Iceland Raises Rates, Again

Iceland's central bank raised rates yesterday for the third time since March as "the domestic economy continues to recover with robust growth in demand and growing signs of a rebound in labour and real estate markets."

This is noteworthy because Iceland ripped the band aid off in the financial crisis allowing its banks to fail. Most of the rest of the developed world bailed out their banks (many of them anyway) and in some cases continue to bail--zombie banks.

Now, a few years later and Iceland has "robust growth" which is not how anyone could reasonably describe the US or the Eurozone. Iceland by virtue of being so small does not make for an apples to apples but they did the more difficult thing at the time in a way that other countries were not willing to do.

Actually the US is still unwilling to do the difficult thing. This point was captured on CNBC the other day and Zerohedge jumped all over it; why would politicians allow the free-markets to work and expect to be re-elected.

This is a point made here many times in the past which is that our political cycle does not seem conducive to solving the country's various structural threats. How can congress devise and implement a strategy to fix it when their seat is up in two years and they care more about re-election than anything else? The same dilemma probably even exists for senators and their six year terms.

While I have no societal solutions to offer I continue to believe that like Iceland, had the US taken more difficult, free market action we would be starting to see how we come out of this but that is not the case.