Iceland Debt Small Part of Global Debt Crisis | Print | E-mail
Written by Charles Scaliger
Tuesday, 09 March 2010 21:00
Iceland’s recent vote not to repay billions of dollars owed to Britain and the Netherlands underscores the growing risk involved in bailing out sovereign debtors. When Icesave, an Iceland-based Internet bank, collapsed back in 2008 along with most of Iceland’s banking sector, the tiny North Atlantic nation nearly collapsed along with it. Fortunately for the short term, Britain and the Netherlands agreed to bail out Iceland’s depositors in Icesave.

Now, however, voters have resoundingly rejected (by a margin of 93 percent to about two percent) a government plan to repay the British and Dutch by having $135 garnished from every paycheck monthly for the next eight years. Although Iceland’s leaders continue to insist that Icelanders are obligated to repay the money, ordinary Icelanders, understandably reluctant to accept responsibility for the actions of politicians and central bankers, are balking.

The problem with sovereign debt, including debt incurred by the U.S. government, is that responsibility for it is diluted. While pundits may insist in the abstract that every American owes tens of thousands of dollars in his share of the national debt, millions of Americans — especially those who (like this writer) have long deplored the unconstitutional and illegitimate profligacy of politicians in Washington and state governments — are unlikely to comply when America’s creditors begin demanding that Americans be shaken down for decades of irresponsible government borrowing and spending.

When American taxpayers are no longer willing or able to pay for the party that the politicos have thrown for themselves, Washington will have little recourse except to try to print its way out of debt. But that too will be difficult when creditors refuse to purchase any more government debt (since issuing debt, primarily through “open-market operations,â€