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Iceland Stars In New Movie "The Anatomy Of A European Bank Run!"

Reggie Middleton's picture





 

About 6 months ago I said "#0033cc;">Economic Depression Is The New Success". In said article, I forcast serial European bank runs, to wit:

From the BBC: #0033cc;">Iceland's 'tenacity' lifts economy out of crisis

Whisper it - Iceland's economy is on its way back. The frozen island on the edge of the Arctic, which had 10 straight quarters of shrinking GDP, is suddenly on a steady run of seven quarters of growth averaging at 2.5% per annum - something that few European countries can boast. Unemployment has fallen to just below 5% and confidence is returning...

Ready! Set! Bank Run!!!

#0033cc;">Cyprus contagion rawCyprus contagion raw

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Well, today Bloomberg reports "#0033cc;">Icelanders Run Out of Cash to Repay Foreign Debts: Nordic Credit". Basically, as percieved to be cut off from foreign markets, Icelanders are running out of non-Krona denominated cash to pay off foreign debts. Here's more on the dilemma:

Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur ($5.8 billion), the bank said yesterday. The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 percent of gross domestic product.

The nation faces a “repayment risk of foreign debt by private entities in the economy, who don’t have access to foreign financial markets,” Sigridur Benediktsdottir, head of financial stability at the Reykjavik-based central bank, said yesterday in an interview. “We view this as being exacerbated or made worse by the fact that our current account is actually declining.”

Prime Minister Sigmundur David Gunnlaugsson has said Iceland’s foreign exchange shortfall is “a matter of huge concern” as he tries to scale back currency controls in place since 2008. The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.

Wait a minute, if the Icelandic debt spikes, what happens to the Icelandic banks banks whose primary government bond (aka "risk free", ahem...) holdings happen to be Icelandic. Here's a hint: #0033cc;">The Anatomy of a Europan Bank Run!

 


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Wed, 10/09/2013 - 16:48 | Link to Comment WTFUD
WTFUD's picture

yes TW $5.8b is just 48 hours in the life of a fed chair.

Wed, 10/09/2013 - 15:49 | Link to Comment ebear
ebear's picture

A fitting metaphor for Iceland's current situation.

http://www.youtube.com/watch?v=Bz8iEJeh26E

Wed, 10/09/2013 - 15:30 | Link to Comment GottaBKiddn
GottaBKiddn's picture

There goes Reggie, tellin' it like it is.

My understanding is that Reg is talking about global banking contagion collapse, not about people standing is some line waiting to get their $500. All these banks and all the governments are intensely tangled in debt to each other, and like a house of cards the entire system is jeopardized by minute movements.

On another note, Karen Hudes made mention of a meeting to discuss the continuing role of the Dollar reserve status on October 9. Major news here could be like pulling the rug out from under the house of cards. In which case, why would we run a bank to get Dollars?

Wed, 10/09/2013 - 15:11 | Link to Comment ebear
ebear's picture

Iceland: population 320,000

Stockton Calif.: population 300,000

 

Wed, 10/09/2013 - 15:02 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

"Here's a hint: The Anatomy of a Europan Bank Run!"

I have never seen an "Europan" Bank run....

Wed, 10/09/2013 - 13:30 | Link to Comment Save_America1st
Save_America1st's picture

does that mean Iceland may need to "confiscate" the pretty little island they gave to the Bjork?

http://www.complex.com/art-design/2013/02/iceland-has-given-bjrk-an-island-to-thank-her-for-cultural-contributions

I mean, you can't just go giving islands away when you're totally outta the Kronas, people...

Wed, 10/09/2013 - 15:24 | Link to Comment ebear
ebear's picture

Must be for "cultural contributions" because it sure as hell isn't for economic contributions.

from http://en.wikipedia.org/wiki/Economy_of_Iceland

According to Alcoa, construction of Fjarðaál entailed no human displacement, no impact on endangered species, and no danger to commercial fisheries; there will also be no significant effect on reindeer, bird and seal populations.[20] However, the project drew considerable opposition from environmentalist groups such as the World Wide Fund for Nature, which called on Alcoa to abandon the plan to build Fjarðaál. In addition, Icelandic singer Björk was a notable early opponent to the plan; protesting the proposed construction, the singer's mother, Hildur Rúna Hauksdóttir, went on a hunger strike in 2002.[21]

Wed, 10/09/2013 - 13:05 | Link to Comment smartstrike
smartstrike's picture

Iceland was supposedly the odd-man-out that showed the bankers the finger? Well....if that was indeed the case, why is Iceland now having trouble repaying its debt?

The whole thing was a sham, there was anemic recovery, which was merely a function of mathematics of rising from a severe decline. Michael Hudson said from the beginning, that Icelandic miracle was 'just the opposite' of what we were made to believe.

I do not know if Iceland was the first country to fall into debt-peonage and neo-feudalism-- Estonia, might have trumped that; but the country is going to be a basket case for a very long time

Wed, 10/09/2013 - 13:43 | Link to Comment layman_please
layman_please's picture

why estonia? yes private debt is high over here, but not the worst. though i won't argue, we are all slaves to debt.

about bank runs. i'm more concerned we are not even aware of those. for example on the day they had cyprus bank holiday announced, our biggest banks(swedish origin) had atm-s out of order and online banking system was temporarily down. is that supposed to be a coincidence? though the system is down quite often. 

yesterday we received a planeload of euros from finland(?). there was an army of cops securing that shit. our central bank is not commenting what the money is for or where it's going. it's a country of 1,3 million, wtf we need planeload of cash? last time they were sending planeloads of cash anywhere, it was cyprus after holidays. maybe i'm just paranoid (as usual).

 

Wed, 10/09/2013 - 14:14 | Link to Comment smartstrike
smartstrike's picture

Link to old article from 2008 by Michael Hudson.

http://www.international-economy.com/TIE_W08_Hudson.pdf

He has written extensively about Iceland and Baltic economies.

 

Wed, 10/09/2013 - 15:07 | Link to Comment layman_please
layman_please's picture

thanks for the link. it's quite true what hudson wrote except the outcome. at least estonia(don't know about latvia and lithuania) is doing pretty well in this crises, probably at the expense of its people and thanks to a new small real estate bubble. as a result we have an ongoing exodus which eclipses even the deportation by stalin in the forties. this doesn't come as a surprise as the politicians in big part are ex communists who after the collapse of soviet union suddenly became most confirmed adherents of (crony) capitalism.

Wed, 10/09/2013 - 13:14 | Link to Comment Marco
Marco's picture

They aren't in debt peonage and they don't need to be. Hell I don't even see why Icelanders would run on their banks, Iceland has a trade surplus ... even paying out deposit guarantuees with the printing press is unlikely to create inflation.

Private bankruptcies would be good for Iceland, clear the remaining foreign denominated debt from the slate and start over, they just need to make sure to use taxation to fuck the foreign creditors after the bankruptcy proceedings.

Wed, 10/09/2013 - 13:41 | Link to Comment smartstrike
smartstrike's picture

Iceland has a surplus...well than they should make debt payments out of the surpus? Iceland sold a put and now face unlimited losses. It does not stop at zero, they enslaved themselves with no way out.

Wed, 10/09/2013 - 12:02 | Link to Comment Winston of Oceania
Winston of Oceania's picture

Perhaps they should just rid themselves of the central parasite bleeding them.

Wed, 10/09/2013 - 13:06 | Link to Comment Marco
Marco's picture

They are being bled by foreign parasites, not homegrown ones.

Wed, 10/09/2013 - 17:28 | Link to Comment ebear
ebear's picture

Whoa, Vikings being pillaged?  Now there's a first.

Wed, 10/09/2013 - 11:03 | Link to Comment Ghordius
Ghordius's picture

Reggie, imho you should challenge more what "Eurocalypse, the European CDS trader that contributes trade setups to BoomBustBlog" tells you (or what you read on the Telegraph)

Bank runs function on a specific type of psychology, which is based on culture and history. Simplified: what sends "Nordic/Liberal" people like Britons or Americans or even Dutch to run to the bank is not what sends Spaniards, Frenchmen and Germans to do the same

and this is not out of my hat, the relevant experiences go back to the 19th century

sorry, we have a complex continent, here

Wed, 10/09/2013 - 12:10 | Link to Comment NotApplicable
NotApplicable's picture

Sounds like you're splitting hairs here. I'd say that all bank runs are for one reason, and one reason only, a loss of confidence in the bank that holds their wealth.

Sure, there may be different triggers, but the emotions are one and the same.

Wed, 10/09/2013 - 13:00 | Link to Comment ronaldawg
ronaldawg's picture

Reggie - where have you been?  Missed you....

Wed, 10/09/2013 - 12:10 | Link to Comment maskone909
maskone909's picture

conjecture

when people realize their money is at risk they take possesion.  The only difference is imho, the propaganda that is fed to the public via financial and government sectors.  The psychology of fear is a constant among all humans.  find the person next to you and put a gun to their head.  record the results.  now go to (blank) country, repeat.  ect..

Wed, 10/09/2013 - 11:56 | Link to Comment farragut
farragut's picture

This is an interesting line of thinking, Ghordius. Can you elaborate a bit on the cultural differences? Most appreciated.

Wed, 10/09/2013 - 12:21 | Link to Comment Ghordius
Ghordius's picture

oh, my. I could write a book on it, but I'm at loss about how to squeeze it in a comment

 

- example nationalizations: a bane to some, a matter of fact for others

- example privatizations: a boon to some, a matter of reserved approval for others

- example banking systems: a fully private affair for some, a matter of national importance for others

- example "free trade": a joyous call to arms for some, a matter of reserved skepsis for others

 

though perhaps the best example is the recent Cyprus affair and the popular reactions to it: horror for some, emphasis on the fact that "no account below 100k was hurt" for others

and the understanding that banks have a license, i.e. they are granted special powers from the sovereign (people), i.e. they are only tolerated

all in all continental europe is way less liberal than the US/UK and way more conservative and more socialist

Thu, 10/10/2013 - 06:52 | Link to Comment Ghordius
Ghordius's picture

here another example: european mutual insurers 

 

http://www.zerohedge.com/contributed/2013-10-08/me-and-aca#comment-4040689

Wed, 10/09/2013 - 13:08 | Link to Comment disabledvet
disabledvet's picture

historically everything seems pretty simple. "when in doubt flee to Switzerland." not something i understand actually. what's the economic basis everyone is "fleeing to"?

Wed, 10/09/2013 - 10:47 | Link to Comment TrustWho
TrustWho's picture

Draghi, or Bernanke will save them. Really, $5.8 billion...chump change.

Hell, Bernanke should let mama mia handle this as part of her training program.

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