Bank Credit Analyst: Iceland vs Ireland – Devaluation vs Deflation

From BCA Research‘s Daily Insights (via John Mauldin’s Thoughts From The Frontline) – Iceland, Ireland And The Role Of The Currency:

The different adjustment paths of Ireland and Iceland are classic examples of devaluation versus deflation.

Iceland and Ireland experienced similar economic illnesses prior to their respective crises […]

In stark contrast to the Icelandic situation, however, the Irish economy has become stuck in a debt-deflation spiral.

[…] fiscal austerity without a large currency devaluation is like committing economic suicide – without a cheapened currency to re-create nominal growth, fiscal austerity can only serve to crush aggregate demand and precipitate an economic downward spiral. The sad reality is that unlike Iceland, Ireland does not have the option of devaluing its own currency, implying that further harsh economic adjustment is likely.

Read more.

This entry was posted in Bankers' Bailout, Budget, Debt Default/Restructuring, Euro / Sovereign Money, Housing Bubble, ireland, Solutions and tagged , , , , , , , , , . Bookmark the permalink.

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