Governments are not too big to fail

Should the Irish taxpayers bailout the government? 

Let's just refresh our memories as to how the world got into this situation... a number of bankers made bad business decisions and went, to all intents and purposes, bankrupt. At this point the governments for some reason decided that the Banks were too big to fail and agreed to underwrite all these debts, except of course in Iceland which simply allowed the banks to fail. This did cause some short term pain in Iceland, but the country has already turned the corner and is back on the path of economic growth.

The longer term effects of this decision is now that the other governments themselves are bankrupt and we now are in the position of deciding whether we the taxpayers should bail out these governments or let them fail.

Russia is a country which has defaulted, its economy was destroyed by the debt caused by the Afghanistan war of the 1980's and the subsequent break up of the trading bloc of Eastern Europe.

The Russian response was to cut spending very rapidly, to take the pain of devaluation all at once at the earliest opportunity and put the economy back on a very firm footing. Six months after the default the changes were beginning to take effect and the economy began to grow.

A Libertarian revolution of massive shrinkage in the size of government, (only Jersey has a greater percentage of its population employed by the government than Russia had at its height), along with corresponding tax cuts and a return of liberty and responsibility to individuals, has greatly benefited this nation.

But for many governments who have avoided making the necessary cuts, devaluing their currency, the pain is continuing and without taking the necessary medicine, no matter how bad it tastes, things will not turn around. The last time the UK had to do this was in 1979, but after a decade of Labour government we are back there again now.

There is a good chance that the U.S. government will be forced to default on its explicit and implicit promises within the next few decades. Fortunately, the state government experience of the 1840s suggests that this may provide the best and most durable long-run solution.

But it is for the Eurozone countries that the pain is worst, particularly Ireland, Italy, Greece, Spain and Portugal. What needs to happen is for these nations to pull out of the single currency but the bureaucrats are willing to sacrifice the lives of the people for the continuance of the dream.

With Greek public funds being raided to pay the debts incurred by the Greek government and threats of the loss of universities, hospitals and pension funds being stolen to pay interest to banks, pensioners committing suicide in protest. Spain has 50% unemployment amongst the under 25's and a trade union movement who is unwilling to budge on the over paid contracts of their members. The division is tearing apart a country that has never exactly been united to begin with.

Ireland is seeing organised campaigns of non-payment of EU introduced new taxation and is likely to be the first to go. It's becoming increasingly clear that Ireland can't afford to pay back all its borrowings. Defaulting on this debt is a common call.

What a default would mean is that promissory notes, credit cards and government services would all fall by the wayside along with any savings, pensions and any mortgaged property, more than likely.

When Argentina defaulted in 2001 a 'free economy' operated which employed about 25% of the population outside of government control and outside taxation. Goods were bartered for rather than purchased through banks.

You see the truth is that we do not really need banks, we do not need governments, we are all capable of looking after ourselves and our community. Services would be provided on the basis on need rather than statutory entitlement and life would go on. We would adapt as necessary to the changes in our daily lives.

The Irish no doubt understand that it is not they that will suffer, but the government of Ireland that made the bad decisions in the first place and the bankers before them who also made bad decisions in the event of a default. The hidden benefit is that future governments will find it harder to borrow. Perhaps they will decide that they should not suffer the consequences of other peoples actions and will allow the government and the banks to suffer the consequences instead.

They say that Jersey has no debt, which is true, but it does have obligations. Obligations which far exceed its ability to meet them, especially as much of its property portfolio is overvalued in the event of a mass exodus from an Island with no finance industry.

When the States of Jersey goes bankrupt, we will have a choice; to bail them out or to let them go under. I think you can guess which I would prefer.