Debt forgiveness in Iceland

Iceland’s expanded debt relief programme in Iceland is targeting too broad a demographic, the OECD has warned.

By the end of 2013, Iceland’s banks will have forgiven almost €250 billion kronur (€1.6 billion) in consumer debt, equal to more than 14 per cent of gross domestic product, according to estimates from the Icelandic Financial Services Association.

Here is a bit more.


"The OECD urges a more limited approach, saying Iceland should instead raise interest rates and target relief only for financially distressed households."

Why? The article provides no motivation from the OECD. Strange to "warn" whithout stating what problem might arise. Perhaps it is assumed that we should fear any policy which is not optimal for bank profitability.

My thoughts too. Sure, 14 percent of GDP is a large sum of cash, but it will be really interesting to see how it impacts the economy either way. I don't even think it would hurt in terms of consumer spending either

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At first glance, debt relief is good for debtors, bad for creditors (long term results may be different). In terms of the OECD, would those making this warning be more likely to be from one class or another?

If, like me, you hold the paranoid view that the political process has been captured by large financial institutions so they can socialize their failures, it's easy to see this advice as anything but disinterested.

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What is debt forgiveness? Is it the government taking on the debt?

If the price of money is zero or very very low because it can just show up for nothing to deal with an inconvenience, what is it worth?

From a travel tips site:

Banks are open 9.00am - 2.00pm Monday to Friday. Foreign cash and travellers cheques can be exchanged at hotels, banks, airports, railway stations and travel agencies. You must keep all receipts as it is illegal to change money on the black market. Major credit cards are widely accepted.

What is the black market exchange rate? Iceland has currency controls.

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A deliberate policy of inflation is a "debt relief" for all debtors, regardless of need. Inflation punishes all lenders regardless of whether they were reckless in their lending or not.

Debt relief (through easy bankruptcy proceedings, for example) for all those with excessive debt burdens may be the faster and fairer way to stimulate an economy. There is no reason for a nation to struggle for years trying to pay debts that will never be paid in any event.

Iceland's circumstances are much worse than America's. Writing off American consumer debt equal to seven percent of GDP (half the proposed rate for Iceland) in 2008/9 through mortgage cram down and fast track personal bankruptcies might have been a faster, fairer, cheaper and more effective way out of the recession than what we have had.

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