Thursday, September 30, 2010

Ireland: Leaving it to the Magical Markets

More bad news for Ireland this morning, as they are forced to bailout two banks at a cost of 40billions (with a B) euros to try and ensure investor confidence. You will recall Ireland was lauded for it's austerity measures in the face of a swelling deficit, but now it seems like it's all pain and no gain.

Current 10-year bond rates for Irish bonds stand at 6.8%, while the US 10-year bond rate closed at 2.5%. Let's not forget how Obama was assailed for suggesting austerity would stifle recovery.

And I'll preemptively reiterate something: I think the free markets are wonderful things, and they are, by and large efficient. But markets fail. That failure destroys people's livelihoods and that's when the government has to step in and ease the inevitable market correction.

Clearly for Ireland, something has gone awry and because of professed belt-tightening there is little the government can do to help people out. They're stuck waiting for the market correction.

1 comment:

Colin said...

The notion that Ireland demonstrates the dangers of austerity was already debunked pretty effectively by Megan McArdle last week.