October 26, 2009

Banks leave SMEs high and dry

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In his first public speech since being made governor of the Central Bank, Patrick Honahan – one of the finest economists we have ever produced – sounded almost apologetic about our overvalued currency. He made the point that if we still had the Irish punt, our exchange rate with sterling would be 1.18 and getting stronger by the day.

The overvalued exchange rate is a crucial part of economic policy, but it is never discussed publicly. We trade in a currency that is sky-rocketing against our two main trading partners, Britain and the US. Nowhere in economic literature is there a theory that says a small open economy that is going through a severe recession will get out of it by having an overvalued currency.

In fact, the opposite is the case. We need a hyper-competitive exchange rate. We need an exchange rate that allows companies to export, rather than making it difficult for them. Yet the finest minds in Ireland are doing the opposite.

There’s little point talking about the smart economy and export-led growth if small companies can’t compete because our exchange rate is madly overvalued. This is the elephant in the room, so let’s recognise it.

The governor’s speech went on to say that, in the past, when we had higher unemployment because wages got out of line, pushing the exchange rate way too high, we simply devalued to compensate.

This is something that almost every ‘normal’ economy has done in the past (and is still doing) when there is a competitive problem – whether it was Finland and Sweden in the early 1990s, the Asian tigers in 1997/8 or Britain and America now.

In all cases, devaluations worked. The countries that didn’t devalue when in a crisis, such as Germany and France, have shown a disturbing tolerance of persistently high and enduring unemployment. I believe this tolerance of mass unemployment – to borrow the governor’s term – is a ‘fetish’.

There is an economic choice that countries make. Either you use your exchange rate to become competitive, or you use unemployment to grind down wages, so that you become competitive by putting people out of work who wouldn’t be out of work if you simply changed your exchange rate. In the process, you preside over an internal financial civil war over who is going to make the most sacrifices in order to become competitive again.

Honahan then said that, because of the euro, ‘‘it is crucially important to recognise that the old automatic stabiliser of real wages – depreciation of the exchange rate – has been put out of action (and for good reason)”.

The good reason is his addition. This idea that devaluations are so obviously redundant as to have no place in discourse has become commonplace in Irish economics.

The same logic in 1993 argued that a devaluation of the punt would be a disaster. The entire economic establishment (I know, because I was an economist in the Central Bank at the time) said that devaluation would lead to permanently higher interest rates, higher unemployment, lower growth and higher inflation. This, I assume, is the ‘good reason’ the governor is referring to.

Well, guess what happened after the 1993 devaluation? The economy took off and unemployment fell dramatically.

Exports exploded, interest rates fell precipitously, capital flooded into our country and inflation fell. It is difficult to see the professor’s ‘good reason’, not least because the devaluation worked perfectly.

Everything that economic textbooks said would happen, did happen. It ushered in the golden age.

Honahan refers fondly to the subsequent post-devaluation period from 1993 to 2000 and suggests that he would like to see the economy return to the state it was in 2000. Irish productivity was extremely high and, as he says himself, ‘‘Irish wages were arguably super competitive around 2000’’.

Honahan implies that, after 2000, it all went wrong, which is why he urges us to get back to 2000.Well, guess what was the big event of 2000?We had just joined the euro.

Joining the euro marks the beginning of the economic and financial delinquency that has led us to this horrible mess.

Almost from the off, the currency started to rise dramatically against our main trading partners. On average during 1999, the year we joined the euro, one old Irish punt got you 77 pence sterling. If we still had the punt we’d get £1.18 today – that’s an appreciation of 41pence in ten years.

This is a whopping appreciation of 53 per cent. Is it any wonder that our exports to Britain collapsed in the past ten years? Even so, it still remains our biggest trading partner. We have also seen the same appreciation against our other non-euro trading partners.

Just to get an idea of what that means, consider that we export €85 billion in total, of which less than €25 billion goes to eurozone countries. So two-thirds of our exports go to countries that our currency has appreciated hugely against, making us uncompetitive. For what gain?

If you have an appreciating currency and it is credible, your interest rates should reflect this. So, are we getting this euro premium? Well, no. British and US interest rates are much lower than ours and, worse still, we are penalised even within the euro.

Last week, the state paid 5.79 per cent for a 15-year bond issuance of €7 billion. The Germans are paying just above 3 per cent for the same money at the same maturity in the same currency!

Our ten-year bond is yielding 4.9 per cent – which is way over the German rate. What this means is that the market doesn’t believe us. The market believes that something negative is going to happen here in Ireland, which makes us risky. What could that something be?

This brings us back to the banks. The markets believe that Nama will not lead to a recapitalisation of the economy and, therefore, the recession will continue. Their analysis is based on simple incentive structure, which the corporate treasurers of our bust banks are faced with.

With Nama, the banks are getting money from the ECB at 1 percent, yet they can then buy Irish government bonds yielding 5.79 per cent. Why would they bother lending to a SME trying to export when they can get a free almost 5 per cent without ever lending a cent to a risky business? What would you do if you could get a risk-free trade of 5 per cent without even opening your doors?

Yes, you’d take the Nama money and invest it into the Irish bond market, thank you very much. But it isn’t really free money, because someone pays, and that’s us, the taxpayers.

Let’s take a bank treasurer who decides to buy Irish government bonds with the Nama money. If all the banks did this and re-invested the profits, they would invest the €54 billion and would get €87 billion.

This is total interest of €33.2 billion paid directly to the banks to finance the government.

To finance the Nama bonds at 1per cent, they’d have to pay €5.4 billion, but investing this in the government bond market gives them a clear after-financing profit of nearly €28 billion. To pay this amount, the 2.1million workers in the country would each have to pay an extra €1,583 in tax per year.

The banks can make a fortune in transfers from the taxpayer without ever lending to an exporting SME. This is what they will do. Why would you lend to an exporting SME when we are presiding over an exchange rate arrangement which is making it impossible to export?

Last Thursday night, I presented the Entrepreneur of the Year awards. I met dozens of brilliant people who are trying to do something about this recession, trying to employ people and get on with the business of fighting back.

Yet our establishment is betraying them, doing everything in its power to strangle them by sticking to an exchange rate in which no one believes. As unemployment heads for 500,000, you couldn’t make this up.


  1. Tim

    David, Yes: “Banks leave SMEs high and dry”.

    The banks leave everyone high and dry and look after themselves – they should be left alone to do so and not receive another red centime from the taxpayer.

    Remember the old joke about the bank, the rain and the umbrella?

  2. Particle Impact Time Bomb

    ( Part 1 )

    Cash Flow is like a Rythm and it’s experience is generated within a given area and by the people present .It is profound and uplifting and with a ‘ sexed up’ feeling of success and achievement .Sporting events like in Thomond Park , Music events like in Croke Park all imbue the magic that engross the audience .
    It starts and finishes within that area and is thus controlled only by those present .Thus Cashflow is the blood flow within us that gives us that ‘oops feeling’ of experience that ‘we did it again’.
    In business that rythm is centered in our Central Bank .Unfortunately the control is ‘ubber mastered ‘ elsewhere outside the range of the rythm area and thus likely to cause wrong signals of mating and matching.

    Within the EU there are essentially three venues of Rythm Performances as follows:

    Charlemaign Twins Area – this is the horrible two namely France and Germany .These twins were born from two different eggs but are like cats living of of each other; and

    Olive Groves Area : – this is a scattered Mediterannean floral that forms its own marine coral .It is a sensitive and volitile environment that must be handled with extreme care ;

    Atlantic Dodo Area : This is an Oceanic Island perched way out in the Atlantic and exposed to isolation and extremes of the wild seas.This is Ireland the land in the west without any natural communication infrastructure to the mainland EU.Its rhthm is now extinct in EU .

    Financial Engineers have been unsuccessful attempting to harmonise the EU rythm with the Dodo rythm in recent years and ugly noise generated around the Dodo is causing it’s own extinction that is now deemed fatale.

    Under the Alps in Switzerland Scientist engineers are preparing to create the first particle impact at high velocity to discover what happens afterwards.The awaited event will happen in a fraction of a second and then its over and everthing else continues as normal.

    We in theAtlantic Dodo Area need to emulate that same process with proper Financial Engineering .

  3. Garry

    spot on David, but you’re missing the point…

    This suits the government…. This is a collapsing society where the elite have adopted the “last to starve” strategy….It suits them just fine that the banks will loan the money….. back to government…

    Because then, they can continue to overpay themselves and keep the relative advantage over those who are not in the bureaucracy…

    There is a financial civil war underway, but it is between those sitting at social partnership and those on the outside.

    This is a deliberate strategy to keep the insiders insulated from the recession until taxes recover or something turns up.

  4. Particle Impact Time Bomb

    ( Part 11 )

    A milli second is all it takes to complete and the Rythm is back in tune once more for another show on the road.

    The ALLEN Economic School Recipe is simple.

    Ingredients :

    Plate No 1
    Central Bankers
    Banking Regulators
    National Treasury Management
    Bank Managers

    Plate No 2
    ECB

    Precaution:
    No Political Spices are required otherwise the taste will go sour.Keep all Trade Unions in the other room and far away .No bearded persons can be allowed to participate.

    D- Rythm Technique

    Coordinated high velocity impact performance is essential to enable success of this operation and in a timing that is only known to the Governor of The Central Bank.

    1 Devalue to the Yoyo ( say 20%):
    2 Re-connect to Euro .

    Properly carried out all costs are reduced and a new re-allignment commences as in time when we first joined the Euro.Full Employment returns again.

    Note:

    This idea is exo-operational to any other financial technique ever used before and represents the real challenge using all the new opportunities in new technology where time and speed are essential .It is the age of ‘The Risknaut’ .

  5. Exports took off from the mid-1990′s not because of devaluation but because in the years preceding it; Ireland was getting 25% of US greenfield investment in Europe and from the entry of Intel in 1989, Dell in 1990, Microsoft significantly extending its software operations and companies such as HP, opening big manufacturing facilities, coinciding with the US high-tech boom, exports from these firms dwarfed SME exports.

    Have a look at the charts on this page, which show that the value of exports from domestic firms basically flatlined from 1991.

    The devaluation had no impact.

    http://www.finfacts.ie/irishfinancenews/article_1016593.shtml

    As regards the euro, I assume Ireland wouldn’t have joined the EMS if its main US FDI firms had objected to it.

    Today, these firms remain crucial for the Irish economy.

    The typical Irish SME does not export compared with counterparts in Europe and over the past decade, little headway has been made in developing markets in the common currency area.

    The EMS has expanded from 11 to 16 countries and so there is a big potential market without having to worry about exchange rates.

    Quitting the euro to help the SME sector is hardly a serious proposal.

    A more serious treatment of the challenges facing SMEs would be to address the fundamental problems facing them.

    Developing new markets where there is little tradition of doing this, unfortunately means that there are no short-term eureka solutions.

  6. Deco

    This is correct.

    The banks are commercial organizations. And they are doing what commercial organizations normally do. They are fending for themselves, and making profit. This is fine if the consumer is in charge.

    But in this case banks have enormous power, and are more interested in playing the stocks and bond market with the money. And besides they have a big hole of bad debts to hide from the regulators – now that the regulators are afraid of the general public.

    In essence the culture of banking being about power has replaced the need for banking as a utility in the creation of wealth for the production base of society.

    But this is government policy. I keep saying this again and again. It is government policy to bail out the banks and to flog the productive base of the economy until it is in a state of disintegration.

    Remember what Dan Boil said after the Dell workers were laid off – { we have to save the banks, the banks are more important than the factories }.

    Well, government policy is fully reflecting the Boil mantra. The tail that wags the dog. Boil is the GP representative on Finance, and basically calls the shots. Lenihan does not know any better, and is concerned in case there would be some sort of institutional meltdown that would eliminate the control of the top layers over the bottom layers. And Coughlan is stuck up some cul de sac in Donegal that needs more tarmac to keep voters happy for the next twenty years.

    These stooges understand nothing about wealth creation. In fact based on the ministerial expenses scandals, and the various quangos that they preside over, I think it is reasonable to say…..that the government ministers are experts at wealth destruction.

    It would be better if the country was governed by a collection if cardboard cutouts. The crash would be over instantly, and the pretence being made so as to continue the robbery of working people’s futures would end. It would be a bang. And the formerly rich would absorb the pain. The rest of us would start saving and paying down our debts. And we would be on the path to recovery.

    But current FF/GP/PD policy is extremely dangerous. I doubt if it could be made any more reckless than present. Even SF don’t seem like the economic nutcases that Indo News tells us they are.

    As David pointed out in his last article. The lack of intelligence in the political centre is frightening.

  7. econarchist

    David, why don’t you say straight out that Ireland should leave the Euro when that’s what you’re suggesting very strongly?

    The only other way of making the country more competitive would be to ruthlessly cut wages, including the minimum wage, leading to major deflation for a couple of years until Irish prices are in line with those of other Euro countries. This would have a similar effect to a devaluation. This could work if it were done in an organised way and had public support, but who could blame people for refusing to take so much pain and to trust a government that is effectively giving handouts of taxpayers’ money to the banks?

    So I hope the Central Bank hasn’t thrown out those printing presses for making crisp new ten punt notes.

  8. DH

    How fast could we reconnect with the punt and devalue the currency and what are the big issues involved in that process?

    It sounds like an idea so removed from where our government or even the opposition are right now that it’s economic fantasy – a good idea none the less :-)

    Our biggest problem is that our government, our leaders are so used to having a European crutch that they are petrified of having to walk on their own, so much so that they lack the mental strength to try…

  9. Deco

    Of course apart from the finance/credit aspect to the SME sector, and the need to cover up the bank debt holes, we have the cost issue about the Irish economy.

    And the FF/GP/PD elements don’t seem to grasp this either….

    Basically SME’s are being used as a sucker for the state. ICTU, IBEC, and listed companies on the ISEQ. The SME’s deal with stealth taxation, unfair state tendering, stupid costly regulation (like exists nowhere else in the EU), exhorbitant professional fee charging, and banks that ask to know everything about their business,and who might then give credit to a competitor and knowledge as well.

    So the government is doing nothing about it’s cost element on either SME’s or the workers who work in SMEs. Instead it is sloshing billions all around the place.

    And the latest concerns a plan to rescue INBS. INBS is a mini-Anglo. Both ANIB and INBS deserve the BIN. Morgan O’Kelly told us that INBS would become another Anglo. And sure enough,Lenihan is planning this time to stick it in as a detail in NAMA.

    He must think we are even less capable of reading the small print than he is.

  10. Deco

    David – keep up the good work.

    Morgan Kelly, and Brian Lucey seem to have momentarily disappeared. Ireland needs them urgently.

  11. bankstershill

    I am confused here on cashflows involved in NAMA. Is it not the case that either Nama or the government will rise the 54 b for Nama on the open bond market and be charged 5.4 %, and then hand this money to the banks in exchange for the weed filled building sites (stressed assets). Nama wil then sell the assets at some point in the future in order to redeem the bonds and hopefully at least break even with the taxpayer making up the difference should there be a hole which there probably will be. So what do you mean David when you say that 54 b would be borrowed form the ECB at 1 %?. Please could you resolve this because its really bothering me, otherwise its a dam good article.

    • econarchist

      This is how I understand it:
      - The banks borrow money at the minimum possible rate of 1% from the ECB.
      - They then lend it to the government at the full market rate of 5.79% , making a large risk-free profit.
      - The government then uses this borrowed money to buy the property that the banks have recklessly lent out money for!
      - Within ten years time the government sells the assets, hoping (very optimisticaly) to get back the cost of borrowing.

      Have I got this right or is David making it up or is there some other explanation?

      I’ve read somewhere else that this is the only way that the government can get money to finance NAMA because the ECB is not allowed to lend money directly to a government. The only other alternative would be for Ireland to go to the IMF who probably would not lend money on something as risky as NAMA.

  12. tony_murphy

    The EURO is the elephant in the room. It should be got rid of. Take the pain of hyper inflation once it goes, but at least there will be light at the end of the tunnel.

    All those teachers with their villa’s in the med won’t be happy. But perhaps they can be asked to work a bit longer during the summer to fill in their times and cut back on Christmas and Easter breaks.

    I live in the UK now, and my eyes watered at the quotes I got in the last couple of weeks from an Irish accountant and solicitor to do some trivial run of the mill work. My Sterling has no chance in Ireland. I just have to do work myself where possible.

    Ireland is the South Dakota of the European Federal State – without the dole being paid for by the richer states. Government just keep digging and getting country into a bigger hole.

  13. Malcolm McClure

    Lenihan has very limited room to manoeuver with regard to his monetary policy. The ECB will do whatever is necessary using QE to prevent deflation and will deal with inflation when it arises, possibly next year.
    I have just read a recommendation for a book by Tom Hayes called ‘Jump point: How Network Culture is Revolutionizing Business’ The reviews on Amazon give some useful pointers to the future although I haven’t seen the book in my local Borders.
    Hayes predicted the effect on the Bubble Generation back in early 2008, so like DMcW he was well ahead of the game.
    In time, online banks, credit cards and micropayments could eliminate a lot of the traditional bank’s functions. The cash kitty that supports these payments could revert to employer’s accounts whether through a Central Bank kitty for the public sector or through each individual employer’s inhouse online kitty for larger industries in the private sector. SMEs could use the post office for day to day cash and could seek investment support from a local consortium of ‘Dragons and Angels’.
    This could take a year to set up but would be worth the effort if it decimated our dependence on the bloodthirsty banks.

  14. There are solutions to every problem as there are cleaning agents for every dirt .It just needs action otherwise war results .That is what history has told us.

  15. SLICKMICK

    Unemployment in Donegal is already 30%, just think how bad it will be in a year.Why does the Central Bank still employ hundreds of people to do nothing?.Quit the euro or perish/Iceland is starting to revive itself thanks to it’s depreciating currency.Ireland had no business joining the euro in the first instance.New Zealand and Canada haven’t adopted the Australian or American dollar-wise move, lucky they don’t have a buffoon like Garret Fitz sprouting euro nonsense all his long life.

    • Garry

      http://news.bbc.co.uk/2/hi/business/8327185.stm

      McDonald’s is to close its business in Iceland because the country’s financial crisis has made it too expensive to operate its franchise.

      This is the canary in the mine for Iceland…. They are facing a world of pain…

      ..They owe money in real currencies and have nothing but their bullshit paper, land and fish to pay it back with… That country will end up raped and owned by its creditors…..back to eating blubber….with fishing rights, energy rights etc in the hands of foreign private companies….

      The problem with ditching the Euro is the debt….. now that the gobshites in charge are giving 54 billion in EUROs to the banks, that ship has sailed…..

      • tony_murphy

        The government have made many terrible mistakes and will continue to make them. They are spineless fools with big mouths. All they are good at is shouting everyone down with there solicitor speak and giving in to the social partners at every threat.

        Iceland will recover, like Ireland would recover if it lost the EURO and people stopped looking for the “easy” option all the time.

  16. MaxKeiser

    John Allen the historical element of this is marked & important.

    The way this crisis is being handled here it’s is looking more & more like a repeat of the famine (during which Ireland exported food ~ NAMA how ya doin’?).

    The current leadership have constructed NAMA with lots of long term work but with a hard to believe ~ very short term ethos i.e.: “Just do it, there are no alternatives people ” & most importantly “Maintain the status quo”.

    To a point, this echoes our currency problems.
    But then why should we expect anything other than confusion & corruption from confused & corrupt minds.

    This time as history repeats as a tragedy, a farce or both; we would do well to remember how Chinese leaders, have always taken a long-term view of history.

    Chairman Mao when famously asked what is the impact of the French Revolution? He replied “It is too early too tell”.

    When some one adopts this long term view they are very hard to compete against & even harder to defeat.

  17. bankstershill

    thanks for that econarchist.. Now I am no longer confused, just angry. What a swindle. Lets start using the right language to describe Nama. Call it for what it is , an act of treason, and prosecute the gulity parties on the basis of that, otherwise we just go round in circles debating the double talk.
    We could ease the credit problem with the establishment of a Credit System akin to Benjamin Franklin’s
    Colonian script or Abraham Lincoln’s greenbacks or JFK’s silver certificates (executive order 11110, he was shot before it got of the ground, would have put the federal reserve out of business which is why he was probably shot), or the English tally stick system , examples in history abound.How does a credit system work? simple the government issues NON CONVERTIBLE NOTES directly in the form of public expenditure and productive loans for the private sector, and decrees the currency to be legal tender. The interest on the loans is a simple interest and is necessary to absorb the extra money in the system which results from the natural loan default rate and the money spent into the public sector to cover goverment operating expenses and public infrastructure projects,otherwise without the interest mechanism there would be inflationary issues as lost money would gradually accumulate in the system. The notes would not replace the Euro but would circulate along side, and they could also not be used as direct payments for imports as they are non convertible. It is necessary to make the currency non convertible as the international currency speculators would destroy it. However since much of our current woes are associated with a a lack of credit for internal domestic commerce the import restriction would not be a problem and in fact by the very nature of this import restriction such a system has a built in protective feature which would promote and foster the small enterprise. Once the banking system has been put through reorganisation and examinership and Nama has been scrapped, the existing banking infrastructure can be used as the instrument through which the Credit System would be implemented. Remember a Credit System is were the Public basically issues its own money for its own needs. Our current money system is where a privately owned central bank and its member banks enjoy the privilage of issuing its own money for its own greed at our expense and our childrens exspense because of the very parasitical nature of compound interest

    • wills

      Bankstershill. Credit provided in accordance with its function, a utility. Good overview.

      signed wills.

      part of the restore credit to it’s utility function fellowship.

  18. So, could it be possible to negotiate a return to the punt for the Irish economy while remaining in the EU?

    We need a cross the board 30% devaluation !

  19. paulmcd

    For years before, and subsequent to, our entry to the Euro zone we were being governed by the principles of a Bertie-McCreevy-Cowen Axis of Inanity. Among the arguments for adopting the Euro was its liberating effect in terms of our over-dependence on the UK and the greater fiscal and monetary discipline we were going to have to adopt in learning to live within a low-interest rate environment. It was not the Euro per se which was wrong but the way in which our economy was, and continues to be, mismanaged.
    We were not at the mercy of lower interest rates. We needed DISCIPLINE. The lower-interest rate environment demanded a contraction of earnings multiples and the contraction of loan duration when calculating mortgages so as to maintain some measure of price control in the house-building industry, and also safeguard that industry for controlled expansion with a very long-term sustainable level of activity. Financial institutions behaved in a contrary fashion, so we went from a 2.5 earnings multiple for a 25-year 80% mortgage in the era of the punt to 10 times earnings multiples, with 40-year 100%+ mortgages under the Euro. The dogs in the street were howling but McCreevy and Cowan could not see the inevitable. The process was enabled by lax regulation, the blind eye of the Governor of the Central Bank, mealy-mouthed reports from the ESRI, and the populist and self-serving route chosen by the political Axis of Inanity.
    To regain competitiveness we need major downward shift in every form of earnings, rents, local and national utility charges, all indirect taxes, etc. We need a higher-band income tax rate, plus a wealth tax to ensure that the 5% of the population who control 95% of the wealth should pay proportionately. Leadership must come from the top. No-one in the public or private sectors should yield an inch until our political elite are prepared, as a first step, to self-inflict 60 to 70%+ cuts in their salaries and benefits in kind, to bring them into line with the political establishment of a country which has similar-sized population, NORWAY, the richest country in Europe though not a member of the EU. (I admit that following the Norwegian model would require that some public servants be better rewarded than they are currently.)
    If we don’t get the political leadership we need, then bring on the IMF! Let employer bodies call for a cap of €120,000 in public service pay and discipline their own members accordingly. My advice to the unions is that their leaders should prevent strike action with the risk of social dislocation, de-ratings of Irish debt, and consequent greater interest rate burden to be absorbed by our taxes. Let the union leaders go to the IMF immediately and negotiate with the greater national interest in mind. If this is simply outlandish idealism, then God save Ireland!

    • Colin_in_exile

      Paul,

      Good post and excellent analysis.

      Just one thing though, “Financial institutions behaved in a contrary fashion, so we went from a 2.5 earnings multiple for a 25-year 80% mortgage in the era of the punt to 10 times earnings multiples, with 40-year 100%+ mortgages under the Euro.”, you are correct but you have to ask what drove these institutions do behave this way, and the answer was that Joe and Josephine Public demanded to get on the property ladder, and their only way of hopping on the ladder was for the institutions to relax the borrowing ratios. So, you can look at it another way, if Joe & Josephine Public couldn’t care about getting on the ladder, then WE would not be in this mess. In other words, the root of the problem is cultural affinity to home ownership, of which such a high level is not seen anywhere else in the world.

      Finally, anyone who spins the line “we bought because we only wanted a roof over our heads” is telling a half-truth. When you rent, you’ll also find that the property comes with a floor, walls and a ROOF/CEILING.

    • wills

      Paul, great outline on the elites efforts to install Gomebeen casino capitalism and launch POnzi Rep.

  20. Original-Ed

    I agree with MH above, there is no short term eureka moment – from my own experience, it takes about five years and a huge effort to make an impression in any market. Those of us who took the whole idea of the Euro seriously and went after the European markets ten years ago, are now sitting pretty. Most people preferred the easy life of US Companies providing technology, branding, market and jobs. Fortunately for a few of us, we didn’t have such a luxury ,as we haven’t had a government minister from our area, for decades. The mess that we’re now in was brought about by abuse of the Euro’s low interest rate for property speculation – the whole point of the single currency was totally ignored and like a cancer, it’s a bit late when the pain is kicking in.

  21. tony_murphy

    Keeping people in jobs and creating new exports by ditching the EURO is what’s required

    Google, Microsoft, Intel and Viagra are about as much as Ireland exports now. Wake up to it.

    Tesco and the likes won’t be buying many Irish mushrooms and butter to put on their shelves in the UK at Euro prices

  22. Original-Ed

    @tony-murphy
    if we were to decouple from the Euro now, we’d be bankrupt – the UK is set for a period of high inflation, so by this time next year. prices there may be close to ours.

    • Malcolm McClure

      Original-Ed: If the UK has high inflation, sterling exchange rate will sink correspondingly and it will deliver no advantage to Ireland.

      • Original-Ed

        Malcolm McClure – if the pound slides below the Euro, they’ll have to up interest rates, otherwise their standard of living will go down the plug hole – it’s not like the old days when they had something to export.

  23. tony_murphy

    @Original-Ed
    Gordon Brown is more incompetent than Cowen. I know that takes some believing, but he is. The UK economy is in a really bad state. Sterling isn’t going anywhere against the EURO but down if you ask me – well not until he gets kicked out of Office. That may not happen next year, the Tories are not trusted, they’ve changed the constituencies + Tony Blairs policy of mass immigration has diluted the Tory vote. There may be a coalition government.

    Ireland needs to be in control of currency. If it was, it would float to level necessary to keep people in jobs. Ireland is bankrupt no matter what way you look at it. Slaves to the ECB

    • Deco

      Cowen knows that he is not fit to run the country. So he limits himself in what areas that he addresses. Most of the time he rolls Lenihan or Coughlan or Martin in front of the camera.

      But Gordon Brown beleives that he is an excellent Prime Minister. He sees himself as having no limitations.

      The difference is along the spectrum of arrogance. A man can be useless, and can sit quietly and hope to get away with it. But if a man is useless, and his arrogance drives him to continually demonstrate his ability, then he creates one disaster after another. And yes, the headline from the London Independent captures the essence of the moment for Britain. Brown is primarily responsible for screwing up a very large country.
      But here Cowen can only claim that it was his absence from duty, not his application that caused Ireland so much woe.

  24. Philip

    Ditching the Euro misses the underlying point of why Ireland is in a mess. Pure and simply, it is down to mis management and greed. The stark fact that we are only exporting such a small proportion to Europe speaks volumes about our inability to work with modern cultures, our ineptitude as polyglots and our tendency to mix up concepts in exports. Bear in mind that the majority of our “exports” are US or Foreign National Investment led exports leveraging an assembly/logistics crew for complex organisations whose HQs will rarely be located in ireland because we have lousy infrastructure.

    Mismanagement is rampant from our Government down to the SME. We have many in private business tyoe who fancy themselves as “entrepreneurs” in the property game and other lo-tech non-knowledge economy activities. Not for them the drudge of R&D. Quick flip mentality is still all too evident.

    Let’s stop blaming Europe. Dropping the Euro will do nothing to address Ireland’s problems. We are basically stupid economically (as a nation), we are unable to envision making our own furrow always waiting for the US or some outsider to save the day and we are all too willing to beat eachother up without looking at how much trouble our neighbours are in and what we can do to help.

    There is a lot happening out there in the big bad world. Malcolm McClures comment above gives an insight into the next disruption in financial services which I think is long overdue. The way we finance things and the source of finance will not be from your local banks – they are dead, they do not know it yet.

    Start getting sensitised about IT (as it applies to all walks of life), Green Energy and the like. Ye olde ways of working is gone and SMEs (the majority I am afraid) who think otherwise are gone too. Ireland has to build its unique selling proposition without looking for a mammy US or China or anyone else (who are in similar sh1te by the way)

    • Tim

      Philip, well said; the mismanagement is still going on: by cutting frontline public services and frontline pay, the discretionary spending to retail is choking the real economy further; they just cannot see the wood for the trees, as Michael Taft explains here:

      http://www.progressive-economy.ie/2009/10/lost-in-forest.html

      • paddythepig

        Tim, do you like borrowing from your kids to pay for all the bums on the Government payroll?

        The hatchet needs to be branded, and fast. Let the deflation happen, it will happen anyway.

        David, your logic on the disincentive of the banks to lend to SME’s doesn’t stack up. The banks need to invest in SME’s with real potential, in order for their bonds to be paid back upon maturity. If they don’t invest in productive SME’s, their bonds are likely to default.

        Paddy

        • Tim

          paddythepig, “do you like borrowing from your kids to pay for all the bums on the Government payroll?”

          Of course not, Paddy.

          My point is that the frontline staff are not the “bums”; and the cuts against the frontliners have been shown by Taft, Lucey, Gurdgieve and Kelly to have made matters worse since April. Have a hunt through the links on that page and see what I mean.

          • Tim

            paddythepig, in fact, read the admission by the Dept of Finance itself here, that the €4bn in cuts arise from the recapitalisation of Anglo:

            http://www.progressive-economy.ie/2009/10/shock-news-entire-4bn-fiscal-adjustment.html

          • paddythepig

            Tim, the attempts by the so-called ‘frontline’ staff have been amusing to watch. To preserve themselves, they have decided to differentiate themselves from the clerical and administrative staff. Cowardly stuff.
            Just not cricket.

            I know plenty of ‘frontliners’ who are bums.

            We also have too many chinscratchers like Taft, Lucey et al. Time for the cull.

            The way to make things better is to get on with the cuts, and force these wasters off the Government payroll.
            This will happen eventually anyway, as the Government will either do this, or else the day will come very soon where the public service will be paid with lottery tickets with Biffo’s face on the front – if they’re lucky.

            Then we’ll be in a real deflationary spiral.

            Paddy.

  25. severelyltd

    The Governments approach to SMEs is nothing short of a scorched earth policy. I know of many business’s gone,or in the process of going to the wall. Between the pressure of the revenue, high wages and ludicrous rent agreements many companies cannot keep their doors open. The problem is that even if there was an end to the downturn many of these SME companies are so highly geared that they could never turn a profit unless the core issues are dealt with. We have €243 billion of debt in the private sector alone which is a hell of a lot of money. The banks know that loaning more money to many of these companies is nothing more than giving live support to a terminally ill patient. They have security on the existing loans so why stick their neck out further than they have to. The dogs on the street know what the core problems are as do the gombeens in Government. The problem is that they have no interest in tackling the issues. Instead they make crazy manoeuvres like increasing VAT. To what end can Governments policy be but to destroy the private sector when they give no support to it. They are buying time for their own necks but at what cost to the country.
    A client of mine is closing her shop door in the next 3 weeks leaving another 3 people to join the ranks of the dole. The only reason being that the landlord is not willing to negotiate on her rent. This is in an area where their are 80 vacant shops within a ten minute walk. With prevalent attitudes like this it is hard to see a positive outlook for the future.

    • wills

      Severelyltd, a classic. The upper feudal tier refuse to work business sense in line with free market principles. Which in the good times they did not, either, So, merely what is going on here is truth of business ethos exposed. Landlordism irrationalism = refusal to drop prices ‘cos,..’ if they cannot have their largesse in bonkers rent, well then, why should the serfdom get a good deal on rent dropping’,

  26. bankstershill

    cbweb says So, could it be possible to negotiate a return to the punt for the Irish economy while remaining in the EU?

    Leaving the Euro will not effect our status within the EU

    • Original-Ed

      Status wouldn’t be the problem – it’s our debt, as it would escalate overnight if we went back to the punt.
      At the moment it’s quantifiable and if the government would only set aside its own ambitions and those of its cronies, there could be some change of getting out of jail – I wouldn’t hold my breath , though, with the present lot.

      • According to Sunday times Merrill Lynch International Bank was a key adviser to the government ‘as it concocted NAMA. Merrill Lynch received close to €6m in fees from the state.’ IFSC based Merrill were fined a record €2.75 million by the Banking Regulator for 2 major trading incidents that saw the bank lose €306m. Our best advice comes from convicted bankers!

        Pay and bonuses were the Irish cultural norm for bank leaders as they drowned the Irish economy through the property boom. Our solution to our financial crisis is to gift the banks cash for trash through NAMA!

        Eventually no lenders will be prepared to lend. Some deal will eventually be brokered by the IMF who will demand our puppet government, on a NAMA elevator going down sucking taxpayers blood dry, pull in the reins. They’ll cut and cull then.

        There are better ways forward, I’m no expert but !¬#| off by moron
        Lenihan et al I point out one here http://colmbrazel.wordpress.com/2009/10/23/bread-and-buiter/

        Better to clean up the banks and public sector than devalue. We’re overpaid, overpriced and over valued but some believe the balloon boom not burst only a slow puncture! Biggest problem is bad management of the economy by the banks and Government. They both need culling, wages, numbers, personnel, structures reformed.

        Little airtime is being given to highlight alternatives, so kudos to you and other commentators who look for them.

  27. Philip

    Let the renters overcharge and maintain their archaic ways of doing business. It’ll stop soon as the tenants dwindle. Capitalism and competition is just like that in the end.

    As for the Public Service…they are going to find that tax revenues will keep falling as well. I do not mind them being paid what they are paid for if it can be seen in terms of increased wealth to the nation and better quality of life for all here. Somehow, that seems not to be the case. Tim, you need to square the the circle…the economy is not just retailers with the public service keeping them alive. The real wealth starts further back in the value chain in manufacturing and making the real original goods and services which others buy – and before we enter the education argument, this is about fundamental attitudes to work, a self belief in ability to do things and a feeling that people are there to nudge you in the rigt direction – management.

    The EURO argument is a none argument and for once DMcW has made a massive Booh Booh is associating it with our ills. The most that can be said is that it exaserbates problems – not cause them.

    The root cause is crap management and poor self belief.

    • Philip

      If we left the euro and our relative wages dropped 50% relative to Europe, are we saying we just want to go back to the 80s and 90s of being assembly monkeys? Anyway, we cannot match the industrial muscle of Poland or China and farm exports would still remain static and poor becasue we have no power against multiples and big mega procurement groups. We need to play at a higher level.

    • Deco

      Phillip….
      {
      The root cause is crap management and poor self belief.
      }

      You are correct…. THE IRISH CONCEPT OF MANAGEMENT HAS FAILED…and it needs to be analyzed and fixed.

      Concerning the self belief I disagree. There has been excessive self – belief. It would be far better if there was more attention to detail, and more intellectual honest. Ireland has been loaded with so much self belief, that all sorts of preponderous nonsense was officially intelligent.

      Common sense was not so common after all, would be lesson from the last fifteen years….

      • Philip

        You are dead right. In fact DMcW had a better word for our misplaced self belief…HUBRIS. Self delusional blather. Whatever….But you get my drift.

        Self belief maybe should be replaced with Self awareness.

    • Tim

      Philip, I have “squared the circle”; I understand (as MK1 explained to me, with you and others helping, a year ago, that the money originates from exports and tourism).

      I get it; its just that the attacks on the frontline education end are so myriad, I rarely get the time to address the origins you mention.

      But, I do “get it”, Philip. Thanks.

  28. wills

    David.

    On the money! (forgive the pun).

    The RISE OF THE PONZI REPUBLIC.

    Absolutely, is it so central to print and circulate one’s own currency, and Ireland is not, and you break it down into the facts, the facts and nothing but the facts.

    The Euro spelt financial suicide for Ireland and it pulled everything else into ‘the overvalued exchange rate’ black hole de-activating the competitiveness check and balance mechanism while opening the flood spigots of credit provision drowning the real economy in POnzi racketeering.

    ‘Joining the euro marks the beginning of the economic and financial delinquency that has led us to this horrible mess’. Marker in the sand, here it is, year zero, the great POnzi Republic experiment is launched and the real economy and free markets operations minus rigging is elbowed over the cliff and casino capitalism takes centre stage, heralded in by our own indigenous currency out, euro in, and control of i rates bye bye, printing presses bye bye and ability to devalue bye bye. NUTS!

    There is the reason why the money masters of the world, england still use sterling. Simple, they know the score. They ran with casino capitalism but it did not kill their real economy.

    The markets know too. Ireland is impotent financially and the casino racket controls our government, public finances, economy real and POnzi, property market through NAMA and bond issuance and now our future.

    ‘As unemployment heads for 500,000 you couldnt make this up.’ Yep, it can only be but one thing, somebody somewhere is taking us all to the cleaners.

    It’s time to find out names and point fingers.

  29. “As unemployment heads for 500,000 you couldnt make this up.’ Yep, it can only be but one thing, somebody somewhere is taking us all to the cleaners.”

    Whatever about the rights and wrongs of Politicos expenses or Public Sector Levys, the 500,000 (former Workers/Taxpayers/Citizens) are at the cleaners 6 weeks before Christmas. The Great Plan To Save The D4 Ass includes reinstating the Christmas Bonus to placate the Liberals(Greens) and recouping it via a fuel tax or some other foppery.
    It must be obvious to any knowlegeable person by now that Cowens leadership is putative only. As with all the other senior politicos and Civil Servants who drank from the horn in the good times, all are compromised and must conform to do their Masters bidding.
    Illuminata Eirannaigh is docha.

  30. Tull McAdoo

    Ireland is faced with an interesting problem and that’s for sure. The key to all problem solving is to identify as fully as possible “ what the full extent of the problem is”…
    1. Banks over lending to property resulting in insolvency and that includes its borrowers in most part.
    2. Banks over lending to general populace via credit cards, personal loans etc.
    3. Government over reliance on income from Bank lending above.
    4. Government guilty of “soft option” decision making for years i.e. throwing money at areas to secure re-election and buy peace for itself etc.
    5. Bureaucratic structure of Civil Service only suitable for stable/predictable Economic environment. (to slow an ill equipped to deal with present volatility).
    6. Benchmarking of pay has caused loss of competitiveness but has also created the problem (often overlooked) “of re-enforcing the highly vertically layered Bureaucratic structures in Government Departments, which also includes the Central Bank and Financial Regulator.(protect and hold mentality).
    7. Government being “pig headed” confusing strong Government with bad Government.” I’ll decide”…”I’ll write any cheque” “ fundamentals are sound”
    8. Exchange rate of Euro versus Sterling/ Dollar etc. stifling exports, costing jobs etc.
    9. Thousands of displaced workers from construction on dole and frustrated.
    10. General climate of fear caused by uncertainty, reduced consumption, anger, apathy and all other emotions usually associated with recessions/ depressions.
    Now I’m sure the above list could be added to, but I’m not sure it’s really necessary at this point because its clear that the one common link between all of the above is simply Money. How its earned or borrowed and how it’s re-distributed that gets the backing of all the stakeholders in Society. We also know that various stakeholders will try and pass the burden onn to others, via the Media, general spin, unions, lobbying and all other means at their disposal.
    What we have here is an Economic problem, basic bread and butter stuff, but it has been hijacked and compounded and confused by bad decisions by Politicians who have their own survival and that of their supporters to placate. Added to this we have people who are not prepared to recognise the losses that resulted from their false assumptions and bad investment’s. We also have the stability pact/ integration policies of the EU which appear to have forgotten proper contingency plans for when things go wrong on a global scale via its exchange rate policy. We also need contingency plans that can be rolled out when things go wrong as in Irelands case re. property bubble.( also Spain ,Portugal, Greece, Italy etc.).
    The ECB must bear its fair share of responsibility for how the Euro has been handled since its introduction to Ireland and maybe their “soft option” of preferring to make the Euro more acceptable on the World stage has come at the cost of more prudent lending and a more sustainable exchange rate (misplaced enthusiasm).The ECB has also failed to appreciate the impact its interest rate policy has had on different Economies at different stages in their Business cycle’s etc.
    That’s some of My thoughts on the present problem.

  31. Tim

    Folks, Time Magazine has this article on our anger over NAMA (but includes many important links, as well).

    http://www.time.com/time/business/article/0,8599,1932239,00.html

  32. Tim

    paddythepig, Do you write-off Taft, after watching this video presentation of the figures:

    http://vimeo.com/7151345

    …. as a “chin-scratcher”?

    Do you write-off Morgan Kelly as a “chin-scratcher”?

    It appears that the only economists in Ireland, that are advocating your position, are the ones employed by the private-sector banks that have failed and want the taxpayer to pay their employers’ gambling debts.

    Why do you ignore the facts of the DoF press-release and the figures presented by Taft and, simply, decend into an attack on frontline public-servants?

    • Tim

      Folks, I would really appreciate your feedback on this video presentation of the figures that go to the heart of the Cuts V stimulus matter;

      Deco;
      MK1;
      Lorcan;
      Liam;
      wills;
      Furrylugs;
      John ALLEN;
      Philip;
      Garry;
      jim;
      going-home;
      BrendanW;

      … and anyone else who would be kind enough to offer an opinion, if you can make the time……

      Thanks,
      Tim.

      • Tim, I will await till the morning , other wise as you some time call it my boil , it might shock you at this time ….. But David is off the line here with leaving the Euro unless we do it before NAMA as a new currency would still mean we owe in another currency . The colour of our notes is not Our BIG PROBLEM …..on another note before I sign off, I sent a local politician an email and believe it or not he tried calling me to respond ( but strangely no written reply , wonder why ? )

        • Tim

          BrendanW, thanks; I will appreciate your response whenever it pleases you to give it.

          • Tim I have watched Taft’s video and while you cannot argue with the figures in theory if the factors are in place he is talking sense. But you are not seeing the bigger picture ,we have over paid our selves here , bench marking was a joke just look at Indo front page to see what money HSE has paid to employees on the sick it is just madness.
            Bibilical changes are now required , if I was you I’d watch Fintan O Toole here and listen to him , You are trying to change your party from the inside when it is 19th century in thinking.
            Right across the board changes have to be made and Quickly why should we put the burden of our greed onto the next generations ? Our Public servants do not deserve to be among Europes best paid we have to get real .

      • wills

        Cut’s V stimulus.

        I reckon the gangster elite prefer cut’s right now to shore up any unexpected losses they endured from the POnzi property bubble aftermath.

      • Philip

        Tim, the stimulus vs cut argument assumes good management which simply is not there in the public service. Unless a hire and fire on performance culture is brought into play, a 1bn dumped into PS assisted stimulus is 1bn with zero return or worse. I know a few self employed who are now out of work. They have no redundancy or rights of access to social welfare. They are on their asses with no parachute and personally, I’d have no problem implementing a similar rule for a group of people in our public services… and they can emigrate as well and save us a lot of bother.

        Money and stimulus will solve nothing until we start to address fundamental issues of critical self awareness and good approach to management. The gloves are off. The choice is simple – do we want a riot created by wasters or by people who can and want to work. Right now Cowen is afraid of union protected wasters – and you know what is so sad, these wasters are a minority making it bad for everyone else.

        Put another way – lets have stimulus, but no PS or IBEC or IMI idiots near it. Too much to ask I think…

      • Garry

        He looks like another paid economist..but for the unions…. no mention at all of how wealth is created….

        Its not created by giving people money and then watching them spend it… If it was …. double the dole and sit back and surf the waves of economic success as sales of cheap cider, lottery tickets and takeaways rise the nation to greatness

        The country depends on people bring in new money by selling stuff to other countries. There will be no recovery in Ireland without a global recovery and then Ireland must get its share of that recovery…Thats Davids point

        The government get it but have it arseways…. You never hear them complaining about the euro strength vs the dollar or sterling…. They should be banging the tables in Brussels, Frankfurt etc… they would probably be ignored but at least they would be making sense…

        But just today Coughlan is appealing to people not to spend money in the north…They understand, and so does Taft with his multipliers, they just don’t give a toss..They live in defined benefit land…

        They understand that every cent spent in the North is a cent gone out of the system here.

        The same way that every chip, program, consultancy gig, rasher, etc exported from Ireland (and tourist coming in) is money coming in….but she never mentions this….

        • Tim

          Garry, all true…… thank you; I heard Coughlan too.

          But she is trying to “Toss with a two-headed-coin”. She gives the money to the banks and it disappears; just as money spent up-north disappears.

          The money disappearing into banks should not be, while cutting public servants’ wages which would not disappear, but would spin through the real economy via retail and VAT and tax on private-sector profits and wages and prsi and return (most of it) to the exchequer coffers to spin through again.

          This “spinning-money”, of course, originates from where you say, exports and tourism; but the SMEs producing it are being screwed by the very banks into which the money is being syphoned – the black holes – instead of spinning through the real economy as discretionary spending.

          Anything coming in is being sucked into the black holes.

    • paddythepig

      Tim, read the reply by Tomaltach on the link you provided, reposted here.

      http://www.progressive-economy.ie/2009/10/shock-news-entire-4bn-fiscal-adjustment.html

      Things are worse that I thought. Sure why not hire another 50000 public servants, up their pay by 50%, and let’s whip that deflation. Mother of God!

      Tim, I know it’s alluring to listen to people who tell you what you want to hear, but keep it up, and some day you’ll be getting a bag of doggy-do instead of a paycheck. And you’ll deserve it.

      We need to slash waste left right and centre.

      As for the chin-scratchers? We have WAY too many pundits in academia, banks, FAS, ESRI, DoF, stockbrokers, estate agents .. the list goes on. A huge amount of them need to be culled. If there was a list of 20 to keep on, Morgan Kelly would be on my list, with a big salary cut as he costs too much.

      I find it amusing you equate my position to bank economists. Firstly, if you actually read any of my posts, you would know Dan and Austin et al, are not on my Christmas card list. Secondly, read through the lines at some of our posters here, and their stories of unemployment, emigration etc ; I want to see a successful, commercial, enterprising country where people like this can sustain their families – to do this we need people to imagine, innovate & trade. It’s the only way. Sustaining jobs just for the sake of it, is destined to fail.

      It also steals from the productivity of our kids, and I for one wouldn’t be able to look our children in the eye, if we keep this theft going.

      Paddy.

      • Tim

        paddythepig,

        “We need to slash waste left right and centre.”

        I agree, 100%.

        I do, actually, read all your posts (with interest);

        I do not agree that frontline services are wasteful;

        I agree with you that we must be able to look our children in the eye;

        I do not believe that we can look them in the eye if we continue to diminish their educational opportunities and their healthcare (HPV vaccine for 12yr old girls, for instance).

        I can never agree with you if you are in favour of cutting what are already badly under-resourced frontline services.

        • paddythepig

          Tim, if they can be afforded I don’t agree with cutting services either. But I do agree with paying less for them. These services are too expensive.

          We can have the same service, if the providers of the service cost less. To do so only relies on the will of the provider to continue to do the job. Cuts of this nature should be most severe at the very top, I’m talking on average a 50% pay cut for folks at Biffo’s level, and as small as possible – if at all – at the bottom of the tree as they need the money most. Also, any wasters, front-line or back office, senior or juinor, need to be shown the door.

          Paddy

  33. roc

    David – I am getting little prickles of trepidation at what you are putting forward here. As per the guarantee, I wouldn’t underestimate how your ideas may be taken up by the establishment if it appeals to certain interests. As an economist, putting forward ideas like this, I think they deserve a more in-depth and careful analysis as to how they might turn out. It is not 1993. There are different variables in play and other considerations of significance to be weighed up. All I am saying is that some weighty economist like analysis would not go amiss at this point in your efforts to help steer the country right. A deeper understanding may be required? Thanks.

    • wills

      Roc: Analysis of return to authentic irish currency.

      1: Ireland can control i rates.

      2: Ireland can appreciate or depreciate value of currency.

      3: Ireland can print own currency.

      4: Ireland in full control of it’s own monetary policy.

      outcome,

      Ireland back in the driving seat of it’s real economy.

      • Tull McAdoo

        1: 170 years ago population of Ireland 8 million
        2: 170 years ago population of England 10 million
        3: today population of Ireland 5 million
        4: today population of England 55 million
        outcome.

        Ireland does’nt know how to fcuking drive, Unless you think driving in reverse is ok. LOL

        • wills

          Tull: Ability is abundant in Ireland. Gombeenism is in plentiful supply too. SME’s hold this country together and given the right circumstances can rebound our society and future prospects.

      • Tull McAdoo

        Jasus Wills you’ll give me a heart attack.Can you just imagine given Lenny &Cowen their own currency. After a week the currency’s notes would be wrapped up on cardboard centers and we’d have a golden labrador dragging them around some house,on some add on T.V. Remember soft soft soft .( sorry could’nt resist the jibe).

      • roc

        That’s not analysis. – I’m not saying I know it all at all either… But what’s striking me most is the proposition to use currency devaluation to paper over the CRACKS. – These cracks comprise the severe issues we have with producing excellent products in an efficient and happy manner (competitiveness); problems with delivery of public services; corruption of various kinds within many of our industry sectors that has also tainted our universities and other institutions; problems with our tax system (the average taxpayer is a net beneficiary); and much else beside… To think the answer to all these problems is based on more micky mouse financial engineering is going to lead eventually to the middle classes to having to forage in the fields for food. No messing. Cop on.

  34. sjh

    Wrong in so many ways.

    You can argue that the best next step for the Irish economy would be for Ireland to leave the single currency, and devalue. Of course, to do so would probably cut us off from much if not all the financing needed to fill the current budget deficit (never mind NAMA) and the existing national debt – still denominated in euro, dollars, etc. – would explode as a proportion of GDP.

    But you can’t argue that the euro “led us to this horrible mess.” The failure has been one of public policy: keeping a lid on government spending, taking the heat out of the property market and actually regulating the banks. Having its own currency did not save Iceland from going titsup, and was not much of a barrier to many of its citizens becoming very heavily indebted.

    Imagine if, 12 months ago, Ireland still operated the punt but with all other things more or less equal. Among other things, how would a country which imports virtually all of its energy, denominated in dollars, have continued to function as its currency devalued, say, 80pc against the dollar (as happened to Iceland)?

    It is also probably not a coincidence that countries which have pursued a policy of price stability (e.g. Germany) did not develop asset bubbles, even though they were exposed to the same extraordinary credit flows coming out of China, the OPEC countries (and, er, Germany).

    • wills

      sjh: fair points and it is true of the article to highlight the tool’s available to an open economy to fix thing’s, and elites running Ireland threw the tool’s out of the toolbox.

    • Philip

      Managment – pure and simple. The Euro is very powerful and the paddies were never trained in its correct use

  35. Tim

    wills, all points above are correct; but that does not make it “right”.

    I remember whan we had our own currency in the last depression, in the ’80s.

    I remember friends of mine, as we left school, who had the academic qualifications for University and for a grant, but whose family income was £1.35 per week over the threshold. So they could not afford to go to University.

    The “brain-drain” was not just about emigration; it was also the lost intelligent youth prevented by financial class “thresholds” from achieving any further academically than the elite allowed.

    I remember “control of our own currency” and I remember the de-valuation of the punt;

    ..and I remember that nurses and teachers were poor, in the 80s, also.

    Nothing has changed.

    The currency is not the issue.

    The issue is the people in control of the currency, and what they do with that control.

    Education and health always “get-it-in-the-neck”, as Kerrigan says.

    It was the same under the “Penal Laws”, when the Brits oppresses the common people of Ireland; and it is the same now…..

    We have, simply, “up-graded” the “hedge” to the Pre-fab and down-graded the Brit-oppressor to the Gombeen-oppressor.

    If my childrens’ schools were private-sector businesses, the “Health and Safety” crew would shut them down.

    Nothing has changed.

    • wills

      Tim:

      ‘the currency is not the issue’. Agreed, but, it is an issue though.

      ‘the issue is the people in control of the currency, and what they do with that control.’ Agreed.

      ‘gone from brit-oppressor to gombeen-oppressor’. Yes. brilliantly put too.

      Education is like the how can i say this, for the gangster elite gombeen’s punching education in the stomach is key.

    • Tim , this is where your wrong , use People Power, if all the parents get together and refuse to have their children educated in these rotten rat infested ( un real in 2009 ! ) pre fabs and the teachers refused to teach in these schools , then The Department would through public back lash have to bring in the builders.
      And Nurses and Teachers are Not Badly paid , unless your using OPEC Countires as your scale

      • Tim

        BrendanW, the problem is that the parents both have to work, so the focus of the mother is now on her her jo, not on her child and, so, the school is “free-baby-sitting”.

        Don’t start me on the “Nurses and Teachers are not badly paid”.

        Can you tell me the name of any country where they are “Well-Paid”?

        A country where they are so well paid that you would like to be one?

  36. Tim,
    My only input is very simplistic. We had a great chance to be prudent and take our place but blew it. It was the Irish electorate that voted in the cretins who are still floundering around trying to save themselves.
    We did nothing about child abuse until it was far too late, we have tolerated decades long whitewash tribunals, we all spouted the Republic but let our own people suffer ethnic cleansing on our own Island, we put money into Gorta while despising the weaker in our own society.
    Then we got the chance to be something but bought into the worst aspects of Capitalism. We gorged on credit and derided any voice of reason or intellect.
    We have generated the means of national self destruction and no amount of hand wringing nor false contrition can avoid what is coming.
    My recession started in 2006 when the money was pulled for new projects. I work, or used to, at the earliest design phase. All stopped then for engineers or architects and such people. Now that the rest of the country has caught up with all existing work having come to a close, we are all on the Marie Celeste.
    In a way, I’d love to have the opportunity to suffer another levy. Or the opportunity to go on strike. But you have to have a job to go on strike. That is, a job where someone else employs you.
    I can’t serve notice on myself.
    The RTE news tonight was disgusting. One tragic story, some foreign dictator and two jockeys. The last Bank Holiday of the year and not one appearance by Fianna Fail to give some reassurance to desperate people ahead of Christmas. But at least one minority knows where the States priorities lie and it’s not with our COI citizens.
    I’m now beyond caring whether NAMA will work or whether the ECB will fund us or even if the IMF will make us lick stamps for a living. Those people are all one and the same banking clique determined to save themselves and it seems they are succeeding. Stet.
    Whither the rest of us now. We can postulate all the verbiage we want but it won’t add one step towards a viable future.
    To answer your question simply Tim, all these experts are popping up, blathering and then taking their place in line until their turn comes next. They’re as much the problem as the cartels and cliques.
    Talking heads with no body nor substance. It’s easy fight a battle from the rear.
    “It is no little consolation to know, however, that we are here today doing battle against a doomed monopoly, and that the power which has so long domineered Ireland and its people is brought to its knees at last, and on the point of being crushed for ever, and if I am standing today upon a platform erected over the ruins of my levelled home, I may yet have the satisfaction of trampling on the ruins of Irish landlordism.”
    Michael Davitt

  37. murray

    In response to Michael Davitt,
    I remember as a child my mother telling me that I can be whatever I wanted to be in life.
    I followed her advice and got a Degree and Masters in an Irish University. I worked really hard for a number of years in the Irish Rat Race — trying to get from A to B every day, I watched as my work colleagues scrambled for manager positions in our two tiered society, where they felt safe and could go to sleep for the next twenty years. After work I would listen to people sickening stories about how many properties that they had in Spain.
    Then I felt the impact of the Irish Depression, I lost my job and spent 9 months on the dole. 6 months ago, I decided to follow my mother advice (of being what I wanted to be) and decided to leave my beautiful home country and emigrate to Australia.
    I manage to secure a very high paid consultant position after 3 days of being in the Oz and have started my own company and expanding. Nobody here looks at me any different than any about else. I am never asked about what college I went to (which was a small IT) or categorized into a class like I would be back home.

    Yes, Australia is the Lucky country
    (I can finally be what I wanted to be)

    All I can say is Fianna Fáil stick it up your ass, MATE!

    • Colin_in_exile

      Murray,

      Well done. Hope everything works out for youdown there.

      9 months on the dole, you’re a survivor. It reminds me of what the late Frank McCourt said when he arrived in USA and was asked had he any accomplishments, he replied saying he survived living in Ireland.

      I know how you feel about all that nonsense talk about spanish owned properties. I mean, what ever happened to staying in hotels / renting holiday home / staying with friends / camping? Why did people feel the need to own a property hundreds of miles away from where they were living?

      I might be following you down to Oz because UK is still in trouble. Need any engineers?

      • Alan42

        Come on down Colin . Big spending of stimulas on schools , roads etc . Mines are about to get going again as China picks up .
        Treasury is predicting an economic golden age lasting until 2050 ( oh dear ) on the back of mining .
        If you are serious about it I would do it now as there is a big debate here about cutting immigration numbers due to pressure on the cities .

    • Dilly

      I have a friend who made the decison to move back to Ireland a few years ago. He is not a happy camper. He do however make an observation not long after moving back. he noticed that, within Irish society today, people seem to ask you questions not out of curiosity, but, so they can pigeon hole you into a certain category, and find out if you are worth talking to or not. He said that, this act itself, leads people to live in a false world, and live beyond their means. It is in order to fit in and not get pigeon holed as lower class.

  38. Alan42

    What would happento our exports if the UK joined the Euro ?

    • Colin_in_exile

      Hell will freeze over before anything happens to our exports there in that scenario.

      There was talk of Denmark joining the Euro a few months ago, think they might put it to a referendum. Sorry David, this isn’t one of your best articles in my opinion.

  39. severelyltd

    Michael Taft is full of Hyperbole. I have no problem with 17k cuts in public jobs once they get rid of the Turkeys and Peacocks and not the real workers like the teachers and nurses. We have at least 100k of public service wasters at the moment that would be more productive if they didn’t get out bed in the morning. His citing of investment in technology is ludicrous considering our Government couldn’t manage a car boot sale. Taft’s entire argument appeared to be based on the multiplier affect, that while profound still has to be based in fundamentals which he excluded entirely from his “excel spreadsheet”. Reality is not his realm.

    http://vimeo.com/7151345

    • lff12

      I would like add that this isn’t unique to the public sector. I work in a TNC that tolerates workers trailing into work 30 to 90 minutes late and going home after just a 6.5 hour day, and ignores the fact that many do less than 2-3 hours per day of real work. Needless to say, we are haemorraging contracts as clients, for some mysterious reason, don’t renew.

  40. gadfly55

    David, sometimes you really lose the plot. You may not have noticed, but the Lisbon referendum firmly established the fact that the people are in Europe, where the Euro is the currency. Precisely allowing fools the tools of power has landed us in the basket, and allowing more latitude for devaluation would precipatate the flight of currency out of the country and hyper-inflation of energy costs and food, which as you know are going to escalate beyond control. Our only long-term hope is within the Euro.

  41. Furrylugs
    Your last mail touched the matrix of the Truth in Ireland today and it was well written .
    As you might remember I work in tax consultancy & accountancy and always involved in revenue investigations , audits and cab matters .Earlier this year I had to visit the office of a senior revenue inspector in a region that is nearer to you than to where I practice.I noticed the following :

    1 Photos on the wall of newspaper front page of Foinse showing the inspector in Belfast ; and

    2 Photo on the wall of inspector and Gerry Adams ; and

    3 Some Revolutionary Propaganda ; and

    4 Photo on the wall of Inspector and Bertie Ahern .

    It is interesting to also note the inspector wore a heavy beard liken to those described by Shane Ross in trade unions .At that moment I knew immediately where our country is going .

    • Hi John.
      You must be the only one here actually involved in a growth industry!!!
      I went back this morning to the sites discussions this time last year and horrendously, nothing has changed really. The big boys are still pushing monopoly money around to save themselves and the rest of us are trying to fill the fridge – except those like murray above who had an opportunity to go and took it, more power to him. We’ve lost 25 young people from the village in the last 8 months with more booked to go. The local vested interests have a new mantra – “Shure it’s good for them to broaden their horizons”. The palpable shock when some of those kids told their smug parents that they wouldn’t be coming back to the rain and NAMA did cause a degree of introversion, something of which the Irish psyche is relatively incapable. We haven’t reached the trigger yet(or the Wobble) for meaningful change. We’re only at the posturing stage. Power for Powers sake from Union leaders to Politicos to every other jumped up Quango leader. Democracy and D4 don’t mix.

  42. lff12

    The one big flaw with NAMA is that there were no preconditions attached to the assistance given spelling out what the banks were expected to do in return for receiving guarantees and assistance. In fact this goes right back to the guarantees made last year. You would think that after a year that it would indicate that there was a need to attach preconditions to NAMA requiring that cash received be attached at first to lending rather than cash dividents to shareholders or unjustified bonuses to a failed leadership.

  43. wills

    Iff12: I reckon the elites will do NAMA in whatever way suits their desired outcome.

  44. http://www.businessworld.ie/livenews.htm?a=2500024

    Looks like we’re back to death by 1000 cuts territory again.

  45. MK1

    Hi David,

    You raise two points in your article:

    > Either you use your exchange rate to become competitive, or you use unemployment to grind down wages, so that you become competitive by putting people out of work who wouldn’t be out of work if you simply changed your exchange rate. In the process, you preside over an internal financial civil war over who is going to make the most sacrifices in order to become competitive again.

    I beg to differ that is NOT about the exchange rate. We knew in advance BEFORE we joined the euro that we wouldnt be able to devalue our new currency, the euro. So, we have to adopt other tools.

    And its not the raw exchange rate, its not the 1 euro = 91 pence UKP, its the value that goods and services cost in Ireland compared with elsewhere.

    From your own figures we are 75% tradiing with euro-land countries anyway, so its our costs.

    And we can control those. That means, LOWER minimum wage, LOWER rates of social welfare, and LOWER costs for public services ….. BUT it also means, full and open competitive markets, no duopolies or oligopolies or ‘economic rents’.

    If we need to become 25% more competitive, then Public Sector salaries need to be ‘devalued’ by 25%. We have that tool. And the same for the steps above.

    I agree that there is a ‘financial’ civil war as entitiies and vested interests squirm out of taking the pain. The Government are trying to spread the pain and buy time, and use the pain of the many to bailout the few.

    Indeed its arguable whether those that were culpable through ignorance or otherwise or lack of responsbility are avoiding and squirming the most. Indeed the Ministers for Finance and Taosaigh that persided over our credit bubble are still in power.

    The 2nd point you raise is the NAMA ‘carousel’ that will benefit the oligopolistic and bankrupt banks and will be paid for ultimately by the taxpayer, and as you coprrectly point out it wont give an SME 1 cent. You are totally correct.

    I think this article should have been two because these are two very different and important issues.

    MK1

    • Malcolm McClure

      MK1 said: “And its not the raw exchange rate, its not the 1 euro = 91 pence UKP, its the value that goods and services cost in Ireland compared with elsewhere.”
      I agree, but a serious possibility is that a widespread reduction in wages and increase in hours could lead to a situation like that which caused the 1926 General Strike. That was faced down after just 9 days by the British government when union leaders failed to support the will of their members. The miners held out for several months but eventually had to capitulate.
      In Ireland ESB workers hold the whip hand that prevents a general strike as they have already been bought off. The Union leaders are cautious middle class pussy cats in thrall to the government and doubtless they would soon support a drift back to work.

      I watched the NAMA debate TV relay from an almost empty Dail this morning. Contrary to the impression given by many bloggers here, the scope of NAMA measures is still open to modification.
      Lenihan spoke calmly and constructively in response to suggestions by Bruton, Burton and Rabitt about the need to make the banks lend to SMEs and families. He was firmly opposed to recovery bank possibility but seemed to have given that aspect considerable thought.
      Taken as a whole, that debate will play well in retrospect, regardless of the outcome of NAMA, as all parties were obviously doing their best to steer us through extremely difficult times.
      We should continue to make constructive suggestions about NAMA measures whilst they are still open to debate.

      • wills

        Malcolm:

        The NAMA ‘debate’ in the ‘dail chamber’ is illegitimate.
        NAMA was not part of FF’s program for government.

        The ‘debate’ itself is not a debate. NAMA has already been decided. What kind of a debate is that if the motion is already decided upon?

        Try to enlighten, much appreciated.

        ?

      • MaxKeiser

        Malcolm I have noticed a real change in the current NAMA debate.

        It features what is called the Assumptive Close – FG & Labour fell for it hard last week.

        I.e. it’s assumes NAMA will pass, & the questions being eagerly invited are ~ “What kind of NAMA would you like? Will we change this bit here & or that bit there?”

        It draws you in & assumes we’ll all buy NAMA.

        It’s a classic sales technique & makes it harder to say “No, we don’t want this”.

        • Malcolm McClure

          MaxKieser: Let’s look at NAMA from a different perspective. Lenihan has to solve one problem at a time and deal with unintended consequences later. My impression is that the man is doing his best given the rigid constraints he is bound with by the ECB, etc.
          My guess is that NAMA passed overnight from the realm of the impossible to the inevitable several weeks ago, without ever pausing for breath at the debatable. The Dail debate is just lip service to minor details.

          • MaxKeiser

            Malcom if I spent €15,000,000 on NAMA advisors & consultants I could make anyone come across as incontrol, with a grasp of facts & that they were doing their best.

            Your are spot on about the overnight transition though. Which gives some insight as to the behind the scene “folks” who are in control of the country.

          • Malcolm McClure

            MaxKeiser:Your point about well paid consultants is entirely valid. Lenihan is no fool and will have requested them to lay out several alternative scenarios. A common feature of all of them will have been the need to preserve stability at all costs. Of course that requires enforcing the minimum of debate about whatever solution he selects, as to do otherwise would demonstrate the weakness of the argument supporting his choice.
            The rest of us feel helpless in this situation as we are thus presented with a fait accompli. But we have to admit that we, too benefit marginally from stability whilst we continue to envy the fat-cats we believe to benefit the most from NAMA.
            The upshot is that the fat-cats are likely to be in the same boat as the rest of us. There will be the provident, the lucky, the unlucky and those left with a busted flush. Which is as it should be.

      • MK1

        Hi Malcolm,

        > a serious possibility is that a widespread reduction in wages and increase in hours could lead to a situation like that which caused the 1926 General Strike.

        The possibility of reduced wages should have been laid out on the table as a tool that would be used BEFORE we signed up to joining the euro so that the populace would know before-hand what they were getting into.

        Even Unions should know that 100,000 jobs x 40k pa is better than 80,000 jobs x 50k pa with 20,000 on the dole.

        We have the blind and unwashed leading the blind and unwashed. And that is what frightens me big time. The root cause as it were to our mess and everyone is now just fighting their corner and not doing what is right – not that they ever did!

        MK1

  46. Original-Ed

    MK1 – David said in his article that only 25% of our exports goes to Euroland – if it were 75% we’d be in a much better position. The problem with reducing anything in the economy is our overhanging debt and borrowings in Euro. If our GDP goes down, then our borrowing must also come down to stay within limits.
    The only solution would be for us to up our game and produce premium class products and services for which the Europeans would be prepared to pay top Euro – the BMW, Mercedes, approach. Building such a perception, however, would be some challenge considering the standard of our present politicians.

    • MK1

      Hi Original-Ed,

      > only 25% of our exports goes to Euroland — if it were 75% we’d be in a much better position.

      Mea Culpa – I read the article and only hours later did I reply – so much for my memory test. Yes, figures I have from 2007 show that exports to US and UK are 36%. However imports from those countries are 49%, so in terms of raw exchange rates we gain as well when it step-changes abruptly.

      I think the key point applies though that as part of the euro and as devaluation is outside our control, we have to control our costs using other tools. And we do have them, its just that devaluation is easier to apply to the populace and business/assets etc in one large ‘whack’.

      > The problem with reducing anything in the economy is our overhanging debt and borrowings in Euro. If our GDP goes down, then our borrowing must also come down to stay within limits.
      The only solution would be for us to up our game and produce premium class products and services

      Well, we have some room to increase our debt, where it was 25% of GDP, its 45% or so now and heading to 72% I think. It will continue to rise, with or without an SPV to accountancy-like put it off balance sheet. Ireland and other countries in the euro ‘project’ are being allowed to break the euro rules and go well above the 60% target and the 3% limit pa. Its like the ref allowing us to be offside for some of the match because he likes us! Bending the rules for sure.

      You are certainly right about higher value goods and services. That is what we have to do. Thats what all countries are doing. Those that have natural resources have it easy, they just pump their wealth or dig it out of the ground. We dont have much of that. We do have resources though, a lot of land (for our pop), sea and wind, etc.

      And in our Dail a lot of hot air and tongue wagging …. ;-)

      MK1

  47. wills

    Posters.

    This link must be viewed.

    http://www.progressive-economy.ie/2009/10/shock-news-entire-4bn-fiscal-adjustment.html

    If debates on Gov cuts to shore up shortfall is to be conducted rationally one must view this link.

    The shortfall in gov exchequer finances the serf class are been tapped into for to plug is mostly due to the funds provided for for ANIB, a crony investment zombie bank gone bust..???

    • wills

      paddy, read down to sli eile reply. Sum’s up the problem the serf taxpayer is faced with.

      Which is the following.

      Any cut’s, cap’s, levies, redundancies, etc etc to plug expenditure will be met by the taxpayer serf in total revolt and revulsion because the serfdom know the fleecing of their income is going to bail out banks, the very banks whom inflated the POnzi racket that destroyed the economy.

      • wills

        Irrespective of whether public sector’s salaries too high, or, social welfare too generous, or too many turkeys and peacocks on the taxpayers payroll, which is all too true, the bottom line cannot be escaped.

        The CUTS provide for the BANK BAILOUTS , the ratio’s and numbers and audits etc are completely irrelevant.

        It is all about the serf been billed for the banks.

        That’s the bottom line.

        Who wants this.

        The elites.

        • Deco

          But hold on….don’t we have a thing called democracy…to prevent this sort of thing happening….oh….alright….that has also become a sham…

          that description
          { too many turkeys and peacocks on the taxpayers payroll }
          makes a ton of sense. Johnny Cash(JOD), Ditherer, Ditherer’s ex-girlfriend, 400 quangos and not one of them facing elimination…etc…

          And none of them turkeys are concerned about getting the chop before Christmas.

          Something that really amazes me is the behaviour of Irish Nationwide B. Soc. This is Anglo-lite if such a term would be permissable.

          If being called Anglo-lite understimates the scale of the damage being done by INBS. INBS will end up being 20 times more expensive than PPARS.

          And INBS is being shoved in on the sly. The INBS staff and the ANIB staff are thinking about joining the IBOA. The IBOA wants to effectively lobby the government. Even though the fundamentals of the sector are flawed, and there are bank officials no longer processing loans to trying the sell credit cards, they still think that there should be no culling in the banking sector.

          Once again…..Dem-and-ocracy

          • wills

            Deco:
            The gov do it for ANIB so why not do it for INBS. They’re all interconnected.
            The door has been opened .
            Come on through.
            All that is required,
            v.i.p membership.

            NAMA open’s door’s that lead through into total tyranny.

            Let’s repeat that assertion, NAMA pave’s the way for a total banking corporate takeover.

            NAMA set’s a precedence with moral hazard. The bank’s will wield full and total control over economy, legally.

            NAMA give’s that too them.

            What door’s lie behind NAMA?

  48. Tull McAdoo

    There’s an interesting comparison between what went onn, on Wall St. and what is happening in Ireland. Wall St. took Mortgages etc. that should never have been given out in the first place and lumped them in with good loans, they had these entities rated by the rating agencies up to AAA status and then sold them on to investors, paying out interest on same.
    Now in Ireland, FF et al have decided to take Bank loans that should never have been out in the first place, and lumped them in with Irelands good standing Internationally in terms of debt. They have created a circular type of Bond issuance through the ECB , a kind of half off/ half on balance sheet type of securitization with the Irish Sovereign State acting as Guarantor and also paying out the interest on same. However the rating agencies have downgraded Ireland from its AAA status which means it attracts different type of investors and pay’s higher interest as a result.
    Irish Sovereign debt now costs extra to service as a result of its association with the Banks toxic debts. It gets worse because when Ireland now issues Bonds it has to pay over the odds compared to Germany etc. but the Bonds issued to the Banks can be handed in to the ECB at a rate of 1%. The real sting in the tail for Ireland is what David has pointed out and that is, that the Banks which are now in receipt of their cheap money from the ECB can buy Irish Sovereign Bonds and make a nice mark up for doing diddly squat nothing.
    Now the question’s I pose are …..
    1:“ how much more wealth does the people of Ireland have to transfer to all these vested interests so that they take away the gun from our heads”
    2: to quote from Al Pacino from “Any Given Sunday”…WHAT ARE YE GOING TO DO.??????????????

    • Deco

      Are you insinuating that Wall Street is as greedy and corrupt as FF, or is it the other way around ?? There is a level of incompetence in our government that would not last long on Wall Street.

      The similarities are striking. The same group cultures of money, secrecy, deceit, bullshit and power. And a disastrous outcome if both are never stopped.

  49. jkforde

    This is good, slightly over produced but content is excellent and same as David’s…. I think it would be worth this going viral so tweet, Digg, Stumble, just get it around…..

    Zeitgeist Orientation:
    http://www.youtube.com/watch?v=HVrHtbSo11I

  50. jkforde

    Here’s another link for the same content:

    http://www.youtube.com/watch?v=II8N7QPvNhw

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