January 26, 2009

Time for us to start singing from a different hymn sheet

Posted in Euro · 126 comments ·

Are we waltzing ourselves up an economic cul-de-sac without realising it? Are we making a bad situation worse?

The way things are going, our economy could contract by 10 per cent this year. This figure may sound apocalyptic but not unimaginable, given the pace of current job losses, emigration and price falls. There seems to be – among the economic fraternity at least – uniformity about the need to slash government spending. On many levels, this is understandable, but is it the right thing to do?

The following might be heresy, but let’s think about it anyway. Will history look back and say that, in 2009, the Irish government should have been spending more, rather than cutting back?

When all economists are singing from the same hymn sheet, there is a dreadful risk that the pitch will be off-key. This is particularly the case when many of them were cheerleading the boom until not so long ago. In fact, not since St Paul was on the road to Damascus have there been such conspicuous conversions to the ‘‘we all knew it couldn’t last school’’. Enough. On the surface, the mainstream arguments seem to be pretty sensible. State spending is going out of control.

The rest of the country can’t afford it. The private sector is getting hammered, so it is not just an economic question but also a moral question about who shoulders the burden. These are all logical points of view. But the major concern is, if there is no demand coming from any where else, will the downturn here not simply be exacerbated by reducing state spending significantly now?

Unlike many, I am agnostic on this – or, maybe more accurately, open to persuasion. But think about it for a second. The boom in Ireland mirrored similar booms in most Anglo-American economies. Our property obsession put us at odds with much of the eurozone in terms of recent experience. Spain is the exception, but that country was downgraded by Standard & Poor’s, the rating agency, last week.

In the Anglo-American world, the response to the housing bust has been a massive increase in state spending and an equally dramatic loosening of monetary policy. Exchange rates have been allowed to find their own level and, in the British case, this is some 30 per cent below where it was in 2007. In both countries, there are two hands of macro-economic policy at work – fiscal policy and monetary policy. Think about what is happening here.

Monetary policy is jammed by our dysfunctional banks. When they talk about the ‘‘systemic’’ importance of banks, what they mean is that the banks operate as an arm of monetary policy. Without them, monetary policy can’t work. So it doesn’t matter how low interest rates go, the banks are in no position to pass on the benefit because their balance sheet is so weakened that they are zombies. So Ireland is now operating without a monetary policy. Minister for Finance Brian Lenihan is a one-handed policy maker.

Worse still, our exchange rate is wildly overvalued, so we can’t hope for export led growth. Even when the world recovers, this overvalued exchange rate will ensure that fewer Irish exporting companies make it through this recession to be in the position to export anything in the years ahead. The only thing that Lenihan has at his disposal is fiscal policy.

So you see our conundrum. Every way we move, we are snookered. If Lenihan cuts back on government spending, nothing will replace it and demand will fall further. Unemployment rises, as does other social welfare spending and soon, whatever cuts he makes are wiped out by falling revenue and rising spending. Raising taxes exacerbates the demand dilemma further.

Traditionally, as in 1987, the fiscal contraction led to a significant capital inflow, which allowed interest rates to fall significantly. Borrowing costs came down, private sector lending increased and, crucially, the banking system, which was working, pumped money into the economy. Thus there was an immediate positive impact on the economy.

This time there will be no positive. Some economists argue with some validity that the spread of our bonds over German bonds will fall significantly if we have a fiscal adjustment. This, they say, will be the monetary dividend from cutting spending now. But even with the risk premium built into Irish bonds, we are still borrowing at below 6 per cent. This is significantly lower than where the US government typically borrows.

It is hardly a reward for good behaviour and, as the banks are zombies, there won’t be any impact on demand other than downwards. The adjustment will fail and fail again.

But does it have to be like this? Do we have to embark on a policy which makes the worst recession in a century worse? According to ‘conventional’ wisdom, the answer is yes. This is the same conventional wisdom that told us the boom was solidly founded and that joining the euro was a brilliant move for Ireland as it would give us ‘permanently’ low interest rates.

These are the same people who predicted that Polish workers laying blocks were all you needed to validate semi-ds in Dublin trading at prices of 40 times annual rents.

If we look at economic history, we see that no small country ever recovered successfully from debt deflation by cutting spending and sticking with a hard currency. The evidence from Sweden and Finland in the early 1990s is particularly instructive. Both countries suffered from the same boom-bust cycle as we did. Their banks went bust and had to be nationalised, like ours. And the initial policy reaction from everyone – the government, the trade unions, the media establishment and the senior civil servants -was that the government must reduce spending and the hard currency link to the Deutschmark must be preserved at all costs.

This adjustment failed, as ours will do, because it is intellectually incoherent unless you are prepared to entertain massive unemployment and serious social unrest. Unemployment went to 19 per cent in Finland and the budget deficit to 14 per cent of GDP. Finally, someone shouted stop to this masochistic madness.

Against all their advice, the two governments broke their currency arrangements and reflated the economy by allowing both currencies to fall. The countries recovered quickly and again, against all conventional wisdom, the competitive edge the countries garnered endured. Their banks’ capitalisation worked a treat as well.

Both countries, being small trading economies, had significant foreign debts too. Yes, these did go up, but the revenue associated with the recovery more than covered the increased debt service. Neither country suffered any long-term ramifications in terms of access to foreign capital in the future.

In the light of our own banking travails, much has been made of Sweden and Finland’s bank recapitalisation and recovery plan. What most of this discussion fails to mention is that the devaluation and subsequent printing of money by both central banks did the trick. Is it worth considering here? Surely not; it might mean replacing mantras with hard thinking. That would be far too much to ask as the economy heads for a 10 per cent contraction.

  1. Between a rock and a hard place…………..still we shall overcome of that I’m certain. A good kick in the corrections is what we needed……

  2. John Kennedy, Albany, NY

    When you find yourself stuck between a rock and a hard place, please call us.
    We specialize in difficult removals.
    No job too big or too small.

    • Furrylugs

      Give us a fixed price John Kennedy, for the removal and disposal of;
      1 No Oireachteas
      250 No Quangos
      1 outsize load namely Health Minister
      3 Banks
      I Taoiseach
      Discount expected for lightweight Finance Mnister


    • g

      Albany NY – beautiful part of the world, fond memories of an old romance

  3. Tim

    Furrylugs, Succinct report from meeting: “As flies, to wanton boys, are men, to the Gobshites”.

  4. Having been to Finland more than a few times over the past couple of years I think it cannot be overstated how the recession of the late 80′s / early 90′s impacted the country. People still talk about it cautiously and everyone seems to know of someone who suffered terribly but eventually found their feet again. In comparative terms their boom to bust might be moderate next to what is happening here.

  5. Malcolm McClure

    David: I could suggest that Seanie Fitzpatrick adopts Augustus Toplady’s hymn as his anthem:

    “A debtor to mercy alone,
    Of covenant mercy I sing;
    Nor fear, with Thy righteousness on,
    My person and offering to bring.
    The terrors of law and of God
    With me can have nothing to do;
    My Savior’s obedience and blood
    Hide all my transgressions from view”

  6. Furrylugs

    “intellectually incoherent”
    I love that. When I was a kid we’d call that Horsepower Thick.

    I agree in principle with targetted spending to lift SME business. That gets the internal market kicking again. We also have to get good people sitting with the MNC’s to get with their mindset. We can’t lose any more to India.
    But as Shane Ross exposed in the papers, the Illuminata are merely rearranging the deckchairs. When the people in charge don’t give a rattle for the country, there won’t be a masterplan. There’ll be “intellectually incoherent” mumblings to placate the peasantry whilst the powers that be reconsolidate.

  7. MK1

    Hi David,

    Thinking about leaving the Euro, again???? :-)

    > In the light of our own banking travails, much has been made of Sweden and Finland’s bank recapitalisation and recovery plan. What most of this discussion fails to mention is that the devaluation and subsequent printing of money by both central banks did the trick. Is it worth considering here?

    David, I think the challenge for all countries that are part of a ‘currency membership scheme’, such as the Euro, is to be able to effectively ‘devalue’ whilst remaining a part of it. It is technically possible IF the will of the government and people are behind such a tactic. A 10% ‘devaluation’ in this sense would be the 10% reduction of all costs, prices, salaries, etc, across the board and led by government action. It is not easy to implement, as honesty is required, a human failing, plus no-one wants to earn less. Thats why countries have retained fiscal policy in general.

    However, the other factor and probably the main factor behind Sweden’s and Finlands recovery was hard work. This is no secret. This not oft-mentioned fact needs to be drummed home into one and all here in Ireland. The ‘easy money’ in the recent past was a mistake. Maybe we need a new dept/quango, the Dept of Working Harder.

    There is no financial magic that can instantly cure a financial hangover. All we can do is make some financial adjustments, move it from one place to another in the hope that it will alleviate the ‘pain’ and to make it more ‘fair’. But no country/place region has gone through a bubble correction/recession without any pain.


    • shtove

      Yeah, sounds about right.

      Currency devaluation is outright theft. Leave it to the Brits.

      We’re still borrowing at less than 6%? Thank you, euro. Outside that framework it would be hell for this country – the state would be finished.

      Euro requires discipline, and that’s a hard lesson to take for now. But it will be learned. Roll on the vote of no confidence in FF.

      • Anna

        Well said. Sorry David, but getting out of the Euro makes no sense. We import expensive items like OIL how do we pay for this, with IRL 10000000 muds. Give us a break, the Euro is the only thing keeping us alive, bad as we have it. We never had any control over money matters, we are small fish, at least we are in a bigger club, which will in the long term help. We need some form of Big Brother on us, other wise we would have been more out of control then we are, hard to believe.
        Stay in Europe and the Euro PLEASE!!!

  8. Aidan, Cork

    This country is a joke! Over 10 years of unprecedented wealth and economic growth and what do we have to show for it? A massive and unrequired construction industry, enormous private debt, shambolic infrastructure, bungalow “bliss” and a growing posse of soon to be bankrupt Donald Trump wannabes! 93% of “our” exports are from foreign companies! The government should have put money into developing indigenous start ups. Finland has Nokia, Israel has Teva Pharmaceuticals, we have AIB and BOI! Our top three public companies are construction related three letter acronyms, perhaps they should merge and form IOU!

    • Deco

      A better acronym would be W(e)S(celp)U…

      We have public companies that try to operate proper normally business outside of the cronyism of the South East Dublin belt of cronyism and privelege. The problem is that they were usually held back because the banking system is unusually incapable of dealing with domestic industrial concerns below a certain scale. We had all that talk about banking for small business in the Culleton report in the early 1990s (anyone remember that ???) – but it has since been overcome with mortgage madness..

      The companies that did get above the stiffling barriers of cronyism include some of the best performers in the last year – and they are all on the margins of the IBEC, Irish Management Institute circle of self congratulation and pride.

      Let’s face it, management in both the public sector and in the private sector has failed in Ireland. Shane Ross correctly points out that we leave the people who created the mess in charge, after it has been discovered what they were doing. Even though they are incapable intellectually of fixing the problem. The ‘early retirement’ of Goggin in BOI is a sign of just how much this exists. He has presided over a 95% share price fall. We must be the only country in the Western World where a large bank, backed by the taxpayer, can be governed by an idiot – and nobody bats an eyelid, when he says he will continue in control for another six months, and draw a six figure salary.

    • Woodsey

      There wasn’t any ‘unprecedented wealth’ or ‘economic growth’. There was only a bubble built on borrowing. We built it, it burst and now we’re trying to blame something we call ‘the government’.

      The government was ‘out to lunch’ when it wasn’t trying to sweep clouds into a paper bag or fly other peoples WAGS 1st class to Florida to get their nails done.

      Oh it’s a joke all right! It’s been a joke now since long before 1922. It’ll still be a joke after we’re gone.

      If the Dutch and the Irish swapped countries, the Dutch would feed Europe. Holland would sink!

  9. AndrewGMooney

    The hymn called ‘Ideological Fixations’ is making some of the babies in the church cry, they can’t stand the shrieking discord of the chorus. Time to turn the page to ‘Pragmatic Optimism’. First of all, Reverend Obama will leads us with a rap, then we all join in the gospel harmonies when we hit the chorus. As per his first weekly address to the nation as President.

    Obama intends to ‘right-size’ Government to the current circumstances. In some areas that may dictate expansion, whilst in others (pork) it will definitely entail severe contractions. The process of ‘right-sizing’ is best indicated by thinking of Obama as George Clooney in ‘A Perfect Storm’. We should never have got to this place, we should have turned back. But we’ve made a decision, so it’s time to face the storm as best we can with what we’ve got, and hope for the best. At least, that’s the plot from what I can recall, but it was late night on Sky and I was a bit blotto.

    It doesn’t matter what Ireland thinks or does in isolation, and Obama doesn’t do ‘victim scripts’, so move on from FDI junkie status. I’ve no idea if Lenihan even thinks in strategic terms regarding Obama. If the Irish economy is currently ‘thriving‘, it would be interesting to tease out of Mr Lenihan what Ireland in a recession verging on a depression would look like. The man is out of his depth. And drowning. I can’t wait to see the photos of him and/or Cowen presenting a big bunch of shamrock to O’bama. But that’s may not happen. They’re in office now, but they’re certainly not in command.

    Obama is gonna put America right first. He expects other nations to listen and respond to his planned moves. Not prattle about going in the opposite direction. All he cares about is that all these various choristers and musicians realise they are now in his broad church: “The Church Of Agnostic Economic Pragmatism’. And, like Al Green or James Brown, he’ll keep his band members and back-up singers on a military footing, with suitable fines for anyone missing a beat, showing off, or otherwise stepping out of line.

    Thought experiment: Stand in The John Betjeman hospitality area of Kings Cross Station in London. Watch the gleaming French and German trains arrive, having flashed across Europe and Southern England. Then walk 200 yards to the Provincial Platforms where you can see the dilapidated carriages that will rumble and groan on antiquated tracks to take you to Birmingham, Manchester and Edinburgh. Now: Would it have made long-term strategic economic sense for Britain to have ‘voted in a confident future’ during the dark 80s and 90s by modernising this infrastructure, or would it have been irresponsible? Apply the same thought experiment to it’s other infrastructure of schools, hospitals and thermally-challenged housing stock.

    Turn your gaze westwards over the Irish Sea. Consider Dublin. Arriving at the airport, having a coronary and being taken through the commuter traffic to a public hospital. How does that make you feel? So, in 10 years time, will it have made sense to build the airport link, a few new hospitals and proper road junctions for ambulances, whilst also having installed super fast broadband, harnessed the power of Atlantic waves and/or built a few nuclear reactors? Finished motorways linking the main Irish cities? Etc. Does it make sense to invest in a ‘confident Irish future’ now or invite the possibility of catastrophic loss of competitive advantage if the ‘spenders‘ win this gamble?

    Who decides? Irish Citizens? Like Iceland, Ireland needs the catharsis of an election. Unlike Iceland, Ireland has a shelter from the storm unless Peer totally screws it up.The Euro is Germany’s problem/challenge. Not Ireland’s. When Obama ‘suggests’ to The Market that an a weaker dollar is a good idea, it will happen. If he let’s it crash, then we’re all in limbo.

    So, if Ireland wants to roll the Atlanticist dice with the US and UK rather than with the ECB: Where will the money come from? Well, same places it came from before. Hello there Peer! Angela, glad you could make it. Sit down. We all need to talk. Obama, Bono has got Jeffrey Sachs to devise a 10 year methadone managed withdrawal of US FDI, no need for cold turkey. Brown and Darling are also ruthless Pragmatists. Once Greenspan’s Monetarism blew up and devastated the British Economy, it was mercilessly kicked into touch as a busted flush. Cowen and Lenihan do not seem to have the personal or intellectual qualities required. IM-not-so-HO: They must go. And take the whole anachronistic, gombeen Irish Economic Rent Infrastructure over the cliff as they do so.

    People who theoretically espouse ‘debt deflation’ as the easy way out need to think through the costs of containment when the riots start. This isn’t 1932. It’s 2008. The deference that citizens had for government during The Great Depression is gone. Forever. I went to a rough part of Droitwich to watch my son play soccer this afternoon. That estate would be in flames under a ‘debt deflation’ regime. Ditto similar areas of Dublin and Limerick. Barring a complete collapse of the globalization project, the challenge is global, so the solution is likely to be. With America, quite rightly, leading from the centre of the stage.

    • Deco

      French trains are really good because the people in the train company (SNCF) take their job extremely seriously. Same applies in Deutsche Bahn. There is an organizational culture towards doing an excellent job.

      That is definitely not apparent in CIE. Things are far too slipshod here. And same applies in BR.

      I think it comes down to leadership – as the saying goes ‘the fish rots from the head’. In the case of CIE/Irish Rail – we do not even know where to start. The rot is emdemnic. Years of placement of political employees (from several parties) and rampant nepotism, plus an organization structure that makes nobody responsible for mediocrity have given us a body that no amount of money could reform.

      Maybe in the recessionary environment – there might be an opportunity to fix the organizational issue.

      • Liam

        Your right – up to a point. SNCF (and DB, JR etc) is as good as it is in part because the French taxpayer has been throwing money at it for years, and in a country where there are economies of scale possible on national infrastructure. We could have the best trains in the world, electrically-powered MagLev’s that would whisk commuters from Galway to Dublin in 35 minutes if we threw money and time at the problem too. You have to accept that at least part of the inertia is caused by poor funding.

        No cows on the track with MagLevs either…

  10. Sure while your at it why not just leave Europe then we could fish our waters again ,place a few wind farms out there along with charging those English Oil cappers and we ‘d all live happy ever after ! . Biffo like the Roman Senators has gained two stone since taken his Office , and you think he is going to make a move for the good of the common paddy ?

  11. john redmond

    What is the percentage GDP is our budget deficit at the moment

  12. Johnny Dunne

    “Is it worth considering here? Surely not; it might mean replacing mantras with hard thinking”

    There are no ‘specific’ proposals coming out of government on how to stimulate the economy and balance the books!

    Without specifics the economy will continue to contract, more jobs will be lost and good companies with sustainable businesses in a competitive and thriving economy will close. I agree the only part of the economy which is growing is government expenditure. Even if they can ‘negotiate’ € 2 billion ‘savings’ with social partner, €47 billion is planned in current expenditure this year versus €44 billion in 2008. Another €10 billion in capital expenditure is planned with only €37 billion in tax revenue planned. The government would need to ‘save’ more to minimise their €20 billion plus borrowing requirement. It will be worse in 2010 without specific fiscal or monetary stimulus. So maybe if we revalued as soon as possible then there would NOT be a requirement for the government to borrow heavily to fund current expenditure, so could there be a real saving in indebtedness in the long term if the Irish government acted this year ?

    I’m no economist so can’t take a view on all the impacts of devalueing a currency but assume savings would reduce in value but also would the value of debts especially young people who have huge mortgages with no way out. I think at this stage it doesn’t need banks to tell us we have more private sector debts than private savings ?

    So if we had a revalued currency making Ireland one of the competitive location in Europe for exporters bringing money into the company through sales which is the best sustainable way for any company or economy !
    Then a further fiscal stimulus (reduce corporation and incomes taxes to be the most competitive in EU) to increase investment and consumer spend would promote Ireland as the destination of choice for international business.

    David, well done in bringing up this topic up again. For what it’s worth, a year ago I brought this topic up before (as I experienced good companies stuggling to export to the UK) about politicians debating the merits (and risks) of exiting the euro in a forum with representatives from all the major political parties in attendance. To be fair, some were a bit taken back by the presentation. But all could see merits to the argument before the market continued to go in one direction. A memorable soundbite was one former Minister saying I should try to ‘persuade’ the UK to join the euro!

  13. Finbarr

    I think the most that can be achieved from this startegy is a carefull game of chicken with the EU. You are basically suggesting we pull out of the Euro and I suspect the EU will somehow give up something big in the way of policy for small struggling economy members, to keep the unthinkable from happening. Especially so if they feel they may very well add to it with the brits joining the Euro. The prize in their sights may well be the right time make such a treat…

  14. Lorcan

    David > Surely not; it might mean replacing mantras with hard thinking.

    I have been doing some hard thinking since I read your article in the SB post.
    I have argued here before that leaving the Euro would not be a good idea for Ireland at the moment. Perhaps joining it in the first place was not the best thing for us, but that horse has long bolted. We are where we are.

    Leaving the Euro would economically disadvantage us because:

    1. If we introduce a new currency it will be quickly debased on the Forex markets. The introduction is not something that could be done overnight, so the ‘speculators’ would be ready for us. Times are tough for the hedge funds, which one of them would turn down the opportunity of making a few bob shorting a currency of a country without the foreign currency reserves necessary to support it?
    2. Our whole economy is denominated in Euro. Ok, we have changed currency before, but that was after years of planning. We had fixed exchange rates long before we had euros in our pockets. Following the debasement as outlined above, our debt, both sovereign and private would become unserviceable. The country could default but that wouldn’t work for businesses and private individuals. Bankruptcies would be the order of the day.
    3. If I knew that we were going to leave the Euro I would move my wealth (little of it that there is) to a ‘hard’ currency until things settled down here. I hear Switzerland is nice this time of year. I’m sure I would not be alone. There would be a national bank-run. I think we have all become aware recently of the dangers of such a run. The zombies would be killed off. We would do it to ourselves, the green flag rest lightly on most of us.
    4. The time scale involved is perhaps too large for us. There would be a lot more to this than Mr. Lenihan making an announcement and we all having nu-punts in our pockets the next day. We would become a zombie economy. Nobody would invest here until things found their level, and because of 3 above that level would be very, very low.
    5. I know David tends to scoff at worries about damaging our national reputation, but if we reject the Euro after rejecting the Lisbon treaty, would our EU partners not be right to question our commitment to Europe? I know it’s a long shot, but by leaving the Euro we might be forced to leave the EU.

    David > But the major concern is, if there is no demand coming from anywhere else..

    This exactly the problem. When Sweden and Finland had their crisis, they were lucky because their crisis were local, they were not facing into a global demand deficit like we now do. Cheaper products may give us a competitive advantage, but such an advantage in a non-existent market is hardly useful.

    As MK1 points out above there is an alternative. Peter Power made the news over the weekend saying that now is the time for government to lead. He is right, but we have become used to ‘small’ government. By ignoring us for the past decade they have distanced themselves from us. Calls for us to pull together ring very hollow when we do not know who we are pulling with. (personally MK1 I think a 15% cut is in order)

    So, what do we do? The only feather we have in our cap is out low corporate tax rate. Seen as we now own so much office space through ANIB, why not make it available to foreign companies to set up their head offices here.


    I know that it’s only small fish in the current economy crisis of billions, but we do not have much else in the short term.

    Longer term, the world is our oyster, if only we can figure out how to open it.

    Lorcan RK

  15. PM

    Annual salaries:

    Barack Obama €260,000
    Gordon Brown €198,000
    Nicolas Sarkozy €232,000

    Brian Cowen €310,000 !!!!!

    Not to mention the 60% pension that kicks in once he’s 6 months out of office (even if he’s still drawing a sitting TD’s salary), 50% TD pension( €45k) that kicks in if he loses his seat, and a 1.5 times annual TD salary lump sum if he puts in 20 years in the Dail (135k)!!

    • g

      look at the salaries of the presidents of the universities, 240,000 – 270,000+!!! pension, expenses, performance bonuses, i am on €32,000!!!!!!!! unsustainable, but Chomsky and others predicted a growing disparity between the rich and poor. I am single, I can’t imagine those with children who survive on less than me, I am really sick of ireland and the system in this country, makes you want to turn your back on it!

      • Fergal

        Oh God, do, turn your back on it. You’re single, get out while you can. Before children and relationships hold you back.
        I left Ireland in 2004 for the last time (barring holidays) after spending a few years working for a consulting company where I spent most of my time abroad. I now earn more, and pay less taxes, have a higher standard of living and a better climate.

        You owe your country nothing when it has mortgaged your future. Patriotism is the refuge of the foolish – do your patriotic duty and pay more? If you want to emigrate, do.

  16. juicylucy

    Hi everyone

    On paper leaving the euro looks like the right thing to do, but in reality Ireland’s new currency would end up like Iceland’s or worse, devalued and restated everyday like Zimbabwe

    Mon 1 new punt = 20c euro
    Tues 1 new punt = 5c euro

    Ireland needs to adjust and cut out the wastage in its economy so that 1 punt = 1 euro so that maybe one day when I ask the waitress in my local restaurant to just “give the table a wipe please” she’ll do it without saying “here’s the cloth, clean it yourself.”

  17. jim

    Fiscal and Monetary policy are the two hands.Monetary hand tied behind Linehans back.Fiscal hand trying to do the right thing but being diverted away from its full function by trying to release Monetary hand.As a result aggregate demand in the economy is spiralling downward.The private sector is not being crowded out as much as frozen out by the failures on the monetary side.The corrective effects of inflation or as in our case deflation and low interest rates are also frozen because of the failure on the monetary side.The policies being pursued at present .ie public service pay and cost base etc.will “if” succesful relieve some of the strain on the fiscal side but in the short term might bind the monetary hand slightly tighter as less public pay availeable to spend i.e loss of accelerator effect.Conventional economic theory needs to be adapted because Ireland does’nt control its own currency or interest rates.Bad loans and the perception of the scale of same(market sentiment) are the binding thats reducing the bloodflow[cash] to the Monetary hand.Lack of clear policy and distracting tinkering with the Banks are causing fear that the monetary hand may contract gangerine through lack of bloodsupply(cash).The Austrian school of slowly unwrapping the bindings (let the market do it) wont work quickly enough to prevent gangerine.The Kensyians big lunge with a scissors (credit) will probably just stab the hand and add scars for the future.Maybe its time to break with conventionl thinking (an Irish solution to an Irish problem if you will) and afterwards throw our hands in the air and say to the Europeans and Anglo/Americans “we had to save the hand or the body would have died and surely none of you would have wanted that”

    • jim

      PS.When I was deliberating on the above I just put the property and associated loans in the “unplanned inventory accumulation” catagory,well where else could it go.?

  18. Working without Monetary Policy now is correct , thanks to corrupt and greedy bankers and government members who have truly failed the public. So we have little choice but an election if there was any honour. As you have said before tha banks can not deliver , even though rates are cheap, as the mess is too great. So why waste and save the very peoples greed and bad behaviour with taxpayers money ! Banks like Anglo Irish need sincerely fresh and little reference to the past and present corruption , if there is a chance but as auditors , accountants , lawyers , journalists , politicians , customers have failed what is the real new hope! Words are plenty but real action is still scarce.

  19. John ALLEN

    War Zone Manifesto Public Announcement :
    It was amazing this morning listening on the 7am RTE News ,the barely audible newstalker informing us ‘ the minister for finance has made a ministerial order last night to devalue by 25% and has communicated his decision to mr trichet in advance of his visit to dublin’.The new currency is to be called ‘punt’.
    Shops were advised to change their pricing and continue trading both in euros and punts .The Banks have devalued all deposits held and are writing to customers to give them a choice if they want to continue repaying in euros or punts .The interest rate on the new punt is 9% plus bank handling charges.However the rate cannot be guaranteed fixed and is expected to rise to 15% within 6 months .For the foreseable future all bank deposits are frozen and foreign money transfers are stopped until amendments to government policies have been made public.The trade unions are still in disagreement about what they were talking about before and what they should be talking about now .All flights out of the country are fully booked and many famous rte performers are absent for unforeseen reasons.Importers are increasing their prices of imported commodities and the electorate will soon know what that will mean .There is a pile up on all petrol garages stockpiling and fuel is in short supply .All ATM machines are empty .
    People on the streets are unsure what this means and seem dumb struck and making excuses some have frowned for the first time.Coffee consumption has increased with double expressos consumed in large quantities.Inflation is expected to rise to 18%.
    People are very angry and government ministers are still at their homes and in shock as they did not know beforehand of the ministers sudden decision.Their breakfast is all toasts .People are crying that the government are ‘horsepower thick’ while journalist prefer to describe it as ‘intellectual amnesia ‘.Civil servants are distraught and worry about their pensions or whats left of them.People were seen gathering in Stephens Green erecting flags of a Seanie to place them on gov buildings .
    CNN News . Sky News, and many others are arriving at Merrion Sq only to meet silence and nobody to be seen .Ministers are absent .

    ( the above is the story of before time and after time of man with a conscience – Da Wu Yu Code )

  20. VincentH

    Bankers did what bankers do, ditto, the builders, the speculators and so, and so, and so. And now the Dept’ of Finance is doing what the has always done. But we have an opportunity now to really have a really good look at the Tax Code. To prune out the silly taxes, allowances and incentives. Basically to lay waste to the thing at one swoop.
    Your agnosticism. The policy for cutting back makes a certain amount of simplistic sense, but the noises coming out seems to say that all are going to be cut. I hold this to be foolish. Cutting back a bit is good, but cutting back at the lower levels will provide little by way of economy for it is these people that spend thereby putting liquidity into the system.

  21. Living in the US

    From an irishman

    Looking from the Outside in,

    I Live in the U.S.A.,- left Ireland over 2 years ago…Sold my Property for a ridiculus price and converted to Dollars at $1.60/Euro…..

    What I notice is a trend =what happens here (U.S.A) will in 6-12 months happen in Ireland…..


    California facing bankruptcy

    Posted: Jan 26, 2009 07:46 AM PST

    Posted by Rachel Leigh email

    SACRAMENTO, CA (WFLX) – If budget issues don’t get resolved this week, the entire state of California could go bankrupt.

    The state controller, John Chiang warns if an agreement to address the state’s $42 billion budget shortfall isn’t reached by February 1, he’ll stop paying unemployment and hand out IOU’s instead of legislators paychecks, student loan checks and tax refunds.

    The deadlock over the budget put the democrat-controlled legislature and republican governor at odds over spending cuts.

    Tax increases and the governor’s plan to suspend environmental restrictions so public works projects can get off the ground.

    Chiang said, “We are the eighth largest economy; we have the 50th or we are tied of last in the credit ratings. We are a world economic power, but we have fiscal mismanagement in this state.”

    Governor Schwarzenegger also made a personal appeal to President Obama for federal help.

  22. Michael

    True, I agree that we need to cut out waste in the economy. All of those silly taxes, allowances etc that cost more to administer than what they deliver to the economy need to be cut out. What we need is productive government spending. Spending on infrastructure that works. More competition in building infrastructure – taking 7 years to build a rail-line between Dublin and Navan costing God knows how much and going over much the same ground as the original line that was built in the 1840s is crazy. Especially, since the line in the 1840s only took 3 years to build! The likes of Iarnrod Eireann need a good kick-up the ass and competition will bring that.

    The only way we are going to get out of this mess is to innovate our way out of it. Innovation in government policy is as important, if not more important than any other area. Just not convinced that those in the Dept. of Finance or any other Dept have the real-world experience to deliver this. Too cushy a life and a lack of competition has caused them to become too comfortable and complacent – time for a kick up the ass and a bit of competition here too I think.

  23. MK1

    Lorcan> When Sweden and Finland had their crisis, they were lucky because their crisis were local

    This is a very valid point and worth emphasising again. Whilst we can look at past bubbles/problems over the centuries, from the UK in 88/89/90 to Japan, to Sweden, to Finland, tulips, etc, etc, and David knows his history of economics very well indeed, our own problem at this point in time may have some or many similarities to those instances but it is specifically unique. The details of what worked in the past on other occasions may not work now. Why? Well, the global system is different to when it was back then, radically different. No two bubbles have the same pattern, the same depth, the same nuances, and these factors are crucial.

    Finland’s situation was exasperated by the implosion of the Soviet Union, which iirc was their main trading partner. We have three main trading partners, UK, EU and the US, all of which are suffering, etc. The globe is suffering and that makes any solution that we put forward limited by the global landscape and we need to rectify within that context.

    Large levels of FDI would help except that in the main most businesses across the globe arent in expansionary mode. ‘Cottage’ exporting industries if expanded would help, but we have a low indigenous base who have to struggle and compete with the environment here rather than getting major support and we are a periphery country. It also takes time. If you are a small indigeous business with export sales, what is the government incentive for taking on a new employee??? None. No tax breaks. Yet Paul Hewson and the lads (from the nort soide) plus the many that avail of tax efficiency as listed out in Form 11 and many other tax forms are still ‘avoiding’ tax, erm, being more tax efficient I mean! ;-)

    So yes, we can do a lot with our Tax Code and I would fully support a complete root and branch change of it. It is completely out of whack with our current situation. People do realise that high net worth individuals are still able to write off tax on property investments this year, and next and next. It was mad to begin with and and remains nuts!

    Btw, a 20 billion budget deficit on a 37 billion tax intake, at least to my maths, thats a collosal 54% of ‘living beyond our means’. (Note, euro rules measure deficits in terms of GDP, which would be approx 20/150 or so or 13%). Our GDP is nominally overstated due to the high level of ‘tax effiicient’ foreign companies we have pumping out high value goods, in accounting terms anyway. I think the 54% figure is more accurate of the quagmire we are in.

    We may not be the titanic yet but we have a large gash on our side and we are begining to list.


  24. Iceland is predicted to contract by 10 per cent this year, so Ireland wont be alone then?

    I’m glad the ”cheerleaders got a good kick in the boom” though unfortunately (we’ll all suffer) the school leavers will join the hopeless, and (become possibly hopeless) the poor will suffer – as is usual – the most.
    This it is not a recession it’s a depression, a complete collapse of investment banking that was run on credit, and little else, and seemingly can’t be run any other way but on credit. That model has got to be replaced.
    You’re not just talking about Sweden and Finland now you’re talking about global collapse.
    Funny I live in Finland. Nothing is being said about the state of their banks- cards close to their chest.
    Anybody know anything?

    • g

      agree, this is a depression, john fitzgerald (ersi) on vincent browne last night was saying unemployment would be 250,000 by the end of the year, this kind of analysis is ridiculous, i was under the impression that unemployment was already pushing 300,000 and forecasted to be 400,00 by end of the year.

      what happens to those with a massive mortgage and more than one house if one or both principal earners lose their jobs? Repossession? Renting back to the banks?

      Can anyone outline possible scenarios based on precdent???

      • gadfly55

        At the rate of collapse, the state will become the owner, and you will get rent allowance to live in a room in one of the houses.

    • AndrewGMooney

      The Tiger is sickly. It has a virulent infection that can rot internal organs and even kill. Similar viruses have hit other tigers in the past, but it’s never the same one twice. There’s no vaccine as the virus mutates. But the vets at this particular zoo can’t even agree amongst themselves on the diagnosis for this infection, never mind plan the urgent treatment and post-recovery measures required.

      What’s needed is for someone at the Veterinary Clinic to take charge. Assess how Vets are treating similar sickly tigers in other zoos around the world. Decide, on a rational probability basis, which of those approaches are likely to save this tiger from declining further. Then just get on with it. And whatever the outcome, don’t fret, don’t regret.

      If a Vet does his/her very best to save a tiger, that’s all anyone can reasonably ask. But you do expect them to work together in a team. But the Head Vets at this Zoo don’t want to take the risk of being wrong. So they wait, and wait, and wait. For more reports and advice from other vets elsewhere. Then they change their mind again. Then wait and wait. They ignore the worries of the junior Vets around them. All of this is subconscious thinking, they really think they’re doing what’s best, rushing around being busy and barking orders at the nurses.

      To save the Tiger risks have to be taken, but whilst they can be sued for trying and failing to save the tiger, they know that if it dies, then it must have been beyond help all along. And so they can’t really be blamed for their procrastination. They’ll just retire from Veterinary Practise and retire to ponder their wonderful careers from the golf-course. And forget about that doomed little tiger.

      ‘Tiger, tiger, burning bright. In the forests of the night,
      What immortal hand or eye .Could frame thy fearful symmetry? In what distant deeps or skies. Burnt the fire of thine eyes? On what wings dare he aspire? What the hand dare seize the fire?’ William Blake.

    • Deco

      Thanks for the link from the Wall Street Journal.

      Most important part of the entire article…
      Deflation of asset prices and wages will be unavoidable, but it must be accompanied by a managed structural shift in the Irish economy from banking, property and some retail sectors toward domestic industries with higher earnings growth rates, such as software. In order to do so, the government must upgrade the country’s math, science and research capabilities.

      There is something you will never see in the Irish Times, or the manifestos of any of the political parties. !!

  25. gadfly55

    Where is this leading, out of the eurozone, out of the EU? The first assumption that we are a small country is invalid, as effectively, we are integrated, for better or worse into the EU. Iceland inevitably will join for stability of its currency, yet consideration is given to the classic procedure of floating the currency, and inflating debt out of existence. If there were a sniff of a chance of this happening, the savings in euro would be transferred to Luxembourg and the country would totally collapse overnight. It is about time that the reality of the insignificance of 4 million people on the economy of the world, and its vulnerability to shifts in technology, production, commodities and capital were considered with a view to sustainable standards of living and quality of life. Stop playing with economic theory and history as though it provides a solution to the current transition in global economy and politics.

  26. gadfly55

    The necessity of forcing American companies to repatriate operations, of pay punitive tax on foreign earnings in order to create employment in the United States and the redress the balance of payments deficit will inevitably curtail FDI and lead to rationalisation of existing operations. American companies currently account for 55billion euro of GDP here. Regardless of fiscal or monetary policy, or the existence of Irish banks, the prospects for employment are dismal to catastrophic, and upskilling is no solution if no one is bringing jobs here. We will have to find a way to live, beyond our current understanding. No one can conceive of the changes that are now unfolding, especially the social partners and senior civil service.

  27. Malcolm McClure

    David said: “Monetary policy is jammed by our dysfunctional banks. When they talk about the ‘‘systemic’’ importance of banks, what they mean is that the banks operate as an arm of monetary policy. Without them, monetary policy can’t work. So it doesn’t matter how low interest rates go, the banks are in no position to pass on the benefit because their balance sheet is so weakened that they are zombies. So Ireland is now operating without a monetary policy.”

    David previously suggested that the solution was to create a ‘bad bank’. That idea is gaining momentum, even in the US, where Nouriel Roubini says that in order to restore safe credit growth the banking system needs an additional $1 — 1.4 trillion in private and/or public capital. He agrees with DMcW that these magnitudes call for a comprehensive solution along the lines of a ‘bad bank’.

    A bad bank makes money by slicing and dicing the debts into tranches that are exposed to various levels of risk, packaging them and selling to investors at appropriate interest rates.

    If a ‘bad bank’ can do this and make a profit, then why not designate Ireland as a ‘Bad Country’. Thus we could volunteer to accept all the bad debts from across the euro-zone, designated in old Euros, retain the ‘Old Euro; as our currency, and release all the other Euro countries to forge ahead with a brand new ‘Super-Euro’ totally free from bad debt. In return, they would collectively insure us against serious default in the top tiers of bad debt. The exchange rate between the old and super euros would be flexible. .

    Thus we could convert the entire Irish economy to service European bad debts and make a profit from it. QED.

  28. Lorcan

    g, thanks for the link to the WSJ article. Does not paint a happy picture!

    economic “conditions are fundamentally sound.” and “the fundamental stength of the economy is unimpaired.”

    Brian Lenihan in 2009? No, President Herbert Hoover in 1929/30.

    I understand the need not to talk down the economy but I do worry that Mr. Lenihan actually believes what he is saying.

  29. gadfly55

    We are in transit to a new feudalism, with renewable energy, local agriculture and essential manufactures, connected in a global virtual neural network in cyber cottages, or urban villages. Hydro-carbon dependence is gone, suburban commuting is gone, credit is gone, global distribution production and distribution systems are specialised and traded in collateralised barter systems in which real things are bundled and valued in specific trades by brokers. The world operates as security regions, integrated under laws, enforcement and administrative control. Air traffic is severely curtailed. The compulsion to travel will be transferred to hyper-real cyber experiences. Development of essential standards of human existence will be extended globally. Disparities of wealth between individuals in society will be reduced to reasonable levels appropriate for the requirements of one lifetime. Inheritance of wealth will end. The birth rate will contract as it has done in Europe and population will decline.

  30. Deco

    Who is the current Minister for Labour/FAS and what are they doing to reskill workers – improve labour market efficiency/remove bottlenecks ??

    I have not heard anything in this area…

  31. Ed

    “ ‘Cottage’ exporting industries if expanded would help, but we have a low indigenous base who have to struggle and compete with the environment here rather than getting major support and we are a periphery country. It also takes time. If you are a small indigeous business with export sales, what is the government incentive for taking on a new employee??? None. No tax breaks. Yet Paul Hewson and the lads (from the nort soide) plus the many that avail of tax efficiency as listed out in Form 11 and many other tax forms are still ‘avoiding’ tax, erm, being more tax efficient I mean! ;-)”

    MK1 – you’re right – there’s no real incentive to expand small indigenous companies. To be fair to U2, they succeeded against very difficult odds. While their tax free status may annoy a lot of people, they’re still great ambassadors and keeps Ireland up there in front of the world. To small indigenous companies trying to export, they’re a great reference and are of far more value than our state agencies. Who we get to represent us abroad is so important and that’s where our politicians fall down miserably, they’re famous for all the wrong reasons, corruption being the big one. FDI is perfect for them, they can play with the rules using the artificial GDP to justify their big salaries and to skirt around the Euros stability criteria . The present crisis demonstrates that roguery can only take you so far – the wall is now right in front of them and getting taller by the day.

  32. Irelands’ biggest challenge is to adapt. We can’t deny the crisis but with a minimum wage at some ridiculous level even with the greatest optimistic view it is easy to see why Dell moved shop, Hibernian out-sourced and more jobs will be lost.

    Get to grips with the fact that the race to the bottom is inevitable in order for competitiveness to be sustainable long term. Indigenous companies are the only way forward and that needs support and encouragement and worse still, bank support.

  33. McGoo

    As several people have mentioned, the recessions in Scandanavia were pretty localised, so when they decided to devalue their currency there were other, strong, currencies around to devalue against, and thus to gain competitive advantage against.

    Right now, most of the western world is in trouble caused by too much debt, and pretty much everyone (except possibly the Germans) is thinking “wouldn’t it be nice to just inflate all that debt away”? Some countries (UK and US ) have already gone for that option, but eventually everyone else will follow, including the eurozone. Germany won’t like it (hell, it might even leave the eurozone itself), but it will happen.

    So, no need for Ireland to leave the eurozone. Just wait, and the entire western world will devalue/inflate to get rid of debt. If we did leave now and devalue our new currency, any advantage would be temporary, and we could easily become locked into a highly destructive “competitive devaluation” death-spiral.

    • Josey

      can you explain for those not so tuned into economics ( i.e. Me ) how inflation will help pay off all our debts?

      Will they just print money out of thin air?

      • McGoo

        >Will they just print money out of thin air?

        In a word, Yes!

        That will make money worth less, which will make prices and (hopefully) wages go up (ie. inflation), but will make the real-world value of everyones debts go down.

        It also has the advantage that no-one wants to hoard money that is going down in value, so people spend their money, so boosting economic activity.

        It has the disadvantage that interest rates go up (to try and compensate lenders for the falling value of what they’re owed).

        The opposite of inflation is deflation, which is a possibility right now. In deflation, prices and wages go down, so the real-world value of money (and debt!) goes up. People see this, and stop spending their money, partly because they wat to get out of debt and partly because they think prices will fall further. Basically, the economy stops.

      • McGoo

        Every time you hear a phrase like “injecting liquidity into the markets” or “quantative easing” or “monetising”, that’s central banker-speak for printing money.

  34. John ALLEN

    i read some journalist who say ‘there is no option’. the word option means a choice .the context they use that word is meaning ‘we must not consider anything to do with devaluation’. so they think that another fiscal policy or gov cost reduction is the answer and at the same time they are not Pragmatic neither do they give a solution except to create more confusion to their readers pretending they are making a solution appear as in aparition on a soul searching day .
    maybe we here in ireland might think about’pairing’ with a like minded other currency within EU .what about Polish zloty .Our Economics are similar and we have strong banking fraternity there .Its worth considering and we might change from euros to zlotys thus saving DELL and others .this is a zulching solution to a more worse hiberno solution .So ! what do yeah think?

  35. So the idea behind this is: “lets go back 10 years and start again”

    A devaluated new punt won’t mean anything because it would be just increasing productivity the easy way, but Ireland will lose that productivity the very same way it has done until now. Indeed it will be a risky movement if you think about what happened to Iceland (much closer in time than the early 1990s) and the fact of becoming “a failed country”. It will became increasingly important in the following years to distinguish between countries that can’t deal with the bad situations and those that can. If Ireland leaves Euro, it will take longer than a recession to have foreign investors bringing their hardly saved from doom money into the easy option taker Celtic graveyard.

    There is another problem. Irish public sector simply don’t worth. Dealing with the absolute waste of money that the Irish public sector is, is a matter of time. It needs to be done now or when the new punt is in place, and the unions aren’t happy now and won’t be happy after all their member debts have been multiplied, so better now than later.

    I think the way is deflation, and learning to face the problems. First the government needs to dramatically cut the public spending, but not the employment. cut a 25% salary to every public servant over the average wage and a 40% to those over twice the average wage. Will they quit? ok, good luck out there. That will liberate a lot of money for public spending in infrastructure (something this country badly needs) and create employment. Developing real public services will also help, like an universal and free public system based in new hospitals and health centres like the one in France or Spain (it will be cheaper for both, the citizen and the state that the current GP’s business).

    Also the government needs to change the law to reduce to almost nothing the time needed to create a “critical infrastructure”. It makes no sense to need years and years since an infrastructure is though & designed until the first stone is placed We need those jobs and infrastructures now, not in 10 years.

    The third step would be to create the bad bank with the condition to remove the board of the other banks.

    The fourth and probably the most problematic would be increase the productivity via salaries. We would need something like reduce the minimum wage, increase taxes to non public workers in a given percentage or offer employers to chose between apply a 15% extra levy on the workers or apply a 10% reduction in salary (in salaries over the average wage)… someway we need to reduce the salaries and either increase money for infrastructures or reduce costs.

    At the end, if you reduce salaries, you’ll reduce the spending in luxuries but won’t change the consume of basic products. The thing about being an open economy is that Irish luxury products are exportation oriented and will benefice of wage reduction and basic products are mostly Irish, so Ireland will not suffer as much for that wage reduction as the Germany industry, since they would sell quite less Audis, BMWs and Mercs.

    Probably the bad bank will also need to reduce the monthly repayments of the mortgages, even take all mortgages from the banks and remove any profit interest, so the mortgage holder could still pay the mortgage. It could be necessary even write off part of the debt to be sure repossessions won’t jeopardize the irish homes.

    If Ireland is able to return to full employment with a 10%/15% wage reduction in the private employees and a 25% reduction in the public servant employees creating by the way a proper and sustainable transport (mainly electric trains) and new sources of electricity, it will be in a much better situation than if we just quit the euro. But that’s the hard way.

    The other option is try to become Zimbabwe, that’s easier.

    BTW: the first step step would be remove all the politicians. They will never take any action that could mean to lose a vote. No matter how important it could be for the country, so with them there is no way the country can get out of this mess.

  36. Sam

    This article is the best analysis on our predicament that I have read to date. It basically supports much of what David was saying.


  37. Sam

    Sometimes David doesn’t get it all right, and he reminds me of a dog who gets fixated on a revolving car wheel when it comes to property. The contention that a first time buyer home cost 40 times (2.5% yield) is patently so untrue that it shouldn’t be allowed pass. I used to have a friend who when challenged to explain a point that he had made always rejoined with the statement that ” It’s a well known fact”. Who said so? – so David prove your point! If you like, I’ll start:

    Cost of new 2 bed Apartment in Dublin Docklands (Ivory Building – as currently advertised): €420,000 say €450,000 including costs
    Current Monthly rental income €1,500 = Annual Rental income of €18,000 per annum
    Yield = 4%
    Gross cost as a multiple of rent = 25 times (not 40)

    It needs to be pointed out that the purchase price includes government tax of 13.5% on the net costs (approximately €55,000). If the rental is taken as a percentage of the net figure it shows a return of 4.5% or 22 times the rent.

    In either event, it’s a long way from 40 times. And if you live in it – the gain, when it is sold, is tax free.

    For those that think the property market is a disaster, here is some up to date information on that “mother of all disasters” – Florida. Read it and weep!


    • Robert

      Great! We have either a builder here or a representative of Tom Parlon who thinks that current house prices represent a bargain!

      Dream on Sam! -

    • McGoo

      Hard numbers and maths are always welcome (except in banking, apparently).
      But to be fair to David, he didn’t say that 2 bed apartmenst were selling for 40 times annual rent, he said that Dublin semi-detached houses were selling for 40 times annual rent.

      Change 450,000 to 750,000 , keep the rent the same, and he’s not far off.

  38. We will have to start printing money. Either by giving people State jobs (no pensions), Jobs in the HSE. Increase indigonous companies. Cut tax for all companies who hire new staff. Increase wages, and increase jobs.

    One simple idea?

    Cut Tax now. and increase it slowly over 10 years.

  39. A

    Sam, It really does not make sense investing in property at the start of a depression, also, did you include furnishings, breakages, and management fees (fees which or way too high in Dublin). Besides, in a couple years time, the Ivory “Tower” Building apartments will be even cheaper to buy, or to rent, for anyone who has money.

  40. Michael

    Drastic times call for drastic measures, maybe its time for Ireland to apply to become part of the US? Becoming a US state would have some advantages – US companies may not face as much pressure to repatriate their profits back to the US Mainland; dollar exchange rate would make us a bit more competitive on export markets…

    Okay, okay, I know that all of this is very far-fetched, and how the hell could we be a member of the US and maintain our so-called neutrality? But might as well throw it into the mix.

  41. gadfly55

    Between Alan Ahearne and Fintan O’Toole there should be plenty of money to cover the government expenditure shortfall, but will those earning over 80000 sit still and take the hit? They run the game and will make us suffer relentlessly as always. Cut your costs, hoard your cash, and prepare for total meltdown,

  42. Sam

    Attacking me with “ad hominem” comments, demeans you, Robert – not me. Also it does nothing to further your position on your opinion. Address the argument.

  43. May I suggest a new title – Who wants to be a recessionaire – Life on a shoestring

    The people who had the most gain from the celtic tiger should now take the most pain.

    The fat cats have to pay their share.

    Get public finances in order get the banks to free up cash for small businesses, many small businesses are at the moment being squeezed by the banks.

    people are going to prison for the non payment of credit union loans and senior bankers can walk away untouched for what they have done. it beggars belief

    unemployment rate may increase to 15% by this time next year 420,000 people signing on the live register compared with almost 300,000 in December.

    What I would like to know is what the middle and lower classes can do to survive this catastrophe.

    • g

      It was predicted that the middle classes would get squeezed until the pip popped, the lower classes are used to surviving, they will muddle through as they always have, for those over extended with rental properties to Poles etc, well that’s another story.

      Whole thing is a sordid tale, the nations soul was sold by a group of extremely mendacious individuals, watched over by even more dubious politicans, the whole system has to change, but it is unlikely to happen, at least the Icelandic cabinet fell on their collective sword – ours should follow suit and quick!!!

      And to add insult to injury, the ‘law’ decides to continue in its effort to deport that poor Nigerian woman – what a disgraceful little country we are! As my late grandfather always said ‘in court you never get justice, you get the law’!

      Indeed it reminds me of another story in the Irish Independent back in 2006, when the Dept. of ‘Justice’ deported another Nigerian woman and her family. They were given money for one nights accommodation in the worst s**thole imaginable. The next day they walked the streets of the capital and above their heads was a giant billboard stating confidently ‘Guiness is Good for You’.

      To think of all the money we have in this country, if I had a house, I would gladly take in that Nigerian woman and her children.

      Where are all our great guru’s now? Those well paid legal professors who invoke the United Nations and Human Rights with their self-congratulatory programmes? Or others who issue platitudes to old people about what a great nation this country is as they stoop to pick up their cheque?

      Where are our people of influence?Our highly paid heads of Irish charities? Or those movers and shakers we read about in the broadsheets during the boom years?

      No, no, we are a gruppy people, with our gombeen, imaginary associations with Obama and yet quicker to deny those who really need our assistance.
      People spend hundreds of thousands on their bloody designer gardens and yet we refuse to look after this one woman and her two children who face some kind of retribution when they return to Nigeria.

      We’ve lost the run of ourselves – I am ashamed to call myself Irish in this current climate!

      And Seanie Fitz, take that smile off your face!

  44. Sam

    By the way, I’m neither a builder nor Parlon. At the moment, I’m an investor in physical gold and geared long term currency swaps.

  45. Sam

    “Long term currency swaps” – That’s interest rate swaps in different currencies.



  47. Joe R

    Here Sam,

    The normal model is to allow one months rent per year for costs ( management fees remember – you are obliged to pay them and they be higher than that ) …Try inputting that back into your incredible formula! – or writing a new one to allow for it ?…

    Then you can allow for missing out on a months rent here and there as tenants move change over.

    Maybe then you can allow a little scope for a softening market and lowering rent ( I mean is the rent guaranteed over the life of the mortgage? )…

    Then you can allow for the fact in the future new 2 bed apartments – by law – will be much bigger – reducing you property’s attractiveness to the market and probably the best figure you can charge?

    You may counter to those latter points Sam – that will you have sold on in a few years – but not without incurring a sizable loss I’d bet!!!…you need a fair hike in value just to break even after incurring sale costs? would you not?

    Is it all looking a bit shakier now Sam? Still fancy a punt?

    BTW how does being called a builder or a member of CIF impune your character? What does it imply for us ( including myself ) who work in the construction sector?

  48. John ALLEN

    In just the past 24 hours alone, Corning, Caterpillar, Home Depot, Pfizer, Texas Instruments, Sprint, GM, ING, Phillips Electronics and other large companies have announced more than 75,000 layoffs worldwide.

    WORSE: So far in January, 52 large U.S. companies have announced 210,000 layoffs!

    WORST OF ALL: This is just the beginning! And now, even the most optimistic of observers finally admit it. They now see the impact it will have on millions of Americans. But they don’t yet see how it could trample your investments.

    The Great Dustbowl has arrived …All INCOME is in DANGER NOW

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