Despite international opposition, the Reykjavik government will press ahead with the debt relief plan.
THE ICELANDIC GOVERNMENT has announced that it will write off household mortgage debt in order to kickstart the economy.
Under the plan, every household in the country will have €24,000 worth of debt written off.
The move was part of the election manifesto of the Progressive Party, led by Prime Minister Sigmundur David Gunnlaugsson.
The idea will cost the country €1.2 billion and will begin in mid-2014. Iceland has been burdened with debt since the 2008 financial crisis, which saw the krona collapse.
A government statement said that the plan would kick-start consumer spending.
“Currently, household debt is equivalent to 108 per cent of GDP, which is high by international comparison.
“The action will boost household disposable income and encourage savings.”
The plan has been criticised by the IMF, the OECD and various economists, with the IMF saying that the country has “little fiscal space” for the move, while the OECD says the plan should be limited to low income housing.
The measure has improved the country’s rating with Standard & Poor’s, who upgraded the economic outlook from negative to stable.
Note by Randy Shannon
There are a little over 75.5 million homeowners in the USA. What would happen if every homeowner in this country were to receive the same kickback from the US government that Iceland is paying out? Well, each homeowner would get a check for $32,800.00.
This would be a total outlay from the US Treasury of $2.46 trillion. If this were done in monthly payments over a four year period the amount would be $51.4 billion per month. Does this sound like a lot of money?
The bankers don’t think this is a lot of money. Right now the Federal Reserve is transferring $82 billion per month to private US banks that are insolvent due to the 2008 financial crisis. The Fed is printing US dollars, “buying” worthless mortgage backed securities from these zombie banks, and the banks are depositing the cash back into the Fed and earning interest. That interest is paid by us homeowners.
So for about 40% less outlays per month the Federal Reserve could kickback the same amount to each US homeowner as the Government in Iceland is doing. Now the Federal Reserve and US Treasury are saying that this $82 billion a month is stimulating the economy, but the percent of people employed has remained unchanged since 2008. The unemployment rate has dropped because people have given up looking for a job. If the bankers in control of our country’s finances really wanted to stimulate the economy they would and they could do the same as Iceland and it would cost less!