A friend of mine posted this on my FB:
"So what is all the fuss about Ireland, the population is about that of greater Sydney, who cares if they go broke, wouldn't the sums involved be just a fart on Wall St?"
Admittedly the first thing I thought about was Greater Western Sydney's new AFL team and how much better it would be to have an Irish team entering the competition!! But seriously ...
He could be right that it's overblown. Indeed, he probably is. The global media is now hyper-sensitive to vulnerabilities (although the Australian media might think the opposite given our stellar performance during the crisis).
Remember the sub-prime property market. How could a small segment of the US property market cause such chaos - it was only poor people's houses after all? How could that affect the global financial system (I mean how did Iceland get involved!)
The word to remember here is contagion. If credit freezes again then solvent borrowers can't rollover their debts and then they get in trouble, meaning they can't buy things and then other businesses can’t sell things, can’t borrow and so on. Around and around we go! This is how a credit crisis spreads way beyond the original problem.
If the crisis spreads again, the problem will be that this time, many governments won't have the ability to bail out investors (although in Australia the situation is different).
Now the Euro could be in trouble with some commentators arguing that it's only a matter of time before the Euro is disbanded ... it means that Ireland can't operate an independent monetary policy ... under the old system, the Irish Pound would be devaluing
The globalisation of finance means it's all connected now (I wrote about all this stuff in 1996 in an article called "The Politics of International Finance" .... what surprised me was that it took so long before the whole edifice got into trouble). But what we've seen over the past 20 years is a series of rolling crises with each one progressively worse than the next.
Most people thought the last one was the big one and I hope they're right, but as Wayne Swan used to say: "we're not out of the woods, yet". We still operate in a global economy and we're still connected to it as is the rest of Asia.
The worst decisions being made now do not involve not the printing of money in the US (so-called quantitative easing), but the premature shifts to cut govt spending.