Default and devalue

Iceland shows that the arguments put forth by the banksters and the europhiles are simply incorrect:

Iceland’s real gross domestic product grew by 1.2 percent in the July-September period from the previous quarter, the first quarterly increase since the same period in 2008. Iceland entered a slump after its overleveraged financial sector collapsed in the wake of Lehman Brothers’ bankruptcy.

Like Ireland and Greece, Iceland has taken a large dose of austerity measures to rebuild its economy. Unlike Ireland and Greece, however, Iceland allowed private banks to fail, and its currency, the krona, has declined by about 46 percent against the dollar since the start of 2008.

“Excluding the financial system, the real economy is doing well,” Arsaell Valfells, a professor of business and finance at the University of Iceland, said in telephone interview. Retail spending was still shrinking, he said, but the export sector, consisting mainly of fish, aluminum and tourism, was improving.

Just as a man cannot serve two masters, a government cannot serve two economies. The USA and Europe have chosen to preserve the financial economy at the cost of the real economy. Iceland chose the opposite. Needless to say, Iceland made the wiser choice because there are a lot more people in the real economy than the financial one. More importantly, the real economy is not a parasite completely dependent upon the financial economy, which is why putting the interests of the financial economy first is bound to be disastrous when viewed from a longer term perspective.