Update from Jim Sinclair 10/14/2008:
“Iceland’s collapse is no small event. It is not something meaningless that cannot be applied to a broke giant like the USA whose debt to non US entities are enormous problem from banks to government.
“This morning the stock market in Iceland, after a three day stop, opened up down 77%. The Krona is in the tank.
“The very few in Iceland that survived their crisis are those that, against all advice from every corner, held gold. They are sound and solvent. When this happens to a country their distribution means melts down. Then it is a rush to buy everything you will need for a minimum of 90 days, maybe much longer.”
Coming soon to the US?
What’s happening in Iceland today is due to the collapse of their currency, the krona. This gives you an idea what it will be like in the US if/when the dollar goes belly up.
“We have had crazy days for a week now,” said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik’s main shopping center. “Sales have doubled.”
Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said.
Iceland’s foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won’t trade the krona and suppliers from abroad are demanding payment in advance.
The crisis is already hitting clothing retailers. A short walk from Bonus in the capital’s Kringlan shopping center, Ragnhildur Jonsdottir, owner of the Next Plc clothing store, said she can’t get any foreign currency to pay for incoming shipments.
“We aren’t getting new shipments in, as we normally do once a week,” Jonsdottir said. “This is the third week that we haven’t had any shipments.”
“There is absolutely no currency in the country today to import,” said Andres Magnusson, chief executive officer of the Icelandic Federation of Trade and Services in Reykjavik.
Shortages By End of Week
Magnusson said last week that one of Iceland’s largest supermarket chains was unable to get any foreign currency to make purchases abroad and another retailer’s electronic payment didn’t go through. Iceland will begin to see shortages of “regular goods” by the end of the week if nothing changes, he said.
“We are struggling to make the economy survive from hour to hour,” Magnusson said. “There is an enormous amount of capital that wants to get out of the country.”
Sedlabanki told lenders on Oct. 10 that residents who want foreign currency should first prove they need the money for traveling by providing documentation for their trip.
No One Trusts Us
Wholesalers are demanding that importers pay before any goods are shipped, said Knutur Signarsson, head of the Reykjavik-based Federation of Icelandic Trade. Under normal circumstances, wholesalers abroad would extend credit for 30 to 90 days, he said.
“Many of them ask us to pay cash before they send the goods to Iceland,” Signarsson said. “Because of the situation, Iceland has become a country that no one trusts any longer.”
Bogi Thor Siguroddsson, owner of Johan Roenning, an import and retail business which has about 7 billion krona ($71 million) in annual sales, says he’s instructed his purchasing managers to only import the core goods, including light bulbs, lamps and electrical cables, they need to serve their customers.
“It’s enough to have the credit crisis,” he said. “Then you have the currency crash. Unfortunately, we have shown that we can’t handle it ourselves.”
Icelanders, whose per capita gross domestic product is the fifth highest in the world, will have to tighten their belts.
Shoppers are paying more for the goods they do get. The cost of fruits and vegetables have gone up about 50% in recent months, said Steinunn Kristinsdottir, a 33-year-old Reykjavik resident who was leaving the Bonus store with her cart full.
“This situation really has been a bit troubling for people,” she said. “They don’t know what’s going to happen.” [more…]
◊◊◊◊ Now: Gold @ $832.40, Silver @ $10.69, USDX @ 81.61 ◊◊◊◊
◊◊◊◊ Now: DJIA 9,387.61