Iceland - A small country with big problems

Iceland has suffered to a great extend in the financial crisis today, and it is not over for them yet. Last week the Icelandic Financial Supervisory Authority took over the national banks Kaupthing, Glitnir and Landesbanki. The fact that Kaupting also has operations in other countries such as Sweden and Finland makes the situation even more complex.



Just after the Icelandic bailout, The Swedish Central bank ”Riksbanken” decided to lend 5 billion Kronor to Kaupthing Bank in Sweden (app. 525 million Euro). According to the Riksbanken, this loan can be used either to pay depositor with accounts in Iceland or Sweden, or to depositors and other creditors in Kaupting Bank Sweden. 1.7 billion Swedish citizens have got shares in Kaupthing Edge, and according to the Riksbank, this solution will prevent Swedish investors from losing any of their capital, this can even make them till winners of this crisis. (http://www.riksbanken.se/) And the Riksbanken will not lose either, the Swedish subsidiary of Kaupthing will be sold.

This quick bailout made by the Swedish Central Bank show that the Swedish government is really taking responsibility in the financial crisis. Furthermore, I see no need for bailouts like this one to Swedish banks in the near future; they have a considerably stronger economy than many other banks is other countries, and it looks like the Swedish Financial Supervisory Authority has control over the situation.

Food prices

The shoppers in Chongqing, China, died in a stampede for discounted cooking oil at a Carrefour store in November last year. At the same time in Morocco, dozens of people were hurt in clashes with police at a protest over high food prices. Around the world, the soaring cost of everything from milk to bread to meat is stocking inflation, threatening the poor with hunger and prompting politicians to impose price and export caps. The United Nations Food and Agriculture Organization’s global food price Index jumped 24% last year, the biggest gain since 1990. Donald Coxe, a global portfolio strategist at BMO Capital Markets has tracked commodities for over two decades, he recommends buying the stock. He also says that here will be another year of skyrocketing food prices and consumers all over the world will be hurt. “History as shown that when people have problems with food, governments can fall”. (http://www.financialpost.com/story.html?id=213343)

With stockpiles of grains including wheat and rice at the lowest in three decades, a scarcity of agricultural land in China and India surging demand for food in emerging markets, prices may keep rising even higher in the future. According to the International Monetary Fund, last year, as much as 40% of the global gain in soybean and meat consumption came from China. However weather also plays a part; drought in Australia, the world’s third biggest dairy exporter, hurt milk supplies. According to CMA (A German agriculture marketing firm) the amount dairies in Germany pay to farmers for a liter of milk rose 22% last year.

With the biofuel boom, which diverts corn used for food and animal feed, is making goods such as Mexican tortilla and American meat more expensive. US ethanol production alone counted for about 60% of the global increase in corn consumption in 2007 according to the International Monetary Fund.

Global food inflation is being driven by this strange attempt to take the food out of the tables and give it to the cars. Rising crude prices mean that customers won’t find much relief buying imported goods. In some nations, where some people may spend more than half their income on food, a small jump in prices may mean more hunger, which Governments might rush to impose caps. In India for example, the Prime Minister announced a plan in the end of last year to set aside more land for grain after higher prices for onions and wheat cost. In Russia the Government has proposed limiting grain exports, and Venezuela ordered its state oil company to plant soybeans and build food processing plants.

Food prices are clearly adding to the stress in developing countries today, on top of the other financial crises. We need to be more prepared for an agricultural point of view.

Thoughts on Oilprice vs Climate Change

When the price of crude crossed $139 a barrel in June, it was the highest sign that the end of the Age of Oil was on the horizon. Hydrocarbons have had a remarkable run, fueling more than a century of economic expansion that has spread from the Old World to the New World, to the emerging powers of Asia and beyond. Geologists and economist may argue over exactly when global production of oil will peak, but few disputes that the era of cheap oil is over. Some say the peak is expected to happen within a couple of month, some in year 2012.

No companies will feel the dislocation more intense then the carmakers, and they have been slow to adjust. Their recent enthusiasm for hybrids and other fuel saving vehicles cant mask their continued obsession with gas-guzzling trucks and sport utility vehicles. “The car-based culture, the business-as-usual of building cars and trucks, is going to change dramatically” said Toyota Motor Corporations executive Bill Reinert earlier this year in an interview with Bloomberg.

The scarred earth will never recover from all the damage that humans have made trough driving cars and other vehicles. And as the price of oil rises, the cost to the planet in terms of environmental degradation also spirals unavoidably higher. Can car companies follow this?

Last year Environment was put as a subject in some school’s timetables around the United States, despite that fact, America is one of the worst countries when it comes to environmentally friendly policies and developments.

Can Al gore, and other politicians, with thier pro-environment policies help to recover the world’s environment? And can a result of this be lower oil prices?

A solution for the Financial Crisis in the States?

Last Friday, the American Treasury Secretary Henry Paulson told the world he had a solution for the financial crisis in the States: that the American government is to buy all the bad loans. The congress has decided that there is an urgent need for a strategy like this one, in order to protect the taxpayer’s money and release the tense in their financial system. He also stated that it is important to let the money flow to the consumers while this is I progress. However he believes that this program will need plenty of money in order to get the best and maximum effect, maybe hundreds of billion dollars if it’s needed. Next wee the congress will make the more precise decisions.

There are many different aspects in this matter, and it raises many different opinions about the outcome this program might get. One way of looking at it is that the taxpayers will have to pay for this. Even tough Mr. Paulson states that it is important with credit flows and that the money that will go into this program will not be the taxpayers’, the money has to come from somewhere, and they FED can’t take all the reserves. The States all ready has a National debt of 9,5 trillion. This will eventually affect the taxpayers. At the same time there is an election coming up soon: Bush talks about cutting taxes, Obama talks about better medical aid, care and social security and Mc Cain talks about building up the army.

However there is another way to look at this financial salvation program. I believe it is highly unlikely that the FED will loose more money then they can win in the long run if nothing is done about this crisis, and it has to be done soon in order to prevent recession. However it is of high importance that these financial arrangements should aim to prevent the “sellouts” of the money market.

So the question to ask is whether the U.S. government is big enough to take on this whole problem themselves? Well, they have to start somewhere.