Jan 26, 2009

First Iceland, and then the U.S.?

The government of Iceland fell. Went kerplop. Disintegrated into so much slush and rubble. Melted away. Died.

Three months ago, Iceland's currency, the krona, collapsed, along with some of their major banks and their stock market. (Hey--that last part sounds familiar.) Some of its banks were then nationalized, and the country limped along.

Then, thousands of protesters assembled, demanding that Prime Minister Geir Haarde resign (which he refused to do, but he did announce he would not run for re-election due to health issues). But then, his Commerce Minister resigned, slamming on the brakes of the administration's giant snowmobile.

Meanwhile, the IMF promised $827 million to pump into the frozen Icelandic economy right away, after inflation had reached 12 percent. Then, $1.2 billion more is expected in installments from the IMF, as well as the burgeoning snowball of aid from its neighbors, Norway, Finland, Sweden, and Denmark, contributing another $2.5 billion.

Still scrambling for money, Iceland has turned to Russia, with a request for $5.5 billion. Iceland, one of the founding members of NATO, and Russia make strange bedfellows, although Iceland has sworn the deal, if it goes through, will not include Russian access to its strategically helpful airbase.

Next stop? Potential national bankruptcy. Yes, an entire country can go bankrupt, just like you or I or a business can. This all depends on if Iceland can recover with the aid of all the billions being pumped into its economy from outside.

How did the meltdown (sorry, couldn't resist) happen? Much like in other countries suffering from melting economies right now--banking system privatization, greed, and debt to foreign countries.

While I don't have the international financial chops to be able to predict how an economic meltdown in Iceland can presage similar meltdowns in other countries, reading about Iceland gives me the cold shivers.

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