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Generational Dynamics Web Log for 19-Aug-2009
Iceland's former prime minister was caught completely by surprise

Web Log - August, 2009

Iceland's former prime minister was caught completely by surprise

How in the hell is that possible?

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As you know, Dear Reader, I get out of bed every morning and ask myself whether I'm crazy or everyone else in the world is crazy. It has to be one or the other, because there's such massive insanity going on in Washington, on Wall Street, and around the world, that I always feel that at least I'm watching a bad movie, and they won't let me out of the movie theatre.

The bad movie took a particularly bizarre twist on Tuesday, when I heard a BBC interview with Geir Haarde, who was Prime Minister of Iceland last October, when Iceland's banks failed. (You can hear the interview here, starting at the 10:00 point.) Here's what the former Prime Minister said:

"Interviewer: Did you really have no idea that this was about to hit?

Geir Haarde: No, we had no idea when the storm hit us that this was going to happen, and the magnitude of the hurricane."

Now as you know, Dear Reader, in February 2006, I wrote about the possible default of Iceland's banks in "Sudden collapse of Iceland krona portends bursting of 'carry trade' bubble." In that article, I described how Fitch Ratings that it was revising the outlook for Iceland's banks from "stable" to "negative," saying that the new ratings "[took] into account Iceland's macro-prudential risks, including rising inflation, rapid credit growth, buoyant asset prices, a steep current account deficit and escalating external indebtedness."

Then, in March, 2008, I wrote another article: "Country of Iceland may be close to financial default."

In that article, I wrote, "Iceland's central bank raised interest rates by 1.25% this week to a record 15%, in an effort to support the country's crashing currency. The statistics are grim. The króna ("krona" or "crown") currency has fallen in value over 30% since January 1 against the euro, over 3% on Friday alone. And inflation has jumped sharply in March to 8.7% from February's 6.8%. ... Many investors now consider the króna to be as risky as subprime mortgage loans. Money is pouring out of Iceland, and the value of the currency is falling rapidly."

So how is it possible that Haarde was caught by surprise? And, as I wrote a few days ago in "Iceland begs for mercy as Europe turns the screws," how is it possible that Britain, the EU and the IMF were all caught by surprise as well? How the hell is it possible?

It's like a bad movie, where the Butler kills the Heiress in scene one, in front of the entire cast, and then in the last scene they all express surprise that the Butler did it.

Today it's just as obvious that America, Europe and China are all headed for an even worse financial crisis, for reasons that I've explained many times.

And then expect to see the political and financial wizards on TV say, "Wow! I didn't see THAT coming.!"

(Comments: For reader comments, questions and discussion, see the Financial Topics thread and the Iceland thread of the Generational Dynamics forum.) (19-Aug-2009) Permanent Link
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Generational Dynamics Web Log for 19-Aug-2009 Iceland's former prime minister was caught completely by surprise

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Generational Dynamics Web Log for 19-Aug-2009
Iceland's former prime minister was caught completely by surprise