Iceland or Ireland

It is not often in economics one can get a realtime test of two different theories, but we have one right now with how Iceland and Ireland have handled their debt crisis. Pierre du Plessis comments on a report from BCA Research that highlights the stark difference in policy to remedy their debt debacles.

Simply put, Iceland bit the bullet & repudiated the debt, plus devalued the Kroner, while Ireland kicked the can down the road & took on even more debt. Both were forced to pursue fiscal austerity, but Ireland stayed with the Euro and could not devalue their currency. How is it working out?

Iceland is growing GDP and real wages, and Ireland is dropping in both GDP and wages:

Put in stark terms, Iceland decided to protect its people rather than the global banks:

Iceland takes some very severe one-time pain as the country pays for excesses, but will emerge with a clean slate and limited liabilities for the taxpayer, while the bondholders of debt (in this case Iceland's banks) take the hit.

This is in contrast to what other nations have been doing, which is along the lines of the decisions in Ireland over the past 3 years - that is (a) first shift the debt from the banks from the private sector to the public, and more recently (b) accept bailout funds - that eventually need to be paid back - to keep the whole thing from collapsing.... but to make the global banking oligarchy fat and happy as they suffer no losses.

Ambrose Evans-Prtchard of the UK Telegraph comments how this presents a "risky temptation" to the rest of the PIIGS, to drop the Euro and repudiate the debt in order to protect their citizens from the penury of paying back the global banks. There is an odd moral justice here. When the PIIGS joined the Euro, they got a one-time benefit of lower borrowing rates and higher national wealth, which they squandered with massive borrowing to pad their welfare states rather than invest in future production. Now will they leave, take a one-time hit, and restructure their economies? 

Comments

[Hockthefarm]

Y:

Perhaps the biggest irony of all:

If you had 1 mm$ and you had to lend it to one of Iceland, Ireland, Greece, Portugal or Spain whom would you pick.

I think it is a pretty easy choice.

And is it really a "temptation" or just a matter of applying economic plinciples and doing the right thing. Would the real wankers please stand up!

Hock

[Whitebear]

Growing the economy in a devalued Krona is not growth at all.

[Hockthefarm]

Up next: Municipalities

http://www.financialsense.com/contributors/bruce-krasting/cbo-recommendation-to-munis-default

No thanks,
Hock

[Eventhorizon]

I thought the same thing, Whitebear ...

however, the wages chart is "Real" wages, so, presumably, takes account of the devaluation. The Nominal GDP chart uses a different scale for Ireland (e155 - 200 ~29%) and Iceland (Ikr 1,000 - 1,750 ~75%) Also, there should be a huge step in the Icelandic chart representing the devaluation (a "nominal" event), there isn't one, so it may have been back-adjusted.

Lies, damn lies and statistics!

[Account Deleted]

SPX Shooting star and CCI negative divergence.

http://niftychartsandpatterns.blogspot.com/2010/12/s-500-analysis-after-closing-bell_14.html

[Wave Rust]

both iceland and ireland are peopled with a good folks who have a strong drinking ethic.

did anyone in iceland or ireland notice their financial crisis?

i'll bet the bars didn't close.

wave rust

[Wave Rust]

yel

unconstitutional mandate to individuals to buy healthcare insurance at the federal courts level ,,, soon to be at the supremes doorstep after the florida case gets a decision.

assume that it is held to be unconsty by the supremes ,,,,

i'd like your opinion on the difference between the unconstitutionality of forcing individuals to buy healthcare insurance and the presumptive constitutionality of the federal mandate to buy Social Security Insurance and Medicare Insurance every payday.

it would be ironic if the supremes decide the current healthcare law to be unconsty which then becomes the legal fulcrum for invalidating SSI and Medicare.

but maybe thats not possible.

wave rust

[yelnick]

Wave, one is a tax paid to the govt and the other is not. If obamacare had taxed the worker and given back a voucher to buy insurance, it would be like Medicare Advantage and also a tax not a mandate

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[Wave Rust]

thanks duncan

[Mamma Boom Boom]

Notice how the rise, in December, has been quite anemic.

Neo-Mamma

[JT]

Answer: Tax loss selling against gains.

[Wave Rust]

and year end tax sells is an annual occurence, and so is december.

gits dem gurus every time.

wave rust

[Mamma Boom Boom]

>gits dem gurus every time.
wave rust<

Wave, hope won't don't mind if I whistle, quietly, to myself.

Neo_Mamma

[yelnick]

Hock, I am preparing an update on investing in munis. Bruce Kasting is fear mongering

[Cheap Coach Bags]

What will be your harvest this year, my friends?