With its 800 billion dollar attempt to stop the bleeding of an economic system in trouble because it spent too much money based on borrowed money, the US sent out the most dramatic warning to the world of the dangers of credit financing. But that tremendous amount of money, which is being followed by more, is about 5% of the US GNP. Iceland, its smallest NATO ally, was in hock for no less than 12 times its GNP, a situation that had led its rational economists to predict forlornly that the Icelandic economy would collapse like a house of cards when credit became harder to get and debts were called in. The private jets that continually discharged Icelandic salesmen who were busy buying products throughout the world with monopoly money would suddenly stop flying and their passengers would disperse like rats from a sinking ship.
On October 6, 2008, Icelandic prime minister Geir Haarde announced that he would make an afternoon speech on television, which normally is not on the air at that time and told the Icelandic people “that the moment had come in the history of Iceland when the people must gather themselves together and face the enemy courageously in the eye …. we must convince our children that the world is not at the edge of the abyss. God protect Iceland.” These words that seemed to be taken from an Old Icelandic saga, referred to a very contemporary problem – the collapse of Iceland’s financial house of cards. Within days all 3 big international Icelandic banks were bankrupt , and had to be taken over by the government, which itself couldn’t pay their debts, their employees were suddenly unemployed and Great Britain froze all their assets in the UK, crudely using legislation that had been passed with regard to terrorists, because at least 300,000 Brits had bought into the Icelandic credit system through their pension plans. While Icelanders felt betrayed and insulted by their NATO neighbour, whom they had defeated in the Cod War only a couple of decades ago, there was nothing they could do about being declared a pariah. Economically they were and continue to be as there is no solution in sight other than the one offered by our second cousin in Shanghai, Loki, who worked for the Icelandic bank there until very recently. “No problem, we can always fish and raise potatoes”, he opines. It is a solution not open to many other credit-happy societies, who haven’t protected their fish stocks while sinking into debt, though not to the depth of the Icelanders.