Consider this under reported story from the Irish Independent,entitled 'Central Bank steps up its cash support to Irish banks financed by institution printing own money.'
Here's the key part:
The Irish Independent learnt last night that the Central Bank of Ireland is financing €51bn of an emergency loan programme by printing its own money.
The figures also provide the latest evidence that responsibility for funding Ireland's broken banks is being pushed increasingly back on to Irish taxpayers. The loans are recorded by the Irish Central Bank under the heading "other assets".
A spokesman for the ECB said the Irish Central Bank is itself creating the money it is lending to banks, not borrowing cash from the ECB to fund the payments. The ECB spokesman said the Irish Central Bank can create its own funds if it deems it appropriate, as long as the ECB is notified.
Howwzat again? Instead of borrowing money from the European Central Bank, even at the nominal interest it was charged, the Irish Central Bank simply printed stacks of Euros amounting to 25% of the country's GDP and gave them to its banks? And the ECB said 'no problem'?
Why not let Spain, Portugal, Greece and the rest of the EU trouble zone do the same? They can all be debt-free in as long as it takes the presses to run off a few billions!
Sarcasm aside, the problem is that Irish banks are running out of collateral they can use to borrow from the European Central Bank,having already borrowed €183 billion in total, or 110% of Ireland's Gross Domestic Product(GDP). The leprechaun is flat broke. So as the well runs dry, they're simply turning to their own central bank..which has responded by simply counterfeiting the necessary Euros.
Aside from violating a number of clauses in the EU treaties, this money is backed by nothing but air. There is no 'collateral' and the money is not backed by any bonds - which no one in his right mind would buy anyway.
Because the EU 'Eurozone' is linked with a common currency over international borders, the inflation and devaluation of the Euro resulting from this Irish counterfeiting caper (and the Irish are not likely to be the only ones doing this) is going to be a problem for all the countries using the Euro.
That especially includes Germany, which at this point is paying most of the freight and has a national horror of inflation after what they went through in the post-WWI era. The big question going through everyone's mind right now has to be how much longer the Germans are going to be willing to fund this charade - because the day they stop,the Euro is history.
Looks like Ireland is in as bad of shape as the United States is. I thought the United States was the only one to pull these kinds of shenanigans. Apparently we aren't. Didn't they roundly criticize us for this sort of thing? Now it looks like they are doing the same th;ings. The reults will probably be similar for them as they have been for us.
ReplyDeleteOne should revel in the misfortune of someone else, but given how much we are despised in places like Ireland and the Eurozone, its certainly tempting to. They've criticized us for these kind of corrupt dealings. Rightly so. Unfortunately they've decided to do the same thing. At best, they are inconsistent. At worst, they are hypocrites.
Hi Poster,
ReplyDeleteActually what the Irish Central Bank is doing is actually far worse than Obama's 'quantitative easing'.
We are printing dollars (and at a much smaller percentage of our GNP) and using them to purchase bonds..AKA debt which is government borrowing at interest. The money is at least back by something which can be redeemed by selling it to someone else or redeeming it later.
What the ICB is doing is simply printing pieces of paper backed by nothing at a far higher percentage of Ireland's GDP ( 25%, believe it or not!) and giving it to the Irish banks outright, since they no longer have collateral to borrow from the ECB.
Counterfeiting is exactly what this is called if you or I do it.
"...how much longer are the Germans going to be willing to fund this charade..." I've been asking myself the same question for quite some time.
ReplyDeleteI think you are one of the best bloggers on the web. The fact that you're askiing a question I've been asking suggests perpaps I'm on to something here:)
Frankly I'm surprised they've funded this for this long. From all indications Germany has been well run. Why should they throw good money after bad? Why should they be on the hook for someone else's debts?
This may be a bit off topic but America's tax laws are based on a charade themselves. In America the top !% pay about 40% of all income taxes, however, they don't have any where near that level of income. At this time, I am unable to pretend that I understand how the "rich" think, but I've wondered for a long time how long they would tolerate such an unequitable situation yet they've tolderated it for many, many years. Perhaps a similar phenomenon is at work with Germany paying for the bail outs of those who poor investing decisions.
FF,
ReplyDeleteThanks for the reply to my post. I think I see what you are saying. Maybe now they will spend less time pontificating to us about what we should be doing. Not holding my breath waiting though.
The first sentence of my last paragraph should have read: One should not revel in the misfortune of someone else, but given how much we are despised in places like Ireland and the Eurozone, its certainly tempting to.
Two words: Entropic Doom.
ReplyDeleteYour question about Germany is also applicable to the US, as in, How long will the rest of the US be willing to prop up California? As you talk about state bailouts above.