North Korea's "money grab"

North Koreans Protest Currency Issue

Excerpts:

New reports emerged Tuesday of protests and violence in North Korea as the country's authoritarian regime over the past week seized most of its citizens' money and savings via a new-currency issue.

...

One South Korea-based news report said police in a suburb of the capital city of Pyongyang on Friday shot and killed two market traders who tried to skirt the limits on the amount of old North Korean currency that could be exchanged for new currency. Another said women who work in goods and produce markets were protesting the action in defiance of authorities.

The reports suggest that North Korean officials may be experiencing more difficulty than expected in using the currency issuance to collar the expansion of private wealth in the country.

"They've tried to wind back the system, but they're potentially teaching the people that markets can't be controlled," says Shaun Cochran, head of Korea research at CLSA Asia-Pacific Markets, who published a report on North Korea's move.

Pyongyang announced Nov. 30 its decision to issue new currency and limit the amount of old currency that could be exchanged to about $40, based on unofficial exchange rates, a step that essentially scrapped all other private money.

Mr. Cochran said that the regime's money grab "could be the single most important event in defining North Korea over the next decade."

Earlier post: North Korea: "shock therapy" on currency

Big Mac leaves Iceland ... and why you should care

The Big Mac's Currency Lesson - McDonald's departure from Iceland is a suggestive economic indicator

Excerpt:

.... McDonald's Icelandic franchisee noted, in explaining his decision to throw in the patty, that unlike his local competitors, McDonald's imports most of its raw ingredients, from beef to special sauce, lettuce, cheese, pickles, onions and, we assume, sesame seed buns. This reliance on imports has undercut McDonald's margins in the island nation, which saw the krona plummet by more than 80% after the financial panic took down the country's major banks.

But the lesson here is not about the dangers of globalization or the virtues of buying local. Since Iceland's banks collapsed last fall, and its currency with them, the cost in local currency of all imports, and not just fast food, has soared. This has done nothing to "cushion" the blow to Iceland's economy from what amounted to an international run on its banks. What it has done is added a currency panic to a financial panic, and made Iceland's prospects bleaker than they otherwise might have been.

In countries such as Ireland, some critics of the euro have claimed that membership in the currency bloc has made its economic woes that much more painful, and that Ireland would have been better off if it could have depreciated its way out of trouble. In the U.S., too, there's a chorus arguing that we can devalue our way toward prosperity. But debasing one's currency makes a country poorer, not richer. Just ask the residents of Reykjavik ...

Comment: Why you should care: Because that national debt clock that keeps ticking (upper right on this blog) and that just a little more than a year ago was 7 trillion and now has passed 12 Trillion (in just a year!!!), is an indicator that we as a nation are digging a deeper and deeper debt PIT. And that the dollar is worth less and less!

Money "worthless beyond its shores"

The Isle That Rattled the World

Excerpts:

.... housands of Icelanders were protesting one of the strangest economic failures of the global financial crisis. This past fall, every bank that matters in this tiny nation -- that is, all three of them -- failed. Iceland's currency, the krona, became worthless beyond its shores. The country's financial system stopped working.

...

Iceland is an extreme casualty of an era in which it became extraordinarily easy to borrow money. But it was more than that: An examination of the nation's banking system, which collapsed over about 10 days this autumn, reveals the degree to which Iceland was one of the international financial bubble's most enthusiastic players. Home to fewer people than Wichita, Kan., Iceland became so leveraged and so deeply intertwined with the global financial infrastructure that its collapse has rattled the world from Tokyo to California to the Middle East.

...
Like Americans who rode a housing bubble thanks to the U.S. Federal Reserve's maintaining low interest rates for years, Icelanders had found a cheap source of borrowing to finance their consumption.

As long as foreign money kept flowing into Iceland, everything remained fine. But an outflow would dangerously reverse the equation, and set the stage for calamity.

Iceland isn't the only small country to be whipsawed by foreign money flooding in, then gushing out. Hungary and Latvia were similarly hit.

What makes Iceland different: It tried to build a global banking center on top of a tiny currency. So when foreign investors tried to pull out -- converting kronur back into dollars or euros en masse -- its currency fell like a rock, spurring more withdrawals.

Amid Iceland's euphoria, there were warnings. In 2006, analysts at Danske Bank wrote a paper titled "Geyser Crisis" saying that Iceland's banks had grown too much, and the country was dangerously reliant on the willingness of foreigners to keep sending money.

Comment: Americans (US citizens) should carefully consider the fate of the Krona and the Zimbabwean dollar. Their fate could be ours!