The latest hedge-fund speculation against the euro could bring the very system it depends on crashing down, writes TONY KINSELLA
WE LIVE in extraordinary times. It seems as if everything is in erratic, if constant, metamorphosis. Truths once held to be self-evident daily collide with changed realities. Many of our long-cherished value systems have revealed themselves to be either inadequate or irrelevant.
Selecting stories to illustrate these changes is as difficult as assembling them into an informative pattern is challenging. Newspaper columns are not “news” in the sense of providing new information, but are more about analysis, offering elements that assist with interpretation. This is what I have tried to do every Monday these past two years.
This task is not made any easier by the absence of any structuring global ideologies or intellectual frameworks. It would be much easier to analyse and describe a theoretical conflict between capitalism, communism and, say, O’Dohertyism (Okay, I made that one up).
The Mayan civilisation went into terminal decline during our eighth century. One theory suggests this was triggered by a lengthy drought. The Mayan priests redoubled their spring sacrifices in a desperate attempt to placate the gods of rain and fertility. Since these rituals had manifestly worked in the past all that was required was more of them. Yet the drought persisted, the crops failed and Mayan society collapsed.
It is always tempting in difficult situations to cleave to familiar rituals. If, however, those rituals are actually ineffective you are, at best, wasting your time. At worst you may be taking your eye completely off the relevant ball.
Earlier this month several hedge funds bet nearly €6 billion against the euro. They also used a number of derivative products to wager that Greece would default on some of its €8 billion repayments which fall due in the first half of 2010. Attacking hedge funds for speculating is rather like criticising water for being wet. These funds, with their high-risk- for-high-return strategies, are estimated to manage about €1,500 billion provided by banks, pension funds, and other institutions.
Hedge funds, like Mayan priests, faithfully reproduce actions that served them well in the past. Were they to succeed in undermining the euro, the ensuing financial mayhem could well destroy both hedge funds and their investors. Some pension funds, in pursuit of ever higher returns, risk undermining the very government bond markets on which they depend for much of their revenues.
Another risky ritual is playing out in Washington. Most of us were thrilled at Barack Obama’s victory, although some of us did warn that the best we could hope for was an effective US president.
The jury is still out on that question, as he struggles with the difficult transition from convincing candidate into ruling president. His health insurance reforms are stuck in a gridlocked Congress. The US may lead the world in health expenditure but ranks 39th in infant mortality. If the collapse of Californian health insurance systems is anything to go by, healthcare in the US is going to get a lot worse before it starts getting any better.
Not only is the US in relative decline as a global power as others emerge, it also faces a number of domestic challenges from managing its deficit to replacing its creaking infrastructure. Whether its political structures, designed for a small agrarian country over two centuries ago, are up to the task is a question its polarised politics seems incapable of even asking.
US presidents facing such daunting domestic prospects have traditionally sought to boost their status by adopting a more abrasive approach to foreign policy. The Obama administration is no exception.
Last month Washington chose to announce a series of long-anticipated arms sales to Taiwan as a single, and therefore provocative, €4.7 billion package. It could have simply sold Patriot missiles and waited a few weeks before confirming delivery of Apache helicopters, but instead opted to provoke Beijing.
The administration’s hyper-cautious opening to Tehran is now being buried under Hillary Clinton’s Bush-era language urging “Iran to reconsider its dangerous policy decisions” while declaring that “Iran is moving toward a military dictatorship.”
Deliberately irritating Beijing – which holds the key to any new UN sanctions against Iran – while stooping to the kind of confrontational terminology so beloved of Iranian president Mahmoud Ahmadinejad may make sense in terms of domestic posturing. Resorting to this ancient ritual in a world you can no longer dominate is worse than dumb, it’s dangerous.
No article about blindly repeating ancient rituals could possibly be complete without a reference to the Irish bishops’ disappointing shuffle through the Vatican’s ornate halls last week. Some of the more flagrant missteps were those of the papal nuncio, Archbishop Giuseppe Leanza, who attended all the meetings. In Ireland Leanza chooses to cloak himself in the narrowest and most conservative possible interpretation of diplomatic protocol. Once in Rome, however, he sheds such restrictions to become just another participating bishop.
With a new Catholic paedophile scandal seeping into the unforgiving light of day in Germany, regurgitating ancient diplomatic and canonical rituals serves the Catholic Church almost as badly as it serves the victims of its predatory churchmen. Our world desperately needs new responses, and we urgently need to begin working out just what those responses should be.
The Irish Timeshas decided this is my last regular column. I hope you have found reading them as enjoyable and challenging as I did writing them. I appreciated all your comments and criticisms. As I intend to contribute from time to time, let me wish you more of an au revoirthan an adieu!