Substantial Borrowing Only Way Out Of Money Crisis

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Substantial Borrowing Only Way Out Of Money Crisis

Posted Jan 23, 2009 by Richard Douthwaite

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Opinion piece on Irish financial crisis by Richard Douthwaite

In an opinion piece for the Irish Times, Fellow Richard Douthwaite addresses the question: Why isn’t Ireland’s shrinking money supply being widely discussed? Do too few people appreciate the alarming problems being created?

The slow-down in payments... means that borrowers are having increasing difficulty getting the money together to service their loans. They are, in effect, playing musical chairs, and as the monetary chairs are taken away, fewer of the players can find the means to repay their debts when the music stops at the end of each quarter. Those who fail are eliminated, causing the banks’ bad debts to increase.

The taxpayer will have to make good at least part of these losses. This would have been the case even if there had been no government bank guarantee, as every billion the banks lose means ten billion less they can lend. Thus, if the Government had failed to step in as losses mounted, loans would have been more tightly restricted and perhaps even called in. A frightening spiral of bad debts leading to more bad debts could have developed.

But injecting billions into the banks after they have made losses is to pour it down the drain.

Read the whole article at The Irish Times.

Image by David Dennis.

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