- May 31, 2007
A default is inevitable given the insane deal that the Irish government wants to accept. If implemented, this will do several things:
1. The Europeans will immediately strip the country of everything of value. They intend the take the penision fund - the nation's entire savings - immediately. The deal will also allow them to take immediate possession of everything that the banks' have of value, leaving the Irish people to pay in full for all the bad loans.
2. The economic base of the country will be destroyed with the heavy tax burden that will be necessary to pay this killer debt. As the economy shrinks and collapses, the debt payments will become even more difficult and impossible. Think of the Germans trying to repay the reparations after WWI. Think of your ancestors trying to pay rack rents. This will be you.
3, When the default comes after all that, which will surely happen, there will be nothing left to rebuild the economy with. Everything of value will be owned by foreign interests. Ireland will have become a third world country.
This must not be allowed to happen. A default now while Ireland still has its assets and still has some financial reserves will mean only a short term economic disruption - lasting weeks or months - and then it will be back on the road to recovery. This time next year, the country would be back to normal.
1. To do this, though, the Irish government needs all of its assets. It needs to keep that pension fund to maintain essential services.
2. The failed banks need to close and new ones need to be chartered. Follow the Iceland example. Keeping the failed banks going has been throwing money down a rat hole. The bond holders need to take their hit like normal bond holders are supposed to do. The shareholders need to take their hit like normal shareholders. Under no circumstances should the Irish people have to pay the debts of irresponsible bond holders and shareholders.
3, However, considering the tax money that the banks have already sucked up, the Irish govenrment needs to put tax liens on all the foreclosed properties from the defaulted loans. Those tax liens should approximate how much money that banks have cost Irish tax payers thus far. These assets need to remain in the hands of the Irish people.
4. Let the bond holders and shareholders try to recover their money through lawsuits against the bank management. They can recover from the professional liability insurance policies. If those civil lawsuits expose wrongdoing on the part of members of the Irish govenrment, prosecute to the fullest extent of the law. Think racketeering and fraud charges. Think asset recovery from the wrongdoers. This money too should go to reimburse Irish taxpayers for their costs thus far.
5. Ireland will need to get off the euro and restore its own currency after a default, since Ireland will need to be able to set its own fiscal policy after this without being told what it "must" do by European markets looking out solely for themselves and their own interests. The punt needs to be brought back. In the meantime, though, while the currency conversion takes place, the government needs to freeze prices.
6. Ordinary citizens need to get their money out of banks and into something tangible, as the currency - both euros and the punt - will be unstable for a while. You do not want to be holding currency that loses most or all of its value.
7. The Irish government will have to live off its own tax revenues. It will have to have a balanced budget. No more borrowing from foreign banks, which is a good thing. No more debt is exactly the right course for the government.
8. A default means that the prior debt will not be paid. This enables the Irish government to quit servicing the old debt, and the new monstrous debt represented by this deal will not occur.
9. Not having to service the old debt will effectively put more money unto the hands of the Irish government. If you take debt service away from the budget, it becomes a lot less austere.
10. A default will give Ireland a fresh start instead of a one-way ticket to financial destruction and long term poverty and servitude to foreign masters. It will represent a return to core financial values. Everyone will have to live within their means. The days of easy credit will be over. However, quite frankly, they are already over.
The main thing to remember is that a default often leaves countries stronger financially than they would have been otherwise. Argentina was booming again one year later after its default. Iceland is recovering quite well, even though it is an even smaller country than Ireland.
Default will provide short term pain followed by long term gain.
This deal will provide short term pain followed by long term destruction of the country.
Good summation of options on default.
Ireland has to default NOW,