Irish bailout, another big mistake.

Hardly worth reiterating the obvious, but worth mentioning the subtle "Irish bailout" just because of the parties involved.  These parties I speak of, are of course the very same banks sitting on top of a massive central bank system that have been dispensing loans at a rate that nobody could have considered sustainable.  Yet beyond dealing with the problem of our banking system in America, Americans are now bailing out Irish banks.  Because a lot of the money is coming from an EU-IMF pool containing American tax dollars, it would be a crime not to mention the story.

Irish Finance Minister Brian Lenihan needs to inject at least 5 billion euros ($6.8 billion) more cash into the country’s two biggest lenders immediately as part of Ireland’s international rescue, analysts said.

Indeed.  Between the nationalization of Irish banks by the government and future potential IMF contributions to the ailing country, one has to wonder when any of this will end.  Of course it's not just the Irish banks getting a hefty handout from the taxpayers, but ever other American and European bank invested in Ireland. 


What no one is talking about, but is easily the biggest news story within the entire Irish debacle is that Ireland was one of the first European countries to impose austerity.  Austerity in Ireland took shape in the form of spending cuts across the board and higher taxes.  New York Times ran a piece in June with the conclusion that "Ireland is being punished" despite their noble efforts.  Noble efforts indeed, but this pattern will be the future of all western countries in the next five to ten years.  Why?


Because the world is drunk on credit, entitlement spending and welfare.  So the world now faces two choices, bail out everyone by further diluting and destroying private capital of workers or implement austerity.  


However as Ireland demonstrated and I have written about numerous times, austerity will not work.  Rather it will work, but certainly not in the ways that the politicians are envisioning.  You see, austerity by it's nature will deprive the private economy of two components.  Firstly, private money will be confiscated in larger amounts due to taxation in order to mop up runaway welfare and entitlement spending.  Secondly, governments will be forced to scale back on spending which in America has now replaced private demand almost entirely.  In fact since early 2000 there has been no net gain in private sector jobs, with all the growth and "good times" replaced completely by bank credit!   So what do you suppose when one finally pulls the credit and spending out?  You get a massive contraction.   A massive contraction is the economic term for Depression.  In a Depression companies, banks and failure gets punished.  Everyone involved in lending practices that were fueled by an out of control central banks (ECB and the Fed) now *has* to pay!  Or rather not pay and just go away, but no, politicians and bankers refuse to go quietly.  They want to implement austerity, but continue surviving while threatening financial Armageddon in case they do not get bailed out.  


The situation in the world right now is actually far worse than that of the Great Depression.  For those who have now understood the true reason of the Great Depression and why it became "great" in the first place,  at least you can appreciate that banks had to close.  Had it not been for crazy and elaborate public spending and bailouts by Herbert Hoover and FDR America would have recovered in a few years and understood that failing banks are a necessity for economic cleansing.  This is the nature of fractional reserve lending, this is the nature of inflation.  Booms will happen and they will inevitably be followed by busts.  Yet in 2008, a collection of enlightened men and women decided that they no longer enjoy the 'bust' part of the equation and set to change the world as we know it. 


Sadly this change required Irish ruling elite to accept a 137 Billion dollar bailout and distribute it upon the 4.3 million Irish citizens - that is 31K for every man and woman.  Ireland will suffer for this as their paper economy had to go bankrupt in order to move forward, but will now be forever shackled by the chains of debt.  Expect Portugal, Italy and Spain to follow suite within a few months.  This will end very badly.  Very badly, for everyone.