Reykjavík Grapevine - 08.04.2005, Page 10

Like the Reagan administration twenty years
previous, Bush’s strategy has been to give the
5% top earners the highest tax breaks and
to try to shift Social Security to the private
sector, while cutting Medicare and other social
programs. Bush is harkening back to the days
of “trickle down economics” – the belief that
allowing the rich to make as much money
as possible will lead to them donating more
money to the poor – a plan that the current
president’s father called “voodoo economics.”
The result so far? The dollar is dropping like
a stone.
The Cost of War
The tremendous spending on the war in Iraq,
a war which was only supposed to cost the US
no more than $1.5 billion in total but ended up
currently costing $1.8 billion a day and rising,
is just one factor. Another would have to be
the creation of the Department of Homeland
Security, which has raised federal spending by
billions since its creation on October 8, 2001.
The cutting of social programs has not offset
this increase in spending, while the tax cuts
and the growing trade deficit ($666.2 billion
in the past 12 months, according to The
Economist) have all led to one thing: since July
2001, the dollar has dropped by 6.5 per cent.
What Will the Asians Do?
In response, many are choosing to switch
to the euro. In a recent survey conducted by
the Royal Bank of Scotland, 70% of the 65
central banks who provided information about
their reserves have switched their reserves
from the dollar to the euro, thereby dumping
more dollars on the market and adding to
the devaluation. Already the Asian market
is grumbling, with financial leaders from
China, Japan and South Korea meeting in late
February to develop strategies for handling a
rapidly weakening dollar.
Spend More
Bush’s response has been to encourage
consumers to spend more money in the hopes
of increasing productivity. So far, this approach
is floundering. According to the Organization
for Economic Co-operation and Development,
US productivity has actually dropped from
a 9% high in the third quarter of 2003 to
1% at the end of 2004. Another hope is that
people outside of the US will take advantage
of dropping prices to buy more American
goods. However, the only significant effect the
dropping dollar has made in terms of trade has
been among exporters to the US, who see their
own goods devaluing rapidly and are already
worried.
The Beginning of the End?
If exporters shift their markets, and if the
Asian market moves from the dollar to another
currency, it could spell the beginning of the
end for the US economy. The only realistic
counter-strategy is also the simplest and at
the same time, the most painful: the US
government must cut spending and raise taxes.
The rest of the world is already coming up
with its own solutions.
DEFYING GRAVITY:
Can the Dollar’s Drop Be Reversed?
A mong the more radical policies of
the Bush administration, the laissez-
faire approach they’ve taken towards
business is one of the most significant.
How to Make Like
P-Diddy and Invest in
ICE
According to Kauphöll Íslands, the
Iceland Stock Exchange, all but
three companies listed in securities
trading group Kauphöll Íslands have
gone up in the first quarter of 2005.
FL Group (formerly Flugleiðir),
Bakkavör and Þormóði ramma
- Sæberg went up by about 30% in
the first three months. Jarðboranir,
Flaga Group and SÍF were the only
companies which went down in
value.
In 2004, the turn-around on stocks
from Icelandair was more than
125%. In other words, the Icelandic
Stock Exchange is pretty hot right
now.
If you want to get in on the action,
there are a few things you should
know about trading in Iceland.
The website for the Iceland Stock
Exchange (www.icex.is) spells out
the ground rules.
You can trade securities through
any number of banks and securities
offices (verðbréfastofan), but they
generally keep that quiet. They
prefer to attract the business of
larger companies and corporations,
although they won’t refuse your
money if you want to trade as a
private investor.
There are two markets to choose
from in Iceland: the Main List and
the Alternative Market. Between
them, the Alternative Market is
less stringent. Rules and regulations
for trading in Iceland follow those
outlined in the European Economic
Area (the EU plus Iceland, Norway
and Lichtenstein).
The market day starts at 9:45, with a
fifteen-minute “precall,” followed by
continuous equity from 10:00 until
15:55, when a closing call is made.
The market day closes at 16:00.
As commissions and fees vary
from place to place, shop the
different banks and securities
offices for a while before choosing
your investment house. For more
information, contact the Iceland
Stock Exchange by phone at 525
2800 or by email at icex@icex.is.
(Next issue: Grapevine’s Stock Picks—
or “How to make enough money to stop
reading free newspapers.”)
Paul F Nikolov reports on economic apocalypse
12. March 2005 - 24. April 2005
Reykjavík Art Museum. Hafnarhús Tryggvagata 17. Open daily 10 - 17. Free entrance on Mondays.
NINE - Comics Festival
Listasafn Reykjavíkur / The Reykjavik Art Museum - Hafnarhus, Tryggvagata 17, 101 Reykjavík
www.listasafnreykjavikur.is - listasafn@reykjavik.is - simi (+354) 590 1200 - fax (+354) 590 1201
Brynhildur Þorgeirsdóttir
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