Misery loves company

Think the economic situation in the U.S. is frightening? Consider Iceland. It was once a poor country, but a long business and investment boom, starting in the 1990s, gave it one of the highest per capita wealth figures in the world. A UN report in 2007 named it the best country to live in. As the credit crunch turns global, though, it's all coming unraveled. The kronur, Iceland's currency, has fallen by a third in the last month. This has raised fears of food shortages, since Iceland is heavily dependent on imports. Inflation is in the double digits. Many people have loans in denominated in foreign currencies, as as the kronur falls, their loan balances rise.

In the U.S., we're lucky in that we're insulated somewhat from the effects of currency fluctuations. We still produce many of our goods, especially food, domestically, and our economy is fairly diverse. Not so for smaller countries, which are more dependent on trade. And perhaps that's the real moral here — trade can bring great wealth, but it also creates vulnerability. As we transition towards a "service economy," as opposed to one that manufactures tangible products, we have to think hard about the effects of becoming more dependent on the rest of the world for basic goods.