Economic Disaster Area » Central Bank

Here We Go Again: Police and Protesters Clash Outside Central Bank

Dadi — Mon, 05 Jul 2010 15:11:50 +0000

Whatever happened to the boring old Nordic state of Iceland? Protesters and police are now clashing outside the Central Bank. DV reports that celebrated singer Ellen Kristjansdottir is in the emergency room at the National Hospital after the police pushed her away. Another protester Gretar Eiriksson also clashed with police as these photos from DV attest.

Hundreds of protesters have gathered since noon protesting against the Central Bank’s and Financial Authority’s recommendations on how to deal with the currency loans, recently judged to be illegal in the Supreme Court. There clearly are some big issues still unresolved in Iceland.

Bad Economics

Dadi — Wed, 18 Nov 2009 10:06:21 +0000

Fridrik Jonsson shows two pictures on his blog today that challenge the wisdom of applying economic theories to large economies and small as if there were no difference.

The first one shows inflation from January 2001 – October 2009.

The second one shows the development of CB interest rates in the same period. Notice a trend?

Those of us who have been paying off loans in the last 8 years or so have always experienced a negative effect when the Central Bank has hiked up its rates.

The problem is a volatile currency in an open and very small economy. The outcome is going to be a lot of hot money flowing into the country and disappearing the same way if rates are lowered. Add the factor of consumer price indexation and you have a vicious circle where the rise in monthly payments for a business means a higher price for the consumer and workers constantly needing more wage hikes. All adding up to a situation where inflation keeps biting you in the arse.

Disastrously failed economic management anyone? Unfortunately, the people now in charge might not have learned anything. Or worse, maybe they are just locked in because of the failed ISK.

Pictures Of Absurdity – The Drobny Conference In Iceland 2006

Dadi — Mon, 27 Jul 2009 13:44:21 +0000

Asgeir Jonsson, former head of Kaupthing’s Analytical Departments has written a book called Why Iceland? on the economic disaster.

Why, what, how are words that often came to mind when I thought about Asgeir and his department at Kaupthing. One of the absurdities of the economic boom was all the head analyzers of the bank’s own analytical departments being on the news every night talking up the miracle.

But in his book he talks about quite a few interesting things, amongst them the Drobny Conference held in Iceland in 2006, when Arnor Sighvatsson, Chief Economist of the Central Bank accepted an award from a large group of hedge fund managers who’d gotten away with a lot of money betting against the ISK. Arnor didn’t get the joke was on him and the bank, and the accompanying PDF is very descriptive of the mood of 2006.

Drobny Conference.PDF

Iceland In Debt

Dadi — Fri, 12 Jun 2009 08:27:43 +0000

One out of every six househoulds must use more than half its income to pay off its loans. Seven percent should use 90% of its income to service their debt or roughly 5,000 homes. In addition twelwe thousand households are being heavily squeezed.

This was revealed at the Central Bank’s conference on the debt of Icelandic households.

On average each home owes triple its disposable income, but one home out of four owes five-fold of disposable income.

A curious note was made by the Central bank in that only 2,5% of homes are supposed to be both facing a heavy payment schedule and negative home equity.

I don’t understand the Central Bank or Johanna Sigurdardottir when they state that so few homes have negative home equity. Currently there is no active real-estate market in Iceland. More than 17.000 homes are listed but very few are selling. Those that are sold are usually when people are trading properties.

So as home equity suggests how much you’d get if you’d sell your house today, I dare say that the Central Bank and the Prime Minister are being awfully unrealistic with their statements. Unless you own your property outright, then you probably are facing negative home equity because no-one is buying and you are stuck.

IceSave In A Nutshell

Dadi — Wed, 10 Jun 2009 08:40:55 +0000

“Foreign journalists (not Icelandic ones, except for maybe Egill Helgason), Icelandic and foreign specialists, foreign leaders, including Gordon Brown had said from 2006: “this isn’t going to work, you have to do something”. Althingi didn’t do anything, the government didn’t do anything, the Central Bank didn’t do anything, the Financial Authorities didn’t do anything and we didn’t do anything, until everything had collapsed. That is why we are responsible. ”

From Stefan Benediktsson’s blog

A Disappointing Decision On Interest Rates

Dadi — Thu, 04 Jun 2009 12:17:40 +0000

The Central Bank has decided to only lower its interest rates by 1% down to 12%.

The business sector and households are expressing deep disappointment with this decision as the slow and painful death by interest rates continues.

Arnor Sighvatsson, Chief Economist of the Central bank says that the circumstances had not allowed for a sharper cut. The development in the economy has not been as hoped in the beginning of May. There is still no success in negotiations between the business sector and the unions, the banks’ balance sheets have not been established, the IceSave negotiations have not been concluded and the government’s plan for budget cuts have not been published.

Former Iceland bank governor David Oddsson defends role in meltdown

Dadi — Tue, 28 Apr 2009 01:03:30 +0000

“I am famous in Iceland’s community of 300,000, and two or three months ago I used to have two or three guards with me,” he says, sipping coffee in his lounge. “Now, though, I go where I like. When this was first going on people would cry hostility towards me, but today I get a very positive reaction. People were angry and they needed to find out who was mostly to blame.”

From an interview with a delusional David Oddson in The Telegraph

How Much Is A Krona Worth?

Dadi — Wed, 22 Apr 2009 14:25:14 +0000

Today’s Central Bank of Iceland selling rate is 168.09 krónur per euro, down 12% since 1 February. On the other hand, if you look at Yahoo! Finance, they quote a rate of 290.66 krónur per euro… The European Central Bank hasn’t quoted a ISK exchange rate since 3 December, when it was 290 krónur to the euro. How much is a króna really worth?

Entire textbooks have been written about exchange rate theory: fortunately, we only need to consider a very simple definition here. You’ll just have to trust me that we would reach the same results through more complicated theory, but we can just consider that a currency is worth what people are willing to pay for it. This leads to two important conclusions, neither of which you are likely to hear from the mouths of Icelandic politicians.

Firstly, in reality, the króna is worth less than 168 to the euro. It must be, because 168 to the euro is the rate it “trades” at within Iceland, where there are strict controls on selling krónur. If the currency controls didn’t exist, more people would want to sell krónur – that’s only logical, otherwise there’d be no need for the controls! If more people are selling krónur, it’s exchange rate will go down. Hence the CBI exchange rate is artificially high.

From the Ministry of Puffins blog