Don’t piss down my back and tell me it’s raining.” This line from The Outlaw Josey Wales, the western, is self-explanatory. In contending that the Fiscal Treaty will solve our dilemma, the European Commission and European Central Bank are pissing down Ireland’s back and telling us it’s raining.
The Fiscal Treaty will not solve Europe’s crisis. The Spanish and Irish crises stem from too much cross-border private sector borrowing and lending. Ireland’s financial crisis didn’t destroy our nation’s wealth; it merely revealed how much wealth had already been destroyed by reckless lending, borrowing and speculation.
Prescribing government deficit reductions to fix these private capital imbalances is like prescribing chemotherapy for heart disease. Today’s large fiscal deficits are a result of, not the cause of, Ireland’s and Spain’s crises. Both countries’ public debt ratios were actually lower than Germany’s in 2008 — but private debts exploded. Since Ireland adopted the euro, its household debt to income ratio has risen from 93 per cent to 220 per cent
Such huge consumer debts indicate that without growth, more mortgage defaults beckon. Ireland has too much debt, exacerbated by the ECB’s insistence that our government continue to pay unsecured bondholders of our bust banks. The bond market shut down to Ireland not because we threatened to default but because we threatened not to.
Now Ireland is experiencing an old-fashioned liquidity trap made worse by vicious deleveraging, which is destroying asset prices. Imposing more austerity now will be as useful as putting an anorexic on a diet and expecting her to become voluptuous.
Given that even in an open economy like Ireland, most of us are employed in the domestic sector, your spending is actually my income and my spending is your income. My income is also the root of my savings. But as Keynes observed in the paradox of thrift, if we all save at the same time, who is spending? And if no one replaces our spending then demand will fall and fall.
Retailers react to falling demand by cutting prices to coax us to spend. But the very fall in prices convinces people that prices will fall further and the bargain will come next month or next year. So the laws of economics are turned on their heads. When prices fall, demand doesn’t go up, it goes down.
Many Irish people’s balance sheets are broken because on the one side we have assets — houses, land and apartments — which are falling in value but on the other, we have debts, which are fixed. At a time when income is falling due to rising unemployment and taxes, this means the debt burden is getting heavier every day relative to income.
As a result, people with savings are saving yet more. Those with debts are trying to pay them down. The same goes for companies. Ireland’s savings ratio has exploded to 17 per cent of income; it was minus 5 per cent in 2007.
People don’t want to borrow because they have too much debt and banks don’t want to lend because they have too much bad debt. Yet the deleveraging is destroying their capital base too. Again, the paradox is that deleveraging my balance sheet might make my position better, but when we all deleverage at the same time, we drive down asset prices further, demanding yet more deleveraging.
If everyone is saving, who is spending? The rise in government spending is the logical reaction to, not the cause of, the liquidity trap.
As demand falls, real wages don’t fall because those with jobs protect themselves and the adjustment comes via unemployment. Irish unemployment has trebled in four years. Youth unemployment is now 29 per cent. This puts more pressure on government finances.
We are now in the fourth year of austerity and it’s clear the economy is weakening. Someone clever, not sure if it was Albert Einstein or Roy Keane, once said the definition of insanity is doing the same thing over and over again and expecting different results.
This fiscal treaty offers more of the same. It is being marketed as a fiscal union, but it is a fiscal straitjacket. It punishes weak countries when they most need help. A real fiscal union should work as the US does.
Many years ago, like many of my generation, I emigrated looking for work. I ended up as a dishwasher in Boston. Boston too had a boom and bust in the late 1980s but when it collapsed the rest of America didn’t punish it, they transferred money via the federal budget to help it recover.
With this fiscal treaty, the EU envisages doing the opposite, which is cutting spending in the periphery when we most need help. In so doing, it creates lower growth, higher unemployment, more political instability and more capital flows of frightened money from the periphery to the core. This is all being done to make the eurozone more credible. In practice it doesn’t. When the risk is deflation, engineering inflation and growth makes you credible, reinforcing yet more deflation, makes the Euro look like it has a death wish.
The lone voice of reason in the midst of spin, lies and deception. The treaty is a death-warrant for the periphery and for the Eurozone. The question has to be asked, why are they pushing what is, so obviously, a failure? They must know this cannot work. They know there are no projections, calculations that back this up. So cui bono?
David its a bit late in the day for your comments now and I hope the no vote wins .
Yes there is somebody pissing on top of us ,why should we pay for the problems cause by the greedy ,wake up Ireland and say to this government enough is enough,Europe might be pulling the puppets strings .i call on this puppet government to stuff the puppet where the sun does not shine.
Do not vote away our constitution,that is all that is left,this treaty is dead.This crisis stems from Private Banking and their subsidiaries. This crisis has nothing to do with us,the people,it was caused by reckless Banking, Reckless Lending and reckless financial products,The World Bank,The I.M.F,……E.C.D.all profiting from our misery.Why ? The Banks are STILL calling the shots and still running wild financially,They WILL need another bail-out…..let them fail,Like any business in a Democracy. We will have no problem raising money from the E.U if a NO vote is successful,not because they like us,because at the moment , they need us.Remember… Read more »
What great weather we are having now, it may be raining on Thursday and on Friday David McWilliams when the sun is due to shine again may apply to become a member of the board of governors of the ESM. When I was born I was a one a few billion or so, now I am only a one 7 billion. When we joined EEC we were 1in 9 countries now we are 1 in 27 yep, I am feeling a lot less important. My vote on EU maters is about a 1/3 of what it once was and as… Read more »
To be honest, I conclude there is not much of a difference between a fiscal union and a straghtjacket. Ask anybody in the US at the moment, who is watching their retirement account decline in value. Or ask people who are trying to make ends meet, while Bernanke goes into “print-Baby-Print” mode… We were in a sort of a currency union with Britain, and that functioned like a straightjacket. We merely swapped one for another. In fact we have been in a monetary straightjacket for twenty years. While the debts accumulated, and borrowed money moved through the economy, we did… Read more »
Look the mainstream thread of the EU project is to keep momentum and end up with a disaster.
This has not changed. It is still the basic idea, and it has full support from large sections of the institutional framework of the EU, the business community, the unions, and the media.
Prepare accordingly. They are in denial. They cannot fix it, the way they are behaving.
It is clear they want this treaty in cement, for the aftermath of the complete collapse of an empire, the transatlantic financial doomed system. They are preparing for it, and this is their way of keeping control. We want a different aftermath, where those that started this snowball meltdown, over 40 years ago, can watch, from a safe distance, as we build up an economy with a national credit system, where monetarism is a household joke, where people will say to their kids, how we were swindled, exactly how. This treaty will be on display at the Museum, alongside Roman,… Read more »
The rate of collapse has now exceeded the rate of bailout, over the weekend. This is the turning point, the guarantee it is finished.
http://laroucheirishbrigade.wordpress.com/2012/05/28/vote-no-while-the-euro-dies/
Class-Steagall is now the single only way this will be changed.
The Irish NO vote will accelerate calls worldwide for bank splitting. Sheer panic is overtaking those “in control” now.
The “bank jog” reported only a couple of weeks ago has become a “run”.
The joke is that since major armies have been outsourced, hollowed out by imperial wars, the money for private mercenaries such as Blackwater etc, to stop riots is GONE!
Very ominous Britain has what (40,000?) troops mobilized for the Olympics!
Gauweiler: ESM Would Take Europe Back to Absolutist Feudalism, a la Louis Quatorze May 28 (EIRNS)–In an interview with the Berlin tabloid BZ, Bundestag anti-bailout dissident Peter Gauweiler (CSU) reiterated his opposition to the ESM, saying it is a construct that gives certain persons access to hundreds of billions in taxpayers’ money without those same persons being accountable to or subject to oversight by any political body. This kind of construct would return Europe to the kind of absolutism under Louis XIV, the late-17th-century French monarch, who was one of the biggest spendthrifts of all times, Gauweiler charged. He is… Read more »
This is another very elonquent piece, but there’s something that bothers me about the story about DMcW being a dishwasher in Boston. It’s the bit about the rest of the US coming in to save Boston when it’s boom went bust. Who is more likely to come in to save us, depending on whether we say yes or we say no to this treaty? If the yes side is right, then the treaty is not a poker game, it’s the entitlement to play at the start of a whole new game. If the no side is right, then it’s the… Read more »
When it’s all said and done some eminent historian like Niall Ferguson will draw on articles such as this to demonstrate that you cannot rule by committee, you cannot buck conventional wisdoms and you certainly cannot ignore the markets. The Euro is cooked. The pompous and self serving ignorance masquerading as leadership on display over the past 4 years will destroy a whole young generation. Old men ,and sometimes women ,with nothing to lose, insisting on political dogma and creed while people of ordinary means become more and more deprived. In fact, it’s not so much that the Euro is… Read more »
Negotiate with this? Lagarde may think its payback time, but its hardball! Vote NO to put these out of any say in national political economics. IMF’s Christine Lagarde Pays No Taxes! PARIS, May 29, 2012 (Nouvelle Solidarité)–Friday’s horrendous interview with IMF Managing Director Christine Lagarde calling on the Greek people to pay their taxes, continued to provoke waves of angry reactions, not only in Greece but worldwide. Her Facebook page registered over 100,000 postings, mainly negative. What did she say exactly? The {Guardian}: “While this might come as a surprise to Greeks suffering under extreme austerity, some say Lagarde’s approach… Read more »
Why does this not surprise me at all!
My fear/feeling is that this treasonous Treaty will be passed by Ireland, my consolation is that it will mean nothing in the coming collapse and the threats/fines will be unenforcable in any case.
It is just a waste of time and money, and will be seen for what it is over time, as will FG / Labour.
The Emporer has no clothes!
Our Government has made it clear they will not listen. They have made it clear that they will continue on the destructive path they have chosen, Europe has made it clear they will not listen and will continue blindly on their destructive path. All this in the name of a lost cause – the Euro In the name of faceless Bankers. They will reap what they sow, of this I am certain! The sooner implosion happens the better! It is the only way the truth will prevail, I say bring it on! bring on the pain and let’s get it… Read more »
Grey fox
“Republic and the Irish citizens whom they are sworn to defend and protect”……….Terms and conditions apply.
Good Morning
RR6
http://www.gold-eagle.com/editorials_12/willie052312.html Very good newsletter from the golden Jackass, Jim Willie. He is well informed and well connected. One of the best observers. Recent discussions centered on JP Morgan losses escalating from 2 billion to 10 or more and speculative reasons why. Here is a well reasoned opinion that their losses could go to the trillion range or more. The collapse of the US dollar is at hand and the attendant explosion in the gold price. All discussion is useless here as it is of no effect. The only thing to do is concentrate on self preservation. Savings rates as DMW… Read more »
Germany suggests that EU countries pledge their gold as colateral for their debt.
gold makes a comeback as money??? Has it not always been the ultimate money?
http://www.telegraph.co.uk/finance/financialcrisis/9298180/Europes-debtors-must-pawn-their-gold-for-Eurobond-Redemption.html
They managed to rustle up some Job announcement hours before the referendum with no mention of job losses this with that moratorium in place
Today; The London Financial Times warns Spain not to follow Irelands bank bailout policy: WoW don’t bailout the banks- what a revelation-great idea why did we Irish not think of that
Damm! I need a job otherwise I will end up like one of those bloggers on that David McWilliams site believing that everything is a conspiracy
I think Germany has decided to stop funding the weak EU members and is using this traty to force a break-up the EURO to put an end to it. First Ireland vote NO, will rund out of EU funds to pay the EU loan intrest effectly defaulting and will be out of the EURO. Then Greece will apply for ESM funnds and will be rejected and they will default and are also out of the EURO. Then the chain reaction has started and one-by-one other EU members will revolt/default and get kicked out until all there is left is Germany.… Read more »
http://www.bbc.co.uk/news/18210601
Scroll down to the comments by:
Mr. X., 42, software consultant, Dublin
“I will be voting Yes, but only because our government has sold our future to the German bankers.”
These are the kind of ‘educated’, ‘knowledge-economy’ muppets (a ‘software consultant’ no less!) that we have voting in this country.
Is it any wonder that the country is in the state it’s in?
Reduced to being a beggar nation.
Greece, Beware Brussels officials bearing gifts !!
Especially if the gift is a “bailout”.
http://globaleconomicanalysis.blogspot.de/2012/05/bailout-scam-collecting-non-interest-on.html
Quiet in here innit? Must be the good weather.
Krugman calls for NO vote !!
NOBEL PRIZE-WINNING ECONOMIST Paul Krugman has advised Irish voters to vote No in Thursday’s referendum on the Fiscal Compact.
“I’ve thought about it, it’s hard. I would say vote No,” he said on BBC Radio 4 this morning. Krugman dismissed the suggestion that a No vote would anger Germany and see Ireland cut off from bailout funds or from the Eurozone.
Full story :
http://laroucheirishbrigade.wordpress.com/2012/05/30/krugman-calls-for-no-vote/
for those who think this is not a tranatlantic disaster, see this :
OBAMA ADMINISTRATION SENDS ENVOY TO EUROPE, to push for urgent mega-bailouts. WSJ.
http://laroucheirishbrigade.wordpress.com/2012/05/30/obama-sending-envoys-to-europe-to-push-for-mega-bailouts/
A great list of reasons to vote NO.
“We owe it to ourselves to oppose a trajectory that will vandalise society” — Vincent Browne
http://laroucheirishbrigade.wordpress.com/2012/05/30/we-owe-it-to-ourselves-to-oppose-a-trajectory-that-will-vandalise-society-vincent-browne/
Irish Economist against austerity treaties
In an exclusive interview with the Wiener Zeitung, Terrence McDonough, an economist based at the University of Galway, Ireland, says the EU Fiscal Pact is anti-democratic, is a straitjacket put over politicians dis enabling them to react properly against the economic depression, thereby worsening the situation. McDonough is an activist for the “no” camp in the Irish referendum.
http://laroucheirishbrigade.wordpress.com/2012/05/30/irish-economist-against-austerity-treaties/
What’s next? Well ask the EU Commission :
EU Commissioner Barnier: A “Banking Union” Before We Die
May 30, 2012 Do you think “belonging” to a supranational European Union whose Council can dictate your nation’s budget and investment is bad? How about getting to “belong” to a “European Banking Union” which can also order your nation to bail out banks anywhere?
This was the imperial vision offered by a desperate financial elite to desperate governments, in the Bloomberg interview this morning with Michel Barnier, EU commissioner for financial services.
http://larouchepac.com/node/22866
Greece’s Syriza Party Manifesto Calls for Dealing with Debt Along the Lines of the 1953 London Agreement for Germany May 30, 2012 (EIRNS)–The Greek anti-bailout Syriza Party is to announce its economic manifesto on June 1, which is expected to call for a debt agreement for the countries of the south along the lines of the famous London Agreement of 1953, when Germany’s pre-war debts were reduced by 50%, and long repayment terms given. News portal Capital.gr reports on an article in {Protothema} which is said to be a preview of the manifesto. The policy includes: * Freezing and reversing… Read more »
http://www.lrb.co.uk/v34/n11/slavoj-zizek/save-us-from-the-saviours Vote no, a thousand times no. Ignore the doomsters , the naysayers. Ireland has the resources the people and the ability to throw off the yoke of techocratic bureaucracy spawned in Brussels. All countries are under attack including Germany. the monied elites through the control of the banks wish to destroy democracy and exert totalitarian control. Ireland must not give up its sovereignty or it dies as a nation.A slide to oblivion for the Irish people. Be bold, be unafraid and look to the future with hope and positive expectations. A no vote to Europe is to vote yes… Read more »
In Spain, the news is begining to catch up with the underlying reality, of the Spanish real estate boom gone wrong.
http://www.telegraph.co.uk/finance/financialcrisis/9301270/Spain-faces-total-emergency-as-fear-grips-markets.html
Brussels is in complete denial mode. Collection of morons.
I’ve given up on the media. You guys here write a lot more sense and provide a lot more real news and information than the entire apparatus of mainstream media. My thanks to you all. My hope is that Greece’s Syriza Party and Alexis Tsipras is the beginning of the awakening of the European citizenry. We need to take Europe back from the bankers and their eurocrat operatives. We need a democratic and humane civilisation; not a Darwinian free-for-all primeval market where financial mafias and hedge fund pirates are permitted to rob us all blind and destroy our national and… Read more »
[…] then it's the first step in a negotiating position to get a better deal. … Read more: David McWilliams » Its not a fiscal union, its a fiscal straightjacket ← Guest Post: Nature and Roles of Money and Banks | Steve Keen's […]
Love the site, its style and its content and have this comment on this article but also the Punk economics lesson 4: While I understand (at least think so) your argument David and agree with large sections of your video, the one question that you do not answer is (and i will shamelessly plagiarise your provocative style): Do you think that the German/Brussels establishment are just a nasty bunch, taking pleasure in making ordinary citizens suffer or simply dumb, not realising that their approach to the crisis is likely to kill the cherished creation that three generations of Europhile politicians… Read more »
Well with all the debate on this, surely the elephant in the drawing room is that the euro project was from the start an incoherent one doomed to fail? I voted no because I see the end in nigh for the euro. As the Guardian argued recently, one currency could not last for is it 20 countries with very different needs and policies. The French and Germans wanted low interest rates, for example, when we wanted high ones. Result, a building boom, vast personal borrowings and collapse. As the arch capitalist, Mary ellen Synon has always argued, the euro brought… Read more »
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[…] to enshrine a policy approach that abets that in our Constitution without at least a murmur? To buy the lie that it was fiscal profligacy that brought us to this pass , and that with a bit of ‘good housekeeping ’ everything will be ok? If we […]