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What We Can Learn From Iceland

|Includes: CurrencyShares Euro Trust ETF (FXE)

It seemed like just yesterday Iceland's banking dominated industry collapsed and the quaint island became a posterboy for the worldwide effects of the 2008 financial crisis. Yet, Iceland right now is doing fine; actually, fine is an understatement. As FT Alphaville reports:

Icelandic central bank has just decided to push up rates by 25 basis points to combat signs of inflation amidst "robust" domestic demand.

Iceland has become a posterboy of economic recovery and one of the main reasons it was able to steadily post solid economic gains was its complete refusal to cater to or help its financial industry: in 2008, the Icelandic government allowed its banking sector to collapse, and it is currently trying its prime minister from 2006 to 2009, Geir Haarde, for wrongdoings during the crisis. Ironically, Iceland is actually looking to join the European Union in the future, pointing to the illiquidity and volatility of its krona.

Also interesting is Mr. Krugman's recent decision to tout the Icelandic success on his New York Times column "The Conscience of a Liberal." Iceland's catharsis and subsequent recovery came from the exact opposite of government intervention and deficit spending as touted by Mr. Krugman. In fact, FT Alphaville directly attributes "sharp cuts in state spending" as a main reason for Iceland's new economic state.