When Irish Eyes Are Smiling
Have you ever stood by a white hot fire? The glistening cinder fused into a molten fusion resembling hot lava, melting just about anything you'd think to throw on top...
It's a powerful thing and reminds us that when you are effectively broke throwing money at the problem cannot fix anything.
Ireland is learning this the hard way. Long story short, it will take a bare minimum of €50 billion ($50K per household) to definitively bail out Ireland's banks. The government is bracing for collapse and Irish government bonds (which have slid to record lows this week) are currently viewed as being just as risky as their Greek counterparts were in the Spring.
€6 billion worth of budget cuts have been recommended. To put it in perspective, this would be the equivalent of the U.S. shutting down the entire Department of Defense!
Which brings us to my favorite whipping boy...The Euro. No. The Euro will not collapse if Ireland defaults. As your Uncle Eddie pointed out in NSFW#2 the ECB (or Bundesbank Part Deux, as I like to call it) has taken austerity measures to prevent calamity and will guarantee up to €440 billion in loans if any of the 16 nations involved are unable to borrow from private markets.
I do, however, suggest considering two issues which I doubt will hit headlines any time soon, if at all. The first is an implication, the second pure speculation. Think of them what you will:
1) Ireland (which was the wunderkind of the EU since inception with its skilled work force, high productivity and foreign investment inducing low corporate tax rates) has been crushed by nothing more than a housing crisis. They did not have half the structural problems faced by Greece, Spain, Portugal, Italy and dare I say it...the U.S.A.
What happened (in a nutshell) was shoddy financial advisement coupled with sloppy valuation. Now the flame is so hot, no amount of water can cool it off and put it out.
2) The de facto devaluation of the $USD is beginning to look more and more like a quasi bailout of Europe, as the strength of the currency will once again undoubtedly come into question over the coming months and years. Though Portugal has improved. The lids of Spain and Italy can't keep holding back eternally shaken soda bottles. Is it possible that the U.S has aligned herself with her old Euro matron in the currency battle vs. the "developing world"?
All-in-all, the Ireland situation deserves closer scrutiny than it has received. There is a plethora of potential effects which run the gamut from potentially disastrous to positively splendid for both investors and the world economy as a whole. Depending on which side of the coin your perspective originates you may have good reason to rub your palms together or slap one against each cheek in the coming months.
More and more people are leaving the cities and returning to an ag way of life. Real interesting I think. Ireland was such a wonderful example of new Europe. What was it called? The Silicon Vally of Europe?
Yeah well, you know what happens when Silicon(e) goes pop...
Gotta stop filming until the plastic surgeon shows up to fix it
Can you elaborate a little on that? A strong euro seemingly indicates a strong euro zone but a declining dollar could seriously hurt exports out of the euro zone.
As I've written before I think that globalization happened way too quickly and that several aspects of economics, politics and military/foreign policy have intertwined. Point being, I think economics is becoming a lot more of a foreign policy tool than it ever was before. What you say is correct, however, I am looking at this as a "one hand washes the other" type of deal. Naturally, QE2 was about US interests, but it can also have a short-medium term beneficial effect on the Euro. I don't think exports out of the Euro zone are so much of a short term issue for them, the short term issue is getting out of the "PIIGS sty", if you will. Europe is a lot more vulnerable than anyone today. I am merely suggesting that there were other motivations (with a far longer ranging view than you and I can accurately evaluate) for QE2 than simply the value of the dollar. There are many dealings going on under the table these day, like I said...just a thought.
As you have mentioned how its not recieving the correct attention, can you go a little deeper into the "shoddy advisement and valuation" being the key component?
You mention the backbone is stronger than that of counterparts, so im just lokoing for a little more clarification as to how it was so effective at causing this.
Sorry in advance if its a stupid question.
As you have mentioned how its not recieving the correct attention, can you go a little deeper into the "shoddy advisement and valuation" being the key component?
You mention the backbone is stronger than that of counterparts, so im just lokoing for a little more clarification as to how it was so effective at causing this.
No stupid questions. Essentially, the Irish bankers wanted to look smart so they convinced the Irish government which wanted to come off strong, that their debt was not really as toxic as it is turning out to be. As a result their bailout attempt didn't really cover any of the holes or to paint a better picture attempted to stop hemorrhages with band aids. They undervalued what one single bailout would cost in an effort to make a bad situation look slightly less bad and wound up causing something much worse. They may yet make the Greeks look like the model of austerity.
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