Iceland shows the hard reality of today’s economics

Clearly, the last few weeks have been complete turmoil for the world economic system. Practically everyone is revisiting their assumptions about economies, markets, even their own family’s budget. Still, in talking with executives, business owners, young people, and others, I get the sense that Americans haven’t quite yet comprehended the potential impact of these economic shocks.

Iceland, no longer has that luxury.

Today, the interest rate has been raised to 18% as a condition of an IMF cash infusion.

Polish guest workers, who for years have emigrated to Iceland for economic opportunities, are cashing out their remaining krona and heading home. I have heard that they fear the krona’s worthlessness to the point that many are running on the banks, taking cash, and attempting to buy automobiles that will at least hold their worth. (still looking for the link) To me, that’s a real wake up call, when your medium exchange is no longer trusted and people return to basic barter economies.

The economy, for many people, is this abstract interaction, a whirling dervish of numbers than only the  mathematically-inclined financiers of London, Hong Kong, and New York can truly fathom.

Economics is actually a social contract between workers, companies, governments, and consumers. In the end, everything is a barter. I’ll work for twenty years, if you let me live in that house. I’ll work for two hours, if you let me buy that DVD. As a farmer, I’ll grow lots of corn, if you’ll give me bread, cars, housing, and education for my kids in return.

That’s the real system. And when you despoil it, you end up with 18% interest, 20% unemployment, etc.

I may be a futurist, but I was a Vermonter first. And there, the world starts with corn, cows, maple syrup and wood. Everything else is an abstraction that fits on top of that Bronze-Age infrastructure. When we forget that, we get real disruption in return.

It doesn’t have to be gloom and doom. But it doesn’t have to turn out OK, with our 401(k)s returning to “normal,” and our economies chugging along as we’ve become accustomed.

Just ask Iceland.