post mortem

Since the resurrection of the IR in November, I have so far been tiptoeing around the 800-lb. gorilla that's sitting in the room here: the collapse of Iceland's economy and currency. There are so many angles to cover that I am not quite sure where to begin. The Wall Street Journal came out with a pretty good summary today. The saga will be familiar to my Icelandic readers, but probably educational for those outside of the country.

This is something we had been building to, unfortunately, for many years. The fact that the country was in an unsustainable bubble was plain as day to me when I first moved here in 2004, and I wrote about it in 2005 and 2006. The longer a bubble goes on, however, the more we accept it as normal and become blind to its excesses. Iceland saw the mother of all debt bubbles. I think the nation will be paying for this one for the next decade or more.

I know that many of my American readers are under the impression that, once more, the "best" economic collapse is happening in their country. And while playing Depression one-upmanship is surely not the best use of time, just to put Iceland's collapse into perspective: the OECD is predicting that the economy here will shrink by almost 10% in the year 2009. In America, where the newspapers abound with "Great Depression II" headlines, that economy is only predicted to shrink about 1.5%. Inflation, which is running at around 15% here, is expected to increase at the same time. And whereas in 2007, when $1 cost only 60 krónur, as of today, that same dollar costs 126. That means that the ISK price of anything we'd like to buy from the US - be it a crate of Washington apples or a Boeing Dreamliner - is double what it was a year ago. Maybe someday I can tell my grandchildren I lived through one of the greatest national collapses in Western history. But the day-to-day uncertainty here is still for the moment pretty unsettling.