It's time to start paying attention to the financial sinkhole that Iceland is trying to climb out of -- the view from inside of it is eerily similar to our own.
The amount owed -- $5.3 billion -- sounds like a rounding error to Americans, but, per capita, it would be the equivalent of the United States taking on a $5 trillion debt. Sounds impossible, until you consider that our real bailout tab, as calculated by the New York Times, is already $2 trillion. Moreover, the government has obligated itself to pay out $12.5 trillion if things get worse. In Vanity Fair last April, Michael Lewis wrote, "Iceland instantly became the only nation on earth that Americans could point to and say, 'Well, at least we didn't do that.'"
Yet in a pretty real way, we did do "that." We have a more sophisticated central banking system, and there are more countries, like China, in whose interest it is to protect the value of the American dollar, thanks to their ownership of our national debt. In that crucial way, we've dodged Iceland's true peril: watching the value of its currency, the króna, crash against the debt it owes in foreign currencies like the sterling and euro.
It's looking more and more like our craftiest bankers factored the inimitable strength and guarantee of the U.S. dollar into their reckless gambles.
But the rest of us are really just lucky that the dollar can survive these hurricane-level economic forces without blowing apart. One way or another, the bill is coming due, and America's 300 million citizens will be paying for the hubris of a few thousand of their own, who dubbed themselves "investment bankers."
3 days ago