Iceland's Crisis

Links below for the articles including Chancellor Darling & Iceland's Chancellor's communication [transcript]. As of today, the importing island nation of Iceland, had to rasie her central bank rate to 18% (18.5%?) to meet IMF lending requirements. Any such bank rate, almost stills domestic lending, and is an emergency exegis to restore capital and to avert capital flight, restore a currency to stabilization (the Crown) and to attract foreign monies to its banks. In the short term for an island importing nation, it (the high bank rate) by restoring or raising the value of the domestic currency cheapens import prices. It can otherwise than an emergency application, be called a 'gilding effect' of domestic assets; and a chronic unimaginative tool of the very conservative banking school of economics styled "Monetarists". [cf. Paul Volcker options in the US interest rate years of the Carter Administration -- in attracting capital, and securing a high dollar -- offset and converted to Reagan stimulus deficits which attracted capital through US Treasury issues as that Administration, and eventually a new Fed reduced interest rates.]

In Iceland's case, it is a 'shock' remedy of a stabilization order never to be confused with interest rate nationalism and trade/currency effects in the Great Depression international trade wars. In the USA, the Fedeeral reserve is quasi-independent. In the UK, the Government decide to borrow and the Bank of England, within reason including the 'remit' issue, meets the interest target. Many supposed that the USA Fed would do the same as in the New Deal in President Carter's term; but in the Volcker years did not, and refused to reduce interest rates. In Reagan's Administration, the needed capital was attracted to Reagan stimulus Treasury bonds which brought in offshore money compounding more effectively than high interest rates.

iceland's rates, unless the IMF went Vienna way, will be high for the medicine therapeutic only - not hopefully for years.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5005915.ece

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5005572.ece