As a person whose house is underwater, I would love for the US to follow Iceland's example. By writing down debt, the homeowner's capitol is freed up, since their monthly mortgage payments are lower. The extra cash in hand allows the homeowner to plow that money into the economy on goods and services. The housing market starts to stabilize because prices start to come into parity with the market. People are then able to move for employment or personal reasons again, rather than being stuck in a home not worth what was paid for it. Or waiting for home values to rise to their previous levels, which could take a decade or more.
Being underwater is no joke. You cannot move and if you're like me, a self employed musician, you have difficulty getting the best rates from the bank regardless of your credit or payment status. Due in part to their debt forgiveness program, Iceland seems to be growing at slow rate, but it's not shrinking.
It's time for America, like Iceland, to put people first, not just banks.
"The lesson to be learned from Iceland’s crisis is that if other countries think it’s necessary to write down debts, they should look at how successful the 110 percent agreement was here,” said Thorolfur Matthiasson, an economics professor at the University of Iceland in Reykjavik, in an interview. “It’s the broadest agreement that’s been undertaken.”
Without the relief, homeowners would have buckled under the weight of their loans after the ratio of debt to incomes surged to 240 percent in 2008, Matthiasson said.
Iceland’s $13 billion economy, which shrank 6.7 percent in 2009, grew 2.9 percent last year and will expand 2.4 percent this year and next, the Paris-based OECD estimates. The euro area will grow 0.2 percent this year and the OECD area will expand 1.6 percent, according to November estimates.
Housing, measured as a subcomponent in the consumer price index, is now only about 3 percent below values in September 2008, just before the collapse. Fitch Ratings last week raised Iceland to investment grade, with a stable outlook, and said the island’s “unorthodox crisis policy response has succeeded.”