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


.... 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!

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