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Title: Iceland did it the Right Way
Source:
Newsvine
URL Source: http://truthlover.newsvine.com/_new ... -harmful-unless-you-were-a-wea
Published: Feb 3, 2011
Author: Bloomberg.com
Post Date: 2011-02-03 21:09:23 by jwpegler
Keywords: None
Views: 13127
Comments: 40
Iceland did not bail out the banks or the bank investors and its economy is thriving, proving that the the US-Irish model of bailing out the banks with taxpayer money was harmful unless you were a wealthy bank investor On his second day as head of Iceland's third-largest bank, Arni Tomasson faced a crisis: The bank was out of cash. "Everybody was panicked -- depositors, creditors, banks around the world." Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country's banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.With the economy projected to grow 3 percent this year, Iceland's decision to let the banks fail is looking smart -- and may prove to be a model for others. Three banks had become the largest companies in Iceland, creating thousands of well-paid positions and controlling the top trade associations, says Oddsson, who oversaw the privatization of Iceland's state-owned lenders as prime minister. Their headquarters were the largest buildings in Reykjavik, dwarfing the parliament. "Nobody wanted to listen when the party was on," says Oddsson, 63, now editor of Morgunbladid, one of the largest dailies in the country, with a circulation of about 50,000. It was Oddsson's decision not to build up the central bank's foreign currency reserves from 2005 to 2008 that made a bailout impossible. "They were collecting debt in such a fast pace, it would be stupid for us to build a mountain they could lean on if they failed," Oddsson says. "The creditors that were lending to the banks recklessly had to face the losses." "Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks," says Nobel laureate Joseph Stiglitz, an economics professor at Columbia University in New York. Van der Knaap, who has advised Iceland's bank resolution committees:. "Even Irish banks aren't too big to fail." Today, Iceland is recovering. The three new banks had combined profit of $309 million in the first nine months of 2010. GDP grew for the first time in two years in the third quarter, by 1.2 percent, inflation is down to 1.8 percent and the cost of insuring government debt has tumbled 80 percent. Stores in Reykjavik were filled with Christmas shoppers in early December, and bank branches were crowded with customers.
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Begin Trace Mode for Comment # 21.
#2. To: All (#0)
(Edited)
Japan refused to let it's banks fail in the early 90s (even though the Clinton administration urged them to do so). They have been in 20 year rolling recession. The U.S. didn't let it's banks fail two years ago. Now we're stuck in a jobless "recovery". There is an important lesson to be learned here. If something goes wrong -- don't allow the government to prolong the pain. Let the market fix it immediately and quickly.
Agreed. The same goes for raising the debt cieling. Leave it stay as-is, and let the goobermint default. It'll suck for all the goobermint parasites and welfare families for a while, but we'll get through it. If they DON'T default, and continue to print money...? We'll ALL suffer for a VERY long time.
The government doesn't have to default. If the government doesn't raise the debt ceiling, they can only spend what they take in. That about $2 trillion. The entire federal budget was $2 trillion in 2002. We only have to cut back to 2002 spending levels to stop borrowing. Yes, we'll have to prioritize paying interest on the debt, so we don't default This is quite doable. Do you think we'll do it??? No way.
We only have to cut back to 2002 spending levels to stop borrowing. Only if we assume no negative economic impact as a result of a $1.4 trillion spending cut in one year. I can sell you some real estate on Mars if you don't think that sort of cut wouldn't kick of a 1930's style depression.
Cutting 1.4 trillion in spending along with radical tax simplification would make America the best place to invest and create jobs in the world.
Only if you set up some sort of extermination facilities for the millions of new unemployed as a result of another economic crash. One can look at recent history and see how countries that implemented austerity saw no decrease in deficits. One can look at how cutting spending in 1937 triggered an economic decline. Or one can simply cling to fantasies with no basis in reality.
One can look at how cutting spending in 1937 triggered an economic decline. Those countries do get anti-austerity riots. Along with economic decline came an interest in Communism. FDR's "Socialist" programs saved Capitalism.
No country ever cut its way to prosperity, but yet even the most die-hard Conservative argues that WWII was an economic catalyst for the country.
Untrue. The economic catalyst was Truman's refusal after the war to listen to nutty Keynesians who wanted to keep the war economy in tact, by building tanks and parking them in the desert. Truman told the Keynesian kooks to take a hike. He cut spending from 52% of GDP in 1945 to 20% in 1948. The economy boomed. Truman saved capitalism, not Roosevelt. The big spending programs of Hoover and Roosevelt took what should have been another steep, but short economic downturn, and turned it into a 15 year long Great Depression. The economy was worse at the end of the 1930s that it was when Roosevelt took office. We're seeing the same thing today with Obama's wasteful stimulus, healthcare nightmare, and destructive environmental regulations.
Untrue? So you are arguing that the U.S. economy didn't prosper as a result of our entering WWII in 1941? I'm supposed to ignore data showing a 50% growth in US GDP from 1940-1945? What's next JP, are you going to argue that the GI bill didn't spur growth either?
GDP that went to military spending, not consumer goods which also dramatically raised the country's debt. If that pace of spending had continued after the war, the country would have collapsed under the debt. Your original assertion was that you can't cut your way into prosperity. That's what the Keynsians told Truman. He didn't listen and cut government spending by 60% of GDP in less than 3 years and ignited the golden days of American prosperity. We only need to cut spending by about 28% of GDP to balance the budget, not 60%.
From http://libertysflame.com/cgi-bin/readart.cgi?ArtNum=17080&Disp=0 To properly look at GDP in terms of actual economic progress one must back out all the borrowing that takes place during the same period. That is, the proper way to look at GDP is to subtract back out that which is paid for not with today’s output, but with promises to pledge tomorrow’s. The reason for this is clear – you may in fact only spend a dollar once. When looked at this way one gets a very different view of “growth” in the economy, and the depth of the hole we have dug for ourselves becomes clear. There has been NO actual positive GDP growth during the entire period from 1953 onward – until the 4th quarter of 2009, and since 1980 the true GDP numbers, when one looks at output (not what one “pulls forward” via debt) has been hideously bad. The spike upward in actual debt-adjusted growth that began in the 4th quarter of 2009 and peaked in the 1st quarter of 2010 was due to total systemic debt reduction – the very thing the government is trying to prevent, but which is necessary to bring the economy back into balance. This, incidentally, is why median incomes haven’t moved upward at all in the last decade and why it seems to be harder and harder every year to maintain a middle-class lifestyle - and has been since the 1950s. The loss of purchasing power in real terms, the drive to “two income” households and finally the wild screams from the media, government, and lastly Bernanke’s recent assertion that “QE2” has been a “success” because the stock market has gone up all underlie the truth – we have not grown the economy at all during the last sixty years! Instead we serially pulled out the credit card and said “Charge It!”, continually rolling over the debt and adding more to it. If you look at the stock market, one has to ask – when did it start to “take off”? In 1991 the S&P 500 printed 300 and the Dow stood at 2,500. That was the start of the monstrous "bull run" in stocks. Exactly none of the alleged “stock market appreciation” has come from actual economic growth since that time. It has all come from ever-increasing amounts of leverage (debt) that, when subtracted back out of the change in GDP, show that on an actual output basis the economy of the United States has not printed a positive number the entire time. Nobody in the media – or government – will talk about this, despite the fact that the there’s little room for argument on the mathematical facts – they’re right there in the government data. (1 image) since go56 doesn't like to debate FACTS with me, he has me on bozo. So you might want to repost this chart to him, along with the relevant article information, and watch him choke on his argument... Because the chart above rams his argument right down his friggin' THROAT.
I agree with that if the borrowing is for transfer payments and current consumption. If the borrowing is for long-term capital investments that increase productive capacity, then I don't agree.
#26. To: jwpegler, capitalist eric (#21)
By that measure how do you think the economy performed during the Reagan years when the national debt tripled? You guys put so little thought into your arguments sometimes.
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#4. To: jwpegler (#2)
There is an important lesson to be learned here. If something goes wrong -- don't allow the government to prolong the pain. Let the market fix it immediately and quickly
#5. To: Capitalist Eric (#4)
(Edited)
The same goes for raising the debt cieling. Leave it stay as-is, and let the goobermint default.
#6. To: jwpegler (#5)
If the government doesn't raise the debt ceiling, they can only spend what they take in. That about $2 trillion. The entire federal budget was $2 trillion in 2002.
#8. To: go65 (#6)
Only if we assume no negative economic impact as a result of a $1.4 trillion spending cut in one year.
#11. To: jwpegler (#8)
Cutting 1.4 trillion in spending along with radical tax simplification would make America the best place to invest and create jobs in the world.
#12. To: go65 (#11)
One can look at recent history and see how countries that implemented austerity saw no decrease in deficits.
#13. To: lucysmom, jwpegler (#12)
Along with economic decline came an interest in Communism. FDR's "Socialist" programs saved Capitalism.
#14. To: go65 (#13)
(Edited)
even the most die-hard Conservative argues that WWII was an economic catalyst for the country... No country ever cut its way to prosperity
#16. To: jwpegler (#14)
Untrue. The economic catalyst was Truman's refusal after the war to listen to nutty Keynesians who wanted to keep the war economy in tact, by building tanks and parking them in the desert.
#18. To: go65, capitalist eric (#16)
Untrue? So you are arguing that the U.S. economy didn't prosper as a result of our entering WWII in 1941? I'm supposed to ignore data showing a 50% growth in US GDP from 1940-1945?
#19. To: jwpegler (#18)
#21. To: Capitalist Eric (#19)
(Edited)
the proper way to look at GDP is to subtract back out that which is paid for not with today’s output, but with promises to pledge tomorrow’s
Replies to Comment # 21. the proper way to look at GDP is to subtract back out that which is paid for not with today’s output, but with promises to pledge tomorrow’s
End Trace Mode for Comment # 21.
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