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Welcome to the United States of Iceland
It's time to start paying attention to the financial sinkhole that Iceland is trying to climb out of -- the view from inside of it is eerily similar to our own.
An Icelandic savings bank, Icesave, had attracted billions in deposits from hundreds of thousands of British and Dutch citizens, due to the phenomenally high interest rates it offered. Icesave collapsed in 2008, for much the same reason Lehman Brothers, WaMu, and hundreds of local savings banks did: its bankers used their cash to make complicated, bad, leveraged investments, mostly on real estate.
We have a more sophisticated central banking system, and there are more countries, like China, in whose interest it is to protect the value of the American dollar, thanks to their ownership of our national debt. In that crucial way, we've dodged Iceland's true peril: watching the value of its currency, the króna, crash against the debt it owes in foreign currencies like the sterling and euro. It's looking more and more like our craftiest bankers factored the inimitable strength and guarantee of the U.S. dollar into their reckless gambles.
But the rest of us are really just lucky that the dollar can survive these hurricane-level economic forces without blowing apart.