We have heard about the banks going bankrupt these days but one of the top countries to live in is at the brink of disaster. Iceland is looking at the ultimate disaster as it is on the verge of NATIONAL BANKRUPTCY.
Yesterday, I heard its Minister of Finance speaking to NPR and according to him the primary reason was that when times were good their banks had borrowed and lent it around to people for profit. Now when the liquidity crunch came in, they can’t raise money to pay it back as the payback time comes. The biggest wonder is that their bank “assets” are 12 (or more) TIMES their entire GDP!! The loans are so high that their own Central Bank CANNOT cover their banks! Now, THAT is serious.
To save itself from imminent collapse, it has asked Russia for a €4 billion loan as it scrambles to stop the collapse of its economy. It is also nationalizing most banks. What doesn’t augur well for Iceland is that its total Forex reserves is less than $3 billion and its own Government can do only so much.
In all this what I found interesting was that a country deep in Europe went all the way to Russia to ask for money. One of positives of Western sanctions for Russia and other such countries could actually be that they are not tainted by the financial mess as well 🙂 But it will become really interesting worldwide – notwithstanding the US’ Presidential candidates riling against Russia – if Russia and China become the lender of last resort for the world!!
China meanwhile, has accumulated >200 billion forex reserves in the last few months and is now sitting on reserves of $1 trillion! It is hoarding as much surplus as it possibly can while US and the rest of the West falls into the deep gorge!
What will happen now? Who knows.. the Weapons of Mass Destruction of this century may well be … the Derivatives!!
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