November 15, 2009

Bank policies leaving us deflated

Posted in Banks · 82 comments ·

Is the world heading for deflation or inflation? If you talk to serious investors and long-term followers of economic trends, this is the big question. As in the boom – when the major conundrum was whether we could continue borrowing and spending – the experts are divided again.

The mainstream view appears to be that the world will suffer from some – or a lot of – inflation in the coming years. This thinking stems from the fact that all the money printed by the world’s central banks in the past 12 months will find its way into the real economy, and be shunted on from stocks to property to general prices and, then, towages.

This is one of the reasons that the price of gold – a traditional hedge against inflation – is skyrocketing. Another compelling reason to fear inflation is that the world, or at least some of the world, wants it. Many suspect that inflation will rise in the years ahead because only via inflation will the US be able to inflate away its enormous debts. Consequently, investors believe that the dollar will continue to fall against most major currencies.

The general consensus is that, while prices won’t rise now or next year because economies are too weak, as economies recover afterwards inflation will return. But the general consensus has been wrong before. In fact, the consensus has been wide of the mark about practically everything in the past five years. So what if it is wrong again?

What if, rather than entering a world where prices rise all the time, we are about to enter a period where prices and wages fall for a long, long time?

The historical portents are disturbing. The world has experienced long bouts of deflation in the past. From 1876 to 1900 was one such period, and the resulting agricultural unemployment in Ireland led to a huge upswing in emigration to the US in the final three decades of the 19th century. We had another long period from 1929 to 1939,when deflation was again the norm. Japan had a dreadful experience with deflation in the 1990s.Could this happen again?

A crucial determining factor in whether we will get global deflation or inflation in the years ahead will be the banks. (In Ireland, deflation is highly likely, as is the nationalisation of the banks, but more on that later.) If banks lend out all the money they are getting from the central banks there will be inflation, if they don’t there will be deflation. It is really that simple.

In monetary economics, there is a thing called the ‘multiplier’. This measures how many times a single euro lent out by the banks is lent and lent again. Think about the boom. If house prices went up, your net worth also went up – and this made you feel wealthy.

Therefore, you felt comfortable borrowing against this new wealth, and the bank, because it had the security of your house, which were rising in value, felt comfortable lending against it.

As long as prices were rising, you didn’t care about savings, so you spent and borrowed more and the bank lent more.

This is the multiplier effect, where one upward movement in prices and borrowing reinforces the logic of the boom and begets more upward movements in prices and borrowings and so on.

This created the bubble which has now well and truly burst, leading to the total destruction of the banks’ balance sheets.

Then the state has a choice: either it can let the banks go and create new ones, or it can save the banks and inject enough new cash to allow the banks to lend again.

But what if the banks have a different objective to the government? Yes, the banks want the cash, but not necessarily to lend out to you and me (who might not want to borrow anyway). If the banks stopped lending out cash and used the cheap central bank money they were getting to invest somewhere else, then we would have a major problem.

Let’s say that the banks use the money they are getting at 1 per cent from the European Central Bank (ECB) to buy government bonds which are yielding 5.7 per cent in Ireland and 3 per cent elsewhere, in order to rebuild their balance sheets and give the money back to shareholders. Now all the new money is stuck and doesn’t leave the banks, there is no multiplier and, what’s worse, if the people see just how much debt is costing them, they will stop borrowing and start saving.

Already, we can see that people’s attitude to debt has changed. All around the world, debt and credit (which had been expanding progressively since the 1980s) has become, not only unfashionable, but reprehensible. People want to pay off debts when they can and save more.

This causes prices to fall. And people – seeing prices falling – then expect this to continue. If you think you are going to get a bargain by postponing spending today and waiting for prices to fall even more tomorrow, deflation takes hold. This trend will be reinforced if the banks use the cheap cash they have been given to buy risk-free, high-yielding government bonds, since they will not put money into the economy.

Therefore, the very act of saving the bad banks fuels deflation and leads to less, not more, credit in the system. We get zombie banks presiding over zombie economies.

This is a possibility around the world and, as such, suggests that the recent stock market rally – one of the most dramatic in history – as well as the surge in the price of gold, could well reverse themselves. Such a reversal would usher in stage two of the crisis.

In Ireland, things are unfortunately more clear-cut. Such an outcome is almost guaranteed. The National Asset management Agency (Nama) will not lead to any resumption of credit because the banks are traumatised and have better things to be doing with the ECB’s largesse than lending it out to a country where prices fell 6 per cent year-on-year in October; and the market expects Nama Mark Two.

Remember Nama covers €77 billion of a total Irish bank lending book of €400 billion. Already the valuations for Nama are coming in much lower than the government’s estimates (surprise, surprise).When bad debts and defaults spread to the rest of the crocked €400 billion loan book, the banks will be submerged – and will have to be taken into public ownership because no private investor will give them a cent. They will become zombie banks owned by a zombie government.

The only way we can get credit flowing again is through a new bank or a system of new banks in Ireland. With this now ruled out, because our government refuses to admit what a Leaving Cert economics student can see, the spectre of deflation stalks the land.

  1. liam

    What about these bonds then. at 5+% at what point to they become unsaleable? Irish bonds by now surely are the international equivalent of a sub-prime mortgage.

    It would be helpful and pragmatic to understand the risk of an Irish Government default, whether real or a de-facto default covered up by some financial fudge with the major bondholders, who could be the Irish banks.

    Speaking of fudges, its been bugging me for a couple of weeks now. SPV: I now remember where I heard this before. Well, actually, “Special Purpose Entities” was the accounting description of where Enron used to hide its debts so they didn’t show up on the books. The Irish Government is now publicly using economic management strategies from Ken Lay’s play-book.

    • Tull McAdoo

      Between the DOF and NTMA et al they have exposed Ireland to be a type of Enron sure enough.Successive Legislation for years has ensured that virtually every market in Ireland is rigged to screw the average Taxpayer at the behest of the vested interests and their paid lobby lackies.

  2. Tull McAdoo

    David I think that’s how the “grey eminences” in the DOF are seeing their only salvation. They are gambling that deflation with its inherent price falls will result in wage’s falling which they hope will improve competitiveness and balance the fall of Sterling/Dollar which has affected the exports of the non-American multinationals, which tend to trade in Dollars anyway.
    They also reckon that deflation will justify cuts in Social Welfare etc.etc. as prices tumble.
    They also factor in a lower GNP going forward as the Economy re-adjusts to the absence of any meaningful turnover in the now ailing property sector, which will be used along with other data feedback to justify Public Sector pay and Pensions cuts.
    Some of the “grey eminences” must have read some obscure document while away on their many junkets on how to overcome exchange rate difficulties by using deflation. It also seems from Malcolms post on the previous article that the “grey eminences” have no wish to recruit any new People into their cosy little circle to help with their present,self-inflicted woes through their recruitment embargo.
    My opinion for what its worth on that very last point is that the document that Malcolm linked to was more to do with a resetting of the old order and the reversal of Bertie’s so called consensus on Social Partnership and a general removal of some of the lard asses through natural wastage. Im also sure the DOF will use the present crises to re-assert their place at the head of the boffin table as they have had a chip on their shoulder regarding the Dept. of the Taoiseach getting above their station in recent times ala Bertie. It was bad enough listening to the whinging when Michael Somers left the DOF to run the NTMA and pay himself above their rates.
    All the DOF need now is get rid of Honohan out of the Central Bank and they will be running everything just like the good auld days. Bollox to that.

    • Malcolm McClure

      Tull McAdoo: My point is that these ‘grey eminences’ must be exposed to the light of day, since so much of our future depends on their judgement. Normal protocol is that public servants plan and deliver policies and keep quiet. The politicians’ job is to explain them in terms that the public understands. Lenihan may be doing an unpleasant but necessary job but he is failing to explain why Nama in its present form is the best solution; and whether his hands are tied, and by whom.
      Therefore we are entitled to ask the planners in Sectoral Policy Division of DoF what the hell they think they are doing, putting Ireland’s economic survival in possible jeopardy with Nama. This will take some of the heat off Lenihan and point towards the real authors of what has almost become a fait accompli.

      We know that Secretary General is Jim O’Brien. Second Secretary General is Donal McNally (who was so ‘well in’ even 10 years ago that he was granted hour-long official chats with Toiseach Bertie Ahern.) If anybody knows how the chips were laid, he does. At the height of the boom he was a member of the IFSC Anti-inflation group and the IFSC Clearing house group, with access to a stellar list of players.
      Also in the department (at least until recently) are John Thompson, Colm Breslin and Pat Murphy. What do we collectively know about these people and others in the SPD?
      If we can gather sufficient factual material about the denizens of this division, it could be published in Wikipedia.
      Has Tim come across any of these people?

      • Tim

        Malcolm McClure, I am afraid I cannot help, on this one, for now. But, keep spinning those names around and see what falls-out.

        • Tim

          Malcolm McClure,

          A “Bankrupt” cannot hold a seat in Dail Eireann.

          Look at 2002 election

          Anyone who misleads An Dail must resign.

    • Deco

      Tull – keep researching these DoF CBoI, IFRSA policy decision makers.

      I want to know how many of them are connected to elements in our society that created this mess. And then remove them from the policy making / decision making process. Because quite simply, they are being shielded from being sacked. And their performance to date, merits sacking in many cases.

      Yes, time for some personal accountability with respect to the Civil Service, and taxpayer paid officialdom who are advising Lenihan and coming up with these big ideas like NAMA, ANIB, etc…

      I am suspicious that some of them might be Ahern cronies.

  3. Tim

    Folks, giving more money to the banks is just crazy – especially when the 1% Nama bond given is only at 1% for the first six months; then, the gloves may come off; and when the banks can gain a net of 4.7% on the deal.

    Why? Because we know how these people operate: they gamble.

    They may even “short” the government that is raising the Nama bonds for them and short eachother, as well.

    More “smash-n-grab” stuff!

    The economy runs when money is running through it and changing hands – as many hands as possible.

    NAMA bonds, like the billions in recapitalisation and the cuts in pay and services that have lead to fear of spending in the real economy, have all choked-off the possibility of money running through the economy and caused the deficit to rise inexorably.

    The money is kept and controlled within a small circle, like the ventricles of the heart, with none of this “life-blood” flowing to the rest of the body (causing gangrene, leading to amputaion – more “cuts”!)

    Its like TullMacAdoo’s question on the previous article, “Why does the taxpayer subsidise Landlords by paying rent?”

    Well, most of the Dail members have property-portfolios and are landlords; the same is true of the higher-ups in the civil service and the HSE; “Guaranteed rent” from the state coffers, for long-term tenants, removes many a landlord-headache.

    The circle-of-money is kept small and is easily sustained, when so tightly controlled.

    Everyone outside the (now) ever-decreasing-circle is expendable.

    • Tull McAdoo

      @Tim , an often overlooked point in the recent bubble is how AIB/BOI ramped up their mortgage lending in 2003 when the boffins in the DOF and their ex-lackeys over in the Central Bank cut them loose on the Securitization of mortgages issue, Also how an ex-financial Regulator could sit on a board of a Bank and watch its loan/deposit ratio head for 300% just beggars belief.
      P.S. If anyone on this forum tries to say these people fell asleep at the wheel, I will bang my head on the desk for 10 bloody minutes.Its not a question of “we are where we are” but its “ we are where we were bloody led”. Count to 10 Tull remember your blood pressure….1.2.3……

      • Tim

        Tull McAdoo, they were “just competing” with the up-start at ANGLO, who was making them look bad, so they abandonned all prudence and went for it, right?

        If so, isn’t the “game” still on, with NAMA as a tag-partner in the ring?

        Will they keep at the competition among themselves, to the detriment of the rest of us, or have they quit the game and entered “self-protection” mode?

        I fear that the competitative instinct is stronger in these boyos than the self-preservation instinct.

        Neither “Social Responsibility”, nor “Altruism”, are instincts – so watch-out!

        • tony_murphy

          They were pocketing loads of money, they had a free run. “I will be gone, you’ll be gone” ruled

          I don’t think all the blame is with Anglo

  4. Alf


    Ireland’s problems all stem from the mishandling of the guarantee. The guarantee in itself was not wrong if the actions taken after it made sense. The problem is they didn’t. There is/was a simple solution.

    One word – Incentive.

    Capitalist banks would lend if they were ‘encouraged’. The carrot and the stick. The carrot is the guarantee. The stick is bankruptcy .

    Even accepting this these banks needed some good ole fashioned competition. The old adage – If you want something done its best to do it yourself.

    So we create a new state bank. Put the money where our mouth is.

    All the government needed to do was start lending to small/medium businesses, even take deposit accounts, mortgages etc. Once the banks saw this they would have no option.

    A 2 year countdown is all the incentive they need to get their ‘confidence’ back.

    If these banks were worth saving they will surely be able to out-compete a state owned bank. If not – Darwin knows the answer.

    • Tim

      Alf, we have a good state bank.

      It has branches in every village in our country; it has no toxic assets and does not need NAMA; It has an abundance of deposits; it is linked-in to the debit-card-ATM-system;

      It is called “AN Post”.

      Why is it being overlooked?

      That is the question………

    • liam

      Good bank, bad bank, whatever option is obviously preferable. The problem is its not going to happen. NAMA is a fait acomplis, has been from the day it was concocted. With all bets now on NAMA, there is effectively no room for another solution. The state will also make sure that no foreign or domestic bank can compete with the institutions protected by NAMA.

      Ireland’s problems all stem from the mishandling of the guarantee

      Ireland’s problems stem from the complete failure of participatory democracy. Specifically, the failure to protect the taxpayer and consumer by the dismantling of all banking regulation, the far too intimate relationships between the banking fraternity and the State, and the complete failure of the Irish people to recognise and respond to these deficiencies. Ireland’s fate was sealed with the 1997 and subsequent budgets, and the joining of the Euro. Everything after these points is a footnote.

      • Tim

        liam, yes; but, you forget that I (and others like me) don’t know when to “give-up”.

        No surrender!

        See No.3, above.

        • liam

          I don’t think I’m suggesting you roll-over and take it. Realistically, there are options open to the individual.

          David and the rest must realise that anybody with the means and the ability to do so, will unhitch themselves from this wrecked economy as fast as they can, or try to make a quick buck from the whole train wreck. Look at the share price surge for Irish banks after the Veggies voted for NAMA. This should tell you something. Not least that at that point NAMA was unstoppable, and that investors are already thinking in terms of a post NAMA scenario.

          @Alf, my take on this is: NAMA is designed to ensure that no social mobility nor opportunism will threaten the interests that (1) control the flow of credit and (2) control the ownership of land/property in Ireland. A good/bad bank operation would create many opportunities for innovative and opportunistic wealth creation and redistribution, outside of the control of the banks and the State. That is why it will never happen and why NAMA was inevitable and why the guarantee was used to perpetuate the status quo and protect the vested interests enriched by the bubble, rather than deal with the rot.

          We are in a post-NAMA scenario now, and as things stand, its socialism for the banks and Darwinism for the rest of us. I see no motivation for the current administration to change this at all, and a new government will be restricted to damage limitation at best.

          • wills

            LIam –
            The @Alf info burst is spot on liam. The design of NAMA is precisely that – an erected barrier to keep debt peeonge in place.

            On the Post NAMA deal i reckon we are faced with a democratic deficit quotient very high so we are into more tyranny, more banksterism, more casino POnzi scams and less freedom and more focus from the top down on mind control and pauperism and biological chemical poisoning of the mind body and spirit through possible mandatory vaccinations, GM food and toxic element releases into the atmosphere.

  5. kissane

    This is an excellent and easily understood article.
    We might however address the reality and not paint over the cracks.
    As John Perkins points in G’s comment to this site last week – Capitalism is not at fault. The problem is the new “with-the-gloves-off-capitalism .”
    I worked 30 years ago in bringing industry to Ireland. We did as we were told – get the unemployed off the streets! If we had also been mandated to insist on corporate governance we would have done so.
    Under present jurisdiction banks will invest in where they can maximize profit if they can get away with it. This is the legacy of the “meaner and leaner” companies like GE.
    We must go back to where corporates act under charters where they also must be “environmentally and socially responsible”. Crooks have to be policed equally in every activity. Charters should be revoked when breached.
    Thanks again G for that great clip from Perkins from Nov. 10th in
    Please give us more enlightening links!
    Also in general the “Japan lost decade” is more myth than real. I lived thru it all and it made no difference to the huge middle class. It was mainly internecine MoF/banks strife but as distinct from our banks the Japanese are much more regulated by the government and not allowed to determine the extend of their natural greed. The banking system also has very few fat cats unlike our Judeo-Xian pigs-at-the-trough system. Board directors still make limited salaries.
    As the article implies we need new banks or old banks under a totally new regulatory system. And criminals if identified must be held accountable. Preferably in cuffs!
    I agree that we do not seem to be moving in that direction. Just dig’n dig’n dig’en.

    • liam

      Japanese middle classes were (and are) much less dependent on cheap credit than their Irish/western counterparts. The fact remains that the economy stagnated, businesses and the banks burdened with huge debts became very risk averse, which killed innovation and social mobility. it may not have driven the middle classes in to poverty, but it represents a decade (now nearly two) of lost opportunity, and as a result of cost cutting, a huge chunk of the labour force is on temporary contracts with no employment rights, often working for very basic levels of pay (referred to here as the working poor), who are effectively excluded from regular society. People are refusing to have kids because of the cost. Couples, families live in 20-30sq m apartments and many others simply refuse to move from their parents houses. Emigration is not an option, for lots of reasons. There are plenty of people living in public parks in tents made from blue council tarp or sleeping in 24hr internet cafes who might argue about the ‘myth’ of the lost decade.

      Japanese economic strength was built on exports, Ireland’s was based on FDI and EU funding, low taxes, cheap labour costs. Ireland is likely heading in the same direction as Japan but for different reasons, and Ireland does not have Toyota, Sony, Mitsubishi, Panasonic etc exporting to the world to tide it over. Not only that, its pegged to a currency that is wildly inflated when compared to economic capability.

    • G


      see recommendations to several websites below……………..

  6. This article reminds me of Rugby in Ireland . When does Red turn to Blue as in when does Leinster win over Munster as in when do your red cells turn to blue as in when do you lose oxygen as in when does cash disapear as in when does bankruptcy arrive as in when does the country default in payments .Until the end of the year welcome to BLUE MOON season.

  7. ‘Grey Eminence’ – this is the limestone rock found mainly in the burren and Dun Aengus that once was a powerful source of energy ( dee noblesse) and now is a dark grey dull cold rock devoid of life it once had in another life many thousand years ago.When you look back it empowers you to the future The once wheel ( circle) of Dun Aengus went round now comes round only this time the ‘grey eminence in Merrion Street ( DOF)’ will crack and it’s wheel ( circle) will divide in two leaving a feeling of an ‘after time’ and a physical presence that is crafted by both man and nature .The ‘before time ‘ was the celtic tiger made by man and an international inspiration to the world now no more.
    Dont cry for others for it is too late spare your energy for yourselves and your families.

  8. MK1

    Hi again David,

    Yes, the topic of inflation or deflation is an interesting one. However, to consider price changes one has to examine not the direction of change but the change of the values in scalar terms, ie: there is a big difference between +0.2% inflation and +10% inflation. You remember vectors in mathematics and scalars?

    Indeed, I would profer the theory (and who knows, there may be others on the planet that think likewise) that deflation and inflation rates anywhere between -2% and +2% are benign, or between the range of -2% to +5%. Humans, in our limited ability, can manage those terms. To make the point, hyper-inflation is umanageable and usually highly unfair.

    The ECB aims for a benign target rate of +2%, which in human mentality terms is manageable. I expect they are hoping that the range will stay within the benign -1% to +5% range, which assumes no shocks take prices out of ‘trend’.

    What will happen in the world, the major markets, the EU and us in little old Ireland in terms of inflation and deflation is guessable as there are counteracting forces at play, and the ‘toy’ of central bank interest rates and a fiat money system. Resource squeezes/shortages also push up prices (peak oil could be a big dilemma for us all some year soon) as does the ‘regular’ supply and demand and fashion/fads, such as our recent tulip-like property bust.

    So whether we get inflation of delfation is guessable, but the powers that be are counteracting ‘natural trends’ to aim for a benign status at all times, if possible.

    Note also, measurements of inflation and deflation are not exactly accurate, nor indeed relevant to us as individuals. Its a calculation we all need to do for ourselves and will depend on our own consumptions and their costs. There are very few average people.

    DavidMcW> The only way we can get credit flowing again is through a new bank or a system of new banks in Ireland. With this now ruled out, because our government refuses to admit what a Leaving Cert economics student can see

    erm, yeah ….. so its over to the people to change that. Hands up who has protested outside the Dail today to change that?

    Dont fall over yourselves in the rush to volunteer …..


    • ThomasFergus

      I protested outside Dáil Éireann last week, along with thousands of others. However, the people who actually run this country managed to convey brilliantly to the wider public that we were a bunch of lazy public sector parasites, while the NAMA monster pretty much slipped through both Houses of the Oireachtas unadulterated. Divide et impera….our FF masters have learned well from the former colonial power.

  9. I think Dr Ed Walsh has got it right,

    Fundamentally we got a serious talent problem. We need something similar to the Scandinavian List system urgently if we are seriously going to be able to get the right calibre of people into politics to reform and modernise Ireland Inc.

    This alone can bring the reforms required to bring the DoF and dormant civil service to heel.

    NAMA pot of gold crazies, decentralisation , property bubble support, the list of failed moves over the past number of years, need to be consigned to the tiphead and our country brought alive and kicking into a world we’ve shown ourselves unprepared and ill equipped for.

    We need people of the calibre of Ed Walsh, Michael O Leary and other luminaries to light our way out of the muddled mess we’re in.

    Time to update our electoral system,
    search this island and the rest of the world for people to run this place properly! If we are to get anything out of NAMA (Not Another Mess Again) is that it is one mess to many, a monument to the need for us to change radically the way our country does business.

    • G

      @ cbweb

      From Walsh – “We should not blame the current and former members of government personally for their grave mismanagement during the past decade.”


      Meanwhile he suggests bringing in Michael O’Leary or the Head of Intel (Ireland) as government ministers by December 15th – God help us! At least he didn’t bring up ‘single mothers’ (his usual hobby horse)…

      There are one or two arguments worth looking at, I would agree that the electoral system should be reformed, as the need for politicians to get re-elected has certainly had a major (negative) impact on policy i.e. government spending, construction industry and cosy deals with banking sector and (former) property moguls (the Galway Tent mob).

      The US system where people with the appropriate experience are appointed to head up Government agencies is an interesting one and worth considering (not sure how you would begin to attract dynamic people to a slow moving, unresponsive & undynamic Civil Service). Maybe it is more a question of shaking up the system that is there so we can unearth those who created the economic boom in the late 50s and and 60s. I just have the impression that the Civil Service does not encourage nor seek those with talent, it tends to view such people with suspicion.

      However, Ireland seems incapable of overcoming the nepostism/boys club and you could wind up with 20 appointed lunatics (like those exposed in the semi-state sector) running the country.

      This land as we all know, is far from a meritocracy, so our system probably ironically prevents worse things from happening but not sure if it comes much worse than Coughlan or Cowen.

    • tony_murphy

      I wouldn’t agree

      Michael O’Leary – race to the bottom with this guy, also who could forget his part in Lisbon?

      I’d guess he’d want Peter Sutherland giving a role as well?

      How about Denis O’Brien?

      Someone else from GPA?

      Ireland needs a change, but one build on sustainability and fairness. Business people like these don’t care about either if you ask me

      • G

        The quest for ‘socially responsible’ business people (if not the ultimate oxymoron) begins in earnest!

        The rush from ‘property porn’ to ‘Green technologies’ on the horizon – with the usual tax breaks, state incentives for those few connected ones, slight of accountants hand, unregulated by the financial regulator, terms and conditions don’t apply – (voiceover by suitably sounding actor or comedian, because its all a bit of a laugh really or maybe get the gangster dude from Permanent TSB ads, now that is more like it)…………………

        And to lighten the mood…………..

        The Annoying Peasant

        • @G,

          I partly agree with you, I give a more detailed response to Ed Walsh here, here

          Ed is too soft on apportioning blame. But lets not discuss the merits or otherwise of who these luminaries elected by such a list system .

          The point is they would be talented people who’ve built up expertise in business and elsewhere that would be valuable to the country.

          We still have the opportunity to elect them or not, or throw them out if theory perform badly.

          The point is, our electoral system is not serving us well, we’ve got to move up a gear if we’ve any chance competing at the level of more advanced democracies such as New Zealand, the Netherlands, Norway, Sweden.

          Otherwise, its more of the same until we’re sunk – and we end up with similar situations to rat infested school gets laptops to beat off the vermin because Minister spent all the building programme money on laptops.

          I’ll correct myself here: at least they get a few laptops.

          They could never get a building grant because their constituency TD was not a member of the right party??

  10. G

    “Already, we can see that people’s attitude to debt has changed. All around the world, debt and credit (which had been expanding progressively since the 1980s) has become, not only unfashionable, but reprehensible. ”

    Interesting point, fascinating to see how tastes change, today’s fad, must do, get on the ladder is tomorrow’s lunacy – one must be careful in this world of financial illusions!

    Just how bad can this all get?

    1920s/1930s Germany come to mind when inflation/deflation is mentioned!

    400 billion (?) on the books (somewhere) 54 billion offered for 77 billion in bad loans, hard to know when you don’t have all the facts and no doubt much information is being held back so that there is no run on the banks or anarchy in the streets………it does seem like ‘dancing on the edge of a volcano’ stuff,……….

    For enlightening links see:

    Mark Curtis wrote an excellent book ‘Web of Deceit: Britain’s Real Role in the World’, where he estimates that Britain is responsible for the death of 10 million people since 1945, all in the effort to maintain its politcal and economic hegemony.

    David Harvey is an interesting Professor, he has a free online class which takes students through Marx’s ‘Capital’

    John Pilger has some excellent articles here (pulls no punches)

    Howard Zinn who wrote the outstanding ‘A People’s History of the United States’

    More to follow…………………….

  11. Malcolm McClure

    David said: “The mainstream view appears to be that the world will suffer from some — or a lot of — inflation in the coming years.”
    Most readers won’t remember the inflation that accompanied the first oil crisis in the 1970s when interest rates on mortgages rose to over 15%.
    The real value of housing in UK is tabulated at:
    This shows the effect of earlier inflation as well as the recent housing bubble that began in about 2000.

    From 1975 to 1999 the average REAL (current) value of houses in UK was £79,655. From 2000 till 2nd Q 2008 the average was £152,825, an increase of 92% in real terms. Currently, the prices have retreated again to the average over the past 10 years but there is still a long way to go before they reach a long-term average real value.
    The situation in ireland will be more extreme than UK experience but it indicates where we might be headed.
    Remember, even if there is inflation of the Euro, the actual VALUE of the house is still likely to retreat to the long-term average. Thus one might recover the number of euro that was paid on purchase, but that inflated currency will be worth half what it is today in terms of purchasing power.

  12. econarchist

    David, I believe that most economists are mixing up cause and effect when they paint a negative picture of deflation.

    Deflation is just an inevitable correction to the many years of unsustainable inflation that precede it and is a reversal of the profiteering of the boom years. It coincides with recession but does not cause it. Both are just part of the process that follows the bursting of the bubble.

    The deflation in the US in the 1930s and in Japan in the 1990s, which you mention, were preceded by huge economic bubbles. The same thing is happening in Ireland now and it cannot be avoided. The example that you give of Ireland at the end of the nineteenth century was largely a result of the potato blights in the 1870′s and not a man-made economic crisis.

    The negative effect of falling prices on people’s spending is often exaggerated, in my opinion. Even the current negative inflation of 6% amounts to only 0.5% per month which is not enough to put people off buying items that they have any need for. The real reason why people are slow to spend is their financial insecurity caused by recession, as well as their waking up to the reality that they cannot keep on borrowing more and more forever. Again, deflation coincides with recession but does not cause it.

    Instead of fearing deflation I think we should welcome it because it makes Irish businesses less expensive to run and therefore more competitive. I can understand that people have good reason to be suspicious of employers using deflation as an excuse to slash wages more than is necessary. It is also very unfortunate for people who bought houses at the peak of the market and later find it harder to pay their mortgages with reduced wages, but the whole country would lose out if the economy continues to be run on the basis of bloated property prices.

    • Alf

      I think the worst thing about deflation is that it makes debt (including NAMA) harder to pay off. Taxes wont bring in as much, if we all get paid less, but the debt will stay the same.

      Unfortunately, it is this that the government overlooks with its deflation creating policies.

      • liam

        The flip side is that without deflation, the country remains uncompetitive and its also cannot raise the revenues to function. Its the same as the argument in favour of leaving the Euro. The national debt becomes huge, but, we’re in a position to pay off a debt that might be twice as high, where as now we cannot afford to service even the current debt.

        As I mentioned above, the purpose of Government ‘policy’ is to ensure that capital remains exactly where it is. Its hard to believe the Government is actively pursuing a policy of deflation, its rather more a side effect of maintaining the status-quo. For those who control access to capital, deflation doesn’t matter a damn.

        Ireland is facing in to deflation one way or another, there is no escaping that. The question is how its dealt with. As things stand, there is a risk of a vicious circle of deflation, reduced revenues, increased unemployment, leading to further deflation making the National Debt a bigger and bigger chunk of GDP, with no exit plan in sight. So do we stagnate and collapse under debt, or leave the Euro and start to compete and produce again?

        Irish incomes across the board have been in la-la land for years, about time they had a correction. If your worried about your salary taking a slashing, consider this: Which would you chose, a 40% salary cut, 20% unemployment or your current salary in IR£ (trading at maybe €0.60), and 3-5% unemployment?

  13. G

    Worth quoting this article in full from today’s Irish Times

    Poor pay for reckless spending, says priest

    A JESUIT priest has challenged possible reductions in social welfare, stating that the poorest were being forced to pay for reckless spending.

    Why, given the behaviour of our banks, given Nama (National Asset Management Agency), are we talking about reducing social welfare rates, asked Fr Gerry O’Hanlon. It suggested “that Ireland’s poorest people are being forced to pay for the recklessness and corrupt activity of a number of extremely wealthy people and institutions”, he said.

    Fr O’Hanlon was speaking at the annual citizenship service in Dublin’s Christ Church Cathedral yesterday.

    Director of the Jesuit Centre for Faith and Justice, associate professor of systematic theology at the Milltown Institute in Dublin, he is also author of the recently published The Recession and God, Reading the Signs of the Times.

    He compared the doubling of numbers jailed this past year for non-payment of fines to the way some of the “financial shenanigans in the banking sector” have been handled. Why the stark contrast? he asked.

    Why “does this same banking sector, forgiven debtors themselves, at least co-responsible for the property and housing bubble, not lobby for debt forgiveness and mitigation for its own customers experiencing difficulties with mortgage repayments?” he suggested.

    Why was there such an emphasis on cutting public expenditure and on the McCarthy report, when services in health, education, prisons and so on are often so inadequate, and so little emphasis on the Report of the Commission on Taxation, he asked.

    “Truly all this is a social disgrace, to use the language of liberation theology,” he said.

    There was, he said, widespread and deep anger among our citizens at the incompetence, complacency and recklessness of their leaders. It was important that politicians, bankers, developers, and associated groups who led the revels in the so-called Celtic Tiger era, recognised this anger, he said.

    • Philip

      Ireland is in danger of becoming ungovernable. This is my mantra unless these idiots in our institutions wake up!

      • Deco

        Ireland was been ungovernable since CJH took over the country in 1980. So many people have found out that they could get something for nothing. And they have aggressively demanded it.

  14. Philip

    Inflation is but a side effect of too much money/ expectations/ psychology and loads of other stuff which really does not get to the nub of the matter in Ireland.

    If I want a job, I have to drop my prices and have sufficient skillset/ product which people are willing to buy. Competitiveness is the primary issue we face.

    NAMA is merely putting off the day when we have to grasp the competitiveness nettle. Keeping the banks afloat with funny money so there might lend (if they like you) is as meaningful as keeping the brain dead alive on an artificial aspirator. The banks are playing no role other than provide the pretense that competitiveness is not an issue and that realisable value is there in the property market. It is a distraction from the job of governance of the state.

    As for our eminences…grey they may be. But in the end, many of them have kids and homes to go to which reside in crumbling communities. What are we saying…fortified D4 is next?

  15. adamabyss


  16. wills

    Dense article.

    I’m going to comment first ‘ on the ‘multiplier effect’ ‘s upward movement in prices and borrowing reinforces the logic of the boom and begets more upward movements in prices and borrowings and so on, this created the bubble’.

    I dunno about that one, what created the bubble was predatory lending by the banksters in conjunction with regulators in pockets in conjunction with turning blind eyes on application forms in conjunction with low i rates in conjunction with access to easy monies on the wholesale markets and most sickeningly of all all deliberately perpetrated on kamikazee greed and knowledge that the Government would bail the banks out of the property bubble money making scam meltdown when it’s moment in time would inevitably arrive.

    Thats point 1 for me on the article be back for more, surprise surprise.

  17. denisk

    If the banks purchase Gov bonds with the money provided by the EU central bank, does the Gov not then get this money, which will then find its way into economy due to Gov spending ?
    Surely this money is then not “stuck ” as David suggests ?

    • liam

      Presumably he refers to bonds that have already been issued. According to the NTMA there is currently €69,567.93M worth of Irish debt on the market. That’s enough to be starting with.

  18. Tim

    Folks, “Half-joking, full in earnest”:

  19. wills


    ‘But if what if the banks have a different objective to the government? Yes the banks want the cash, but not necessarily to lend out to you and me’.

    This raises the question as to who controls the banks then, right or, moreso, how the banks are controlled.

    Now as it is, banks are set up and supported by gov for the benefit of the macro economy via providing a payments system and lending in a way that is specifically defined by regulators???!!!

    If the bank does not fall in line with regulatory requirements (which is proven now to be the case with all main banks) they are simply denied banking license to operate in the country. PROBLEM SOLVED.

    Within the remit of the license, also, the provision of of the ability to earn profits is only a TOOL used to support the original banking remit of providing credit and acting as a depository institution, it’s worth bearing that in mind i think.

    Are the banks operating in the bounds of the license granted to them by favour of the state, providing a banking system in accordance with the function of what banking is.

    The banks seem to be allowed do anything they decide to do in direct contravention to the accord of their license to bank and it is all dismissed as ‘sure what can you do’, the banks have their own agenda and sure thats just the way it is.

    What! Come on. The banks do not own their banking license. Take it back and give it too someone else who is prepared to provide a proper banking service to the country yo oil the wheels of day to day commerce and provide mainstreet with regular banking services.

    The whole banking crisis / scam/ too big to fail / if you take back the license you’ll all die is NUTS.

  20. wills


    “NAMA will not lead to any resumption of credit ‘cos the banks are traumatised and have better things to be doing with the ECBs largesse than lending it out”

    Is it possible to traumatize oneself. I don’t think so. The banks are laughing their @rses off at how easy it was too make so much easy money and then when the scam hit the bricks how easy it was too escape the arm of the law and then how it easy it was to reset the pieces on the board and restart the money making scams again.

    The banks made a killing on the bubble inflating and are making a killing on the bubble bursting, if thats your point i reckon you ought to say so more directly, and, explain to the general public that the banks are receiving for the loans real cash, real cash from the ECB for loans an eighth of which at the most lended out in real cash.

    The banks must be put in the doc and accused for the swindlers they’ve become.

  21. wills


    ‘When the bad debts and defaults spread.’… banks are done for.. ‘ and will have to be taken into public ownership…… becoming zombie banks owned by a zombie gov’

    Well directed truth serum there and it means us irish will just have zombie banks @rses sitting on our faces.

    What the fu&k is going here with this.

    I for one do not want a zombie bank and zombie gov sitting on my face telling me ah sure what can you do, were going to have to tax you more and cut your allowances and sure what can we do thats just the way it is cos it s all in the past, and oh dear we are going to have to raid the pension and oh dear reduce your salaries and take your christmas bonus and cut child benefit so as the banks can stay zombie banks and sit on your face>>!!!!!!!!

    • Tim

      wills, Eh, I take it, that wouldn’t be a gorgeous female bank, then, yeah?

      Your message of truth is too important to be lost in too much visual imagery…..

  22. wills

    Posters –

    Are we faced with the fact that the bankers and the politicians here in Ireland simply do not know what they are doing.

    Is it they have inherited a system that they do not understand technically.

    Maybe they just blindly believe there is no alternative and merely continue with the status ante and leave it at that due too convience and comfort and boat rocking and if so i implore them and anyone else to investigate alternatives and here is one.

    • Tim

      wills, I can tell you, for a fact, that they certainly did NOT know what they were doing in 1998. The truth of the evidence may be better conveyed in person, as it reflects rather poorly on my “green-ness”, at the time.

  23. Lets Get Real – if we are serious to want a new banking system our new central bank should be called ‘ The Bank of Ireland’.
    We can then start to believe in our new monetary pride.

  24. P.S. If anyone on this forum tries to say these people fell asleep at the wheel, I will bang my head on the desk for 10 bloody minutes.Its not a question of “we are where we are” but its “ we are where we were bloody led”. Count to 10 Tull remember your blood pressure….1.2.3……

    A good analysis of “Where we were bloody led” :wink:

    • ThomasFergus

      Outstanding article. Clearly explains in layman’s terms the causes of the banking crisis here and in the states, pulling no punches on who really is to blame. Also an antidote to the shrill claims that those who took on crippling mortgages have no one to blame but themselves.

    • wills

      southofdub – excellent link.

  25. @G 12above

    The church will adapt to our new banana republic, it does well in similar plutocracies in Latin America and elsewhere.

    The more extreme will probably resist any efforts towards advanced democracy along the Scandinavian List model – preferring a return to 1930′s.

    Plus they need to get their own house in order from what we read in the papers.

    I’m thinking a benign dictatorship with puppet Brian at the helm and a parish pump church controlled junta might do the trick:)

    Come to think of it, seems we may get to that if there’s a lot of civil unrest ahead…

    I am being satirical, … but you never know! If there’s a power vacuum, whose going to step into it?

  26. G


    Interesting you say the above, especially your reference to Latin America. One of the reasons why I posted the full article is because the Jesuit priest quite cleverly dropped in subtle hints to liberation theology and the concept of ‘social disgrace’.

    In Latin America as you may know, liberation theology took hold through the Jesuits and for the first time in about 500 years (with notable exceptions such as the Dominican Bartolomé de las Casas), took the side of the poor.

    The consequences were self-evident, a number of Jesuit priests were killed in Central America along with nuns (raped and mudered by El Salvador death squads who had been trained in the School of the Americas) – for an excellent documentary on this see Father Roy’s battle to close the school:

    The Church (for its own reasons – fear it would rock the boat/fear of alignment with violent liberation forces/fear of the US) through Pope John Paul II, tried to shut down liberation theology, including one of its main advocates, Bishop Romero, who was eventually shot dead while saying mass in San Salvador (the Church wasn’t behind this) but they made their displeasure clear, and Romero was publicly rebuked. For more see:

    However, liberation theology/social christianity, never entirely went away in Latin America and people continue to work for their liberation from poverty (not waiting for it in some after life) – that is one of the reasons why I found the article so interesting, its the language, if you pay close attention, that liberation theology had raised its head in Ireland once more, despite the efforts of the conservative Catholic church hierarchy’s to stamp it out.

    Naturally you don’t often hear this side, it is always about John Paul bringing down communism in Poland etc – which is stretching the truth just a tad.

    Indeed, in Latin America as you correctly stated, the Church authorities more often than not sided with the ruling power, which in most cases down through the years was with brutal dictatorships, this was certainly the case in Cuba, Fidel Castro comments on this in his interview autobiography, My Life, which was released recently, his comments are quite interesting, people under the lash don’t tend to forget the alliances that existed among the rich and powerful, and sadly the Catholic Church was no exception.

    • Tim

      G, that is absolutely correct.

      In fact, in 1988 (I think, but thereabouts), John Paul II instructed his “enforcer” (one Joseph Ratzinger) to rapp-the-knuckles of the American Bishops who had taken the Pope’s paper and “ran-with-it”, to the extent that they recommended that “liberation theology” should extend as faras liberating women and allowing them to become priests.

      Ratzinger duly rapped-them-on-the-knuckles, collected all copies of their “paper” and assured them that this kind of thing would never happen again.

      (I saw it on the 1 o’clock news that day…. it did not appear at 6pm or 9pm. – go figure?).

      • G

        Indeed, but the church, at least in Ireland, given the sex abuse scandals and criminal mishandling of deviant priests by Bishops who knew well what was going on is a weakened institution, with little moral legitimacy.

        In Edward Gibbon’s ‘The Rise and Fall of the Roman Empire’, Gibbon hammers home the point that Empires fall from within. The Christian Church rose on the ashes of the Empire and imposed itself as a unifying force by Constantine the ‘Great’ – elites saw its usefulness for controlling the impoverished masses (quite successful in this respect), this does not take from the positive teachings of Christ, who was very much a social revolutionary – throwing out the money lenders from his ‘father’s house’ — a story I always enjoyed but I digress.

        In today’s Irish Independent on page 8 it indicates 110,000 priests have left the institution world wide after having developed romantic relationships.

        The Church may prove too inflexible, especially with Ratzinger in charge, who said gays were as big a threat as environmental change – crazy stuff.

        But as was said about him at the time, he was anti-gay, anti-same sex marriage and anti-aircraft (from his time in the Hitler Youth). So far he hasn’t left a very positive impression, he seems like a throw back to a by-gone era, instead of worrying about the Latin Mass he should have prosecuted those involved in wide-spread child abuse.

  27. Tull McAdoo

    @MALCOLM, I’m starting to scratch my head at all these going on’s.
    Cliff Taylor carried a piece on yesterday’s SBP on the NTMA, in which he outlines some facts that I’m sure most people will find strange. Michael Somers appeared before the Public Accounts Committee last May and pretty much said that he knew bugger all about NAMA, lack of information and all that old evasive stuff, yet it seems it was he who commissioned Peter Bacon to draft the report which was to form the basis for NAMA. It also transpires that Corrigan, the guy who takes over the top job at NTMA from Somers is one of Linehan‘s chief advisors and has been working with his colleagues in the NTMA including McDonagh to put this NAMA monstrosity together from its foundation, so where the hell was Somers when everyone in the NTMA was putting NAMA together, did he excuse himself from the meetings.
    Corrigan it seems was hired in to the NTMA from AIB’s Financial Market division back whenever, and now that Somers is retiring from NTMA, where is he heading for, yes you guessed it, the bloody board of the AIB.

    I’m starting to come to the conclusion that this notion we have of the powers that be “running the ship of state onto the rocks” is not what has happened here but is this “ These bloody vested fools have managed to de-rail their own bloody gravy train”. What do you think of that thesis.???

    • Tim

      Tull McAdoo, that’s it. They have. They thought they were so smart, and ahead-of-the-game, got fat and lazy; they woke-up one day and the whole world had moved-on.

      Then, they asked WTF???

      They did not know what to do………

      Then, the guarantee and NAMA.

      • Tull McAdoo

        Tim , that is it, it finally makes sense,and now all that is left is for Taxpayers, unemployed, pensioners,even children to do is to shunt the “first class carridges” back onto the track by way of sacrifice, and the whole boody gravy train sets off, on to its new destination, to Green Energy Land or wherever the next “big thing” happens to be. Maybe we should call it the “Insiders mystery Train”, destination is a secret.The outsiders are tasked with walking the tracks at the rear,and making themselves availeable for “shunting work” should any de-railments take place further down the tracks.
        Casey Jones tooting at the whistle,Casey Jones never will forget,when you hear the tooting of the whistle,its casey at the throttle of the Insiders express.

    • wills

      Tull – The power elites slipstreamed the ‘wall street / city of london / AIG / Fed reserve post 9/11 CDS Ponzi scheme and were left with their ‘you know what walnut’s’ flapping in the wind when this MEGA POnzi scam collapsed.

    • Malcolm McClure

      Tull McAdoo: It’s good to see fingers pointed and names named. One of the interesting names in NTMA is Eileen Fitzpatrick, who was the Chief Investment Officer, AIB Investment Managers Ltd.
      So she was responsible for much of the mess she is now tasked with clearing up. The other NTMA names besides Michael J. Somers are:
      Ciarán Breen a barrister, was Managing Director of Garwyn Liability Adjusters before the SCA
      John C. Corrigan (Also ex AIB)
      Anne Counihan (ex- National Lottery Board – How appropriate!)
      Brendan McDonagh (ex-chief executive officer of HSBC — North America Holdings Inc.)
      Brian Murphy spent most of his previous career in the banking industry, having held senior position in BN AMRO and CitiBank in Treasury, Capital MarketsCredit in Ireland and overseas.
      Oliver Whelan is a director of the National Oil Reserves Agency

      It’s obviously jobs for the boys but he real reason is to keep outsiders from reviewing the role of Government in the banking fiasco.
      A good thesis needs plenty of facts.

  28. Deco

    Japan had a dreadful experience with deflation in the 1990s.Could this happen again?

    Good question.
    Japan in 1990 was the most technologically developed economy on the planet. In many ways Japan still is. This leads us toe the question – does reaching technoligical efficiency make deflation inevitable. If this is true, then maybe the entire inflationary economics of Greenspan, Gordon Brown, etc.. lead the road to technological and societal decline.

    Maybe we should have an economic policy that assumes deflation. I am saying that with an infrastructure base that is technologically based, the life cycle shortens with the result that a lower leverage is optimal. Just a thought.

    • liam

      Good point Deco. Japan is the model the rest of the developed world will soon arrive at. They can’t grow the population and they can’t increase the amount of stuff they make, so the country sits at a sort of economic equilibrium. Its certainly a consequence of inflationary economics and Japan has probably hit the buffers, a combination of demographic limits, and maximum capacity to produce and sell stuff.

      Future economic policies have to include a strategy for all of us that targets a population level sustainable at a reasonable standard of living. Japan will have to innovate like mad to get there, Ireland has a head start on that already. Yet another get out of jail free card Ireland could play, if we had real leadership.

  29. Maybe this is how it works up there in Leeson St?

    This is the scene between Pooh-Bah, ‘Lord High-Everything-Else’ and Ko-Ko, the Lord High Executioner, from The Mikado.

    Ko-Ko. Pooh-Bah, it seems that the festivities in connection with my approaching marriage must last a week. I should like to do it handsomely, and I want to consult you as to the amount I ought to spend upon them.

    Pooh-Bah. Certainly. In which of my capacities? As First Lord of the Treasury, Lord Chamberlain, Attorney-General, Chancellor of the Exchequer, Privy Purse, or Private Secretary?

    Ko-Ko. Suppose we say as Private Secretary.

    Pooh-Bah. Speaking as your Private Secretary, I should say that as the city will have to pay for it, don’t stint yourself; do it well.

    Ko-Ko. Exactly–as the city will have to pay for it. That is your advice?

    Pooh-Bah. As Private Secretary. Of course you will understand that, as Chancellor of the Exchequer, I am bound to see that due economy is observed.

    Ko-Ko. Oh, but you said just now, ‘Don’t stint yourself; do it well.’

    Pooh-Bah. As Private Secretary.

    Ko-Ko. And now you say that due economy must be observed.

    Pooh-Bah. As Chancellor of the Exchequer.

    Ko-Ko. I see. Come over here where the Chancellor can’t hear us. (They cross stage.) Now, as my Solicitor, how do you advise me to deal with this difficulty?

    Pooh-Bah. Oh, as your Solicitor, I should have no hesitation in saying chance it.

    Ko-Ko. Thank you (shaking his head); I will.

    Pooh-Bah. If it were not that, as Lord Chief Justice, I am bound to see that the law isn’t violated.

    Ko-Ko. I see. Come over here where the Chief Justice can’t hear us. (They cross the stage.) Now, then, as First Lord of the Treasury?

    Pooh-Bah. Of course, as First Lord of the Treasury, I could propose a special vote that would cover all expenses if it were not that, as leader of the Opposition, it would be my duty to resist it, tooth and nail. Or, as Paymaster-General, I could so cook the accounts that, as Lord High Auditor, I should never discover the fraud. But then, as Archbishop of Jitipu, it would be my duty to denounce my dishonesty, and give myself into my own custody as Commissioner of Police.”

  30. Moon Warning – On the 24th Nov ’09 , the date of senior civil servants strike , is the 1st day of ‘The PULL ‘ – this is serious because what leads afterwards becomes very vociferous and emotional and maybe lots more – it definately will be the most dangerous Blue Xmas Season in our lives .
    Buy Hot Water Bottles , Gas Cylinders , Lots of Candles . Lamp Oil, Heating Oil, Batteries etc

  31. Alan42

    I was watching the news here in Oz tonight . There was a piece on our property bubble . This bank economist came on to give his two bobs worth and when asked what people should do who cannot afford a house and fear missing out said ” I would not worry to much , sit tight don’t buy now and just save . Property bubbles come and go but property always comes back to affordability at some stage “

    • G

      Ha ha – the myth making goes on!

      Soft landings adjustments, gentle to modest growth, banks well capitalised – all out of the mouths of economists & banksters here before the country fell off the cliff……

      Property Prices in OZ is one thing, but they will never return to the obscene levels in Ireland, the game is up, long term unemployment, a struggling economy and an inept government………that’s the prognosis………and no love ins at Farley, Dublin Castle etc will change the fact that our overly exposed and dependant economy is a bust flush, the rest is just a poor attempt to be seen to be doing something.

      Trust your gut!

      Jim Power’s mea culpa

      TCD professor admits being wrong about housing bubble

      Interesting article from the Irish Independent (2006)

      Property boom to last another year before ‘soft landing’

      “THE property market will boom for another year, with prices set to escalate by at least a further 10 per cent, before the market begins to cool. There is no certainty that the so-called ‘soft landing’ will then kick in, though most experts seem to think it will.

      Taoiseach Bertie Ahern, however, said earlier that there “was no great problem” about the level of money being borrowed for property. “If you had taken the advice on the property market given a year ago, you would have lost a lost of money,” Mr Ahern said after an Irish Management Institute conference.

      Economist Jim Power advises that only those who have a few investment properties should think about cashing in. “It would be a very risky thing to do, if it were your home and the market kept on rising you might not be able to afford to get back in,” he said. ”

  32. paulmcd

    Irish Times: “Mr Doherty’s annual salary is expected to remain at about €633,000, the amount he was paid in 2008, after his imminent promotion to the new role of managing director at AIB, according to sources with knowledge of the bank’s plans.”

    Extraordinary! A slap in the face for an t-Aire Airgeadais, Brian Lean-a’- Cháin!!

    At the peak of the property boom Mr Doherty would have been able to pay CASH for a luxury Dublin city-centre apartment with his DISCRETIONARY income. Today he could buy 2 such apartments thanks to property-price deflation. His discretionary income has increased by 50% and higher in real terms for such discretionary purchases. Brian thinks that taxing individuals like him at a higher rate would encourage them to leave the country. Yes, Brian, please raise the taxes and dispatch him and his ilk, yesterday if not sooner. Good riddance to them all!

    As for the guys on social welfare or low earnings with NO DISCRETIONARY INCOME: Ye are going to foot the bill.

    Some of you have mentioned the Scandinavian countries, New Zealand, etc. In Ireland, it seems the performance you get from the upper echelons in inversely proportional to the salaries payable.

    • G

      A truly sickening development, but in keeping with the ‘business run society’ and associated ideology.

      The ‘people’ or ‘ mindless barbarian hoardes’ are to be excluded from all decision making and yet foot the bill for decisions taken………

      But such behaviour is not reserved to the banking sector……………….

      ‘Education’: Presidents, Vice-Presidents & Pay
      How about the criticism of your own pay? (UCD president, Dr Brady earns €226,000 per year.) Minister for Education Batt O’Keeffe has called on university presidents to shoulder some of the pain and take a pay cut. You seem reluctant to respond.

      Dr. Brady: As my good friend Ferdinand von Prondzynski [president of DCU] said: ‘he has never asked me’.
      Am I expecting to take a further pay cut because we have obviously been affected by the levy — absolutely yes and I am willing to do so, absolutely yes. But only in the context of the forthcoming review of higher-level pay. That is the right way to do these things.

      The reality is that many of our presidents could be earning twice as much in the private sector. The key issue is this. All universities need to recruit the best and the brightest from an international field. If we want the best, we have to pay the equivalent salaries to presidents at leading international universities.

      So you have no apologies to offer to those outraged to read that one of your vice-presidents (Prof Des Fitzgerald) earned €409,000 in 2008?

      Dr. Brady: No, because Des was getting more money in his previous job in the College of Surgeons. And I think he has done a spectacular job. Under his leadership, we have more than tripled research income. He is an absolute magician and it is really important that guys like him are kept within this country and within the university sector. Full interview –

  33. Fergal73

    Irish property finally showing some realism. The property bubble deflation is coming near to where prices should be.

    I still say emigrate – FF has bet the future with borrowed funds on a long shot (NAMA). The result won’t be like Bertie’s wins on the horses. Ireland will lose, and the recovery will take most of the rest of your working life if you’re more than 30 years old.

    • Colin_in_exile

      The boom buyers should keep their mouths firmly shut, and do their seething indoors. They were happy to pay funny money for where they now live.

      I welcome what the property consultants HT Meagher O’Reilly have done in this case. I hope others will follow.

      The egg is starting to attach itself to Lenny’s face now, a 66% mark down achieved – I wonder what Lenny thinks of it.

  34. Deco

    Ever get the feeling that there is a human capital deficit in the banks that is as bad as the financial deficit.

    The people who caused bad banking in the boom are still causing banking to be bad in the bust. This is a case of ‘institutionally derived failure”.

    Therefore we should let failed banks fail. Compensate the depositors. The deposits will flow to the post office system or the healthier banks. And the system will rebuild itself.

    Key driving engines behind deflation.
    i) The financial imbalances in the private sector.
    ii) the cost of imported goods coming down from the UK.
    iii) our competitiveness problem.
    iv) our unemployment problem
    v) our structural overcapacity in many sectors.

    I actually think we should chart a policy that takes account of deflation, and let the cost of residential property and the cost of living hit the floor. And let the bondholders and the speculators carry the brunt of the pain. And then start again from the bottom with lower wages, secure savings, and a stronger competitiveness position.

  35. Deco

    Actually the only element that is causing inflation at the moment is government policy – injecting 20 Billion Euro of borrowed money into the economy, as a means of fighting price decreases. And this money is concentrated on 40% of the population exclusively.

    And in in fighting deflation, government policy is in effect trying to prop up the property market. But the fundamentals are driving the property market further downwards.

    Before anyone says that this is all FF’s fault, check out what the ILP have to say -they seem to think that even more should be borrowed.

    We need a completely new way of thinking about state and market regulation in Ireland. And let this instruct the politicians, and steer them away from the corporate governance model of the state being a servant of the rich bankers and vested interests.

  36. Colin_in_exile

    “Already the valuations for Nama are coming in much lower than the government’s estimates (surprise, surprise).”

    Does anyone have any figures for this? I’d really love to see the differences between the different valuations and government estimates? Will this revelation of Lenny nonsense get people marching on the street?

  37. Tim

    “All of our efforts, in Government, are aimed at getting people back to work”, said BL in the Dail, today.

    That sound correct to “anybody”???

    To me, that sounds like something BC “stuck-into” his speech, not something that BL would come up with by himself.

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