Current account deficit in Iceland parallels to American deficit visible?
I have recently heard news of recession and a devaluation of the Krone from the up to now economically very successful Iceland. On Iceland too, houses have been bought with cheap money and sold later at a profit. It is a form of price escalation - a "real estate bubble". The owners of these houses feel rich, and people consume more than they can actually afford. A current account deficit develops. The whole system is successful as long as foreign investors are willing to invest money in it. Iceland's problems could be a warning of similar problems in America, whose deficit is enormous. The world-wide rising interest rates are hardly helpful for borrowers and the economy in general. However, the interest rate rises will hopefully put a brake on the inflation of the finance markets.
For me, there is a huge difference between feeling rich and being rich!
An article on this subject from the Financial Times Deutschland
