October 7, 2008
Putting Lenders’ Claims on Ice
Iceland Guarantees Domestic Deposits, Denies Banks a `Lifeline’
“… bank debts have spiraled to about 12 times the size of the island’s economy … The liquidity crisis has sent Iceland’s currency into a tailspin as a shortage of credit batters economies reliant on debt. Iceland had a current account deficit equal to 34 percent of gross domestic product in the second quarter, according to combined central bank and statistics office data, with most of the shortfall coming from the cost of sustaining foreign debt payments.”
That’s what it looks like when a currency collapses. I’ve drawn a little arrow showing the Krona’s one-year percent change, down over 50%, most of it happening over the last three weeks.
UPDATE: By popular demand, the EUR-ISK:
October 7th, 2008 at 1:03 pm
Chairman,
What do you think of long term prospects for dollar? I know it has rallied sharply over past months, but I wonder if it is doomed to same fate eventually (i.e. USA appears to have many of same structural problems, re: current account deficits, national debt, etc.)
October 7th, 2008 at 4:05 pm
@Soulek: I’m bearish long-term on USD and think the trend will return down and break to new all-time lows once the current (very ironic) “flight to safety” passes.
October 7th, 2008 at 8:20 pm
What your ISK chart doesnt show is that eurisk traded all the way up to 230 yesterday (as more and more domestic banks were getting suspended) and then today the CB pegged down to 130 area before it moved up to 150 again.
October 7th, 2008 at 9:08 pm
@Tamas: Yes, I have the hopelessly provincial habit of thinking about everything in dollar terms… maybe I’ll post it in EUR terms tomorrow if I remember.
October 8th, 2008 at 2:11 pm
Currency futures spreads on everything other than the Euro and Yen widened to as much as 20 pips. Does it mean that the Euro, Yen, and US Dollar are the only safe bets now?
October 8th, 2008 at 2:19 pm
@Brian: Yes, and in Iceland dried fish is holding its value surprisingly well. :-)