Waterford, Ireland – “Ireland is broke,” said our taxi driver.

We like to ask cab drivers about the economy. Not that they understand anything any better than the average central bank economist. But they talk to people. Without cameras or tape recorders in the background. And they have their own businesses too. When times are good, people take cabs. When they are bad, they take the bus.

“My bloody income is down by 50%. Most of my fares are people coming or going on business…or just people going to work. But now, who’s doing business? Who’s working?

“The developers and the bankers ruined this country. They pushed up prices. And then, what was the government doing? They haven’t a clue. The guy who is head of Ireland’s financial affairs is a former schoolteacher. I’ve got nothing against schoolteachers, but what does he know of finance? And he’s over there negotiating with the Germans.

“The Germans know what they’re doing. They don’t want to finance our mistakes. And who can blame them?”

In many ways, the Great Correction is hitting Ireland harder than the USA. If the US overbuilt, Ireland overbuilt even more. If the US over-borrowed, Ireland borrowed even more. And if the USA got lost in debt finance, Ireland got lost in dreamland.

“We are dreamers, I guess. And storytellers. It’s a status thing in Ireland. You go into a bar. Look for the fellow who has the most people gathered around him. He’s the big man locally. Not the doctor. Not the politician. Not the rich man.

“We’re dreamers and storytellers…and then, we come to believe our own stories. “

The Irish dream big. The republic is not big enough for them. So they go abroad. Only 4 million of them are left on the island. Some 60 million of their descendants – the Irish diaspora – live in America, Canada, Australia, Argentina and elsewhere. Your editor is one of them.

For the first time in more than a decade, the Irish are emigrating again.

“If you’re a smart young man or woman, what else can you do? It’s sad for their families. But Ireland has nothing to offer them. They have to leave. And usually, they don’t come back.”

Yesterday, we went to open an account at the Bank of Ireland.

“They must have been glad to see you,” said a colleague. “You must be the first person to open an account in years. The rest of us are taking our money out. Every bank in Ireland is insolvent, and everybody knows it.”

“Well, there was no line,” we replied.

Instead, we got to the bank door at 10AM. We rang the doorbell (the bank didn’t open until 10:30, but we had an appointment). A dignified older man in a sweater and a tie opened the heavy oak door.

We stated our business.

“Oh…yes… She’s waiting for you.”

In front of us was an attractive woman of about 30. Well dressed. Well coifed.

“Will I lose my money if the bank goes broke?” I asked.

“Ha ha… There’s no chance of that,” said the woman with a look of earnest intensity that you usually associate with time-share salesmen and insane people. “I guess you would say that we’re already broke, technically. But we have a deal with the European Central Bank. We have a line of credit. We won’t default. And even if we did, your money is protected by an Irish government scheme that protects depositors up to 100,000 euros.”

“Well, isn’t the Irish government insolvent too?”

“Ha ha… Well, I suppose that it is too. Technically. But so is your American government, isn’t it? But this is just a technicality. The whole system is not going to go broke. We’re supported by Europe. And Europe does not want to see Ireland default.”

She was right about that. Europe does not want to see Ireland default. Because the debts of Ireland are the credits of French and German banks. If Ireland were allowed to default, the whole kit and caboodle could come apart.

Ireland can’t borrow on the open market. Lenders are not idiots. So the Micks and Paddies borrow from the European financial authorities. The low rates keep Irish households above water. Most mortgages here are “floating rate” loans. If the rates were allowed to float up to market levels, Irish households, banks, and the government itself, would all sink.

For the moment, Europe lends at low interest rates to the Irish…who keep their banks and voters from going bust. The banks, in turn, keep their creditors from going bust. And so the whole system, in Europe as in America and Japan, depends on a continued flow of artificially cheap money

And everyone seems to think this flow of cheap money can continue indefinitely.

Welcome to the modern political economy… Small, isolated problems are rolled up into bigger and bigger ones. Soon, the danger is not to a bank…or even to a nation…but to the entire system.

We don’t know when it will stop. Nor do we know exactly what will make it stop. But we’re sure there’s money to be made betting on it.

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.