Creating a new thread to avoid going off topic here:
Yes I have moved to Iceland, but not because Argentina is no longer a good example of the benefits of default. The main reasons for focusing on Iceland now is because it is a more recent example, stems from the same global crisis, and was precisely used by politicians and the media to demonstrate how not to do it.
You are not correct on Iceland still being locked out of the money markets. Iceland is auctioning bonds off on the open market and the 10 year yield is just over 6%. They will probably face many law suits about outstanding debt, but it is not the taxpayer that will be held accountable (they very clearly said so in their referendum).
The currency devaluation is probably the worst thing that Iceland did during the crisis. It is a general economic misconception that currency devaluation is some magic trick to ensure a return to growth. The negative effects on import prices negates any benefit on gains in export prices, especially in small countries with heavy dependence on imported goods.
Could you elaborate a bit further on this: "Impossible to achieve in a normal banking system". I'm not sure how you came to this conclusion and what you define as a normal banking system.
Bottom line is that Iceland is in a far better position now than Ireland is, because the pain was not postponed.
And just to clarify something, I am not saying that default or allowing banks to fail is an easy option with little or no disruptions. What I am saying is that it is the only solution that will ensure the fasted way back to recovery, while at the same time not burdening the taxpayer with guarantees and not creating a insurmountable moral hazard. There simply is no pain free solution for countries like Ireland and Iceland.
Chris said:Not too long ago the media said that the only difference between Ireland and Iceland was one letter and 6 months. Truth is though that Iceland went through a very sudden and sharp correction and liquidation, which caused a lot of pain at the time. But now Iceland can borrow on the open market for 50% less than Ireland, it returned to economic growth in Q3 2010, has half the unemployment rate, and its banks have returned to profitability.
Chris, you have moved on from using Argentina as a template for Ireland to follow to using Iceland. And again you are being very selective. Just like Argentina, Iceland are not borrowing money in the markets. There are still capital restrictions in place and they only reached a deal to repay to foreign depositors in Dec which is the first step in getting access to international markets. However, they are still messing foreign investors about on the bank debt and until they sort that, they won't be in the market. Their currency devalued by something like 50% since 2008. We don't have that option. As for profitable banks, they may be profitable but they are not functioning. They are achieving something like 18% ROE despite having to have capital ratios of about 15%. (Impossible to achieve in a normal banking system).
Yes I have moved to Iceland, but not because Argentina is no longer a good example of the benefits of default. The main reasons for focusing on Iceland now is because it is a more recent example, stems from the same global crisis, and was precisely used by politicians and the media to demonstrate how not to do it.
You are not correct on Iceland still being locked out of the money markets. Iceland is auctioning bonds off on the open market and the 10 year yield is just over 6%. They will probably face many law suits about outstanding debt, but it is not the taxpayer that will be held accountable (they very clearly said so in their referendum).
The currency devaluation is probably the worst thing that Iceland did during the crisis. It is a general economic misconception that currency devaluation is some magic trick to ensure a return to growth. The negative effects on import prices negates any benefit on gains in export prices, especially in small countries with heavy dependence on imported goods.
Could you elaborate a bit further on this: "Impossible to achieve in a normal banking system". I'm not sure how you came to this conclusion and what you define as a normal banking system.
Bottom line is that Iceland is in a far better position now than Ireland is, because the pain was not postponed.
And just to clarify something, I am not saying that default or allowing banks to fail is an easy option with little or no disruptions. What I am saying is that it is the only solution that will ensure the fasted way back to recovery, while at the same time not burdening the taxpayer with guarantees and not creating a insurmountable moral hazard. There simply is no pain free solution for countries like Ireland and Iceland.