In These New Times

A new paradigm for a post-imperial world

As household debt shoots through the roof, some people are going on strike

Posted by seumasach on September 20, 2009

Iceland Weather Report

18th September, 2009

Icelandic households are in serious trouble. When the economy melted down last year, the krona plummeted and loans that people had taken in foreign currencies [they were all the rage here in 2006-2008] went through the roof. Initially the government responded by allowing people to freeze their loan payments for the time being. That freezing runs out in October, at which time households that are already heavily indebted will face an even greater burden, that in many cases will be insurmountable. Defaults have already started to increase – and starting in October they are likely to increase even more.

Predictably, the demand has been growing louder and louder for the government to do something radical to help the households. In the last few weeks and months, however – certainly during the summer – all of the government’s energy has gone into debating the Icesave agreement and the issue of the households has fallen by the wayside.

For that reason, an interest group set up last year to help households has called for a “payment strike” in October. They’re urging people to stop making loan payments, to withdraw their savings from the banks – and to use the banks as little as possible. With this they hope to draw members of the government to the negotiating table.

Fortunately [by the grace of God and all that] this does not affect EPI and I very much because we bought our property just before the boom started and the real estate bubble began. In that time, neither of us has bought a new car [we’re an absolute anomaly in Iceland], so we have no foreign currency loans – just a regular old state mortgage with relatively low interest rates. We are extremely lucky.

Others are not. As one speaker, Þorvaldur Þorvaldsson, said at the meeting:

It looks like by the end of this year nearly a third of the nation will have a negative capital position, and next year it could be close to half the nation. When half the nation is in a special measures program and is allocated ISK 70,000 [USD 565] a month to live on, how is it supposed to shoulder the Icesave debt and other government debts that just keep building up? And then how is the nation supposed to see a reason to keep on working? How are we supposed to protect the welfare system and the nation’s resources? Will they be sold at a fire sale one day, just to be able to cover the next payment or refinancing?*

A frightening notion indeed. And a bleak future vision. Ever since the collapse we’ve been waiting for the other shoe to drop – well, this might just be the time that it does. At least it is clear that the households cannot go on forever struggling to pay off ever-increasing debts … while at the same time the bank tycoons and moguls responsible for this disaster have the debts of their defunct companies written off left and right.

Such horrible injustice. And something has to be done.

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