Randall Wray, one of MMT team to visit Dublin outlines the issues.

May 13, 2011 Comments Off on Randall Wray, one of MMT team to visit Dublin outlines the issues. by

Randall Wray, one of MMT team to visit Dublin outlines the issues in New Perspectives and Cork Examiner.   He poses the question

Should Irish Voters Follow the Example Set by Icelandic Voters?

Here is his conclusion..

What is the best way to guarantee long-term stability for the Irish economy? Full employment with reasonable price stability—something a universal job guarantee program can deliver.

For a sovereign currency nation the interest rate is a policy variable and has no impact on solvency. Government can keep rates low (it sets the overnight rate directly, and can if it desires issue only short maturity bonds near to that rate) and pays interest through “keystrokes” by crediting bank accounts with interest. It can never run out of keystrokes so will never fail to make interest payments unless it chooses to do so for noneconomic reasons.

For Ireland, this is a very serious problem. It does not have a sovereign currency. It cannot control its borrowing rates, which are set in markets. Nominal interest rates should not exceed nominal GDP growth rates. But as we know, markets have pushed rates to 10%. For Ireland to service debt at 10% interest rates, it will need Chinese growth rates. That seems unlikely.

So how should the government deal with loan repayments to the EU? As I discussed, I would encourage the government to unwind its guarantees of bank debt. If this cannot be done, then Ireland must have a bail out and debt relief provided by the ECB or the EMU through some other entity. That is actually in the interest of the EMU since much of the bank debt guaranteed by Ireland’s government is held externally by EU banks. The last resort alternative is default on debt and possible expulsion from the EMU. That will be painful. There isn’t anything Ireland can be expected to do without support from the EU—except for default.

So Ireland can learn from the Icelandic example. Both are heavily indebted because their banks were far too large and made too many foreign loans. A difference is that Iceland still has its own currency; however its banks made loans in foreign currencies. But in important respects, so did Irish banks since the euro is a foreign currency from the perspective of Ireland. Iceland’s citizens are pressuring its government to undo the bail outs. Ireland’s population can learn by example.

The Irish voters should demand accountability of government, including investigation of the bail out of banks. Government should pursue debt relief on all fronts. Voters should resist austerity programs. If all else fails, they should demand either default or withdrawal from the EMU (in practice these probably amount to the same thing).

And they demand jobs at decent pay. A Universal Job Guarantee program either funded by a newly sovereign Irish government, or funded by the ECB or other EMU institution is necessary to help revive the economy and to relieve suffering caused by high unemployment.  (link to article)

Disclaimer: Feasta is a forum for exchanging ideas. By posting on its site Feasta agrees that the ideas expressed by authors are worthy of consideration. However, there is no one 'Feasta line'. The views of the article do not necessarily represent the views of all Feasta members.

News, Project Feeds

About the author

mer O’Siochru is a qualified architect and valuation surveyor. She was a founder of Feasta and served on its executive committee for many years. She is director of EOS Future Design which designs and develops sustainable systems and settlements. She also manages the Feasta-led Smart Tax Network which is funded by the Department of the Environment, Heritage and Local Government to develop tax policies in areas related to the environment. She lives in Dublin.

Feasta is an open, membership-based organisation. If you're interested in supporting our work please consider joining Feasta or making a donation.

Comments are closed.