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The paper altar

Posted By Vox Day On 11/29/2010 @ 1:00 am In Commentary | Comments Disabled

The irony is enormous. After spending more than 100 years striving for repeal and home rule in a partially successful attempt to win their independence from Great Britain, the Irish people have found themselves caught in a much crueler subservience to the bureaucrats of Brussels and the bankers of Berlin. In what is misleadingly being described as an “Irish bailout,” the Irish are about to reap the bitter harvest of two massive mistakes: joining the euro and permitting their government to take responsibility for the debts owed by their giant insolvent banks.

Many economists pointed out the intrinsic problem of the euro when the single currency was first being sold to the people of Europe, but neither the politicians nor the people were inclined to listen to them. In a free economy, interest rates are a function of risk. Irish interest rates were always higher than German interest rates, to give one comparison, because it was much riskier to invest in the relatively undeveloped economy of Ireland. With the introduction of the euro, however, the Irish were able to borrow at much lower rates than prudence would dictate, and as is always the case when loans are too easily and inexpensively acquired, the borrowers went mad and launched one of the biggest investment booms seen in Europe since the Dutch Tulipmania.

The so-called Celtic Tiger was mostly, though not entirely, a paper tiger made of low-interest Euroloans. (The low 12.5 percent corporate tax rate also played a role, but the economic growth derived from Ireland’s low taxes was real and will help cushion the blow of the collapse of the investment boom.) Once the boom ended, the real-estate market collapsed, and the loan defaults began, the banks of Ireland quickly crumbled. Unfortunately, the Irish government decided to follow the examples of Japan and the United States in trying to keep the insolvent banks alive on government life support.

According to figures published by the Bank of International Settlements, the Irish government now owes $146 billion to German banks, $134 billion to British banks and $54 billion to French banks that have invested in Irish banks and Irish bonds. This means that if the Irish government refuses to default on the debts incurred by its failed banks, it will put every single man, woman and child in Ireland on the hook for $76,781.61 for the benefit of the European bankers to whom the Irish bankers owed that money.

Fear that the Irish will follow the example of the Icelandic people and refuse to pay loans they never took out are why the International Monetary Fund and the European Union are so insistent upon the Irish government accepting what is described as “a bailout package” but is actually a loan of around $112 billion with many insidious strings attached. This loan will take the European banks and the Irish banks safely out of the picture, while the people of Ireland will be forced to pay the Irish bankers’ debts to the people of the various European countries who have been forced to take the risk that previously belonged to the German, British and French bankers who originally made the loans.

It isn’t necessary for the Irish people to be impoverished for multiple generations in this way. After the failure of the biggest bank in Iceland, Dutch and British banks tried to force the Icelandic people to pay them $16,400 apiece to settle bad debts incurred by the owners of Landsbanki. Fortunately for Iceland, some of the politicians in Reykjavik were made of less corrupt stuff than Brian Cowen and his Fianna Fáil government and they took the matter to a referendum in which only 1.5 percent of the electorate voted for the “bailout.” And contrary to the dire predictions of the furious banking elite, the island nation did not sink into the Atlantic as a result.

It is vital for the Irish people to realize that their politicians are totally incapable of representing their interests in these matters. As Americans saw when they were presented with a presidential “choice” between one of the notorious Keating Five and a card-carrying member of the Goldman Sachs fan club, when forced to choose between the interests of the country and the city, the politicians will always align themselves with the city. Therefore, the Irish government must fall or the Irish people will find themselves once more in serfdom and financial servitude to foreigners.

The shell game being played by the bankers and politicians in a futile attempt to avoid a sovereign default that will take down the euro is eventually going to come to an end, as it has on 73 previous occasions in Europe since 1800. Bankrupt governments cannot hope to guarantee the debts of other bankrupt governments indefinitely; as Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard have shown in their 2008 paper titled “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises,” history strongly suggests that the much-debated economic decision between the Scylla of inflation and the Charybdis of default does not actually exist, since inflation is among the crises that often accompanies sovereign defaults.

William Jennings Bryon once declared that Americans should not be crucified upon a cross of gold. How far has the West fallen, that its nations permit themselves to be sacrificed on a paper altar of bankers’ debt.


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