Letters from Iceland: SomaFM's Rusty at the Iceland Airwaves festival
SomaFM founder Rusty Hodge is posting updates from the Iceland Airwaves festival this week. Here's his latest installment:
We at SomaFM had made plans to cover the Iceland Airwaves music festival for SomaFM back in August. So in the last two weeks as we heard about the "economic collapse" of Iceland, we were a little nervous as to what the situation would be like over there. By the time we arrived at the Keflavik Airport and got to the Duty Free shop, we realized there wasn't anything to fear. The Duty Free was packed with people buying their allowances of liquor and wine to bring with them to Iceland- because the Duty Free is about half the price of buying liquor anywhere else in Iceland (due to the high taxes on liquor here).Continued after the jump.Although when we got on the shuttle bus to Reykjavik, there were only 15 others on it; last year the bus was mostly full. This turned out to be a false impression; 20 minutes after we got to the hotel, a bunch of other people arrived, apparently on a later bus. I guess we were just faster than the normal crowd.
The "Economic Crisis" in Iceland is not being felt too hard on the streets of the city centre. In fact, if you look around, it doesn't seem like anything has happened at all. Banks are functioning like normal- I admit I was hoping to see protests and angry customers waiting for them to open. But even the branches at the big Kringlan mall seemed their normal busy self, and the people in them were happily going about their business.
A few Icelanders have made reference to the "economic crisis" in the same way many Americans refer to our own banking crisis... snide comments about irresponsible bankers, distrust of the way the government will handle things, etc. When asked what has really been affected, they say it's impossible to get a mortgage or car loan right now. Prices for groceries and imported goods have gone up. Real estate prices are falling, especially in "Old Town" Reykjavik, but they'll also point out that's probably a good thing since it was overpriced to begin with. The big complaint is that everything is becoming more expensive. And you can't get a car loan. Icelanders seem to be fond of new cars judging from the cars I see on the streets.
To put it in a different context: I spoke to a German the other day, and he asked how we in the US were doing with our banking crisis. They seem to think that the US if falling apart, and small businesses are failing right and left because of it. I told him that aside from people who were invested in the stock market, it's not visibly affecting people that much yet any more than a typical economic downturn would.SomaFMSo that's what's going on here in Iceland. People are still shopping, eating, drinking. Tourists seem to have caught on that the exchange rates are very favorable right now. While still somewhat expensive - a McDonald's cheeseburger costs about $2.10 right now, but would have cost $3.00 or more last year. Cocktails at many places are US$7-8, and beers are $5-6. Last year, $10 got you a beer, cocktails were more like $12.
So don't believe everything you read in the media. The stores here are not empty; the people are not living off cod and Skyr. They've just been hit with a recession and the prices on imported goods have gone up. So over the next year they're going to have to be a little more prudent with their spending.
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Iclanders are robust, self-reliant, and full of lifeforce -- this economic nonsense will roll off their backs like the weather.
I'm not surprised - I'm just lamenting the fact that I'm not there this year. Last year's Airwaves was so impossibly fun, I was ready to emigrate.
@ Agnespoodle- I felt the same way! Airwaves was amazing and I really wanted to move right in. I recomend that people visit, it's stunning there.
This note is very premature. Things take a long time to work there way through an economy. For example, its not like the people who have their mortgages denominated in foreign currencies instantly lose their house. Their next payment will be huge as their currency is basically worthless on the FX market. If their currency doesn't recover, so will the next one, and the next one. Eventually this might become unbearable. That is just one small mechanism and there are many.
Just because the whole place didn't go up in flames in a week doesn't mean that it just means not buying a couple things over the course of the year.
I wish them luck and hope it is just that, but it is WAY too soon to be making such predictions. The google generation expects results in under a second. Some things still move at old world speeds.
Read about the Great Depression. Its not like the day after the stock market crashed everyone got up and moved to shanty towns and started wearing rags. Things can fall into negative feedback loops and those loops can often be measured in quarters or years, not days or weeks.
But this is the internet age...
3 months is a lifetime "on the net".
So if things happen IRL then we would see it direct or otherwise it's sooooo 2008 by the time it actually hits us....
not.
This "the fundamentals of our economy are strong" crap doesn't fly. I wish Iceland the best in their economic recovery, but saying "they have strong people and a strong culture" doesn't have much to do with it.
it doesn't seem like anything has happened at all
Because as we all know, perception is reality. Life is good, the sun is shining and I'm sitting here on Kata Noi Beach in Thailand and everything looks fine to me. That's odd, the tide appears to be out and there are lots of fish stranded on the beach. I think I'll walk out and pick some up, profit!!
Wait... what's that line on the horizon? Nawwwwww... we'll be just fine.
@ZUZU and NOEN
Thanks for the commentary. I'm glad a couple of people were quick to dismiss PROTO and NYLUND's proclamations of confidence in the Icelandic people's ability to survive their economic crisis.
Correction... I guess I was speaking to ZUZU's comment on PROTO's comment.
Sure, Rusty Hodge's all clear call is premature, but just yesterday (=last year in internet time) BB posted an apocalypic report. That was from an Icelander. But it was perhaps not an entirely accurate picture.
@NOEN,
Sorry for incorrectly addressing you in my last comment. Your comment sounds pretty pessimistic. What do you anticipate for Iceland?
What do you anticipate for Iceland?
What usually happens when an island can no longer afford to import food. The US will face some of those same problems. Many daily operations run on credit you know, this is a credit crisis. At least we won't face the prospect of trying to grow our food on volcanic fields.
The market has not found bottom yet, house prices are still much too high.
If you are not fearful, you're crazy.
Some fun facts about Iceland:
Size of Iceland's economy - $5 billion
Size of their debt - $60 billion
Value of Krona against the Euro - approx 150 to 1
1 Iceland Krona = 0.008933 US Dollar
Iceland borrowed 400 million euro from the EU for food and other supplies. It will last them one month, then what? I hear the Dutch sex shops pay well.
Will Russia get basing rights in exchange for bailing them out? How will NATO react? Fun times. Don't worry though, we'll all get to join the fun soon enough. Reportedly, China has enough hard cash to buy all US debt. They're probably smart enough not to do that all at once.
Somewhere Karl Marx is laughing his ass off.
NOEN, where are those numbers from?
From the CIA Factbook:
Iceland's GDP in 2007 (PPP) = $12.19 billion
What usually happens when an island can no longer afford to import food. The US will face some of those same problems. Many daily operations run on credit you know, this is a credit crisis. At least we won't face the prospect of trying to grow our food on volcanic fields.
So you think they're going to be short on food and will have to try to grow more of it on their own land. Do I have that right?
Iceland indeed relies heavily on imports. But their main exports, fish and aluminum, will probably remain in demand, though fish stocks are vulnerable to decline.
In 2007, their exports were about $4.8 billion and their imports were about $6.2 (CIA Factbook). So they can pay for about 3/4 of their imports with their exports. I doubt that food makes up 75% of their imports.
Hard times are ahead for sure. But I submit that we are unlikely to read about starving Icelanders or large scale repurposing of land to cropland in order to feed the population.
I don't mean to deny that this is uncharted territory, and that major changes will occur. But I like my doom and gloom scenarios to be accompanied by logical arguments, that's all.
where are those numbers from?
Current exchange rates are easily googled. But the CIA? I suspect things have changed a bit from 2007. The 5 billion figure comes from a knowledgeable commenter at Calculated Risk. A quick look at the IMF page for Iceland is.... sobering to say the least. Foreign currency loans, securities, and deposits (in millions) is -2,432.13 while official reserve assets are 3,703.51.
they can pay for about 3/4 of their imports with their exports
With what? They have no market and buying food at a 150 to 1 exchange rate won't last long. Barter? How would you ship anything there? Shipping goods from port to port requires credit just as many business's payroll depends on credit but if there is little or no credit then what?
We are in a credit crisis that if mishandled could deepen into a depression. Total credit losses resulting from the meltdown of the subprime mortgage market will be close to $3 trillion.
Does your credit card still work?
The "credit crisis" is correcting for the vast excess of unsustainable credit in the market.
(Also, making payroll on credit is just obviously stupid; it practically screams that your business is insolvent, but not yet bankrupt.)
GOOD!The problem started when that $3 trillion in credit was created in the first place.
Look, we (Iceland) will have better import export ratio after we stop importing all these luxury SUV and other luxury goods. The government is working on selling the foreign assets of the banks, that should cover a large chunk of what we ow. What we need is a loan and if Russia is a good "friend" and lends us the money we will be grateful but we will not let them put a military base here or let them bend us over the table. Before the crisis we had low unemployment and actually imported a lot of polish and lithuanian people to work here. We can fish and build more aluminum smelters here and maybe we can host a google database. Even in dire circumstances we can still look for opportunities for the future.