Thursday, October 9. 2008
I got this article from Myron entitled, " The party's over for Iceland, the island that tried to buy the world." I was kind of shocked by this article because it was completely off my radar and it's not being covered by any of the mainstream media down here.
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.
People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs.
This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 - the size of Coventry's - is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN's 2007 'best country to live in' poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party.
The nation's celebrated rags-to-riches story began in the Nineties when free market reforms, fish quota cash and a stock market based on stable pension funds allowed Icelandic entrepreneurs to go out and sweep up international credit. Britain and Denmark were favourite shopping haunts, and in 2004 alone Icelanders spent £894m on shares in British companies. In just five years, the average Icelandic family saw its wealth increase by 45 per cent. [...]
Outside the city's Hofdahollin car showroom, looking a little rumpled for men trying to sell new and used cars for £35,000 and up, owner Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today. 'A few years ago we couldn't get enough top-end cars and we started importing them. We were selling 120, 140, a month. But it turned around so fast,' says Olafsson. 'It's so dramatic, just in one month. We have already seen two dealers go down.
'Customers would come in and we would apply for credit online for them, a 100 per cent loan, and they can drive away in their new Range Rover. It took ten minutes, it was very easy. But 60 to 70 per cent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 per cent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?'
I think it's quite remarkable how quickly this credit crisis has spread all around the world. The shockwaves are being felt everywhere. If you need proof, anyone see the Toronto Stock Exchange plunging 11% on Monday? In either case, I don't even bother looking at my RRSP/stock account balance anymore, it's too scary.
Bjork! Save your country!
Monday, October 6. 2008
This weekend, I was going through PBS' video collection because I had run out of things to watch, and I came across a very eye opening documentary from Frontline entitled, " Sick Around The World." It's a 60 minute documentary that you can watch online for free. The premise is that the US still does not have universal health care, so the host takes a look at five other democratic capitalist countries to see what their health care systems are like, and what we can learn from those systems. The countries highlighted are the United Kingdom, Japan, Germany, Taiwan, and Switzerland.
Here's a snippet of what you will see in the documentary:
Reid reports next from Japan, which boasts the second largest economy and the best health statistics in the world. The Japanese go to the doctor three times as often as Americans, have more than twice as many MRI scans, use more drugs, and spend more days in the hospital. Yet Japan spends about half as much on health care per capita as the United States.
One secret to Japan's success? By law, everyone must buy health insurance -- either through an employer or a community plan -- and, unlike in the U.S., insurers cannot turn down a patient for a pre-existing illness, nor are they allowed to make a profit.
It's quite remarkable that in the US, about 700,000 people a year declare bankruptcy because of a medical emergency. This happens when someone falls ill and doesn't have the money/insurance to cover the costs. The host of the show asks health officials from each country, how many people a year go bankrupt because of medical bills? All of the officials look very puzzled when presented with the question, and they all answer, no one in our country goes bankrupt over medical bills.
As I worked my way through the documentary, I had a few conclusions:
- A pure public health care system does not work because there's no competition in the system, so cost overruns, poor service, and long wait lists are problems.
- A pure private health care system like the US just doesn't seem ethical because the poor don't have access to proper health care. It's also scary that if you lose your job, you'll usually lose your health insurance as well, and that's quite a gamble. It seems morally unethical that people can go bankrupt because of poor health.
- What seems to work is a hybrid system where there's universal health care, but you introduce the good parts of a private health care system, which is competition/market forces. For example, hospitals who don't control costs, or provide poor service will ultimately be replaced with better more efficient hospitals which are competing for patients.
- Information Technology seems plays a big role in keeping costs down. For example, in Taiwan, when a patient pays medical premiums, only a few percent of that goes towards administrative costs. Contrast that with the US where about 15-18% of premiums goes towards administrative costs.
- Countries are able to get drugs at a much lower price if they the country negotiates on behalf of all patients with drug companies. This allows the country to say, for this drug, we're willing to pay $x for this. This is using the country's buying power to the advantage of the the public, and thus reducing costs.
I find myself quite appalled by the American system, as I see how much money my company pays each year for my medical insurance, and it's orders of magnitude more than the premiums I paid in Canada. I feel like the company is getting ripped off by such high premiums, but I've been told these types of premiums are normal in the US. It's also quite scary that most people depend on their jobs for medical insurance, and if they lose their jobs, they lose their insurance.
Saturday, October 4. 2008
With the banks imploding all around us, and talks of an $850 billion bailout of the banks, many people have suddenly become interested in the banking system, and why are these awful things happening around us.
There's a short film that's circulating on the internet entitled "Money As Debt" which helps explain some of these things. This film answers questions such as:
- What is the role of the central bank?
- Where does money come from?
- What is a "run on the bank"
- etc.
The documentary is pretty accessible to even people with basic understandings of economics and such. It's also completely animated and not too complicated.
To the Ron Paul fans, you've probably heard the congressmen lament how bad our monetary system is currently. One of his solutions is the return to using the gold standard for our money, but this documentary highlights the problems with the gold system.
The first half of the documentary I enjoyed as it gave the history of how banking was created. However, I can't vouch for the second half of the documentary. It suddenly becomes very conspiracy theorist like. An example of this is when they quote from two American presidents who opposed the money system, and they imply that they were assassinated because of their opposition. In addition, I find the documentary's proposed solution of solving the money system's problem to be a bit naive or impractical. Some of the solutions, they wave their hands and say, oh alternative energy could save us money problems without explaining why.
Some of the solutions are very naive. For example, they suggest that if government had complete control over the money system, that would solve all our problems of evil bankers manipulating the system. However, giving absolute power to government is just replacing one problem with another in my opinion. Do we not remember that government has corruption and scandals as well?
I was debating whether to post this or not due to the duality of my opinion of this film. However, there are some nuggets to be sifted out of this. I'll let you decide which parts of this film is true, and which parts are conspiracy theories.
One interesting tidbit of information, apparently this film was created in Cowichan, British Columbia.
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