As usual all the
banks have on offer is austerity which fails simply because it reduces credit
and directly reduces the tax revenues which the banks were looking to for their
own succor. The reality is that the
banks cannot recover their mistakes by moving to shrink the economy. Rather obviously when you shrink the economy
you shrink the market for assets that you rely on for security.
This leads to a
cascade of failed foreclosures throwing more losses on to bank books and even
less ability to lend.
In fact the only
recovery for the banks is an expanding economy allowing rising bank
profits. That is why staying the course
allows even countries to rise above an era of bank recklessness. In Ireland’s case sharply increasing credit
and local guarantees will expand the banking base and allow a slow elimination
of the debt.
The Bank
Guarantee That Bankrupted Ireland
The Irish have a long history of being tyrannized,
exploited, and oppressed—from the forced conversion to Christianity in the Dark
Ages, to slave trading of the natives in the 15th and 16th centuries,
to the mid-nineteenth century “potato famine” that was really a holocaust. The British got Ireland’s food exports, while at
least one million Irish died from starvation and related diseases, and another
million or more emigrated.
Today, Ireland is under a different sort of tyranny,
one imposed by the banks and the troika—the EU, ECB and IMF. The oppressors
have demanded austerity and more austerity, forcing the public to pick up the
tab for bills incurred by profligate private bankers.
The official unemployment rate is 13.5%—up from 5%
in 2006—and this figure does not take into account the mass emigration of
Ireland’s young people in search of better opportunities abroad. Job loss and a
flood of foreclosures are leading to suicides. A raft of new taxes and charges
has been sold as necessary to reduce the deficit, but they are simply a
backdoor bailout of the banks.
At first, the Irish accepted the media explanation:
these draconian measures were necessary to “balance the budget” and were in
their best interests. But after five years of belt-tightening in which
unemployment and living conditions have not improved, the people are slowly
waking up. They are realizing that their assets are being grabbed simply to pay
for the mistakes of the financial sector.
Five years of austerity has not restored confidence
in Ireland’s banks. In fact the banks themselves are packing up and leaving. On
October 31st, RTE.ie reported that
Danske Bank Ireland was closing its personal and business banking, only days
after ACCBank announced it was handing back its banking license; and Ulster
Bank’s future in Ireland remains unclear.
The field is ripe for some publicly-owned banks.
Banks that have a mandate to serve the people, return the profits to the
people, and refrain from speculating. Banks guaranteed by the state because
they are the state, without resort to bailouts or bail-ins. Banks that aren’t
going anywhere, because they are locally owned by the people themselves.
The Folly of Absorbing the Gambling Losses of the
Banks
Ireland was the first European country to watch its
entire banking system fail. Unlike the Icelanders, who refused to bail
out their bankrupt banks, in September 2008 the Irish government gave a blanket
guarantee to all Irish banks, covering all their loans, deposits, bonds and
other liabilities.
At the time, no one was aware of the huge scale of
the banks’ liabilities, or just how far the Irish property market would fall.
Within two years, the state bank guarantee had bankrupted
Ireland. The international money markets would no longer lend to the
Irish government.
Before the bailout, the Irish budget was in surplus.
By 2011, its deficit was 32% of the country’s GDP, the highest by far in the
Eurozone. At that rate, bank losses would take every penny of Irish taxes for at least the next three years.
“This debt would probably be manageable,” wrote Morgan Kelly, Professor of Economics at University College
Dublin, “had the Irish government not casually committed itself to absorb all
the gambling losses of its banking system.”
To avoid collapse, the government had to sign up for
an €85 billion bailout from the EU-IMF and enter a four year program of
economic austerity, monitored every three months by an EU/IMF team sent to
Dublin.
Public assets have also been put on the auction
block. Assets currently under consideration include parts of Ireland’s power and gas companies and
its 25% stake in the airline Aer Lingus.
At one time, Ireland could have followed the lead of
Iceland and refused to bail out its bondholders or to bow to the demands for
austerity. But that was before the Irish government used ECB money to pay off
the foreign bondholders of Irish banks. Now its debt is to the troika, and the
troika are tightening the screws. In September 2013, they demanded
another 3.1 billion euro reduction in spending.
Some ministers, however, are resisting such cuts,
which they say are politically undeliverable.
In The Irish Times on October 31,
2013, a former IMF official warned that the austerity imposed on Ireland is
self-defeating. Ashoka Mody, former IMF chief of mission to Ireland, said it
had become “orthodoxy that the only way to establish market credibility” was to
pursue austerity policies. But five years of crisis and two recent years of no
growth needed “deep thinking” on whether this was the right course of action.
He said there was “not one single
historical instance” where austerity policies have led to an exit from a heavy
debt burden.
Austerity has not fixed Ireland’s debt problems.
Belying the rosy picture painted by the media, in September 2013 Antonio Garcia
Pascual, chief euro-zone economist at Barclays Investment Bank, warned that Ireland may soon need a second bailout.
According to John Spain, writing in Irish Central in
September 2013:
The anger among ordinary Irish people about all this
has been immense. . . . There has been great pressure here for answers. . . .
Why is the ordinary Irish taxpayer left carrying the can for all the debts
piled up by banks, developers and speculators? How come no one has been jailed
for what happened? . . . [D]espite all the public anger, there has been no
public inquiry into the disaster.
Bail-in by Super-tax or Economic Sovereignty?
In many ways, Ireland is ground zero for the
austerity-driven asset grab now sweeping the world. All Eurozone countries are
mired in debt. The problem is systemic.
In October 2013, an IMF report discussed balancing
the books of the Eurozone governments through a super-tax of 10% on all
households in the Eurozone with positive net wealth. That would mean the
confiscation of 10% of private savings to feed the insatiable banking casino.
The authors said the proposal was only theoretical,
but that it appeared to be “an efficient solution” for the debt problem. For a
group of 15 European countries, the measure would bring the debt ratio to
“acceptable” levels, i.e. comparable to levels before the 2008 crisis.
A review posted on Gold Silver Worlds observed:
[T]he report right away debunks the myth that
politicians and main stream media try to sell, i.e. the crisis is contained and
the positive economic outlook for 2014.
. . . Prepare yourself, the reality is that more
bail-ins, confiscation and financial repression is coming, contrary to what the
good news propaganda tries to tell.
A more sustainable solution was proposed by Dr
Fadhel Kaboub, Assistant Professor of Economics at Denison University in
Ohio. In a letter posted in The Financial Times titled “What the Eurozone Needs Is Functional Finance,” he wrote:
The eurozone’s obsession with “sound finance” is the
root cause of today’s sovereign debt crisis. Austerity measures are not only
incapable of solving the sovereign debt problem, but also a major obstacle to
increasing aggregate demand in the eurozone. The Maastricht treaty’s “no
bail-out, no exit, no default” clauses essentially amount to a joint economic
suicide pact for the eurozone countries.
. . . Unfortunately, the likelihood of a swift
political solution to amend the EU treaty is highly improbable. Therefore, the
most likely and least painful scenario for [the insolvent countries] is an exit
from the eurozone combined with partial default and devaluation of a new
national currency. . . .
The takeaway lesson is that financial sovereignty
and adequate policy co-ordination between fiscal and monetary authorities are
the prerequisites for economic prosperity.
Standing Up to Goliath
Ireland could fix its budget problems by leaving the
Eurozone, repudiating its blanket bank guarantee as “odious” (obtained by fraud
and under duress), and issuing its own national currency. The currency could
then be used to fund infrastructure and restore social services, putting the
Irish back to work.
Short of leaving the Eurozone, Ireland could reduce
its interest burden and expand local credit by forming publicly-owned banks,
on the model of the Bank of North Dakota. The newly-formed Public Banking
Forum of Ireland is
pursuing that option. In Wales, which has also been exploited for its coal,
mobilizing for a public bank is being organized by the Arian Cymru
‘BERW’ (Banking
and Economic Regeneration Wales).
Irish writer Barry Fitzgerald, author of Building Cities of Gold, casts the challenge to his homeland in archetypal
terms:
The Irish are mobilising and they are awakening.
They hold the DNA memory of vastly ancient times, when all men and women obeyed
the Golden rule of honouring themselves, one another and the planet. They
recognize the value of this harmony as it relates to banking. They instantly intuit
that public banking free from the soiled hands of usurious debt tyranny is part
of the natural order.
In many ways they could lead the way in this
unfolding, as their small country is so easily traversed to mobilise local
communities. They possess vast potential renewable energy generation and
indeed could easily use a combination of public banking and bond issuance
backed by the people to gain energy independence in a very short time.
When the indomitable Irish spirit is awakened,
organized and mobilized, the country could become the poster child not for
austerity, but for economic prosperity through financial sovereignty.
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