The inexorable fall of the dollar has exposed the inconsistency at the heart of Ireland’s economic policy.

If you are thinking about your open-walleted, pre-Christmas assault on Bloomingdales and Saks, the news this week from the international currency markets will lighten your mood.

If, on the other hand, you are worried about how you will pay for the pre-Christmas New York shopping trip, then the news will strike a note of caution.

The dollar has fallen to close to its lowest level ever against the euro. Today, one euro can buy you close to $1.40,making the ‘‘cheap’’ stuff in the US even cheaper.

The annual pilgrimage to New York for shopping used to be reserved for the superrich. Not any more. Few things better sum up the economic dilemma that Ireland finds itself in than the Christmas shopping trip to New York.

This year, it is expected that more than 350,000 Irish people will visit New York – the vast majority to shop. This figure is increasing by more than 30 per cent per year and is up 145 per cent since 2001.

‘‘Next Stop NYC’’ is the name of a tourism marketing campaign launched last year by New York retailers. It aims to capitalise on the booming Irish travel market, which according to the New York Times is ‘‘the fastest-growing among New York City’s top ten origin markets’’.

The idea that a country with just over four million people could be the fastest growing of New York’s origin markets is truly absorbing. It either shows how rich we have become, or how indebted we are — or both. Whatever it signals, the one truism is that the nation of shopaholics must have some way of paying for all this frivolity.

However, the falling dollar exposes the inconsistency at the heart of Irish economic policy. This conundrum may make it difficult for us to earn the cash to pay for the splurge and, as a result, might condemn us to a few lean years.

Ireland is a bizarre hybrid in the sense that we are in Europe but act like America.

We are heavily dependent on the US. America is our largest trading partner. It is our largest inward investor. More than 93 per cent of Irish exports come from multinationals, and the majority of them are American.

We have oriented our economy towards the mid-Atlantic and, for all intents and purposes, corporate Ireland is a province of corporate America.

In our 34 years of economic union with the EU, our trade flows with the Union have increased at only a fraction of the rate of our trade with the US. Britain remains our second biggest partner. So, as we have become European politically, we have become more Anglo-American economically.

To flourish and appear cheap to US investors, we need a strong dollar. However, now we have a weak dollar. As a result, Irish workers are beginning to look extremely expensive. But those same Irish workers, who are being paid in euro, now see America as a cheap Mecca to shop in.

In fact, most of them are borrowing expensive euro and converting them into cheap dollars to buy branded goods on Fifth Avenue that are actually made in China.

The snag is that we have to pay back our borrowed euro at some stage. This would be fine if it weren’t for the daily news coming out of the domestic economy – all of which is screaming the ‘‘top of the cycle’’.

Think about the other finding released this week – many hundreds of first-time buyers are now switching to fixed-rate mortgages. There is something desperate about this.

As the housing market continues to fall, these poor people facing negative equity have the cold comfort of a fixed-rate mortgage. This will hardly ease their pain.

What we need is not fixed mortgages, but cheaper ones for those who have them, and smaller ones for those who might pay for a house in the future.

Today, we find ourselves subject to a malign economic experiment – the country is facing a housing slump with higher, not lower interest rates. No country in the world has ever faced the prospect of negative equity and a falling housing market without the cushion of falling interest rates.

We are a test case. This brings us to the central inconsistency at the heart of Irish economic policy. As we can’t cut interest rates and allow our currency to fall, we face a long slump as falling house prices cause people to rein in spending, and higher interest rates reinforce this process.

In addition, the ‘‘falling dollar/rising euro’’ means that the trading part of our economy, which should come to the rescue, will be priced out of international markets.

The only way Ireland can recover properly is to invest heavily in brainpower and industries that can compete internationally. To do this, we need to be smart, good value and fast. Yet we find ourselves hamstrung.

We can’t cut interest rates and have a more competitive exchange rate without leaving the euro, but leaving the euro would be politically unpalatable for Europhiles, and would make the cost of repaying existing mortgages (taken out in euro) even higher for those with negative equity. So we are in a catch-22 situation.

We are now at the early stages of what could be a long unpleasant cycle. If it follows the path of most economies which have experienced domestic booms and slumps, the downturn could last three to five years.

The best thing for the economy, if we want to make this slump shorter, would be to cut and run, allowing the currency to fall in tandem with the dollar and reinvigorate our exporting sector, which used to be our dynamo but has contributed nothing to the growth rate since 2004.

But we can’t do this, because every percentage fall in a new currency would be an extra euro that the indebted home owner would have to pay. (Unless, of course, we called a moratorium – but civilised countries don’t do that sort of thing.)

From an economic policy perspective, we are facing a long slowdown. We simply have no instruments available to us to engineer an alternative. We need a strong dollar and a weak euro to thrive. How did we allow ourselves, from an economic policy point of view, to become semi-detached Europeans, yet at the same time, borrow euros like drunken sailors?

Without a radical departure from the present policies -where land speculation, financed by borrowed euros, begets more speculation and more debts – we are in for a hiding.

This land chimera only creates the illusion of wealth, while all the time, the fundamental strength of the economy and the brainpower of the people are allowed to ebb away. Looking down the barrel now, there appears to be very little alternative to a recession, the brunt of which will be borne by young worker-commuters.

If you think about it, Ireland needs a floating currency now more than ever. The next best option would be a currency link with the US, not the EU. No country has ever emerged quickly from a period of debt-deflation like the one we are about to experience without devaluing its currency.

This is precisely what the US is doing at the moment. What is good for the goose should be good for the gosling too.

But we are unlikely to get any change. Where are the TK Whitakers of the present generation? Maybe they too have been blinded by the glittering Christmas lights of Times Square when the Irish frenzy gets into full swing, spending borrowed euros on branded goods made in China and priced in cheap dollars.

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