The collapse of Iceland's three largest banks earlier this year sent ripples through the country's economy. In time the bank's collapse led to high inflation rates, protests, rising unemployment, and eventually, a resignations by many government officials. This Wall Street Journal video takes a closer look at Iceland's economic crisis, and how Icelanders are fairing under the country's new economic reality.

Police in Reykjavik, Iceland after a violent protest turned into a riot on January 20. Photo: finnur.malmquist (flickr)

It’s a lot worse than just about everyone thought. By some estimates, the economic crisis could cost 50 million jobs worldwide. That's a catastrophic number, and even their potential loss is already fueling some discontent and sounding alarms.

Worried about the ripple effects of widespread unemployment, the U.S. Central Intelligence Agency recently added the state of the economy to the agency's list of top security threats. Retired Admiral Dennis Blair, the U.S. Director of National Intelligence, warned that "economic crises increase the risk of regime-threatening instability if they persist over a one-to-two-year period."

On the international stage, United Nations Secretary-General Ban Ki-moon voiced his concern: "If not handled, today’s financial crisis will become tomorrow’s human crisis. Social unrest and political instability will grow, exacerbating all other problems."

Violent flare-ups over the economic recession and resulting unemployment are already occurring all over the globe.

In Pakistan, chronic power outages have forced many textile factories to close down for hours at a time, triggering thousands of angry protesters to set fire to the state-owned power company's office. Government cuts in Lithuania’s social programs prompted protesters to pelt the parliament building with eggs and rocks ; at least 14 people were injured and 84 detained. Chinese police officers are now undergoing special training to deal with expected social unrest over factory closings that have left millions of migrant workers out of a job.

Iceland and Latvia serve as extreme examples of the devastating consequences from the declining state of the worldwide economy: both countries’ respective governments collapsed under the pressure of the economic crisis.

However, security experts are concerned about other forms of collateral damage that extend beyond protests. Bruno Tertrais, a strategic and security expert at the Foundation for Strategic Research in Paris tells Time Magazine that he believes the biggest threat to international security is "the collapse of regimes vital to maintaining international order." Tertrais cites Somalia as an example — a place where, after the collapse of its government, piracy has gained a foothold and severely disrupted shipping routes along the horn of Africa.

Extreme poverty has always posed a threat, especially in the world’s emerging economies. However, the breadth and force of the current global economic crisis poses a threat to all nations, whether rich or poor.

Protesters clash with police. Photo: pallih (flickr)

Is it possible for an entire country to actually go bankrupt? In Iceland's case, the answer appears to be a resounding 'yes,' setting the stage for concerns that other seemingly well-to-do Western countries may be quick to follow suit.

In case you haven't been following Iceland's increasingly deteriorating situation, the Cliff Notes version of the story is that a handful of entrepreneurs and banks borrowed more money abroad than what was sensible, and in the post-Lehman Bros. credit crisis, things have gone rapidly downhill from there. First all the major banks collapsed and became nationalized, followed quickly by the free-fall of the krona currency, and most recently several government officials have resigned after a series of angry demonstrations by citizens.

All this is especially worrisome considering that Iceland won the UN's "best country to live in" poll just last year. Now the appropriately-termed financial meltdown is hitting its citizens the hardest, as unemployment is expected to reach up to 11 percent this year (compared to 0.8 percent in December 2007). Their country's declaration of bankruptcy has caused many Icelanders to express anger over their government's mishandling of the economy and fear about their future. As one citizen put it, the situation is "kind of like in the Matrix, you wake up and realize everything was a lie." With higher mortgage costs, few jobs and rising food prices, half of Icelanders aged 18-24 are now considering immigrating to countries such as Norway and Sweden for work, further testifying to the severity of people's worries.

To try to combat the crisis, Iceland is now seriously considering applying for membership with the EU, a decided contrast to its centuries-old isolated and independent Nordic character. Suddenly, it no longer feels inconceivable to imagine other western countries forced to declare bankruptcy in the future, especially since Iceland's $1.6 billion loan from the IMF makes it the first western country to receive a loan from the IMF since 1976. Rising unemployment rates across the world raise the uneasy question of which country will become 'the next Iceland,' and when.