Defaulting on our debts will see us fall back into dark days of poverty
Seeing that everyone is now an expert on economics, I thought I might as well join in the debate. I feel I am far better qualified to write on this subject than most economists as, unlike them, I have lived through at least three recessions. And I am sure there was also a nasty one when I was a toddler. So rather than just talk about it, I have managed to make and lose heaps of money during my lifetime.
My father often spoke of the poverty and hunger that was rampant in the 1930s and how easy it was to go bust during De Valera's economic war with Britain. By defaulting on our debts, Dev condemned Ireland to a further 30 years of stagnation and poverty and those who suggest we now default on our borrowings should reflect on world history and how defaulters pay dearly for their errors.
The one lesson we all eventually learn is that nothing really changes. Circumstances and the faces of our politicians change but the basic rules regarding the behaviour of money never alter. As you set out in your twenties to make your fortune, you think that while old people are amusing to listen to, they know nothing about the brave new world that is emerging. You laugh at the concept of saving for a rainy day and the old-fashioned idea of not buying something until you can afford it.
Each generation has to make its own mistakes and this is why we have booms and busts and, occasionally, the chance to make and keep a fortune. But despite the wisdom of prudent borrowing, we also need risk takers.
We have to have people who will give it a go and we should never blame anyone for making a mistake if they honestly tried. Blame them if they make the same mistake a second time but at least give them the chance to start again. In America, the hard workers and risk takers are rewarded and admired when they succeed -- and if they fail they are given a second chance.
Entrepreneurs are forgiven if their business goes bust and they end up bankrupt. It is assumed, provided they are honest people, that they will have learnt from the experience and be the better for it.
Here in Ireland, bankruptcy is not an option and because of this we lose many of our best job creators. We are suspicious of success and all of us have heard the derogatory remark, "I knew him when he didn't have an arse to his trousers". This is all part of our historical reverence for inherited wealth and our demeaning of people who get off their backsides and make it for themselves.
I am not trying to condone the actions of the unfortunates who bought houses they couldn't afford or the lending policies that allowed this to happen.
Just like the rest of us, bankers make endless mistakes and this has been so from the time that recorded lending began around 5,000BC. Interestingly, around 1,700BC, the laws of the Hammurabi prescribed debt forgiveness every three years but this did not prevent lenders having a reasonable expectation of getting their money back.
Prior to the introduction of coins, the concept of interest on money loaned was based on the natural expected increase in a herd of livestock over a period of one year. However, throughout history, usury or charging interest on loans was frequently banned and despite their close links with the Medici family, who were for centuries the bankers to the world, the popes condemned usury as a mortal sin.
It appears that moral teaching was as elastic then as it is now. I found these fascinating facts in The Ascent of Money, a financial history of the world by Niall Ferguson, which describes how commerce evolved from ancient times to today, and how nations can be brought to their knees through imprudent borrowing.
It is clear from studying history that burning our bond holders is not an option. If we default on our debts, as so many are advocating, we will pay dearly and face years of poverty, similar to the hardship of the 1930s. We may, of course, just run out of money.
Perhaps inflation will be used as a get out and with the trillions of euro and dollars that are floating around right now, the risk of inflation appears to be there despite statements to the contrary from the international banks. Inflation would, however, also ruin the value of the savings of the prudent and the elderly -- but then that never stopped Governments in the past.
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