11/30/2010

Ireland in Trouble

In this article, "The victims of Ireland's economic collapse," the author spells out how bad economic conditions have become in Ireland. The article states that the budget deficit is 14.3% and is even higher than Greece. Ireland, like Greece, has borrowed their way into economic disaster. The interesting dynamic that Ireland faces is that of mass emigration. The article states that in the 1950's five hundred thousand people left the country because of poor economic conditions. This same thing happened in the 1980's on a smaller scale, but the effects crippled the economy for "decades." It will be interesting to see what happens after this years economic burst. The article states that one hundred thousand people are estimated to leave the country next year. In dealing with the financial bubble-burst cycle that country after country seem to be facing I think that Robert Kuttner got it right. 1) regulate financial institutions if they are involved in bank-like activities, 2) Limit Leverage 3) Police conflicts of interest.

3 comments:

Dave said...

Again ... time to bring the discussion back down to earth.

How are the Irish actually worse off than they were a generation ago? Well, factually, they aren't. So what we're really seeing is that the Irish are worse off than they were 5 years ago, not 20 years ago. This isn't good, but let's get real.

Mass emigration? RUFKM? No offense, kmuteki, but this reporter is engaging in hyperbole on a grand scale. One hundred thousand emigrants, compared to what? Emigration from Ireland and immigration into Ireland have always been huge. The UK isn't that far away, everyone speaks the same language, and there is a huge Irish community in the UK. Then there's Canada, and Boston, and ...

Now, at the end, Kuttner's suggestions are sound enough. It would be nice if there was something in there about not encouraging moral hazard.

hope i pass said...

It is unfortunate and saddening that some parts of the world are affected more than others by this world economic downturn.

Although many causes can be suggested the fact of the matter is that standard economics are at play.

Banks offer loans to people that don't qualify because they receive compensation by bundling these bad loans and reselling them. When they resell these loans it then becomes someone else's problem.

The general public requires more and more physical commodities without any thought as to how to pay for these additional expenses. We as a world populous really need to learn to live within our means, borrow less and spend less than we make.

Yes improved banking regulations will help. There will however always be a creative way to fill an unrealistic "perceived need".

Dr. Tufte said...

-1 (waived because it's Block 1) on i hope i pass for a grammatical error.

Unlike the U.S., in Ireland the problem is not so much the collapse in the value of assets based on debt, but the fact that so much of the debt was owed offshore, and subject to macroeconomic effects in other countries.

I also think your sentiment is right, but I don't like the word "requires" when discussing physical commodities.

And, here's a moral spin to turn the argument upside down. Is it immoral to borrow money (to support your wants) if you're offered a low enough rate? Is there a rate where it becomes OK? The reason I ask is that the world is flooded with cheap and easy credit for consumers. Why would a lender prefer to offer cheap credit to consumers in developed countries when most of the world is underdeveloped? My guess is because a western consumer is more likely to pay off their loan than is a business person in much of the underdeveloped world. That latter is the immoral part.