Iceland may be suffering now, as the credit crunch bites deeper than it has almost anywhere else, but in a few years it may prove that the swift decline and massive wave of defaults (as virtually everyone in the nation defaulted on their debts) was the best solution to the calamity. Other nations, with deeper resources (like the US) are delaying the inevitable with massive bailouts, which may ultimately do nothing more than prolong the pain.
The swift decline of Northern Europe’s economic superstar is a graphic illustration of the hollowness of the economic boom the world has seen over the last 20 years. It wasn’t long ago that Iceland was hailed by business magazines as an amazing success, to be emulated by others. The similarities to those Americans buying multi-million dollar McMansions with negative amortization financing, while driving around in SUVs purchased with home equity loan extraction is striking.
The fall from economic grace may be hard on Icelanders, and leave them a much poorer nation with limited economic growth for decades to come, but they may wind up better off than the larger economies that are digging themselves deeper holes in vain attempts to prevent the necessary reckoning from the Great Credit Binge. The irony is that while smaller nations may find their options limited when facing national economic ruin, the fact that they were forced to deal with their problems head on will be to their benefit.
Any who still think that the credit crisis is only an American problem really need to examine what is happening in places like Iceland closely. This is a GLOBAL calamity, that will leave many other nations in even worse shape than the USA before things have run their course.
