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This is what I imagine you would like to see happening in the US. Extracts of a piece from a leading Scandinavian business daily, on the Icelandic credit bubble, reporting from Reykjavik. My translation, sorry for the sometimes poor idiom. This story was good because it had a boots-on-the ground feeling.
SOME SAY WE HAVE BEEN DRUNK FOR FIVE YEARS
LOAN CRISIS AFTER LARGE CURRENCY LOSSES
Reykjavik (Jo Martin Fridstrøm): Collapse of the krona and a record interest rate has grave effect on Icelander's private economy. Struggling: - The situation is serious, says Brynhildur Petursdottir (39), herself struggling with foreign currency loan.
The economic crisis is on its way into the homes of ordinary Icelanders. The financial sector is in crisis, and ordinary persons have also financed increased spending with loans in foreign currencies. The fire is starting under their feet. Having loans denominated in euro, and income in icelandic krone, which has suffered enormous losses in a short time, is not a good economic recipe.
- Prices and the economic situation changes all the time, says Brynhildur Petursdottir. The 39-year old took up a loan to buy a house in 2005, which is much more expensive today.
Few choices
Just months into the new year and the icelandic krona has fallen more than 30% against the Euro. This is not the only worry for Icelanders. The interest rate is already at a record 15 percent, while inflation continues upwards. Stock market prices have fallen more than 50% since just the last summer.
The macroeonomic imbalance in the economy is large, and the danger signals assessed by international analyts are at least as large as the smoking hot Baltic countries. Just as in the Baltic countries, the proportion of Icelanders with Euro-denominated loans has increased markedly in just 12 months. Today about one fifth of all Icelanders have such a loan.
Pettursdottir borrowed 11 million Icelandic kroner, around 152,000 USD, three years ago. Her choices for bank financing where a foreign currency loan or an index-regulated loan. The index-regulated loan is adjusted for changes in interest rates and inflation rates. Fixed interest rate mortgages don't exist. Petursdottir took half her mortgage in foreign currency, and the rest in the indexed loan.
- I had two choices, both of them poor. Nobody seems to be able to control inflation, and the krona goes up and down all the time, says Petursdottir. He used to live in Denmark, and envies his friends choices there.
- They can choose a fixed interest mortgage, and be sure of their expenses.
When Petursdottir got her mortgage three years ago, the Icelandic krone was at record strength, and interest rates at about four percent.
The Iceland central bank's inflation target is 2.5 percent. In reality, it has increased more than that every month since april 2004. As late as March this year, the interest rate was 8 percent.
Few savings
The interest rate hike of 1.25 percent at the end of March was the largest since Iceland let the krone float in 2001. Politicians are demanding that the central bank lower it's interest rate to relieve the pain for many Icelanders. But with the strong inflationary pressures, there is the possibility of increasing even more. The Central bank fears hyperinflation.
- Icelanders take the highest possible risk, says Ingolfur H. Ingolfsson. He has specialized in consumer finance advising. The number of worried Icelanders knocking on his company Sparnadur is increasing with every passing day.
- Icelanders spend all they earn, they don't save. With this kind of inflation they see no reason for that. People really should save more, and set aside money in case of a rainy day.
So far, he has not seen many foreclosures in the real estate market, but worries about what could happen if the problems continue.
- More people are worrying. Of course it is difficult when the krona crashes and inflation only continues to increase, says Ingolfsson.
Increasing protests
Petursdottir also works with consumer equestions. She has taken an interest in the economic debate in Island. She lives in Akureyri with her engineer husband and two small children.
- If we'd bought a bigger house, had a higher mortgage, we might have had problems. But we're managing. But if this continues, others will have larger difficulties than us.
Only a couple of years ago, banks in Iceland were more than willing to finance 100% of a property. Many were given loans for car purchases and stocks.
- Prices were going up. Property today is very expensive, especially in Reykjavik. The first-time buyrs today have a problem, says Petursdottir.
Outside the Allthing (parliament) in downtown Reykjavik trailer, four wheel drive cars and taxis block the road while drivers honk their horns furiously. This is a protest against the politicians inside the Parliament building, signalling their intolerance of higher gasoline prices.
Pessismism among saga island inhabitants is increasing, surveys show. Not only gasoline, but all imported goods have become expensive recently. Icelanders, being dependent on foreign imports, have experienced first hand the effect of the collapse of the krona on their wallets.
- The government should give a clearer message, so that we know where we're headed. We should seriously consider the question of introducing the Euro in Iceland.
(sidebar)
MORE EXPENSIVE FOR EVERYBODY
Reykjavik: Clearly, currents event are troubling. Thorarinn Ivarsson (46) takes a good hold of his visibly pregnant wife in the strong Icelandic wind. At home, the couple already have six kids.
- Because we're so dependent on foreign imports, and the weak krone, everything has become between 15 and 20% more expensive for a regular family. Recently, the unions negotiated a pay increase of around five percent. All that, and more, is sucked away with the increased prices, says Ivarsson.
Ivarsson used to work with real estate. A couple of years he sold everything. This way, he is debt free on his house. For one of his daughters, the situation is difficult. She works as a teacher, and as many other young Icelanders, she has very little chance of buying her own house in the near future.
- You used to get a four percent interest rate on a house mortgage. Now interest rates have doubled many times over. It is also very serious that many foreign-educated Icelanders are staying away, postponing it because everything is expensive.
He also knows people who have had large losses in the stock market.
- For a long time, banks gave loans for stock purchases up to 70% of the value of the stocks. When the stock market crashes by 50%, you can only imagine what happens to people who have financed their purchases this way. People bought stocks because they thought stocks could only go up. Now they're losing out, says Ivarsson.
Not only regular Icelanders, with regular salaries, have a hard time. The airport outside Reykjavik is known for its high density of private airplanes, bought by newly rich Icelanders who need simple transport to and from finance metropolises on the Continent. Now that is also changing. The noise from private planes is no longer as audible over the Icelandic capital. In times of financial crisis, it is no longer as popular to play in the Luxury League with their own jet airplanes.
- People here still feel that there are two different nations in this country. There's the very rich, and then there's those that haven't as much, says Ivarsson.
- It is the Icelandic rollercoaster. It is going up, and then going down. It has always been this way here.
LOAN CRISIS AFTER LARGE CURRENCY LOSSES
Reykjavik (Jo Martin Fridstrøm): Collapse of the krona and a record interest rate has grave effect on Icelander's private economy. Struggling: - The situation is serious, says Brynhildur Petursdottir (39), herself struggling with foreign currency loan.
The economic crisis is on its way into the homes of ordinary Icelanders. The financial sector is in crisis, and ordinary persons have also financed increased spending with loans in foreign currencies. The fire is starting under their feet. Having loans denominated in euro, and income in icelandic krone, which has suffered enormous losses in a short time, is not a good economic recipe.
- Prices and the economic situation changes all the time, says Brynhildur Petursdottir. The 39-year old took up a loan to buy a house in 2005, which is much more expensive today.
Few choices
Just months into the new year and the icelandic krona has fallen more than 30% against the Euro. This is not the only worry for Icelanders. The interest rate is already at a record 15 percent, while inflation continues upwards. Stock market prices have fallen more than 50% since just the last summer.
The macroeonomic imbalance in the economy is large, and the danger signals assessed by international analyts are at least as large as the smoking hot Baltic countries. Just as in the Baltic countries, the proportion of Icelanders with Euro-denominated loans has increased markedly in just 12 months. Today about one fifth of all Icelanders have such a loan.
Pettursdottir borrowed 11 million Icelandic kroner, around 152,000 USD, three years ago. Her choices for bank financing where a foreign currency loan or an index-regulated loan. The index-regulated loan is adjusted for changes in interest rates and inflation rates. Fixed interest rate mortgages don't exist. Petursdottir took half her mortgage in foreign currency, and the rest in the indexed loan.
- I had two choices, both of them poor. Nobody seems to be able to control inflation, and the krona goes up and down all the time, says Petursdottir. He used to live in Denmark, and envies his friends choices there.
- They can choose a fixed interest mortgage, and be sure of their expenses.
When Petursdottir got her mortgage three years ago, the Icelandic krone was at record strength, and interest rates at about four percent.
The Iceland central bank's inflation target is 2.5 percent. In reality, it has increased more than that every month since april 2004. As late as March this year, the interest rate was 8 percent.
Few savings
The interest rate hike of 1.25 percent at the end of March was the largest since Iceland let the krone float in 2001. Politicians are demanding that the central bank lower it's interest rate to relieve the pain for many Icelanders. But with the strong inflationary pressures, there is the possibility of increasing even more. The Central bank fears hyperinflation.
- Icelanders take the highest possible risk, says Ingolfur H. Ingolfsson. He has specialized in consumer finance advising. The number of worried Icelanders knocking on his company Sparnadur is increasing with every passing day.
- Icelanders spend all they earn, they don't save. With this kind of inflation they see no reason for that. People really should save more, and set aside money in case of a rainy day.
So far, he has not seen many foreclosures in the real estate market, but worries about what could happen if the problems continue.
- More people are worrying. Of course it is difficult when the krona crashes and inflation only continues to increase, says Ingolfsson.
Increasing protests
Petursdottir also works with consumer equestions. She has taken an interest in the economic debate in Island. She lives in Akureyri with her engineer husband and two small children.
- If we'd bought a bigger house, had a higher mortgage, we might have had problems. But we're managing. But if this continues, others will have larger difficulties than us.
Only a couple of years ago, banks in Iceland were more than willing to finance 100% of a property. Many were given loans for car purchases and stocks.
- Prices were going up. Property today is very expensive, especially in Reykjavik. The first-time buyrs today have a problem, says Petursdottir.
Outside the Allthing (parliament) in downtown Reykjavik trailer, four wheel drive cars and taxis block the road while drivers honk their horns furiously. This is a protest against the politicians inside the Parliament building, signalling their intolerance of higher gasoline prices.
Pessismism among saga island inhabitants is increasing, surveys show. Not only gasoline, but all imported goods have become expensive recently. Icelanders, being dependent on foreign imports, have experienced first hand the effect of the collapse of the krona on their wallets.
- The government should give a clearer message, so that we know where we're headed. We should seriously consider the question of introducing the Euro in Iceland.
(sidebar)
MORE EXPENSIVE FOR EVERYBODY
Reykjavik: Clearly, currents event are troubling. Thorarinn Ivarsson (46) takes a good hold of his visibly pregnant wife in the strong Icelandic wind. At home, the couple already have six kids.
- Because we're so dependent on foreign imports, and the weak krone, everything has become between 15 and 20% more expensive for a regular family. Recently, the unions negotiated a pay increase of around five percent. All that, and more, is sucked away with the increased prices, says Ivarsson.
Ivarsson used to work with real estate. A couple of years he sold everything. This way, he is debt free on his house. For one of his daughters, the situation is difficult. She works as a teacher, and as many other young Icelanders, she has very little chance of buying her own house in the near future.
- You used to get a four percent interest rate on a house mortgage. Now interest rates have doubled many times over. It is also very serious that many foreign-educated Icelanders are staying away, postponing it because everything is expensive.
He also knows people who have had large losses in the stock market.
- For a long time, banks gave loans for stock purchases up to 70% of the value of the stocks. When the stock market crashes by 50%, you can only imagine what happens to people who have financed their purchases this way. People bought stocks because they thought stocks could only go up. Now they're losing out, says Ivarsson.
Not only regular Icelanders, with regular salaries, have a hard time. The airport outside Reykjavik is known for its high density of private airplanes, bought by newly rich Icelanders who need simple transport to and from finance metropolises on the Continent. Now that is also changing. The noise from private planes is no longer as audible over the Icelandic capital. In times of financial crisis, it is no longer as popular to play in the Luxury League with their own jet airplanes.
- People here still feel that there are two different nations in this country. There's the very rich, and then there's those that haven't as much, says Ivarsson.
- It is the Icelandic rollercoaster. It is going up, and then going down. It has always been this way here.
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