions from Norway, Sweden, Denmark, and possibly Russia and Japan--to salvage a wrecked currency and shattered banking system. Think things are bad in America under Bush, Paulson, and Bernanke? Just wait. Iceland shows us just how much further we may yet fall.

Iceland's banks didn't bet on the U.S. real estate bubble. But they did depend on easy credit at home and abroad, and as Iceland's currency, the krona, tanked--losing 35 percent of its value against the euro over the past year--the house of IOU's came down. The currency, weak already, collapsed, finally trading at 340 krona to 1 euro. As credit markets tightened around the world, Iceland's banks could not borrow any more foreign currency, and could not do anything with their now worthless national currency. For an island state that must import necessities from abroad, a debased krona and bad credit score meant immediate hardship. …

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