Iceland Teaches, the World Ignores

Lost amidst the sturm und drang of the European debt crisis is the story of tiny Iceland.

Nov. 26 (Bloomberg) -- Iceland’s President Olafur R. Grimsson said his country is better off than Ireland thanks to the government’s decision to allow the banks to fail two years ago and because the krona could be devalued.

“The difference is that in Iceland we allowed the banks to fail,” Grimsson said in an interview with Bloomberg Television’s Mark Barton today. “These were private banks and we didn’t pump money into them in order to keep them going; the state did not shoulder the responsibility of the failed private banks.”

This is the story of plenty of financial and fiscal crises before now and only Iceland seems to have it figured out. Lost amidst the wailing and grinding of teeth that this is the worst economy in (insert random number of decades here) is that human societies imploding from time to time is a natural consequence of the imperfections of humanity. In the past, the fastest recoveries have been the ones where the government didn't engage in massive interventions, FDR's endless, large-scale experimentation in the Great Depression included. This isn't just noise, the Iceland recovery is really happening. Unemployment in Iceland is less than 7% and their economy is starting to grow.


Michael Derks points out another unspoken truth in all of these bailouts - the debt problems are too big to rescue through nationalization.

“The taxpayer has no realistic prospect of being able to save their banks, such is the magnitude of their bad loans and their extraordinary dependence on central bank support,” wrote Michael Derks, chief strategist in London at foreign-exchange firm FXPro. “Both junior and senior bondholders in these insolvent banks need to suffer huge haircuts,” he said.

Meanwhile, closer to home, we nationalized GM, Chrysler, the entire home mortgage industry in the form of Fannie Mae and Freddie Mac ...

Bloomberg has disabled embedding, but here is a great interview with Olafur Grimsson. It's worth watching a national leader who gets it. Compare this to the serial statist spasms you see everywhere else.