Iceland: Bankrupt and in political turmoil
I was following this news on Iceland, especially when this whole subprime crisis exploded in the United States. In October 2008, Forbes Magazine ran an article about Iceland Teeters On Bankruptcy. Today, the story got worse. Iceland’s government is toppled amid the financial mess. They’re in a political turmoil. It’s very sad to see a once mighty Iceland economy only to be in bankruptcy. It’s truly scary.
What happened in Iceland?
In a nutshell, this is what happened. They privatized the banking sector in 2001. The next thing that happened was, the banks went on a buying spree of foreign companies accumulating debts. Of course, you need to take out loans or debts to fund the purchase of foreign companies. The crisis started when banks were unable to refinance their debts. Refinance? Essentially because they were having some liquidity problems so they need to refinance the loans to spread the repayment terms to lighten the load. How bad was their situation? Three major banks in Iceland hold foreign debt in excess of 50 billion euros. Compare that with Iceland’s GDP of only 8.5 billion euros.
Bank collapse
Iceland banks found it difficult to find other banks to make fresh loans to them. Normally, their last recourse is the Central Bank as the lender of last resort. But you see, the three major banks in Iceland were so much larger than Iceland’s economy such that the Central Bank and the government could not guarantee repayment of the banks debts. Result? Bank collapse.
Bankrupt
Of course, we all know what bankrupt means. It means just that. Which means that Iceland can no longer pay its external debts, it can’t pay for its imports. Its currency losing value. Who would imagine that the once mighty Iceland economy would be in a terrible situation like this?
How they accumulated mountains of debts
Essentially, banks are required to hold enough amount of cash to manage cash withdrawals. If the bank cannot meet this requirement, they will have to borrow money in the interbank market to cover the shortfall. Now, some banks have excess liquid assets or cash over and above their liquidity requirements. You know what they do? They will lend money on the interbank market receiving interest of course. Now, these banks in Iceland used the interbank market to finance their acquisitions. That’s how they racked up so much debts, excluding the use of local and foreign deposits.
Inflation
To aggravate the situation, they issued bonds to raise more money. Bonds are like notes payable. You sell them to investors. Then, the Central Bank of Iceland issued liquidity loans to banks on the basis of newly-issued bonds in effect printing new money pumped into the economy. Results? Inflation.
Wanted: One global policeman
Sometimes you begin to think and, I believe that we need one global policeman. Install one financial regulator like Spitzer of New York (the persona before the sex scandal). Each country have their own Central Bank, but still, you find a lot of financial mess all around. I think one Global Central Bank is what the world need to monitor these international global transactions. We are one world after all. Remember?
What can we all learn from this financial crisis?
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In the Asian Financial Crisis that started in Thailand, we learned that you cannot go on over-building because you might not have enough tenants or occupancy to warrant investment returns on your building. Essentially, that’s how it was.
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In Iceland, we’re learning about the bad effects of binge-buying, over-acquisition and excessive and having massive debts, debts that is bigger than the country’s economy.
How are the 3 world’s biggest economies faring?
Now, here’s a look at the latest published GDP, external debts and foreign reserves of the three (3) biggest economies of the world.
Let’s look three of the world’s major economies using 2008 estimates from the CIA World Factbook.
United States
GDP: $14.58 trillion (2008 est.)
External Debt: $12.25 trillion (30 June 2007)
Reserve $70.57 billion (31 December 2007 est.)
Japan:
GDP $4.487 trillion (2008 est.)
External Debt: $1.492 trillion (30 June 2007)
Reserves $954.1 billion (31 December 2007 est.)
China:
GDP $7.8 trillion (2008 est.)
External Debt: $420.8 billion (31 December 2008 est.)
Reserves: $2.033 trillion (31 December 2008 est.)
All of these economies are all doing fine in terms of not going bankrupt. If you notice, their GDPs are still much higher than their external debt.
Philippines
Let’s look at the Philippines
GDP in 2008 is $327.2 billion
External Debt is $65.23 billion (31 December 2008 est.)
Reserves $36.15 billion (31 December 2008 est.)
The total of all the public debt is 56.1% of GDP (2008 est.). Which means, that roughly 44% of our GDP goes to everything else for the country.
Is it good news? In terms of us NOT going bankrupt, it is good news. In other words, based on these figures, we are not as exposed as other countries are, like Iceland, with large amounts of external debt relative to the size of their economies. Now, don’t you ever celebrate because by saying that we are not going to go bankrupt – it does not necessarily follow that we are well-off. Besides, the bigger question is how much of these foreign debts really went to the public if you consider corruption. After all, we’re the worst in East Asia, remember?
Corruption in the Philippines is perceived to be the worst among East Asia’s leading economies and the country has sunk even lower among those seen to be lagging in governance reforms, a World Bank study suggested.
Now, before our official’s starts jumping around and making rounds of IMF-World bank loans, we are so not like Iceland before Iceland ran into problems. We are one 3rd world country and when you have 56% of your GDP spent to repaying debts and loans, essentially, what goes to Juan is only Php 0.46. Considering the magnitude and in your face corruption that’s happening almost daily, think how much of that really goes to Juan. Any idea?
References:
- CIA: The World Factbook
- Iceland Teeters On Bankruptcy
- Iceland’s Government Collapses Amid Financial Crisis
- Interbank lending rate
- Iceland’s government topples amid financial mess
- 2008–2009 Icelandic financial crisis
- Meltdown: Iceland on the brink
- 1997 Asian Financial Crisis
- Understanding Subprime and the US Housing Market
- Bonds
- Eliot Spitzer
- WB: Corruption in RP worst in East Asia
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Mahal na reyna,
Opo nga po, ang Iceland is on the verge of collapse.
Pero di po ako agree sa isang One world Global Central Bank kasi sa palagay ko, mas aabusuhin ng nasa itaas ang mga nasa ibaba kung nagkaganun. Hindi ko ipagkakatiwala ang mga peso-pesoses ko sa mga forenger chorva. Mahirap na kasi (hay, baon ko na lang kaya sa baul? Baka magkainteres pa…heheheh)
Hindi ako kampante sa isang global central bank kasi I always believed na merong magmamanipula nyan, hence, the term, there are always men behind the curtain.
Try nyo itong term na ito sa google: Fractional Reserve System.
Yan po ang system na ginagamit ng lahat ng central banks ngayon (Bangko Sentral of Pilipinas included) which is actually, a shadowy operating global central bank eklavu! Hehehe…
Yun lang po at magandang umaga mula sa barrio ni Jose Rizal.
[Reply]
reynz Reply:
January 27th, 2009 at 12:25 am
I know, it’s scary. Yan na ba yong tinatawag na “New World Order”? hahaha! Kakatakot di ba? Money is already on plastic at sa isang iglap, cut-off ka. Let me look and read. Looks like interbank market na ibang klase.
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]
reynz Reply:
January 27th, 2009 at 2:22 am
grabeng assignment na binigay mo! have to read it once more para maintindihan ko hahaha ang haba!
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]
Silver Reply:
January 27th, 2009 at 9:24 am
Hehehe…
Mahal na reyna,
wag mo masyadong pwersahin ang iyong sarili. Di ba nga Reyna ka nga? Dont exert too much effort sa pag-intindi sa fractional reserve. hehehehe…Tingnan mo si Queen Elizabeth, pretex na pretex…hahahahah… Baka mabaliw ka sa fractional reserve system..
Ako na lang po gawa ng assignment na yan…hahhahaha…
Eto na lang po yung akin:
Would you believe that all money in the world are created in debt?
That the actual existing money is made up of 3% physical money and 97% non-physical money stored in computers?
Ako din, nabaliw ako sa fractional reserve na yan….hahahaha
[Reply]
Silver Reply:
January 27th, 2009 at 9:30 am
Mahal na reyna,
Eto po ang helpful links para di ka na mabaliw…:)
http://money.howstuffworks.com/fed.htm
http://en.wikipedia.org/wiki/Federal_reserve_system
Ayan po ang mga links para mas madali nyong maintindihan…yung sa How Stuff works e ang pinaka-easy sa lahat
reynz Reply:
January 27th, 2009 at 1:24 pm
dalwang basa ko, mukhang getz ko na ang basics which is parang interbank nga sya kaya kelangang balikan ko pa! hahaha! lecheng assignment mo grabe! hahaha!
on the One Globa Policeman like One Global Central Bank? No worries, that is not gonna happen. Eh labo labo kamo yan and who would want to police the world? No one. Kaya nga puro gyera because everybody wants to be the one. So, that’s not gonna happen.
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
Silver Reply:
January 27th, 2009 at 2:26 pm
hehehe…
Pinagpawisan tuloy ang Mahal na Reyna…
hehehhe…
sensya na po..Gusto ko lang i-share ang aking kaalaman..
or else, baka mapanis po ang kaalaman sa utak ko…
hehehhe…
Hinay hinay lang po…:)
basta ang alam ko maraming pera/jewelries and other solid treasures ang Ninong ko na kumakain ng pasta nakatago yan sa mga baul nila at ang mga kaibigan nating nakamotorsiklo at kumakain ng naan and curry buhay pa rin ang negosyo nilang 5-6
[Reply]
very informative! good job!
r-yo´s last blog post..Heat Me Up, Baby!
[Reply]
reynz Reply:
January 27th, 2009 at 11:15 am
thank you r-yo! at salamat sa pagdaan
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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Anong nangyari sa Iceland? Naging popsicle!
[Reply]
reynz Reply:
January 27th, 2009 at 11:14 am
magtitinda na rin sila nang isaw hehehe
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]
Silver Reply:
January 27th, 2009 at 2:27 pm
tinda din sila ng:
betamax
helmet
adidas
isaw
hehehhehe…
ano pa kayang nasa menu nila???
[Reply]
Reyna Elena Reply:
January 27th, 2009 at 2:31 pm
or the oldest profession hehehe enjoy ka pa! wala ka pang operational capital kasi pede namang makisuyo nang makeup eh hahaha
yong dami tipid, gugupitin mo lang nang kaiksi-iksian hehehe
Nag papautang ako ngayon ng 5/6 doon sa bahay ko.Baka gusto ninyong mangutang.
Cocoy’s Delight´s last blog post..800,000 interest in 5/6
[Reply]
reynz Reply:
January 27th, 2009 at 11:16 am
sya at matingnan hhahaha! at pag ako nangutang ayokong bayaran in one day hehe
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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Naku renz, mahirap yan data mo? Kasi pagdaan sa malacanang niyan hindi na totoo yan figures mo. Wala ka rin makuhang testigo na tama yan unless nakita mo na nasa bulsa nila,.Pero ganun pa man hindi rin aamin yang mag yan kasi naging Art ng ang lying and stealing dito sa Bansa natin eh. Corrupted yan files ko kasi sanay sa corruption mga tao sa Malacanang
fatherlyours´s last blog post..All Family members should Read
[Reply]
reynz Reply:
January 27th, 2009 at 11:18 am
hahahaha ang tingin ko ganito P0.46 ang natira kasi pinambayad sa utang muna, ibawas mo ang P0.47 sa kurakot merong -P0.01 para reason mangutang uli hahaha
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]
Snow Reply:
January 28th, 2009 at 8:43 am
naku kuya mon…i second the motion…dun kasi sa sinasabi mo dagdag-bawas ang laro. hehehe…. ^_^
Snow´s last blog post..‘Fantasy Island’ Star Ricardo Montalban dies at 88
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We’re still considered lucky. Sa ibang parte ng Europe nagrariot na.
Mas malaki ang percentage ng external debt ng US compared to GDP kaysa sa Pinas.
Ibinaon talaga ang US sa utang ng nakaraang administrasyon. Ang mga anak nating Fil-am ay magbabayad ng utang hanggang pagtanda nila.
The Ca t´s last blog post..Birth Planning Program – Reverse Birth Control
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reynz Reply:
January 27th, 2009 at 11:20 am
Oo Cat. Etong sa Iceland matindi ang nangyari. Indi pa nakapatong ang expected $2 trillion na ipapatong ni Obama after all these bail outs kung mangyari.
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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UPDATE: Icelandic government falls; asked to stay on
Iceland’s financial system and currency collapsed in October after a series of bank failures, prompting the International Monetary Fund to intervene.
Iceland sought IMF help after its government was forced to nationalize three banks to head off a complete collapse of its financial system. Trading on the country’s stock market was suspended for nearly a week, and inflation jumped to more than 12 percent.
The IMF announced in November it would pump about $827 million into the Icelandic economy immediately, with another $1.3 billion coming in eight installments.
Iceland’s Nordic neighbors — the governments of Finland, Norway, Denmark and Sweden — announced they would lend Iceland another $2.5 billion.
Read it here: http://www.cnn.com/2009/WORLD/europe/01/26/iceland.government/index.html
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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UPDATE: UK officials sent to Iceland over bank deposits
The British government has frozen British assets in Icelandic banks, and British Prime Minister Gordon Brown has vowed legal action against Iceland to ensure British savers get their money back.
The dispute follows Iceland’s nationalization of its three largest banks, Landsbanki, Glitnir, and Kaupthing. Thousands of people in Britain, attracted by the banks’ interest rates, had deposited their savings in the banks and are unsure whether they’ll get their money back
British savers include local governments and authorities. The Metropolitan Police Authority, which oversees London police, has $50.9 million tied up in an Icelandic bank; Transport for London, which runs the transit system, has $67.9 million at stake; and Kent County Council, southeast of London, has $84.9 million deposited in three Icelandic banks.
Read it here: http://www.cnn.com/2008/BUSINESS/10/10/britain.iceland.banks/index.html
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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hay anu be, mabuti na lang dito wala kaming investment sa iceland. ehehe, parang ganun daw o. magiipon na ako ng ice cream at baka pati yon e matunaw na rin, sarap pa naman ng sorbetes.
seriously, anong dapat nating gawin sa ating pera para hindi sya maapektuhan?
kengkay´s last blog post..kawawa ang bayan
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Reyna Elena Reply:
January 27th, 2009 at 2:25 pm
hahaha! kaya nga ina-away nang London, eh kasi ba naman, mga gahaman din tong mga tiga London no? nong nag-offer nang pagkalaki-laking interest yong mga bangko sa Iceland, idineposit ba naman doon pati retirement nang mga pulis! hahaha! gyera to! retirement money nang mga pulis, naglaho! hahaha!
[Reply]
Silver Reply:
January 27th, 2009 at 2:30 pm
Oo nga mahal na reyna,
Dinedemand na ng London ang Iceland ang ibalik ang
kanilang feera…
Kung ako ang Presidente ng Iceland, maloloka ako…
Kulot na kulot na ang hair non….
hehehhe
[Reply]
reynz Reply:
January 27th, 2009 at 2:53 pm
the rest of the Nordic countries bailed out Iceland pati na IMF. Ang London lang ang nag-freeze nang deposits nila. Of course, me kasalanan din
ang London ano? Ba’t ba naman inin-vest nila sa Iceland?
Pero, pag di gumalaw ang London to protect yong mga
depositors nila, aba, magkakagulo sa London, bakit? Eh mga
retirement to nang mga pulis! HAHAHAHA!
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
oo nga naman…. bigyan mo nga kami ng tip Mahal na Reyna, dahil ang aming retirement investment eh nauubos na rin yata, biruin mo lugi ako ng 1,000.00canadian dollar sa maliit kung investment! naku wala na yatang matitira sa aking pagtanda!
[Reply]
reynz Reply:
January 27th, 2009 at 2:54 pm
yan nga ang pinaka cheap na investment tip – ang maging pokpok hahaha! habang juicy magpakapokpok na lang tayong lahat hahaha
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]
kengkay Reply:
January 27th, 2009 at 3:14 pm
pero tama ka dyan, yung red light district dito? hay pulang pula pa rin sila. in fact yung mga nagpapagalaw ng negosyo dun e hindi alam kung ano ang crisis ano, hehehe
magtatayo na rin ako ng matchmaking site sa internet, antay lang kayo
kengkay´s last blog post..kawawa ang bayan
[Reply]
reynz Reply:
January 27th, 2009 at 3:23 pm
dito nga napansin ko, madaling araw napadpad ako sa city, sa sobrang lamig ba naman, medyo napansin ko dumami ata ang nakatayo dito sa lugar na to? hahaha! mga kunyaring sekreto pero hallerrr alam ko kamo ang ginagawa nang mga mokong na yon. gusto ko na ngang iparada ang kotse ko at sali sa kanila. kaya lang lecheng ginaw hahaha
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
Silver Reply:
January 27th, 2009 at 5:59 pm
“yan nga ang pinaka cheap na investment tip – ang maging pokpok hahaha! habang juicy magpakapokpok na lang tayong lahat hahaha”
WANTED: GRO
-Must be 18-50 years old
-With pleasing personality and daring attitude
-With flawless skin c/o of Belo or Calayan
-doesnt matter if you’re transgender or gay, basta mukha kang babae e ok na (hindi naman mapapansin ng customer dahil lasing na yun!)
Hahahha….Job description ng GRO…hahahhaha!
[Reply]
reynz Reply:
January 27th, 2009 at 6:51 pm
hahaha! sabe ko seyo! swak na swak ako sa position na to! hahaha
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
Silver Reply:
January 27th, 2009 at 7:18 pm
By the way,
Sa Amsterdam e legal ang prostitution (weird nila noh???hehhehe), licensed daw ata ang mga prosti doon…
Ayan, may job market na ang mahal na reyna!…hahhahahah!…LOL…
At take note, pang model ang itsura ng mga prosti doon! Panis ang mga taga pinas! hahhaha
Woot! Woot! hahahhaha!
Reyna Elena Reply:
January 27th, 2009 at 8:38 pm
yeap silver, that’s true. legal ang prosti sa Amsterdam at meron lang silang red light district. dun ka lang pedeng magtinda nang laman mo. i’ve been there. nag-palitrato pa mismo ako dun sa tinatayuan nilang iskaparate at pinadala ko sa boss ko. hahaha. nung natanggap nong boss ko ang litrato kong pokpok na ako sa Amsterdam, nag-wala ang loko hahaha
pero lately pinapasara na yang red light district sa Amsterdam. ewan ko kung natuloy.
hahahahaha….may tatanggap pa kaya sa akin???? luslos na ang xxx ko sa katatrabaho, tapos wala naman pala akong retirement na matatanggap! baka sakit pa ang makuha ko dyan sa pagiging pokpok! lalong disgrasya!!! hahahahaha
[Reply]
reynz Reply:
January 27th, 2009 at 6:52 pm
bakit? masahe pede di ba? hahaha
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
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Punta kayo Antartica walang recession kc walang bangko! hahahah!
[Reply]
reynz Reply:
January 27th, 2009 at 6:53 pm
hahaha eh ibang klase kamo ang recession dun, nag-re-recede na kamo ang mga bloke bloke nang ice hahaha ayan, kaya ilang isla na ang mga nawawala sa mundo juice ko! nakakatakot na!
reynz´s last blog post..Royal Blog Santacruzan 01/24/2009 Presents: Recession
[Reply]