“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Saturday, February 18, 2012

Give up your currency, give up your freedom.

Iceland's Viking Victory

EMU shroud-wavers need a better argument (Photo: PA)
Congratulations to Iceland.
Fitch has upgraded the country to investment grade BBB – with stable outlook, expecting government debt to peak at 100pc of GDP.
The OECD's latest forecast said growth will be 2.4pc this year, after 2.9pc in 2011.
Unemployment will fall from 7pc last year to 6.1pc this year and then 5.3pc in 2013.
The current account deficit was 11.2pc in 2010. It will shrink to 3.4pc this year, and will be almost disappear next year.
The strategy of devaluation behind capital controls has rescued the economy. (Yes, I know there is a dispute about exchange controls, but that is a detail.) The country has held its Nordic welfare together and preserved social cohesion. It is slowly prospering again, though private debt weighs heavy.
Nobody is forcing the elected government out of office or appointing technocrats as prime minister. The Althingi sits untrammeled in its island glory, the oldest parliament in the world (930 AD).
The outcome is a vindication of sovereign currencies and national central banks able to respond to shocks.
The contrast with the unemployment catastrophe and debt-deflation spirals across Europe's arc of depression is by now crystal clear. Those EMU shroud-wavers who persist in arguing that exit from the Europe would be suicidal will have to start coming up with a better argument.
Is it now so clear the Iceland will join the EU and the euro? Don't bet on it.
Here is the Fitch text:
Fitch Ratings has upgraded Iceland's Long-term foreign currency Issuer Default Rating (IDR) to 'BBB-' from 'BB+' and affirmed its Long-term local currency IDR at 'BBB+'. Its Short-term foreign currency IDR has also been upgraded to 'F3' from 'B' and its Country Ceiling to 'BBB-' from 'BB+'. The Outlooks on the Long-term ratings are Stable.
"The restoration of Iceland's Long-term foreign currency rating to investment grade reflects the progress that has been made in restoring macroeconomic stability, pushing ahead with structural reform and rebuilding sovereign creditworthiness since the 2008 banking and currency crisis," says Paul Rawkins, Senior Director in Fitch's Sovereign Rating Group.
"Iceland has successfully exited its IMF programme and gained renewed access to international capital markets. A promising economic recovery is underway, financial sector restructuring is well-advanced, while public debt/GDP appears to be close to peaking on the back of a robust fiscal consolidation programme," added Rawkins.
As the first country to suffer the full force of the global financial crisis, Iceland successfully completed a three-year IMF-supported rescue programme in August 2011. Despite some setbacks along the way, the programme laid the foundations for renewed access to international capital markets in mid-2011 and an encouraging rebound in economic growth to 3% for 2011 as a whole. Flexible labour and product markets and a floating exchange rate have facilitated the correction of external imbalances and contained the rise in unemployment, while the financial system has shrunk to one fifth of its former size.
Iceland has been among the front runners on fiscal consolidation in advanced economies: the primary deficit has contracted from 6.5% of GDP in 2009 to 0.5% in 2011 and Iceland appears to be on track to attain primary fiscal surpluses from 2012 and headline surpluses from 2014.
Fitch believes that gross general government debt may have peaked at around 100% of GDP in 2011 (excluding potential Icesave liabilities); net debt is significantly lower at around 65% of GDP, reflecting appreciable deposits at the Central Bank (CBI). Barring further shocks, Iceland should see a sustained reduction in its public debt/GDP ratio from 2012, assuming economic recovery continues and the government adheres to its medium term fiscal targets. Ample general government deposits at the CBI and record foreign exchange reserves
ameliorate near-term fiscal financing concerns. However, the risk of additional contingent liabilities migrating to the sovereign's balance sheet remains high.
Iceland's unorthodox crisis policy response has succeeded in preserving sovereign creditworthiness in the face of unprecedented financial sector distress. However, legacy issues remain, notably the protracted dispute over Icesave, an offshore branch of the failed Landsbanki that accepted foreign exchange deposits in the UK and the Netherlands, and the slow unwinding of capital controls imposed in 2008.
The impact of Icesave on Iceland's sovereign creditworthiness has diminished over time and Landsbanki has begun to remunerate deposit liabilities. Nonetheless, Fitch considers that Icesave still has the capacity to raise public debt by 6%-13% of GDP, should an EFTA Court ruling go against Iceland. Resolution of Icesave will be important for restoring normal relations with external creditors and removing this uncertainty for public finances.
Capital controls continue to block repatriation of USD3bn-USD4bn of non-resident investment in ISK-denominated public debt and deposit instruments. Fitch acknowledges that Iceland's exit from capital controls promises to be lengthy, given the underlying risks to macroeconomic stability, fiscal financing and the newly restructured commercial banks' deposit base.
So far, Iceland has been relatively unaffected by the eurozone sovereign debt crisis and, although growth is expected to slow to 2%-2.5% in 2012-13, Fitch does not expect Iceland to slip back into recession. However, the private sector remains heavily indebted – household debt exceeds 200% of disposable income and corporate debt 210% of GDP – highlighting the need for further domestic debt restructuring, while the key export sector has been held back by capacity constraints and a lack of investment exacerbated in part by the slow unwinding of capital controls.
Fitch says that future sovereign rating actions will take a broad range of factors into account including continued economic recovery and fiscal consolidation and progress towards public and external debt reduction. Iceland is still a relatively high income country with standards of governance, human development and ease of doing business more akin to a high grade sovereign than low investment grade. Accelerated private sector domestic debt restructuring, a progressive unwinding of capital controls, normalisation of relations with external creditors and enduring monetary and exchange rate stability would help to further advance Iceland's investment grade status.


  1. Blogger Wasp said...

    "Wasp is a unisex name. Some people here seem to need to pigeonhole other people."

    hee hee haa haa HEE HEE BWHAAHAAHHAAA!

    That is so rich coming from you. You who consistently and constantly post who you are, your sexual proclivities, what job you have, how much you make ect. You are the ONLY one who has posted numerous pictures of "yourself". Ironically, though, you've tried to inform us of conflicting things (i.e. gay vs straight) and then hoped all would believe you this time.

    No, it is not us trying to pigeon hole you but rather we, shaking our heads in derision, puzzled by such exhibitionist and vain tendancies.

  2. Syrian security forces fired live rounds and tear gas at thousands of people marching Saturday in a funeral procession

    Pelosi: Fed employees shouldn't 'carry an undue burden' by paying 1.5% for pension (waaaaaa!)

    The President praised Boeing as a success story, and said even if America can’t make lead-painted Wal-Mart plastic dinner plates cheaper and faster than China can, we can make airplanes better than China can. Which is a good point, actually.

  3. James Harper, a Colorado student who refused to sing a song prasing Allah quit the choir and then quit school in Grand Junction after receiving death threats. He received more death threats after the story broke this week.

    Religion of peace, you know.

  4. If I was that kid and got a death threat, my reply would be, "When you come over, better wear body armor."

    That would be the only warning they get. Next would be three disabling rounds, center of mass.

  5. If he had refused to sing the National Anthem, Media Matters would have praised him to the rafters.

  6. Naw,, the kid likely had other issues, American Muslims are moderate.

    Like the one they arrested two blocks from the Capitol with a suicide vest. Moderate American Muslim.

  7. A dream house in the Kensington area of Philadelphia is an oxymoron. It is as bad as it gets.

    Here is a report on the last week:

    last 48 hours: 10 thefts
    2 days ago: 3 aggravated assaults, 2 with weapons; 1 burglary, i theft, 1 stolen vehicle.
    3 days ago 1 burglary, 1 homicide, 1 grocery store armed robbery.
    4 days ago 1 robbery, 3 thefts.
    5 days ago night forced burglary.
    6 days ago 1 aggravated assault, i night burglary, 5 thefts.
    7 days ago 1 night burglary, 7 thefts.

    Kensington was a white working class part of Philadelphia up to the seventies, many Jews and ethnic whites. From the seventies the Hispanics moved in and the whites that could afford to, left. Then came the drugs and hookers and the real scum of the earth took root and trashed the place.

  8. NPR refers to Kensington as very diverse. When the population was Italian, Irish, Jew, Hungarian, Pole and family blacks, it was never called diverse.

    Diversity is our secret pill to our strength you know.

  9. Deuce: Then came the drugs and hookers and the real scum of the earth took root and trashed the place.

    Drugs and hookers are victimless crimes. How about focusing law enforcement on assault and murder and theft?

  10. Don't tell me hookers are victims, when all you have to do is film the proceedings and it becames protected free speech.

  11. There is way too much negative energy in this place.

    The point of the story wasn't the hookers, the drug dealings, or Barbie's dream house in the corner of Philia where crime is on every other block.

    The point was about a vigilante who took time out of his everyday life for over a year to try and make things better for him on a street where he bought his dream house.

    Hookers and drug dealings in a place like that usually lead to robbery, assault, and murder. I look at it as a man trying to stop the inevitable.

  12. Mel’s intuition was the very strategy used by Rudy in NYC. He believed that so called victimless crimes were not victimless when the same crimes degrade and coarsened a society and that led to other crimes. Graffiti and windshield squeegee men are two examples. NYC today sets the standard for safe and well run major cities,

  13. Sounds almost like Santorum speaking, not Ron Paul.

  14. Deuce: Mel’s intuition was the very strategy used by Rudy in NYC. He believed that so called victimless crimes were not victimless when the same crimes degrade and coarsened a society and that led to other crimes.

    Ah yes, the ol' gateway drug theory. Let's compare the US to Amsterdam, where hookers and blow are legal.

    Netherlands total crimes (per capita) 79.5779 per 1,000 people

    USA total crimes (per capita) 80.0645 per 1,000 people.

    No correlation. The only difference is that in the US, a lot of black kids are in jail for ten years or more for simple possession of drugs.

  15. Melody: There is way too much negative energy in this place.

    Always with the negative waves, Moriarty!