Any more word on California? :-) It'll certainly be bigger than Iceland!

Just a couple of corrections in your report.

Iceland is mostly self-sufficient for most of its food products, has a dairy and sheep & beef industry that provides for all domestic needs and also exports small quantities to USA and Europe.

Iceland grows all its vegetables, and is the only country in Europe that grows bananas (I am not joking!!).

Most of Icelands exports are not agricultural, fish is the main export product, followed by energy (aluminum etc). Fishing has a similar importance to Iceland as agriculture to NZ.

Iceland generates more carbon credits than almost any other nations with most of our energy generated by geothermal or hydro energy.

Iceland has one of the strongest and most developed and efficient fishing industries in the world and has invested heavily in energy and technology related industries over the past decade.

Iceland's GDP will not be severly affected by this banking crisis, as most of the Icelandic banks are based around international operations that don't and have not contributed to the Icelandic GDP in the past.

Icelandic government has very low foreign debt and is not in a dissimilar financial position to the NZ government, it is the scale of the Icelandic bank's that is the problem, being 12x larger than the Icelandic economy.

Iceland itself does not need such a large banking sector to function properly, in fact it has hindered its growth for some time.

The Icelandic government is not bankrupt, two privately owned banks based in Iceland are and this could have a very negative impact on the Icelandic economy.

The important thing to understand about The Icelandic Banking system is that most of the banking system was owned by the government until a few years ago when it was sold into private ownership and was bought by a few families and individuals.

These families and individuals have speculated hugely in international money markets and geared up heavily to purchase banks and financial institutions mainly in the UK and Scandinavia.

The Icelandic government has no obligations or need to bail out the international operations opf these two private banks. They are only concerned with the domestic side of the operation and will separate out the domestic and international operations very quickly with the aim to ditch offshore assets that are of no significance to the Icelandic economy. Ultimately investors will loose - the Icelandic depositors and government will not.

All private mortgage lending in Iceland is not with the private trading banks, but through a government owned and public fund that is managed and funded by the government. The same goes for a lot of the primary industry funding.

I guess the concerning thing in NZ is that a lot of the domestic mortgage funding in NZ is based on off shore borrowing by banks that are not in NZ ownership. ANZ and Westpac (two of the largest retail banks) have primarily funded their books from off shore and with some of the maturities likely to come up over the next 6 months, it is likely that Asian (mainly from Japan) funds will call in their deposits. NZ depositors are rightly concerned about the Australian banks, and TSB Bank and Kiwi Bank have benefited. Obviously banks like Rabobank are likely to be a safe place with its AAA rating and primary focus on Agricultural lending world wide.

I suspect that Garreth Morgan could be right about some of the overseas owned banks in NZ starting to call up some of the debt, to improve equity% on a falling housing market.

Depositors in NZ have not been treated fairly with no capital gains tax in NZ and almost a non existing savings progam before the more recent introduction of kiwisaver.

Savings history has not been strong in NZ, hence strong overseas borrowing to fund private house mortgages and primary industries.

I think you could be right, the continued current account deficits (partly due to offshore borrowing by overseas owned banks in NZ to fund an overinflated housing market) could become a problem for NZ.

The Icelandic pension funds are not owned or managed by the Icelandic government, they are private and are separate from the banks. If you read up on this you will find that non of the overseas investments with the pension funds will be cashed up at this stage.

The situation in Iceland is not a dissimilar situation with The Australian banks owning pretty much all of the NZ banking system. Clearly if the Austrlaian banks go bankrupt or get into difficulties, then the Australian government would not be prepared to bail out NZ investors or savers that had trusted their savings or investments to the Australian owned banks.

The government actions have primarily been based around protecting the domestic side of the banking sector. The total banking sector in Iceland was about 12x the size of the Icelandic economy. Clearly the Icelandic government is in no position to salvage the international operations, and why should it when the bank is a private bank.

Fonterra is a large player in the world trade for dairy products, its investments in China and difficulties with contaminated baby food products does not obligate the NZ government to bail out Chinese investors, or Fonterra for that matter. Why should the Icelandic Government bail out private Icelandic bank's that have decided to invest in banks in Europe.

Iceland will probably take a substantial loan from Russia to boost its currency reserves and to stabilize the Icelandic Krona. Non of the funding from Russia is to bail out any the banking system, it is to boost its currency reserves and stabilize the krona. Recently The Icelandic government has also taken on a loan from a German bank to boost its currency reserves.

However I suspect that the Icelandic Krona will struggle similar to the NZ$.

The Swedish Reserve Bank has just provided lines of credit for the third Icelandic bank, due to the scale of operations in Sweden and Norway has offered The Icelandic Government funding to boost its currency reserves.

Like NZ, Iceland has had a long trading history with Russia.

When Iceland fought the British during the "cod wars" and Iceland's trading of fish to some of the European nations the Icelanders traded fish for oil with the Russians, so we could drive our Volvos and Saabs.

When the British limited NZ access for butter to UK and the EU, NZ traded butter to the Russians for Lada's.

Somehow I think the oil was of more use to our Volvos and Saabs than Ladas to your safety and well being.

Ladas are not much good I hear!!

Valdimar
Your comment was both informative and funny. Personally I think the standard of driving in NZ presents more of a risk to health than the driving of Ladas. I confess to having little experience of things Icelandic other than M&S cod and the music of Björk and Sigur Rós. Many people have told me that Reykjavik is amazingly sophisticated but even more expensive than London. Looking on the bright side I guess with the currency dropping the tourist industry will boom "“ if anyone here can still afford a holiday that is.