July 20, 2008

Savings values of a bygone age must be reclaimed

Posted in Banks · 31 comments ·

In light of the impending recession, extravagant spending must be curtailed and replaced with a financial prudence that we, as a nation, conveniently forgot about many years ago.

Do you remember the children’s post office savings book? Can you remember going down to the post office with fifty pence or a pound and lodging this fortune into your account? In the early 1980s,on our (suburban, three-bed semi) road, nearly every kid had one – there was usually about a tenner in each account.

You got a great adult feeling, waiting in the queue behind the grannies with their tartan trolleys, presenting your book and withdrawing a quid. This transaction was meticulously noted and stamped in your book by the officious postmistress and, from that moment, your entrance into the world of ‘big people’ was that bit closer.

Before that, I remember Bank of Ireland piggy banks moulded in the shape of the mobile banks that used to travel around Ireland, bringing basic banking to the people. This piggy bank was like a model van, with a little slit for pennies on the top. Into this, I’d drop a few pence and shake it vigorously every weekend to see how much I had for macaroon bars.

Now, one of the most interesting upshots of our boom/bust cycle may be the return of thrift and prudence as national virtues.

When I was a child, there was a thrift infrastructure of sorts preached to many ordinary families. From the Bank of Ireland-sponsored piggy banks, to the children’s post office savings account and on to the first credit union account, people were urged to be prudent, and the state reinforced the virtue of thrift.

Many people put their children through university using credit union loans. In fact, the rapid expansion of credit unions in Ireland coincided with huge numbers of students going to university in the 1970s. (In many cases, these students were the first generation in the family to finish school, let alone go to university.)

The virtue of saving and responsible management of the family’s money seemed to be well ingrained in a society where cash was scarce.

More significantly, legislation was introduced to reinforce this – as the Post Office Acts and Credit Union Acts evidence. Ireland also legislated for trustee savings banks, mutual societies and building societies, where members/savers controlled the institutions.

People like John Hume realised the political link between thrift and ultimate prosperity when he spearheaded the credit union movement in Derry in the 1960s.Hume could see that Catholics wouldn’t be first on the list to get loans from the established banks in the North, but he also understood that building a prudent infrastructure and allowing people to borrow small amounts was essential to building prosperity.

As a result, he saw financial probity as part and parcel of his civil rights movement.

The civil rights movement in the US at the time was also characterised by the image of self-sacrifice and stoicism, rather than violence. The righteous, oppressed man would stand virtuously above his abuser and shame him.

One of those virtues was financial probity. The virtuous citizen was not flash; he was hard working, honest, home-making and prudent.

It is interesting to see, in the week of Nelson Mandela’s 90th birthday, the same streak of monetary monasticism in the great man. For Mandela, the struggle was about human dignity, inner strength and sacrifice. The virtuous man did without. He never succumbed to economic temptation, never allowed himself to be seduced by the glint in the eye of the loan shark. While all around let him down during the ANC’s asset grab of the 1990s,the old man remained above the fray.

The story of the post office savings book, the piggy bank, Mandela, Hume, mutual societies and the credit union movement reveals an acknowledgement that financial parsimony is a virtue, which should be ingrained in the DNA of a just society.

During the boom, we discarded this idea and replaced it with the implicit notion that the model citizen – the one to be envied – was the one with the most stuff – the biggest house, the fastest car and the most celebrity friends. This psychological and social movement was underpinned by a sea change in financial practice in Ireland.

The mutual societies were scrapped, as was the post office savings book. The building societies were privatised and many of the instruments of thrift, which protected ordinary and poorer people, were demolished.

In their place, a raft of spivvy, snake-oil salesmen emerged – the ‘buy now, pay later’ brigade, the nonconformist mortgage scammers, the low interest rate, credit card loanshark and the like.

However, the agents of prudence did not disappear. They simply went upmarket. They became part of the legions of wealth advisers for rich people. The ideals of the mutual societies and credit unions re-emerged in Armani suits as advisers to high-net worth individuals. The wealth management techniques of building societies became the currency of private equity advisers working in the new ‘private client’ divisions of the banks.

The agents of prudence joined the ranks of accountants and tax-specialists who provided ‘wealth protection’ services for the already rich. In contrast, the poor, who used to be protected from financial profligacy and were given a monetary education by the credit unions, were abandoned to the three-buttoned loan-sharks with too much gel in their hair.

This has led to a class division in the financial affairs of the nation. There are now two monetary classes in Ireland: the ‘investor class’ and the ‘lotto class’ (see Barbara Defoe Whitehead, ‘A Nation in Debt’; www.theamericaninterest.com).

The investor class in Ireland is rich and has the same attitude to money as that enshrined by Hume and Mandela. They have advisers who simply took the thrifty ideas of the mutual societies and went upmarket.

In contrast, Ireland now is also home to a significant ‘lotto class’. The personal financial strategy of the lotto class is as prudent and well thought-out as a lottery ticket. They are the people who giddily sign up for Ryanair credit cards at Dublin Airport before their annual hollier. They go for ‘interest only’ car finance and ‘pay as you go’ kitchen extension deals. They are the people who used to be the credit union members, whose financial predicament was gauged by friends, not loan sharks on sales commission targets.

This financial apartheid might be one of the lasting legacies of the boom. If so, it will undermine our prosperity and hamper efforts to reinvigorate the economy. No society ever borrowed its way to wealth and, if a class gulf emerges in financial management, the lotto class will get poorer, depending solely on luck.

In contrast, the investor class will get richer, protected by the virtues that made the mutual societies so successful and democratic in the first place.

Although most people can see the simple logic of this, the state must take the lead and reignite values such as prudence, thrift and sacrifice through old-fashioned initiatives such as post office savings accounts and, more importantly, through creating a financial institution that ordinary people can trust again.

  1. “the state must take the lead and reignite values such as prudence, thrift and sacrifice”

    That is for sure what is required, but with 131 of 166 seats in the Dáil occupied by right-wing parties, I can’t see that happening any time soon.

    The demise of the Irish Left has had as much to do with widening the gap of which you speak as anything else, and until they can sufficiently mobilise the lotto class into cutting down that stranglehold on Leinster House I can’t see it narrowing anytime soon.

  2. Malcolm McClure

    Thee are certain parallels of our situation now with that of Germany in 1931.
    They had visions of integrating Austria. We have partly completed a similar integration.
    They were deeply indebted due to exorbitant 1st World War reparations. We are deeply indebted due to our own foolishness as David has pointed out in this excellent article.
    The first danger signal was there when that escalator to mutual self improvement, the Building Society, privatized into a Bank. Suddenly instead of being mere depositors, we were shareholders, with visions of top hat and chauffered Rolls just around the corner. Then there was the Endowment Insurance debacle. Finally the Pension Fund frauds. There were plenty of warning signals, but we ignored them.
    The country is now ripe for National Socialism. We just have to wait for some Tin Hitler to spring out of the woodwork.

  3. Seamus Moore 4/2/7 PEC

    Ireland is now finding itself exposed to the capitalist system’s periodic cycle of a bust following a boom for the first time since the tide of the Celtic Tiger “lifted all boats” so to speak. While capitalism is the greatest economic system for lifting people out of poverty, economic freedom is a double-edged sword: it can also cut loose the rope to hang one’s self, economically speaking. Unlike the pig at the trough, one must have the discipline necessary to keep some semblance of fiscal sanity and order in one’s own personal finances. The recently passed Sir John Templeton, a man originally from Dolly Parton country in the hills of Tennesee, said it best in one of his “FOUR LAWS OF INVESTING”: the thrifty shall own the spendthrifts; this applies to individuals, corporations and governments in equal measure. Hope you are reading this Mr. Cowen; otherwise, Ireland may wind up like Argentina whose per capital wealth slid from #3 in 1900 to #70 in 2000. Don’t be a BIFFO, Taoiseach, as those who don’t learn from the past are bouind to repeat it.

  4. idij

    What about SSIAs? You don’t need to go back to putting 50p in the post office to find the last large scale saving.

    The reason people in general haven’t been putting money away is because for the last 10 years it has been “foolish” to do so. Nobody’s saving could keep up with the bubble (as a renter and saver, believe me I know).

    It should return to normal from now, but let’s be honest, the banks don’t exactly look the safest place for your money. Making the deposit guarantee 100% and more than 20k would improve that.

  5. michel cummins

    If you had your way David would we all be forced to attend mass each day and pay a visit to the confession box each week.The more that is spent the greater the level of employment etc.America is built on consumption and this explains how it increased it’s population from 5 million in 1800 to 310 million today.Saving is for stagnant economies’ such as Sweden and Germany.As Keynes remarked “each shilling you save puts a man out of work for a day”.Saving is boring.

  6. B

    Cummins you are an idiot.

    Save a bit of cash and save YOUR OWN ass.

    Some people are just wilfully stupid.

  7. J

    B, well said. If I’m not going to save what else can I afford NOW? Hey, I don’t want one of those 1000 euro loans!
    I think BUY NOW PAY LATER is one of those maxims disproved on the site.

  8. Garry

    I think we went from where it was too hard to get a loan to where it was too easy in too little time. With hindsight, the last few years of the nineties had the balance right. Before that it was so difficult to get money that a lot of good idea/business never got off the ground, after 2000 people didn’t even blink at colluding with mortgage brokers to spin stories that would let them take on a half a million debt for 40 years.

    Your final sentence has my support “Although most people can see the simple logic of this, the state must take the lead and reignite values such as prudence, thrift and sacrifice through old-fashioned initiatives such as post office savings accounts and, more importantly, through creating a financial institution that ordinary people can trust again.”

    If present trends continue we’ll be back to where its too hard to get a loan soon enough. Better to build a new institution worthy of trust than attempt to clean up the existing institutions, it would take too much time, money and management changes to redeem existing ones.

    The media are even more responsible……the property porn supplements, programs on flipping houses, a place in the sun etc were among the worst examples of reckless journalism. I don’t recall ever seeing any program where a presenter told a wannabee home/holiday home owner they were mad; to stop and think how much more debt they were taking on.

    The best investment for the average person/family is buying a house and paying it off ASAP, anything over 20/25 years and much more than the rental cost is reckless. Any extra cash use it to pay your debts off early, you’ll make far more money this way than with absolutely any other investment scheme. Only then, look at investment. Its many years since Ive read that advice, I believe its because it doesn’t sell advertisements….

  9. B

    The media by definition cannot be more responsible than the government regarding spending If they were they would not be called the media they would be the government.

    It is also not credible to blame TV or the newspapers for peoples irrational actions. They are individually to blame for their own circumstances. If you want a house you will get a house and the bigger picture of making the banker richer or making yourself a slave of the bank doesn’t get a word in.

    I would also disagree that your home is an investment. Your home is a current expense and is used by the “owner” to borrow against for other things like cars and things to go in the house. The bank uses the house as security against these loans. I still have no intention of ever buying. I view rent as a living expense and so what if I don’t own it. I don’t like my bank enough to become their tenent.

    In reality you buy a loan and get a free house. An asset is something you can sell. If you sell your house where do you live then? Also if you stop paying for the house you will quickly find out who really owns it. The bank.

  10. Johnny Dunne

    “the state must take the lead and reignite values such as prudence, thrift and sacrifice”

    The government still don’t ‘believe’ we have a problem – 1% ‘savings’ – there should be double digit % cutbacks in “current” spending ?

    Individuals and companies are cutting back as they know they will not be earning enough to ‘balance the books’ – no more windfalls !

  11. Garry

    b, agree with you on personal responsibility…

    I’ll have to part company with you on the home as an investment. The last 12 years were a golden opportunity to buy and own your property outright with very little pain. (Provided you bought before 2000 before the madness started.) As rates dropped repayments fell. Simply keeping repayments at the same level or adjusting for inflation/throwing a few bonus’s at it meant mortgages could be paid off in half the time with no loss of lifestyle. Unfortunately, most decided to take on more debt as you describe.

    But for those who realized debt is something to use and pay back asap, they now have an asset worth something. It doesnt really matter how much its worth but it must be worth at least the market rent to them for the rest of their lives (plus a peace of mind factor). Maybe its not an investment in the strict sense of the word but it certainly beats BoI shares.

    On the one hand auctioneers etc say property is as safe as houses, on the other someone like yourself says never to buy, youre just becoming a debt slave. Im not an expert at all but I think ye both are wrong. Owning your own home is a good thing and it should be achievable for the average family. At the moment if I was in the market, I wouldnt even look at buying a home until 2010; prices are still way out there.

  12. Do you mean the Econopolice will no longer pursue me for commiting thriftcrime?

  13. Philip

    Totally agree Johnny, since 2001 businesses here have been in thrift mode having to put up with ever increasing costs from more regulation, insurance you name it. Unless Government and the Public Service start doing the decent thing of cutting spend on quangos, CYA consultancies and the like, credibility will come under further pressure.

    Speaking of consultancies and the big 4 or whatever it is today – I read somewhere that these “advisors” (to some of the biggest cockups in IT systems deployment etc. in recent years) enjoy the largest margins in Europe. How come? Who are the procurement people buying these services? And at the same time I am aware of struggling local 100% Irish indigenous consultancy operations that do not get a look in to some of the public and semistate projects because they lack the cachée needed for the task in hand. Complete horsefeathers and surely a very clear route for more thrift in the public sector.

    Looking at the thrifty elite, ’tis easy to choose to be thrifty driving your bargain understated well maintained and dusty 01 MLK Merc rolling out of your farmhouse (which you spent hardly a penny on for the last 20 years) and going around place looking down your nose at the gobshites that got lured in. A lot of these guys (and gals) were already in the gravy before this nonsense started. You also find their wealth was managed expertly to take advantage and even short the boom. What disgusts me about these types is that they add nothing to the economy, risk nothing and carry on like an underground aristocracy. I think David’s use of these people and those that support them as an example of thrift models is most inappropriate. Many of these are comfortable spongers – nothing more.

    I think the article’s general direction was OKish and I think the class divide consequences are well stated. However, thrift is not solely based on saving a few bob every week and developing a scrooge mentality in the process to try and get your nest egg fatter. We have all heard of the extremes – saving their communion money and never buying a house or having a family or starting a business etc. – they lead grey enough lives. While thrift maybe a virtue, it goes hand in hand with prudence – i.e. having your head screwed on.

    Any idiot can build for a 100 Euro what an Engineer can build for 1 Euro goes the saying. This is what thrift / prudence is really about. Yes, buy a house, buy your car and enjoy life…but be discerning too. Know your limits and insist on quality and value (if an irish operation is to supply the service be particularly hard on quality). The public service could take a huge lead here – and if people in general learned to be wise with day to day dealing of buying and getting things done, we would see positive progress quickly enough

  14. B

    I would not look to the public sector for any kind example apart from how to do things at very high cost with no benefit.

    I am amused at the rich being called spongers. After all we have another group of high profile spongers called farmers. They get to pollute the rivers and they have had their hands out from day one. Stewards of the land my arse.

    As for consultants fees. The big 4 can have the State work. The State may pay well but who would want their lousy execution on their cv?

    I never bought a house but have started a few businesses. I don’t see the value in the houses. I don’t see how buying in a sharp rising or sharp falling market makes any sense. And what happens when oil doubles in price again? Do we all have to pay 20 grand to insulate brand new houses because the builder built cardboard cheapo houses and yet sold them at premium prices?

    Sure, get a family home but not at all costs. Buy a car. A Daewoo, Sorry Chevrolet, every 2 years is more expensive than a Merc or VW every 5-8 years. Changing your car on a whim is incredibly expensive and a total waste of resources.

    And most people here can barely drive or anticipate road conditions. Is it any wonder they spend so much on fuel? Buying a tenner here twenty euro of fuel there is a recipe for disaster. 20 euro of fuel turns into 20 euro plus cigarettes, plus a mars bar and if you do that 4 or 5 times a week you buy more fuel looking for the station and more junk food because its convenient at the station. Fill the car and run it to the fuel light every time. Skip the junk food and fags.

  15. Garry

    good points philip, a friend of mine also has a small business and has got told by their regulator the fees are increasing significantly. I think they were even brazen enough to say it was because there were less companies around to contribute, reminds you of the sopranos. These f***ers with their defined benefits are going to keep raping the industry that is paying their wages, no signs of cutbacks there. I wont mention the industry but the fees are regarded as protection money, they have done zero for the consumer or the businesses. Their sole purpose seems to be to set separate standards from the existing BS/EU standards.

    +1 on the consulting companies, Their expertise is ensuring more of their own consultants get assigned to the project and the customer is billed no matter what. I have direct experience of working with most of those companies, one or 2 competent guys usually appear at the start of the project (till theres no going back) followed by a bunch of politicians. Show me a company with them embedded and I’ll show you a management team that hasn’t a clue.

  16. Philip

    B, The public service and semi states should not be dismissed too quickly. They employ 40% of the people in this country. They cannot be ignored and their culture transfers to day to day living all too easily. Their lazy mindsets come about due to having too much money to throw around and zero accountability. This for me is an issue not just of business but of the wellbeing of the country. A poorly run and unacountable public service leads to a poor economy. No amount of entrepreneurialism will ever fix it.

    Thrift is all very well when it looks like the rainy day will pass. But as long as prudence is a side show in our Public service day to day running and these rich guys can go on taxing citizens to maintain their lifestyles, then credibility suffers and the incentive for sacrifice starts to wane. As someone said earlier – you are sowing the seeds for a tin Hitler.

  17. b

    I don’t think that they can be dismissed quickly enough. Literally if not actually.

    I agree their lazy mindset and general protection of what they think is “theirs” is transferred to the general mindset and infects us all. However there are bright spots within the public service that regularly get drowned by the incompetents.

    Do it wrong once and you get shouted at. Do it wrong 17 times you get job security.

    I work in the Consulting industry and the sheer amount of crap that is passed for consulting is amazing. I have worked for one biggie and what Garry is saying is pretty much on the money. Ha ha. On the money! These companies come across as American but in reality they are American in culture and Bermuda etc in address.

    We are a small company and I am no longer surprised how many managers are prepared to see the company fail over changing their own opinion/mindsets. People I am afraid to say never change. I have found this from bitter experience.

    So it is for this reason and with a heavy heart I will say the HSE and the public service will never change. Also people who do not save and rely on angels to sweep down and rescue them for the most trivial of problems will never change either. This may not be optimistic but even readers of self help books are rarely able to follow the instructions contained within.

    So bottom line. Save. Save your own ass. Maintain flexibility and only borrow what you know you can pay back. It took me 5 years to get completely debt free and not buying things that I knew would hang around my neck like a concrete life jacket helped a lot.

    If I want a flash car for a flash occasion I hire it. If its a wedding or a client that is so gullible that he cannot see the car is hired I do that. Day to day I run the old car.

    I suppose my point is that ownership comes with a lot of strings. It may be what some people want and that’s fine but not owning has a stigma attached to it that I cannot understand. Neither can the French and Germans and they had the same access to the same low interest rates for as long as we had.

    We just went mad. Like little children.

    Maybe like little children we need to be directed back to saving. But on the other hand look at the idiots running the banks.

  18. Jonathan

    Having a bit of our own cash in the bank, credit union or building society and making loans based on what we save is the only sensible way forward. If we are not, as individuals, making surplus money to requirements then we are simply reduced to subsistence living no matter how flashy you car or house is.
    In the short term a return to a savings culture will help to restore stability to the financial sector. Show the ability to save and you will get a loan. This applies equally to individual, business and country alike. This could be vitally important during the coming months and years. In the absence of other peoples money (i.e. foreign money from interbank loans and bonds) to borrow we will need to supply our own. The more we supply for ourselves the more others will gain confidence thereby restoring trust in Ireland’s financial institutions and economy.

    This brings us to stage one of the prosperity (not property) ladder. Step 1. generate a profit/surplus. Step 2 is to reinvest in ourselves and expand our revenues. Rinse and repeat…..

    It is not enough to simply save money and put it under a matress. A good portion of the money needs to be put to work generating business that export goods and services that yet again generate a profit/surplus. Without this vital step we are wasting our time since growth will stagnate.

  19. MK

    Hi David,

    I agree that saving has with the latest generation gone out of ‘fashion’ and indeed practice, although it is not a chalk and cheese scenario. One thing to remember is that the devasting affect WWII had on most economies, with rations going for years afterwards. People saved for that “rainy day”, or indeed “that war” as a mindset. Not only our parents, but our grandparents did (as they lived through wars, etc, WW-I). This mindset of being frugal, darning your own socks (I dare say a practice which you and I no longer do!), etc, was necessary for millions. But it is no longer that necessary today.

    Yes, a society can over-borrow and over-indulge. Its called a ‘partay’, and we’ve had one! But there is a rainbow of stages between an all out ‘painting the town red’ type of society and that of an enclosed nunnery where they can live off an acre of vegetables, some hens and a goat or 2. Its better to be somewhere in between, and that can vary, it doesnt have to be at the same level all the time. So, yes, we (as a country) have gone overboard and as a country we need to turn down the volume a few notches. Market forces will force us to anyway. We were not the only county partying on the planet.

    By the way, I dont agree (and I dont think you believe it either) that the Irish government was encouraging frugality with their actions in the 1970′s and 1980′s. Indeed public borrowing soared during those times as good jobs were maintained at costly levels for far too many in the public purse. The private sector was then asked to tighten its belts. This scenario may repeat itself as I dont see the public sector volunteering to reduce its cost, and as for trying to improve its performance, hen and teeth come to mind!


  20. Michael

    Hi David,

    I agree that more thrift and prudence is necessary for the years ahead. In general though, no matter whether it is boom or bust, some common-sense principles need to be adhered to:

    1) Spend less than you earn.
    2) Once your debts are paid off, save and invest 10% of your income
    3) Use the principle of compounding to your advantage – if you saved and invested €5000 per year and achieved a rate of interest of 15% you would be a millionaire in 25 years (providing you did not make withdrawals).

    Now, you may argue that 15% is not a realistic rate of return, however, I read once that between 1927 and 1987 the Wall St. stock market had an annual average growth rate of 16% – a period that covered the Wall St. crash, WWII & the 1987 crash. So, perhaps its not so unattainable after all, and even with a rate of interest of 10% in the above example, you would almost have €500K after 25 years.

    So, I think the message is to educate yourself about money. Do not rely on the banks or the credit unions for advice, whilst they preach the propoganda of “serving the customer needs”, they are only looking at what’s in it for them. Yes, the government and the public institutions can set an example but I wouldn’t hold my breath. In general, public service employees have the attitude of “milk the state” and if anyone from the private sector gets in the way of this, they conspire to “cut them down to size” using regulation as one of their key methods. No, I think in our own lives each of us has to become the “example” to ourselves and maybe it will rub-off others and eventually, who knows, maybe even the public sector? We can’t just abdicate our responsibility on this by asking the public sector to take the lead.



  21. Michael

    Just want to amend one of the points I made above i.e. “2) Once your debts are paid off, save and invest 10% of your income” should be amended slightly to state that “2) Once you have paid off your debts apart from your mortgage, save and invest 10% of your income”. If you have a mortgage, of course pay it off over the long term and simultaneously build your savings and investments by saving at least 10% of your remaining income. If you say you cannot afford to save this amount, find a way…

  22. Roche

    Michael, I agree that retirement planning is imperative especially considering future issues such as, diminishing social security, inflation etc…. but financial professionals must be held accountable for mal practice where need be. The intangibility and heterogeneity nature of services make if difficlut for consumers to understand what their real financial needs are.

    Educating school kids about money management is a great idea and should be fundamental in every school nationwide. In the mid -80′s my primary school like many others nationwide offered ‘Sammy Stamp’ Credit Union savings book and purchases through the school once a week. This was a great way to learn about the value of money and saving from an early age. Being a middle class child of the 80′s I lived through the ups and down’s of redundancy and today I feel lucky to have a completely rational aversion to credit!

    I have experienced a paradigm shift in values over the past 10 years where people are more concerned about how they position themselves in society rather than their role in the community. I know sounds like I’m preaching from an idealistic pulpit about the good old day’s and maybe I am but I honestly believe that we temporarily lost our sense of humility. Modesty is not a weakness and not opposed to progression, in fact I believe this is one of the most admired characteristics of the Irish people and is the Rosetta stone to our humor, creativity and ingenuity. It’s time to strike a balance, all the flash in the world is not worth our identity.

  23. Malcolm McClure

    Saving is a prudent strategy if one can depend on low inflation and a stable currency. It is a foolish strategy if there is high inflation.
    For example, just looking at UK statistics (which are readily available): since 1914 the value of the pound has gone down to about 1.33 (new) pence.
    Many people still remember the period 1973 to 1982 when the purchasing value of the pound saved (without interest) decreased to 17 pence.
    Remember the Reichmark? how many to buy a loaf in the 1930s?
    Best strategy for “savers” if inflation hits hard? Borrow in a sinking convertible quoted currency and invest proceeds in Gold mining and pharmaceutical stocks.

  24. Ger Kennedy

    David (McWilliams)

    Excellent article. However I dont think savings are the major problem here. Savings among young people is a problem in Ireland. They are the ones who caused and took on the private debt. Older people in Ireland have plenty of savings. The recession and higher interest rates will teach the younger ones how to save anyway, probably. (Maybe)

    I was wondering, you know the way Cowen et al are rabbiting on about the fact that the “fundamentals of the Irish economy are sound”. They never explain what the fundamentals are however. How about doing an article about the “fundamentals” of the Irish economy and the soundness (or unsoundness) thereof. For that matter what are the fundamentals of the Irish economy? I think that would make a great article and it might put a stop to the never ending drone of Irish politicians rabbiting on about the “fundamentals being so sound”. Just a thought.


  25. VincentH

    Thrift is no more the answer than was paying people wage increases in house inflation. And having a housing policy not based on Rachman or the typical Galway city landlord might help matters. The student accommodation has a very short lifespan of fun.
    Hobbs put his finger on the house issue some years ago, a home is only an investment when there is so much equity in it that another mortgage would not question it.

    Where is the fellow with her tide now, but at least as a comment hers admitted a turn.

  26. Michael

    Ger, good idea for an article on the “fundamentals”. I think that the politicians who refer to it so frequently without really knowing what they are talking about need to be exposed on this. Maybe the nickname we could give to them is “fundamentalists” who passionately believe in the doctrine that those who oppose their point of view are “talking the economy down and talking themselves into a recession”…

  27. Philip

    Ger, on fundamentals…let’s see what those guys are really on about. I suspect however that if the fundamentals were ever identified, their arguments would dissolve rather rapidly. I think their only fundamentals are to be in power permanently – whatever it takes – and the rest of us should remain thrifty so we can afford the taxes to keep it that way.

  28. MK

    Hi Malcom (McClure),

    > Saving is a prudent strategy if one can depend on low inflation and a stable currency. It is a foolish strategy if there is high inflation.

    That’s presuming that people are going to save all their money into a deposit bearing account which is giving less than inflation. People however do have the option of investing their savings in accounts that are closer to inflation or indeed in other forms of investment instuments with some risk, such as carefully chosen funds, shares, businesses or dare I say property(when conditions allow!), that would beat inflation, whether inflation is low (less than 5%) or high(10% +). Saving does not in itself imply saving(investing) via a low-interest deposit account or a piggy bank!

    > Best strategy for “savers” if inflation hits hard? Borrow in a sinking convertible quoted currency and invest proceeds in Gold mining and pharmaceutical stocks.

    That would be a risky strategy, as borrowing in US Dollars (which I’m assuming your implying) may not be a currency that will sink as you expect. Gold mining stocks and shares are likely also to have inherent risk and savers need to assess their own level of risk even if looking to beat inflation. Real interest rates on deposit accounts with reasonable terms are likely to be close to “core” inflation less 2% or so and investing with your owncurrency reduces the chances of being caught out on the wrong side of a currency fluctuation, ala the irish government in the 1970′s (borrowing in the sinking USD, which rose unexpectedly).

    Ger, I agree with the others that “our economic fundamentals” is a good idea for an article.
    A ‘balanced scorecard’ if you will perhaps:

    GDP per capita at PPP (and growth thereof)
    (in comparison to our peers – UK, FR, DE, NL, BE, NO, CH, SE, FI, etc)
    Government Debt (%GNP at PPP)
    Consumer Debt (%GNP at PPP)
    Commercial Debt (%GNP at PPP)
    FDI trends/share (per capita)
    Quality of Life measurements

    and I’m sure there are other parameters.

    No doubt this has been done by the OECD …. do they use categories like:
    – doing well
    – good shape
    – could do better
    – basket case

    hmmm …..


  29. fingahs08

    David – agree 100% with the state taking the lead in re-creating the fiscally responsible value system of the past..

    …and I also can’t help but remember the ‘Minister for Hardship’ from Hall’s Pictorical Weekly. ;-)

  30. hollymarg


    Hall’s Pictorial Weekly…gosh! It’s been a while since I heard that!

    I thought that the lack of spending and lack of confidence in buying would accelerate the downturn?

  31. Observer

    I agree that there should be an incentive to save now in Ireland………

    However, thanks to the idiot John Bruton passing in 1994 more red tape to even open a bank account…….. its like traveling up the Andes….

    An uphill struggle especially getting the right paperwork.

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