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Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland – Update 2

Posted by Adrian on April 4, 2008

Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland – Update 2

Iceland is apparently been attacked by hedge funds (although this could be some hysteria here) who are short selling the currency.

I don’t think there is anything unusual or specific about the allegation of hedge funds short selling currencies, or carry traders inflating currencies.

With reported high debt to income and possible interbank problems, Iceland is also a country that is struggling to contain inflation.

Iceland is one of the stand out countries from Europe’s economic debt bubble and now the credit market unwinding and global de-leveraging.

from Timesonline.com,

“The investment boom in Iceland has created an extremely tight labour market, soaring wage costs and galloping inflation, which in February reached 6.8 per cent.

The resulting high interest rates have made the krona a favourite for currency speculators in the “carry trade”, in which money is borrowed in low-interest currencies, such as the yen, and invested in financial assets in high-yield currencies, such as the krona. However, a loss of confidence has pricked the bubble in the carry trade, causing the krona to tumble.

Corporate and household debt levels have soared and much of the corporate debt is believed to be denominated in foreign currencies, a consequence of the acquisition spree by Iceland’s ambitious companies. The falling value of the krona is likely to put pressure on the ability of these companies to service that debt, creating further problems for the economy.”

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One Response to “Overview of countries effected by credit, liquidity and inflation; recession conditions – Japan, Spain, Iceland – Update 2”

  1. […] up speed further into 2008, the question is to what extent will Europe be effected? As followed in morbius glass, the countries that I have picked in regards to Europe are Italy, Spain and Iceland. Of course […]

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