Moodys ratings agency downgraded Irish sovereign debt to junk. Can it be long before the other miserably-named agencies, Fitch and Standard & Poors, follow suit?
Obviously, the so-called bailouts haven’t fooled anyone. The bank bailout was a sham, and so was the EU / IMF bailout which was in reality just a loan at high interest rates. Lenihan’s insane gamble has failed, and now we face the consequences. Ireland is broke. We’re out of money and nobody will lend us a single penny after this downgrade. Irish sovereign bonds no longer have even minimal investment status. Many investors are forbidden to hold junk bonds and will be forced to sell them off, making the situation worse. The ECB can’t pretend forever that Irish bonds have value and sooner or later will have to stop lending to us as well. The IMF has no obligations at all to Ireland and is free to pull whenever it sees fit to do so.
What does this mean?
Very soon now, the government will have no money at all. Not a cent. And it will have no access to borrowing because nobody will lend money to a state whose IOUs are considered junk. There will probably be a run on the Irish banks as people rush to get their money out of a collapsing economy, making the credit squeeze even worse.
We could be looking at complete financial collapse in an uncomfortably short time, and yet our only plan at the moment is to fling our last remaining reserves of cash into the criminal enterprises that caused the catastrophe.
As Colm McCarthy has advised, fasten your seatbelt.
For once, I think he’s understating things.