Word: dollarized
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...banks had leveraged themselves too aggressively. Rumors swirled that the banks would default and that Iceland's central bank, with its modest $2.5 billion reserve, would be hard-pressed to bail them out. As investors pulled out of the market, the Icelandic krona fell by 27% against the U.S. dollar, the cost of insuring Icelandic debt soared to record levels, and inflation surged, hitting a 20-year high of 12.3% in recent days. That bleak combination has created a widespread perception, trumpeted in the world's financial press, that Iceland is melting...
...million construction project at the University of Reykjavik. Iceland, he points out, has been in this situation before. In early 2006, credit agencies criticized Icelandic banks for their lack of transparency and reliance on international capital markets. Analysts' opprobrium drove the krona down by 25% against the dollar over six months. Yet Iceland never defaulted on a single loan, signaling a disconnect between foreign perception and domestic reality. "We learned our lesson: we need to tell our story," says Árni Mathiesen, Iceland's Minister of Finance. "Other people are more likely to tell the wrong story or misinterpret...
...office space. Nobody is hurt more than the Gulf's millions of ill-paid migrant workers, and this exacerbates the danger of growing labor unrest. One measure that Gulf countries are considering to dampen inflation: a dismantling of the peg that ties their currencies to the beleaguered U.S. dollar...
Thanks to the declining dollar and the relative weakness of the U.S. economy, that's already starting to happen. The trade deficit was down to 5.1% of GDP in 2007, will probably drop further this year and would be even smaller if it weren't for the spike in oil prices (oil imports equaled...
...really make and sell enough stuff to bring imports and exports into balance? Well, maybe. This country is, believe it or not, still the world's largest manufacturer. Exports are at an all-time high, both in dollar terms ($1.6 trillion in 2007) and as a percentage of GDP (11.8%). It's just that imports have grown much faster over the years. The U.S. has continued to run surpluses in some high-tech, high-price-tag categories--aircraft, specialized industrial machines--and in agricultural commodities. It's in consumer goods--clothing, TVs, cars--that the big deficits show...