Fear and Hilarity

Here's a gem of a quote from Bill Gross. "We are to the point of fearing fear itself'' (Bloomberg). The Fed is now buying commercial paper. This is huuuuuuge. The Fed's printing so much money, they might as well just buy everything. The only thing I'm interested in here is, "how much?" but they don't answer that.

Buy the Fed can print as much as they want and the dollar will still go up. Iceland, the little country that decided to engineer great wealth through financial innovation got frozen into one of their famous glaciers. People are buying anything imported to the stores in a panic because their currency is worthless and they don't have any Euros to buy anything with. How could this happen? Well, here are some more detail from Bloomberg. I think they speak for themselves.

The global credit crunch has crippled Iceland's biggest banks, which have racked up foreign debts equivalent to as much as 12 times the size of the economy. The nation's current account gap swelled to the equivalent of 34
percent of gross domestic product in the second quarter, mainly because of the cost of debt payments.

``The commercial bank model there has failed,'' said Sunil Kapadia, an
economist at UBS Ltd. in London. ``For such a leveraged economy as Iceland, it was clear this was going to happen, but the pace has been surprising.''

About 90 percent of the external debt was generated by the three biggest banks, Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf. The
government took control of Landsbanki today, following the nationalization of Glitnir on Sept. 29. It also loaned 500 million euros to Kaupthing and guaranteed domestic deposits.

Hmmmm... 12 times the economy, you say?

Iceland says they won't default, but they will have to if they don't get a rescue.