January 17, 2010

We face a debt-fuelled downturn

Posted in Debt · 250 comments ·
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We are moving into the next big phase of the Irish downturn. The first phase was the crash itself; the policy response to it was containment at all costs. The second phase is the debt deflation phase. This is the phase in which anyone with substantial debts, no matter how dexterous or clever they looked in the boom, will go bust. Be warned: countries as well as individuals are likely to go to the wall.

History tells us that there are two types of bust: the long bust and the short bust. In general, the bust will create other policy responses, some organised, some forced.

There will be political change too – though this will be of secondary importance because the latitude to move is narrow. The long bust is the one our government has embarked on, and it involves deflation, denial and ultimately borrowing today to postpone the reckoning, in the hope that time will heal all and something good will turn up.

The long bust is based on mortgaging the next generation for the sins of the previous one via the bond market and its magic facility, the 20-year sovereign bond, which allows one generation to screw the next.All politicians opt for the long bust, because it holds out the hope of redemption and a prolonged career.

The short bust involves taking the pain now -  writing down the debts, selling bust banks for free to someone who would do a deal with the old creditors (who are stuffed anyway). It also involves changing the currency to allow us to export more and import less and, obviously, it opens the possibility of generating a bit of inflation to make sure that the old debtors have some life left in them.

Changing the currency also allows us to see the true nature of our debts valued in a currency that has some relationship with the underlying real weakness of the economy and thus our actual – rather than imagined – ability to pay debt back.

Ultimately, from a financial perspective, both busts will involve a great transfer of undervalued assets from those with debts to those who are debt-free.

Debtors will not pay what they can’t, and most old creditors will lose out. Some people will pick up bargains, but most will be traumatised.

Rather than ‘the worst being over’, as was the pathetic spin over Christmas – a time when people are allowed to believe in Santa – Ireland is moving into the second lurch downward. Anyone with a passing knowledge of financial history or basic economic theory would know that this is the likely trajectory. It’s a pity no one in power appears to be armed with these basic job prerequisites.

Ultimately though, the long bust will run into an even more severe debt crisis. This will allow the cycle to start again with a new class of owners and a large class of debtors, some of whom will have defaulted and recovered, while others will have thrown in the towel. With mass default will come the realisation that you can’t turn a nation into indentured debt slaves nor can you condemn the next generation to some sort of Victorian debtors’ prison.

Therefore, we – that is, Ireland – will probably not pay the debts of our banking system. At the moment, if we were to pay the creditors (the bondholders) of our banking system, it would cost €94,000 per worker. This isn’t going to happen – not even in Jean-Claude Trichet’s wildest dreams. To meet them in full would be both morally and financially wrong. Debts that can’t be paid won’t be paid -that’s the way it goes. There is likely to be significant debt deferral, if not outright forgiveness, for thousands of homeowners. That’s democracy for you.

For the moment, the government is engaged in the typical opening stages of the second phase, which involves borrowing to pretend it is in charge; sadly, it is not. Pathetically, there was a little cheer when Ireland borrowed €5 billion at only 1.6 per cent over the rate at which Germany borrows, and there is the insistent spin put out which involves us and looking down our noses at Greece, which has replaced us as the dunce of the class.

We should instead make common cause with the other nations that are being bullied by the European Central Bank (ECB) and Germany – Spain, Portugal, Italy and Greece – and say: ‘‘Hold on, boys, you lent the money, it’s as much your problem as ours.”

Why doesn’t Trichet attack Germany for not spending enough? Why doesn’t he advise Angela Merkel to force the Germans to spend the surpluses they have irresponsibly built up? The EU and the eurozone need Germany to spend as much as it needs Ireland, Greece, Spain and Portugal to save. But no, Ireland’s mandarins and politicians don’t have the brains or the balls to see this, so we – in typical fashion – are trying to suck up to the big boys in the hope that we will be looked on kindly, rather than pointing out they are part of the European problem too.

We are only at the opening chapter of the second phase. Let the debate commence.

On a related point, in the past few days it has been hard not to detect schadenfreude about the plight of Bernard McNamara.

Some of the comment has been positively gleeful at the collapse of one of our biggest developers. Why should this be the case? Is it just down to the great Irish habit of shameless arse-kissing when a lad is in demand and then an unmerciful kicking when the same lad is down?

If it is, we had better grow up, because McNamara is a microcosm of our country’s financial predicament. If he can go under, so can this country. In fact, if he goes, it’s likely that Ireland won’t be long after him.

By this, I mean that there is no difference between McNamara’s business plan and that followed by the rest of the country. He borrowed money to invest in property in the hope that he could sell the stuff on to someone else for a higher price. Was that not the country’s basic business plan?

It certainly appeared to be the plan of some of the country’s richest folk, as evidenced by the row between the clients of Davy Stockbroker and McNamara. The ‘high net worth’ clients invested €63.5 million to part-fund – in what is termed ‘mezzanine’ finance – the Irish Glass Bottle site deal in Ringsend, which was supposed to be worth €412million.The site is now worth a fraction of that and the house of cards has come tumbling down.

This is no different to the rest of our national loan book, except for the fact that, in contrast to our government, McNamara could no longer borrow to paper over the cracks.

We can still borrow, but this is just part of the long-bust strategy. When you have private sector debt that is three times GDP – before you take into account the fact that public debt is moving towards 70 per cent of GDP and prices are falling by 5 per cent a year – the short-bust is the best of the bad options.


  1. Boys and Girls,

    I need some help, and I know you are some of the best people to provide it. I’m working to convince a foreign business body on how Ireland should be dealing with its current financial crisis (and to perhaps lobby the government), and I need to formulate the best suggestion. Could you please comment on the below? This needs to be dry / formal, so no need for any metaphorical abuse of Irish politicians (too easy anyway!).

    ********

    Draft: What happens if we carry on with State Guarantee, Tax increases, NAMA and cuts?
    - Wage and price deflation. Deflation of say 5% plus interest rates of 5% = real interest rates of 10%
    - Increase in rate of mortgage defaults
    - Export costs remain high. Salaries remain high by international standards. = 100,000 more job losses, marriages and families destroyed, mass emigration, property deflation
    - Banks (AIB, BoI etc) remain in business, carry on.

    Draft Proposed Personal approach for Irish people:

    1. Put all savings and investments with international institutions (euro denominated).
    2. Check personal status (pensions, insurance, investments etc) with independent financial advisors.

    Draft Proposed National approach
    1. State should not buy any loans (bad or otherwise) and should not roll out NAMA.
    2. State should not renew state guarantee after September 2010.
    3. Zombie banks (BoI, AIB) should be allowed to fend for themselves.
    4. Reduce income (job) tax on employees and employers.
    5. Leave euro.
    6. Default on sovereign debt.

    Results:
    - “New Punt” drops in value — exports and foreign investment rises, imports drop. Personal assets held internationally in Euros can be transferred back in, taking advantage of new FX rate.
    - Local assets drop in cost and value — net / net, no local impact.
    - Foreign held assets increase in cost and value.
    - Main banks nationalized, wound down or sold off.
    - Investors currently wary about Ireland. For a brief period, all will retrench when Ireland defaults, but will then flood back in for cheap, well educated, English speaking, low tax, work force which straddles European and US timezones.
    - At a later stage, “New Punt” can be pegged to Euro (or USD or GBP etc) a la Sweden.

    **********

    Thoughts? This needs to be concise and unambiguous,. It also needs to make sense logically, and to the layman.

    • Very quick off the mark to have had a post fully submitted within 5 minutes of the email alert….

      This hardly looks like open discussion document – its a well cemented point of view of a poster who does not seem to understand that leaving the Euro will result in a massive hike of interest rates which will destroy business entirely……

    • Interest rates were far too low, set by the European Central Bank which encouraged excess lending and discouraged saving in Ireland.

      FF encouraged the housing bubble with many forms of grants.

      The problem was caused back in the 90s. We were drunk up until 07 and now were are going around with a severe hangover.

      Why is an enquiry needed to figure that out?

  2. recoveryplan

    Very interesting ideas but what you have failed to consider is the political enviroment necessary for such drastic measures.

    Step 1 .Has to be a political change ..and this will only happen when people get concerned enough to act. As some seasoned commentators here have pointed out the Irish mentality is moan and critcise first. When people eventually realise change has to come from grass roots level..then maybe there might be action.But who can forecast the next election sure it will be ugly for FF but will people really elect FG and its current leader ?.
    Lets face it there has to be a mini revolt led by a trustworthy figure before anything will change.
    Roll on the revolution !!!

    • “Has to be a political change ” – agreed. But we need a message to rally behind. Currently the government is clear: “NAMA only option”. So we need an equally clear alternative.
      If you could make a comment or suggestion on my prior post, that would really help.

      • PaulJCollins

        With regard to the “NAMA Only option”
        My personal preference was for the option that the us government was going to take, prior to the proposed TARP bailout. The US were going to use the billions in taxpayers money to give to those who were in negative equity to pay off part of the value of their mortgage. For example, a bank lent out 100,000k to a person, property now only worth 70,000, the bank writes down the mortgage to 70,000 upon reciept of payment from the governement.

        This policy would kill 2 birds with one stone. The average homeowner would no longer be in as much debt to the bank. Their monthly repayments would also be reduced by 30%. And the banks would get the capital they need to refinance.

        For some strange reason, (not that strange really becuase the bankers suggested it) the US adopted the Tarp bailout, and decided to give the money directly to the banks instead!!!! And for some strange reason every other country in the western world followed suit. Makes you think, doesnt it.

        What is most troubling is NAMA is going to deal only with the debts racked up by our major property developers. This makes up a small percentage of our current borrowing of 70% versus GDP. Who is going to clean up all the personal & private debt of every minor property developer or investor, or even home owner, this debt makes up 3 times (300%) of our GDP.

        Nobody seems to look at the big picture. My advice get your cash out of Irish banks, and somewhere safe on the continent. I hear the swiss are still good.

        Are you really going to trust Irish Politicians with your life savings??? The bankers are relying on the politicians to keep them afloat, they have no other choice. But you do.

        Yours

        Ex Banker

    • lff12

      There will be no revolution. People who are hungry, tired and cold from rough sleeping or sleeping in hostels etc won’t have the energy to rebel. Those who still have accomodation probably won’t vote or will vote for independent mavericks or the growing legacy of disgraced political “martyrs” like the Minister for Fun, B Cooper Flynn and others who are only too delighted to exploit the guillible. They will consider that, by the way, a “protest vote.”
      Emigration is something we won’t have by the way, since if you are over 30, New Zealand, the USA, and Australia are effectively closed. Only Canada takes older emigrees who need to be qualified and have substantial savings.

    • Big Willie

      We as a people are very much alike in attitudes, political, religous etc. There is little variety in our thoughts probably a historic hang up which has become engrained into our herd mentality, not realy that unusual we look around us a think all germans, french and british are all alike.
      There would seem to be very little chance of political change, there is no one of any charisma, and personality, no one of conviction or patriotism in the dail or seanad, well there probably isnt, but by being involved in this sight shows a level of inteligence, humour, willing to learn and some patriotism. Unfortunatly the only grouping to threaten to put its “collective head” above the parapet is Amhran Nua and there first public sound byte was to say they were against FIANNA FAIL in the national anthem not much of a platform. Realy to have any change there needs to be a bloodless reveloution (hate to take the fun out of revolution) but before there has to be a coming together of minds and an aceptance of democratic resposibility and have a cabinet and a plan in waiting or the status quo will remain and nothing will be achieved. I am willing to be there is there anyone else.

  3. GerKennedy

    Ireland really seems to be so screwed. It makes me very sad to see it.

    How could all those highly paid well educated bankers and civil servants not see that their actions and inaction would lead to this pile of sh1t.

    You are correct. People who can’t pay debts don’t pay debts. Bernard McNamara is an example of this. The rest of them will not be far behind followed by the banks and hey presto the state. WTF will Ireland look like when this happens?

    I hope you are wrong about this. I have a sneaking suspicion you are right tho. Frightening!

    Ger
    Ger

    • tony_murphy

      I wouldn’t agree with you Ger about “well educated bankers and civil servants”. I guess some are, but most probably got there qualifications where Bertie got his!!!! Who you know, not what you know rules.

      Anyone who was well educated, knew that the Celtic Tiger was a fraud. I have a Engineering degree and worked for hi tech companies during the boom. I looked around me and I knew that Ireland wasn’t anything special, but the ruling classes seemed to think otherwise. The seemed to think that they were something special.

      Brand Ireland was low corporation tax, and American FDI (my guess buys influence)

      I am numb with the revelations since August 2008, particularly those in the last week. The debts incurred by the developers, the loans from Anglo Irish bank to buy properties in New York, loans to remortgage property not long before it was nationalized, to buy shares on the flippin Stock Market!!!! INSANE – what other skeletons are in the closets of these immoral organizations?

      • G

        “Anyone who was well educated, knew that the Celtic Tiger was a fraud”

        More complicated than that, many who were not ‘educated’ (but were street smart – something which often accounts for a lot more) stayed out of it and I know many who were supposedly ‘educated’ who got in, one individual I know has over 25 properties in three different counties, in one house he has a single mother paying the mortgage, so he probably got all sort of advantages when buying (he bought in bulk apparently) and now has the State and whatever money she contributes paying the mortgage, parasitic also known as ‘entrepreneurialism’. Of course, he maintains it is all very altruistic, ‘providing good furnishings’, ‘providing accommodation’, ‘providing a caring, sensitive approach’ but if the mortgage ain’t paid I wonder how long that would last, sad to say, but I am beginning to hate this place but I doubt there are many places different, there seems to be more tenant rights and rented accommodation on the continent, rents are maintained at certain levels so people can’t be priced out of their ‘homes’ – our fixation with owing a property, coupled with non-stop property programmes, supplements, and magazines fuel these ‘destructive and unrealistic desires’ – this desire to own a house has been made even unattainable because of property speculators, greedy builders and agents and total lack of regulation/compassion of the government, by the government for the people.

        I support the calls for a 2nd Republic and have done so publicly in the Irish Times and elsewhere! This one has certainly failed a large section of the population and is squeezing the rest – look out for the destruction of the ‘middle classes’ and the massive gap between rich and poor, it will be like a return to Victorian times.

        Terrible state of affairs when such property ‘practices’ go unregulated, same person tried to get me to buy in an estate where the builder subsequently went bust and where those who did buy have sewege and drainage problems (along with a half-built ghost estate), needless to say he never followed up with that information, fortunately I did my own due diligence……..

        On Bernard McNamara, initially I felt sympathy, but on reflection I think not, this isn’t schadenfreude (I do not take pleasure in another person’s difficulty) – he is part of the same whole that has weaken the State to the point of collapse, he exercised poor judgement, ran up a tab of 1.5 billion and as we now see there is little ‘love’ in business, as Michael Corleone says: ‘it ain’t personal, it’s business’.

        To my mind, the State should have taken over entirely the construction of housing, regulated the prices and provided a home to anyone who wanted one, setup neighbour committees to deal with any issues (with Garda enforcement), they did not regulate the ‘construction industry and banks like they should have’ (‘what right some would say?’ to which I would add: ‘don’t bail them out so, let the rule of the market, which were so often quoted, play out to full effect (US Republican style), let the fall like dominos and let us begin anew”).

        • Deco

          Anybody with a sense of realism knew that the entire thing was a scam. Just look at Hobbs in 2003 (RipOffRepublic) or David’s documentaries in the period. People looking for the real story followed these. People who wanted to believe in authority and the Irish way of life followed the ditherer and Desperate Dan and his “bullishly optimistic” mantra.

          The problem sometimes with an “education”, especially if it is very narrow, is that it can create the intellectual conditions for not being prepared to second guess your circumstances often enough. In other words, we need scepticism when dealing with the Irish business elite, so that we can survive in an environment that they direct.

    • Deco

      Ger
      {
      How could all those highly paid well educated bankers and civil servants not see that their actions and inaction would lead to this pile of sh1t.
      }

      Because their eyes were busily looking at the fat opportunities that could be made from Ponzinomics.

      When a society loses the polt, an episode in excessive aggrandizement comes naturally. Pride peaks. Silliness takes over. Reason is lost. And opportunists and passengers like Dan McLoughlin and Pat McArdle get in on the act.

      The only way one can respond, is by opting out and by steering clear of all that BS.

    • Fergal73

      Education? You’re completely missing the point. The mortgage broker got commissioned when he made the loan (and the bigger the better). The branch manger kept his job and got a bonus. The senior lending officers got bonused on the same basis. The CFO of the bank, the rest of the board, the COO, CEO all got rich. They did exactly what they should have done in their own self interest. They made a lot of money and grew wealthy. On being booted out, they got golden handshakes and pay-offs.

      Senior civil servants were employed by a government that was pulling in cash from the false market. This included the regulator. If they had intervened, they would have lost their jobs.

      The failure was that of government, who should take a long term view as to what is good for the country. Bertie’s suicide comment made it perfectly clear that clear and level thinking was not open as an option if you wanted to keep your job. The government chose a system of minimal regulation – there was a financial party, now there’s a financial hangover.
      The Irish electorate voted FF in. Responsibility rests with them.

  4. Your commentary becomes more succint and incisive with each release, David!

    [Hey! I'm getting a little abashed at sounding like a cheerleader!]

    Maybe ‘Foolish Penny’ might be able to elicit from it the necessary direction for which it has set the course – as an introduction to her proposed piece?

  5. Bernard Mc Namara’s father was a Great Man and someone that had Vision and Discipline and Great Work Ethics .We need men like him again and NOW .His son Bernard did his best and was waylaid in his ways as he sampled the sophisticated comforts and delights of his hard work.His father was different and traditional .We all could have fallen or at least seem to fall just like Bernard except in this case the higher up you are the further down you go and most of us cannot go up that far enough to fall down so deep.This is also the tragedy of Ireland now and the PAIN that will follow it and all of us will experience it collectively and seperately .It is important that we ‘play the ball’ on this issue and not the person.Bernard was not malicious or intended to be.Maybe he made mistakes and we all do too and that is life.
    Our Government and Bankers were malicious and with intent to distroy withour a social conscience and we must continue to focus on these real issues.

    • wills

      400 million spend on a toxic piece of land is in direct contravention of citizenry obligations.

      • G

        412 million apparently another figure has it at 425 million
        http://www.finfacts.ie/irishfinancenews/article_1018415.shtml

        now worth 50-60 million if lucky, I wonder where the PDs are now, with their presentations on Manhattan style developments?

        “This has the potential to create a spectacular Manhattan-style approach to Dublin by sea,” Senator Tom Morrissey, the party’s transport spokesman, said yesterday at the launch of its plan, A New Heart for Dublin. ”
        http://www.irish-architecture.com/news/2005/000251.html

        Love the photo on the cover of the glossy report – schadenfreude (I hope now)

        http://www.dublinchamber.ie/uploads/new%20heart.ppt#256,1,Slide 1

      • Deco

        Wills – if McNama had 400 Million to spend on a small site in Dublin 4, well that is his own business. And he is entitled to do whatever he wants with his own money.

        However when he gets the money from the bankers – and the bankers are getting bonuses based on the volume of money that they loan out – and the bankers are driving the prices insane, trying to out-do each other so as to get the bonuses, then that is the Financial Regulator’s business.

        And if the watchmen in the Financial Regulators office are playing golf with the bankers (as mentioned I think in Shane Ross’ book The bankers) then it is the citizens business.

        The regulators in Ireland were asleep. The cliqueishness that exists in Dublin amongst the professional classes gave rise to all the funny dealing.

        McNama was a high octane gambler who lost. Maybe he might have some dosh set aside. But the bankers will still be around long after A&E units collapse from lack of funding, when tax money gets diverted to save the banks.

        As Dan Boil told us – “it is more important to save the banks than the factories”. Hollowing out as a policy framework, Irish style. And every policy from this government since seems to fit this approach.

        • G

          “The regulators in Ireland were asleep.”

          Doubt they were sleeping, colluding (allegedly) more like, following political dictates not to regulate………

        • wills

          Deco -

          We will have to agree to disgree on this one deco.

          It is quite the case that it is not his own business.

          His bad business judgement and facilitation of POnzi scamming bubble pricing by paying into a horrendously over priced property asset alongside other parties is not simple business transactions gone south.

          It effects upon all of us. His actions have effected my income. My business dealings are not encroaching upon his income because i conduct my business accordingly as is the requirement when engaging in free market enterprise.

          YOu see deco the problem is too many people think they know how to transact business in a free market system and they quite patently do not.

          The glass bottle site nonsense is POnzi Rep in a metaphor.

          • Deco

            { YOu see deco the problem is too many people think they know how to transact business in a free market system and they quite patently do not. }

            This is correct. In fact I would say that an awful lot of them are talking about free market, and hoping that the taxpayer will prop up their “business interests”. Classic example, the two large banks.

        • wills

          Deco -

          Taking your argument to its Nth point, isn’t McNAMA an irish citizen to, so, he is accountable to the law of the land regarding his business practice. He participated in a Property POnzi scam at a very high level, no different to MADOff, different cloak same scam.

  6. The Mc Namara family come from North CLare in Carron in the middle of the BURREN .In this part of the world there are no fields only small gardens .The fields that these people inhabit in the desert of stone where they live are their chartered heavens of royalty they see above them daily .Their dreams are their lives and the changing heavens are their purpose in life.Simplicity of life is their Strength and Laughter is their Weapon.
    Many of the people that have once lived here are successful in many fields of education and professions and are worldwide.The seeds of their dreams were fruitful from the desert of stone they lived upon.
    I wrote my ideas in a book form where I used the decaying dark bleak cold limestone in the Burren as the story teller of a great age when that limestone was a super power in Ireland and now no more .At the end of the book I try to show that how today inside that limestone the remnants of that great age are still to be found .The name of that limestone was Dee Noblesse ( story teller) and it is fitting that Mc Namara could have been that story teller too.

    • Eireannach

      What a rambling load of bogger nonsense!!

      Boggers don’t understand the complexities of the modern European financial system, centred on the Bank of England and the ECB. They haven’t got a clue – and a fucking rock in Clare isn’t going to educate you either!!

      It’s like Karl Marx said – rural life is idiocy.

      • tony_murphy

        I for one enjoy reading your comments John ALLEN. I have learnt rather late that history is a great teacher. And I have a new found need to learn Astrology

      • Eireannach,
        Last year the site was completely open until one particular person brought personal invective and downright racial commentary to bear thus forcing our webmaster to require registration from all. It was disappointing at the time because prior to that unfortunate interlude and Ronans appeals for reasonable comment, it was a very mature forum.
        If you study the exchanges over the last few months, you will find many who at odds regarding solutions or just opinions. This is the healthy side of the site. Reactive and derogatory comment will demean the site. The use of foul language explains nothing but the parochial nature of your comment belies an ignorance of life outside the Pale. That life matters as equally as Urban D4.
        JohnAllen is a decent man who deserves a little more of your considered response before you launch irrational comments alluding to Marx.
        We play the ball here, not the man.
        F

        • Eireannach

          I know nothing of life outside the pale?

          J’en suis sur que je sois le seul contributeur sur ce site en mesure de s’exprimer dans la langue de Bruxelles et Strasbourg, où se situe notre gouvernement actuel.

          It’s I who thinks the whole lot of YOU posting on this site are parochial. You are free to prove me wrong by responding in French.

          • Eireannach

            @Furrylugs

            Try using more adult analogies rather than childish references to sport: ‘we play the ball not the man’.

            When you are watching your sport, buddy, I’m improving my French and German, because that’s the future of this country, whether island provincials realize it yet or not.

          • Ruairí

            I’m quite fond of my mother tongue, for social and cultural reasons. Also quite fond of English, as its the world language of business and economics (you do know that’s the main thrust of this blog, don’t you?).

            I’m also school fluent en Francais and so could wipe the floor with you. So go back to your Babelfish and keep up the good work, Jean-Claude. It is vital to make good arguments, whether couched in English, Francais, Gaeilge or Swahili (apologies to those guys, don’t know the native name for it).

            Zut alors!!

          • Eireannach

            @Ruairi

            Alors vous etes sur que vous avez une tellement bonne maitrise de la langue de Molière que vous etes, en fin de compte, en mesure de me battres à plates coutures? Moi j’aimerais bien voir.

          • Ruairí

            I wouldn’t have a better command than Moliére but than you, yes, yes I would.

            There’s a lot of things in life I would like to see too Eireannach, like NAMA abolished, but ……..oh well, we shall see.

            Perhaps you could do David and his French audience a wonderful service and translate his articles for their reading pleasure? http://babelfish.yahoo.com/ That will help, just in case you get stuck. Although one needs the vocabulary in the first language in order to be able to translate it. Nevertheless, just plug it in and see how you go gossún……

            “Ce sont les tonneaux vides qui font le plus de bruit.”

          • Can anyone translate “Miaow”?

          • liam

            Why is is that new people come on here and immediately start throwing rocks?

            I came here to learn not to read this tripe, in any language. Honestly, how screwed is Ireland when all you can do is trade insults? Whom does that benefit?

            二兎をおうものは一兎をもいず。

          • Deco

            Eireannach – learning a language is indeed the best way to learn a culture.

            But, be humble. We are trying to have a blunt honest critique of the Irish establishment. It has never been done properly before. And it is D4 as much as the FF front bench. It is IBEC as much as union bosses. It is TV3 as much as the Irish Times.

            You made constructive comments. But recently you have turned to anger. Yeah, I know anger too. Everybody knows anger. But we do our very best, to train ourselves to turn that anger into a resolve and a critique that will undermine the Irish establishment and the anger that it enforces on the people.

      • Deco

        Eireannach – I have to disagree with you there. The evidence that I present is that the consumption boom and the lemminglike behaviour was concentrated considerably in urban Ireland. In fact the bedrock of idiocy is the conspicuous consumers in the middle class who fuelled this debt bing. Or maybe the cliques in on SouthEast Dublin who were running the banks and the financial regulator. Of course rural life does produce village idiots. Marx never observed yuppies bidding for shoeboxes apartments in Sandymount, or battalions from the southside bursting through the barrier in Dundrum Shopping centre the day it was opened, or the conspicious consumers fling to New York for a ‘bargain’ in brand names(it is all about brands, don’t you know)…..Maybe it is the age we live in, but rural life seems mild, and deeply intellectual compared to urban living : )))

        John Allen has worked tirelessly in the 1980s and 1990s on bringing wrongdoings that were present in large Irish banks to the attention of the Courts system, and the regulatory authorities. Unfortunately, going to the authorities in Ireland to report a crime bu an ISEQ listed company makes you as popular as a preacher in a brothel or a human rights lawyer in Moscow. A coverup operation was mounted. John Allen persisted. The objective of tha authories, and the business interests was to implement an effective coverup.

        John Allen paid an enormous price personally and professionally for being a reformer. He was a hero in this country, at a time when we did not know how badly we needed hereoes. Because the cliques and cronies running the system were implementing an extremely effective coverup. We are talking about the age befre the internet.

        So we respect John Allen.

        Total Respect for the main man – John Allen. A1.

      • Ruairí

        Jaysus boss, i do be thinkin your posts aren’t suckin diesel atall atall, so they’re not.

        ps you’ve been reading possible miniformation from Tourism Ireland in their attempts to sex up rural Ireland. Plenty of Mass Rocks ‘Eire-knock’ but none of those pleasure-rocks you speak of. I don’t think we allowed the bould thing down this way until 1973…….

  7. David McW
    There is still this undercurrent of sensationalism running through much of the media
    There is a great danger that the same media (as per your recent articles) will push a self-fulfilling prophecy on this county. As a generalisation I am cynical of the media because the new-age world in which we live requires them (not totally unlike the banks) to create and sell product.

    I scraped a pass at economics A-Level many many moons ago — so I can’t claim to have the qualifications to counter your arguments — but perhaps this allows me to see things in more simplistic terms.

    I am at risk of repeating myself from previous posts but here goes:

    Ireland could not have escaped unscathed the seismic world wide wave produced by the credit crunch earthquake originating in the USA — even if we had been running the perfect economy; and that has to be acknowledged. Previous articles here have inferred that the economic collapse in Ireland was entirely of our own making.

    Ireland due to its 20th century historical odyssey massively lagged its neighbours in economic growth. We undertook to catch up — we caught up but we couldn’t apply the brakes (and they were defective anyway) in time.

    There was a massive system failure in the financial regulatory mechanism which caused us to crash rather than skid. Lets nail this to the piece now — the bulk of the problems we have here, not relating to the world wide credit crunch, were caused by the failure of the financial regulatory system — it kept fuelling an already over-heated economy. In my opinion all economic commentators should be hounding the authorities / Governments as to how they intend to introduce effective regulation (this is a world wide phenomenon — Governments are shirking financial regulatory reform).

    It would be useful to contemplate what toxic debts we would have had within our banks and society had we not had the world wide credit crunch. Would it be 25billion; 50billion; 100billion? Would we have had a more manageable problem?

    I previously posted that for us to have a chance of getting out of the mud — we have to assume (hope) that both the States and UK will undergo some kind of sustainable recovery. But this will take time.

    I used to play bridge and study bridge problems (strictly as an amateur enthusiast!). Complicated problems had 2 types of solutions. Scenario 1) So long as you could see how to solve the problem – you would always win however the cards lay. Scenario 2) You had assume that the key cards were in certain positions to have a chance of winning — because if they weren’t then you had no chance.

    Scenario 2 is where Ireland is today. We may have no chance if the cards fall wrong. The bridge analogy is something akin to NAMA — we have to assume it will work. Its function is to buy time to allow the USA and UK economies to recover. The USA is going through the process of foreclosures (and if there any crumbs of comfort sales although very low values are quite fluid). In effect it is lancing its poison. We have to hope that the economic damage brought about by the Sub-Prime debacle in the States was not so cataclysmic so as to result in the demise of the USA as a leading player in the World economy.

    I fully agree with you, re the analysis of Irish supposed middleclass wealth — it has been severely compromised and depending on how the timing pans out in calling in debt it may be decimated.

    The idea of leaving the Euro is cuckoo — the interest rate hikes that would be passed onto business would be terminal for just about every business — we would be competing against historically low interest rates of all our trading partners. Leaving the Euro fast tracks Ireland’s return to a 3rd world country.

    The Bondholders. There is not enough detail here or in any of the previous articles to determine the treatment of bond holders. Who are they are? What is their status with banks post transfer of assets to NAMA? An observation — it appears that David McW had the ear of the Minister for Finance for a time last year. The Minister rejected the proposals that David put forward re bond holders for a reason. I don’t know the reasons and does anyone else know reading this web.

    Developers: As David says these people are human beings — not criminals.

    Deflation — surely this is part and parcel of restoring our competitiveness.

    “We are where we are” is a reality statement and is only of value if its used as a reference point in knowing “where we want to get to”.

    I feel it would be so more useful if David’s articles concentrated on “where we want to get to” — give us some vision. We need to copper fasten our blueprint for our economic and social future. I argue that a strong property market must be part of that future and in order to ensure the sustainability of a strong property market we need effective financial regulation to safeguard against people and institutions abusing the strength of such a market.

    And here is a different spin on our current plight. Maybe we needed this shock so that we can bang our heads together. Perhaps it will mean realistic expectations from public and private sector; from Unions and from entrepreneurs. Perhaps it will mean a political system not encumbered with the baggage of the 20th century. Let’s minimise the sloganising; the labelling and branding of groups of people.

    Lets get our vision and work towards it.

    • tony_murphy

      You are not interested in listening Phil, you are in denial. David is one of the few people telling the government what to do, but they, like you are not listening. Like they didn’t listen in the past.

      You only hear what you want to hear.

    • PS
      Bloomberg surveyed 8 financial centres around the world. The highest tax for every 1million sterling earned was London – where approx 3/4million would go in tax. The lowest was Hong Kong – about 180,000.

      Could there be a clue here as to our vision?

    • Phil – taking NAMA as the best option is bonkers. Asking people like David to assume it’s the best plan, and to tell is “where we want to get to” based on this assumption goes against the whole ethos of this site / blog.
      PS I posted early as I’m based in Asia ;-)

      • You mis-interpretted what I said. David is a journalist who has to sell product; but he is also (from what I have seen over the last couple of years) someone who appears to have great passion for Ireland – that is a conflict of interest.

        The stakes are very high here – the return of Ireland to a 3rd World Country is a distinct possibility.

        I have had this before about this blog / site being the preserve of a few – i,e. contribute only if you agree with David. If this is the case then I will very gladly withdraw (and I had been thinking this anyway as much of the meaningful commentary is tired – and it was taking too much time which I need to use to re-invent my life).

        • tony_murphy

          Phil, how fair, proportionate and realistic are statements like the following?

          “I feel it would be so more useful if David’s articles concentrated on “where we want to get to” — give us some vision.”

          “Ireland could not have escaped unscathed the seismic world wide wave produced by the credit crunch earthquake originating in the USA”

          “There is still this undercurrent of sensationalism running through much of the media
          There is a great danger that the same media (as per your recent articles) will push a self-fulfilling prophecy on this county. ”

          ” we have to assume (hope) that both the States and UK will undergo some kind of sustainable recovery. But this will take time.”

          “I argue that a strong property market must be part of that future”

          • Tony – they are all extremely relevant; proportionate and fair; because they all hit the button – just take a look at the letter in the SBP yesterday underneath this article.

            As things stand (as David says in his article) we either fast track or slow track to becoming a 3rd World country.

            As things stand NAMA will slow track us to a 3rd World Country – however it keeps us on a track for a longer period which opens the possibility of being able to reverse out of our very very dire circumstances.

          • tony_murphy

            We will agree to disagree Phil

            Being from an Engineering background, I know that the cost of not fixing a problem increases enormously with time.

            I also know that telling interested parties the truth about problems at the earliest stage is always the best option. I experienced this having worked on a major IT project in the UK. The transparency and honesty surrounding the project was unlike anything I had experienced in my time working in Ireland. The project was a success because of the honesty of the people I worked with and for.

        • Colin_in_exile

          PhilRuss1,

          I don’t understand why you come to this site since you refuse to consider that David is a bona fide economist.

          You are acting like a crank. You are unwilling to listen to David’s views. You are retorting the same banal reposte all the time – NAMA is the only game in town or some variation of it.

          Listen PhilRuss1, we’ve all moved on past the NAMA argument, we all understand is a crock of sh1te, so perhaps you should take your opinions to somewhere like a FF blog.

          You’re not interesting, you’re not funny, get a grip on reality.

          By the way, the article was in print since early Sunday morning, meaning people could have read it, considered it, and formulated a draft contribution in a word doc long before this article was released online.

          • Colin – taking out your first paragraph I could turn that around on you/

            I dont regard David as a crank very much the opposite – which is why it annoys me when for instance he champions exiting the Euro. For many years this country was crucified by high interest rates and a weak fluctuating currency – I lived through it……

            As part of my vision I would have a Socio Economic Watchdog body and David would be one of the people I would have on it.

          • Colin_in_exile

            PhilRuss1,

            I never said that I think you regard David as a crank. What I said was that you are a crank.

            David’s opinions shouldn’t annoy you. Is he not entitled to say what he wants to say? Or does he have to run his articles by you so that you can give your approval to him and he can then proceed to publish? You seem to have a problem with information getting out into the public realm. We’re not going to be hoodwinked this time PhilRuss1.

            I do not read and post as a crank on this site, like I said before many times, I believe David is doing the country a great service by sharing his thoughts and opinions about this catastrophic economic situation we now find ourselves in now.

            Now, go and try to turn this around on me if you like.

    • PaulJCollins

      Well said, Hear hear, I agree with every word. Especially that Governments are shirking financial regulatory reform. I said this recently to a few friends who are still bankers, I asked what has changed in terms of regulation? The Answer: Nothing.

      With regard to bondholders…bondholders cover all aspects of the market. Bondholders can be governements, businesses and private investors. If you feck the bondholders you affect all aspects of the market. Also future government borrowing comes next to near impossible, with very high rates imposed. If you think its bad borrowing at 1.6% over what the germans borrow, how bad would that be if it was 10.6%.

      It would be the equivalent of going into your local AIB tommorow and asking for a 110% mortgage for an apartment in Bulgaria. Not gonna happen.

  8. Can someone please tell me why there is no public debate on this ?
    Other than these articles, there has been no discussion regarding the next phase that Ireland is entering –
    people are feeling the pain but when the situation is stated as clearly as it is in this article, they will feel even more pain and might even act to do something about it .. I read these articles every week but the inaction of the Irish people is driving me nuts!! Please DO something before the country is flushed completely down the toilet ..!!

    • Ruairí

      Well there are some good reporting pieces going about but yes, there is no coherent public-mindedness or national interest going on at the moment on the likes of RTE etc Not to whitewash all of their news team but, at times, it seems their hands are tied.

      But in yesterday’s Business Post, there are some interesting articles that point to the natural leopard spots in a Phase 2 of a bubble bursting: -

      http://www.sbpost.ie/newsfeatures/so-what-happens-next-46798.html Cliff Taylor averring to the mass loss of thousands of banking staff jobs.

      Over 200 retail outlets will collapse in 2010, according to figures. http://www.thepost.ie/story/text/eygbidauql/

      While Brian Lenihan told us after the Budget that, on some of his colleagues’ factfinding missions abroad on St. Patrick’s Day, they had indeed located Shangri-La and HyBrasil, and everything was gonna be rosy for 2011, this was in fact a mental reservation. Even if the raw economic data looked ‘ok’ and a turning point was spotted, we unfortunately are subject the realities of markets and the phases of bubbles along with the phases of bursts. The next phase involves deepening unemployment, no matter what they tell us. Here is the sanguine American reality: – http://www.moneyandmarkets.com/unemployment-is-the-most-important-challenge-for-the-u-s-2-37284

      Plus, as banks begin to chase profit rather than market share, in order to rebuild their cpaital base, the fun will really begin (no schadenfreude intended against those in debt). http://www.sbpost.ie/news/permanent-tsb-to-hike-mortgage-rates-46823.html. And that’s before Germany gears up say in late 2010, early 2011. We, as consumers of debt, will be in a perfect storm.

      I texted many radio stations pointing out the great good that the snow conditons may have achieved, for punter’s pockets, had they ‘saved’ their planned ‘Christmas Sales’ spend and paid down some debt. This is the vital next step for consumers. It will be hastened by the pay cuts and interest rate hikes. And government reduces spending at such a time? Madness. But if the bucket they’re using has AIB and BOI holes in it, then its never going to be fillable.

      The Chinese government has enticed and encouraged its citizens to personally buy into gold (as its reserves are scarily weighted in dollars which its trying stealthily to re-balance). Our government could do worse than implement a far-reaching savings scheme and draw on the strength and simplicity of ‘The Richest Man in Babylon’ to teach fiscal responsibility to citizens; through local credit union saving and retention of local jobs through the same interconnected local mechanism. Instead, our government is hell-bent onb saving private institutions that, even when they get a foothold, will not lend. Why would they? There is no social covenant in what they do. That’s perfectly understandable. That’s their bag. Its also understandable if we as a people cut their legs off at the knee by withdrawing our money.

      • Ruairí

        “I texted many radio stations pointing out the great good that the snow conditons may have achieved, for punter’s pockets, had they ’saved’ their planned ‘Christmas Sales’ spend and paid down some debt.”

        Addendum. I texted those radio stations in response to IBEC propoganda and grinding of teeth in regards to lost sales and damage to the economy. But of course, the money wasn’t LOST, it was hopefully re-chanelled to better things. As David, points out in this article re Germany, a society should not always be in fullblooded ‘save’ mode, as Germany is now (The German people are buying gold like there’s no tomorrow, from dispensing machines at Frankfurt or Munich airport?……..I don’t have the link but its unprecedented for them). Likewise, there comes a time when a society should pull back on consumer spending and begin to save and pay down debt. Our government is cheerleading the IBEC fraternity because, like every Western government, they are playing the economic growth / miracle game, the long bust in our case. The cover up job.

        • Philip

          Funny how your comment appears as last one in the blog.

          • Ruairí

            It was awaiting moderation, I surmise; well I could see that on my end anyway.

            I may have tried to post twice or three times. The site can do funny things! I think its the PDs spying on me………..

          • Tim

            “blood” in 25 and “death-grip” in 26 (perhaps?)

          • Tim

            Ruairí, if you use “blah, blah”, instead of blah-blah, you’ll get it through. I think Ronan has to adhere to some “anti-terrorism” bot software to pick-up certain words and phrases.

            Folks, I have spent a few hours reading you all and it has been interesting. I have nothing much to add at the moment, but I am thinking about David’s “Germans are saving too much” idea in combination with the multiplyer-effect being six-fold, while also reminded of the €100 bill-left-at-the-hotel-desk story, combined with the €84billion sitting in savings accounts in Ireland at the moment, as well as the damage caused by people spending their €s in a different monetary duristictio (“Nor’n I’rn”); All of this is tied into the point about the Germans spending too little: no multiplier-effect accross the Eurozone.

            I don’t know if you can make any sense of that blurb, but that is what I am thinking about, having spend my evening with you all. (not much, eh?)
            (no idea why this reply to Ruairí posted at 16.)

          • Our economy really is in the toilet. Look at the banks. The government is trying to suggest green shoots but investors are looking at our banks like they have economic leprosy. If institutional investors outside of Ireland believed there was a hope of economic recovery the share prices of the banks would reflect this with dramatic increases. The current prices indicate the market believes our banks are in a wind-down period. They’ll either be nationalised or will lag behind in recovery due to slow economic recovery in Ireland. I’m sure our politicos will are telling us that the worst is over and that things are turning around but it’s such BS.

          • Tim

            Shane Dempsey, remember my post here, on the latest “Budget-night” about Cowen, toddler-like, bouncing in his chair in the interview on RTE, saying “What we want is *clenched-fists-outstretched* Confidence, Confidence, Confidence!”?

            They’re still at the same trick.

          • Deco

            It does not inspire confidence when he cannot have a proper inquiry into the banking collapse. I suppose it is the usual nonsense about not wanting to scare away foreign investors, and the bond market for Irish soverign debt.

            http://www.independent.ie/national-news/cowen-accused-of-coverup-over-private-nature-of-inquiry-2022584.html

            We need a clean up. We will be promised a clean up. And that shoud pacify the population.

            And then we will get a coverup. As usual Fionnan Sheehan is painting the GP as the heroes. (Eh sorry Fionnan – but we have all realised that the Green Party are just a collection of of opportunists on the take, worse in many ways than FF, because of all the hypocrisy that comes from the Greens). Dan Boil has already spilled the beans on GP policy concerning the banks – the Greens will save the banks at all costs.

        • Dilly

          My response to IBEC:

          I am not a consumer, I am a citizen.

          • Deco

            IBEC’s response – saturation advertising, propaganda, hype, lemming control mechanisms, and all sorts of commercial promotion to make you feel as if your life is all about a consumption.

            IBEC do not want you to think about citizenship – you might be a danger to their running of their country – especially if discover that they are running the country. Therefore consumerism, “bread and circuses”. The worst thing you could do is say life is about living, and that living is not a series of brand endorsements and all that BS.

            And you will get the message subtle but hard to challenge that there is something wrong with you. Just like in the old Soviet Union, the critics of the regime were declared to be ‘insane’.

            A quotation by Ghandhi comes to mind.

            I agree with you concerning IBEC. In fact I think I will stick with that mantra myself. As an example to others. Yeah good idea there Dilly -good idea.

          • G

            Precisely, like the Chamber of Commerce woman on Frontline talking about ‘workers’ not reporting for duty due to the weather, I am first and foremost a human not a ‘worker ant’!

            These people make me want to vomit with their perverse language and thinking……

          • wills

            Its a jailor mindset slipping past the ego censor G.

          • Deco

            I don’t suppose the same representative had anything to say about the culture of “RipOff Ireland”. These people never admit that they are the real reason why this country is in serious trouble. Because they simply do not understand rule number 1 of business – Keep/Retain customers.

        • Malcolm McClure

          Ruairi: As you know, I am all for personal responsibility and prudence.
          In normal circumstances a cash savings account is a good place to put your nest egg if you are totally risk-averse. These are not normal times, so in spite of the illusion of deflation, inflation of the Euro could be just around the corner, to accommodate the profligacy of the PIIGS.

          Has anyone else noticed that the €/£ exchange rate has dropped 3 cent in the past week? David says that the Germans must be persuaded to spend more. What better way to loosen their purse strings that to give them a dose of inflation? If they see prices rising, they will buy sooner rather than later. Their savings are getting a low interest rate, which becomes negative if inflation were factored in. So the Germans could set off on a spending spree. They’ll head off to find property bargains in UK and possibly Ireland. What else will they buy?

          Conjectured inflation would be accompanied by a few years of stagnation. As an exercise in prudence, how would you invest your savings if stagflation rose to say 7% pa? Buy pharmaceutical and hi-tech stocks? Antique Irish silver? Long-term US Federal Bonds? ……Commodities, including gold are probably played out for a while. Mortgage rates will rise steeply but nominal house prices will rise faster than nominal annual mortgage interest payments. So we could get a new house price bubble beginning. Home owners would feel happy again, even though their nominal cash wealth were steadily eroding. Higher stamp duty from trading up might allow more public works and lower unemployment. …..Maybe?

          Anyone ready yet to join in the chorus?

          “Happy days are here again!
          We’ll drink the cup of cheer again!
          Happy days are here again!”

          • wills

            MAybe german s old fashioned prudence is more to do with something psychological, like, playing safe due to the perverse profligacy they are observing going on around them and it maybe tapping into an unconscious memory.

          • Eireannach

            You are absolutely right there Wills.

            The German’s collectively know that they CAN go collectively insane by believing their own propaganda and it can end very, very badly.

            The Irish and a few others in Europe, and of course the Americans, think going collectively insane is kind of fun. We get a giddy kick out of it while it’s happening. We don’t realize, yet, that it will end very, very badly.

            The Germans are about 3 decades ahead of us in this regard. Hence they are high and dry now.

            As Freidrich Nietzche wrote – ‘When one country becomes shallow, vain and foolish, there is a compensation for it…another country becomes deep, humble and wise as it watches the fool in his hubris’.

          • Deco

            Eireannach – concerning Ireland getting a giddy kick out of it’s own nonsense.

            I am just contemplating….did Ireland get a giddy kick out of having a contemporary love affair with her own importance….or did Ireland completely and absolutely lose the plot entirelely ??

            Evidently, we completely lost the plot. I knew Ireland could not get any more stupid, when I seen Ahern in the Canary yellow suit in the midst of world leaders.

          • wills

            Deco -

            Can i jump in there.
            Two words. Primary narcissism. Irish culture is in a state of arrested development which traces back into child sexuality and a choice of stage phase I or II or III for us to pick on which stage the culture as a whole is lodged in.

            i reckon it is worst case scenario, irish culture is lodges in stage I, clinging to the mammy breast like a mad lusty monster.

          • Eireannach

            @Deco

            All is not lost. Not at all. During the boom we overemphasized our importance as a compensation for feelings of failure in the past (not being as modernized as our European peers, losing our own language, etc). Whenever we were first in anything (annual GDP growth rates in the OECD, for example) we reported it with pride.

            We have been swinging between feelings of shame and failure, then feelings of overflowing pride, for most of C20 and again here in C21. We are at it again now, thinking all is lost and we have failed and the shame of it all, etc, etc.

            However, life will go on. The most positive thing for me is that now, in early 2010, nearly everyone in Ireland knows about the intricacies of double-entry book-keeping (how assets can become liabilities and positive net worth become negative net worth) as well as the complex financial instruments which have turned into worthless paper and destroyed our notional wealth.

            This awakening – traumatizing as it is – is accelerating our modernization and sophistication as a people by decades in a crash course of only 2 years or so. This crisis is a big opportunity in that it is making us far more sophisticated and less gullible and naive.

            We are not lost anymore – we are found. The wreckage we are finding, however, is the foolish, naive and not-fully-modernized characters we WERE over the last 10-15 years.

            We are learning fast now as a society which is very positive. The quality of debate on shows like Frontline is actually world class. I’m proud of this awakening, pity we needed such pain to do it.

            As Benjamin Franklin said ‘experience is a dear school, but fools will learn in no other’.

            We are learning from experience, getting more politically alert and so on. Ireland will be better for it. This is not a time for despair as in the past. I have the opposite feeling when I see people like Shane Ross on the panel of Frontline, which is prime time TV for a mass audience.

          • wills

            Eireannanch -
            Nicely put, each observation.
            I think though its one facet to a multi facetted problem.
            Ireland s ruling classes are ‘on the make’ and will seize any chance possible to get away with pulling a fast one irrespective of illumination, they are governed by their id and unrestrained desires.
            It will take an ‘asteroid’ event to neutralize this threat.
            I ‘m observing such an event underway now.

          • Ruairí

            Nice discussion malcolm. Yes I agree that hyperinflation is just aorund the corner. It is the ONLY mechanism left to drown the mountain of debt and derivative positions that are presenting themselves for payment.

            Antique Irish silver would be a good bet short-term. Native Irish silver is of a higher grade; as you of course do know, having suggested it. Silver has to close that ratio gap with gold. It could happen sooner or later. But it always closes. Of course, it’s very volatile too.
            Irish property could indeed get an injection of lifeblood from the prudential ones. Interesting tangent here.

          • Ruairí

            Malcolm, whenever the global economy decides to upswing, rare earth metals will be a very good place to be. For a number of reasons: – because they are used in high concentrations in the latest electric vehicles; who will benefit from the rising oil price as the economies recover; and secondly because China has a death-grip on the supply of those resources.
            http://www.goldstockbull.com/articles/rare-earth-metals-higher-2010/
            But I am sure you are extremely au fait with commodities and I reckon I could learn more from listening to you :-)

          • Ruairí

            Hello Malcom,

            this blog oculd be of interest to you regarding the safeguarding and growth of one’s money http://blogs.moneyandmarkets.com/martin-weiss/care-to-give-me-a-hand/

  9. The whole phony economy needs to collapse and the sooner the better. Lets face the music, the property market is no different to a pyramid scheme so the sooner it breaks down the better for the nation in the long term. It seems our government, including the opposition are clueless to this fact.

    We need to be investing in commodities, our own natural resources.

    I agree with David, we need to get out of the Euro, but I don’t think we should do this just yet. Rather than the loaned money going to NAMA it would be far better spent investing in energy we can export to the rest of the world i.e. wind, wave, solar, geo-thermal, gas, nuclear and oil. Wind, wave, gas and possibly oil will save this economy. So will our gold and zinc mines.

    Any imports from the far needs should be taxed heavily when over a certain limit to allow our products to become competitive, this should be done around the Eurozone.

    With the money generated from energy exports we can invest in a navy and use it to patrol our coastline. Any foreign vessels caught stealing our fish will be fined and deported.

    The NAMA money is loaned out to unnamed investors. What’s to stop it being loaned out to competent investors?

    If the banks are worth something then why don’t the government sell them on the free market? The truth is they are totally worthless and need to be liquidated.

  10. Hi,

    First up, we need a deep and forensic probe of the problem. That’s why an Inquiry is so important to get right.

    I’m beginning to gather material for thought around this here http://colmbrazel.wordpress.com/2010/01/17/fianna-fail-a-threat-to-democracy/

    I believe the lax supervision of our banking system, not only locally but also from those responsible for regulating the euro, should be a basis upon which we consider defaulting on bond holders or renegotiating.

    We need a towline from Europe or elsewhere similar to the The Mansholt Plan or Roosevelt response to the Great Depression.

    We are stuck somewhere in the following vortex that is sucking us down:

    http://en.wikipedia.org/wiki/Great_Depression

    “Debt deflation Irving Fisher argued that the predominant factor leading to the Great Depression was over-indebtedness and deflation.

    Fisher tied loose credit to over-indebtedness, which fueled speculation and asset bubbles.[15] He then outlined 9 factors interacting with one another under conditions of debt and deflation to create the mechanics of boom to bust.

    The chain of events proceeded as follows:

    Debt liquidation and distress selling

    Contraction of the money supply as bank loans are paid off

    A fall in the level of asset prices

    A still greater fall in the net worths of business, precipitating bankruptcies

    A fall in profits

    A reduction in output, in trade and in employment.

    Pessimism and loss of confidence

    Hoarding of money

    A fall in nominal interest rates and a rise in deflation adjusted interest rates.[15]

    During the Crash of 1929 preceding the Great Depression, margin requirements were only 10%.[16]

    Brokerage firms, in other words, would lend $9 for every $1 an investor had deposited. When the market fell, brokers called in these loans, which could not be paid back.

    Banks began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs.

    Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used.

    Bank failures led to the loss of billions of dollars in assets.[17] Outstanding debts became heavier, because prices and incomes fell by 20—50% but the debts remained at the same dollar amount.

    After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s).

    By April 1933, around $7 billion in deposits had been frozen in failed banks or those left unlicensed after the March Bank Holiday.[18]
    Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay.

    With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.[17]

    Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated.

    The liquidation of debt could not keep up with the fall of prices which it caused. The mass effect of the stampede to liquidate increased the value of each dollar owed, relative to the value of declining asset holdings.

    The very effort of individuals to lessen their burden of debt effectively increased it. Paradoxically, the more the debtors paid, the more they owed.[15]

    This self-aggravating process turned a 1930 recession into a 1933 great depression.

    Macroeconomists including Ben Bernanke, the current chairman of the U.S. Federal Reserve Bank, have revived the debt-deflation view of the Great Depression originated by Fisher.[19][20]”

    Your statement ‘Deflation — surely this is part and parcel of restoring our competitiveness’ unfortunately for me is part of the bleak government propaganda we are getting at the moment, which is preventing us facing up to our problems.

    Do you see Ireland Inc in the scenario above. Look at mass unemployment among the young. Businesses who up to now have held on with their finger tips we will see this year go to the wall.

    In a paradoxical way deflation is making our indebtedness worse and is a symptom of the quicksand that threatens to engulf us.

    As regards the future, we need to rid ourselves of the present incompetent government. Next government could look at flood relief, water works, railroads, communications, better support/development of agriculture, R&D, IT and the knowledge economy including pharmaceuticals and especially education infrastructure energy and fisheries.

    Hope some of the above thoughts help.

    • Ben Bernanke is a leading authority on the Great Depression and his policies are supposed to be counter-acting the above – and we wont know for many years to come whether those policies worked.

      Ireland in the world wide scale of things is small fry – and we rely on others. And I agree very much with your last paragraph – as I have said a number of times over the last few weeks and it is indeed part of the blue print for our future that I would like to see; and one that I would like journalists to pursue as well.

      • G

        Ireland’s 14 billion euro ‘economic adjustment’ over 3 years does seem like chicken feed when compared to 1 trillion dollar banking stimulus and 3 trillion dollars annual US defence spend, its all relative I suppose.

        Where has all the money gone? I think a certain former politician should be sued for economic mismangement (13 billion overspend on the national roads, e-voting machines, excessive ministerial expenses, failing health services, FAS etc etc) He should give back to the State the money he made off his autobiograohy as well as the speaking engagement money and the refurbished office across from the Dail and go off and do some volunteer work in Haiti where he can learn some humility!

        Another enquiry in the economic mess might finally sink his chances at a run for the Aras and finish Cowen’s premiership, now that would be a start in the right direction and make the paycuts a little easier to take.

        I sick of people saying ‘you should be grateful for a job’, is that what we have been reduced to, sickening state of affairs!

    • PaulJCollins

      1, An inquiry will get us nowhere, jesus the mentality of this country, inquiry this inquiry that. Do you know we spent millions of euro investigating payments of less than 100,000 euro in the last inquiry, and we got nothing really at the end of the day.

      2. With regards to the Great Depression, it is easy to compare the two events but in reality they are worlds apart. Current economic thinking is that to prevent long spread depression, you must not allow banks to fail, and you must contrain and regulate the free market. We have done the first part without the second, so we are doomed to repeat our mistakes.

      3. Wind energy and natural resources are our way out of this mess. Problem is our “Governemnt has already sold off the rights to many of these resources for a “small fee”!!!!!!

  11. My comment above was @Foolish Penny , should have been clear about that

  12. petercice

    i personally think that this year is going to be 10 times more tougher than the last.
    i have a feeling that a large number of SME’s were trying to survive into this year with the hope that things would begin to turn around but if people look at the flow of cash in the economy that is not going to be the case.
    reduction of government spending by 4 billion and also 4 billion per year spent across the border that is a total of 8 billion taken out of the economy which shall lead to higher unemployment which in itself leads to further reduction in spending in to the economy and so the cycle begins of the downward spiral of depression.
    we have no true political leadership in this country, no party with the drive to move us out of this political change is so much needed but seems to be the most overlooked aspect of our current situation

  13. Malcolm McClure

    Foolish Penny proposes:
    1. State should not buy any loans (bad or otherwise) and should not roll out NAMA.
    2. State should not renew state guarantee after September 2010.
    3. Zombie banks (BoI, AIB) should be allowed to fend for themselves.
    4. Reduce income (job) tax on employees and employers.
    5. Leave euro.
    6. Default on sovereign debt.

    It was telling lies that got us into this mess. Foolish Penny obviously has total contempt for truthful and honest dealing, which are the keys to successful, sustainable commerce the world over.

    Ireland needs a moral renaissance not more of the same old Bullsh1t. We have earned the beginnings of interbational respect through the steps Lenihan has already taken. If we follow the full Mccarthy plus Forfas formula, regardless of who is in government, we will in a few years regain full international respect. meanwhile everyone just has to grin and bear the unpleasant medicine we are obliged to swallow.

  14. liam

    David, (and @PhilRuss1 in particular),

    Ireland will not recover or even survive current circumstances until it takes a long hard look at itself and realises the myths and nonsense that the Irish believe about themselves being special need to be dispensed with. I’m also living in the far east atm and I can tell you that most people here have hardly heard of Ireland, and few could point to it on a map with any confidence. Ireland does not matter.

    I’m no expert on this stuff, but I managed to pick up a few interesting nuggets since my short time being here: The Japanese have had a more or less relentless decline in general levels of prosperity as well as gdp since their banking system emergency 20 years ago. Part of the reason for this is that the folks down in Kasumigaseki had been conditioned to believe certain myths about Japan and the Japanese.

    The US occupation of Japan (planned since way before Hiroshima or Nagaski) was initially undertaken with the specific objective of de-industrialising Japan so that it would never again threaten US interests in the pacific, however this became transformed in to turning Japan in to a bulwark against Asian communism. As well as creating an army, the US also allowed relatively unrestricted access to the US markets for Japanese companies(and for both Korea and Japan, giving them a currency pegged to the dollar). Effectively they were told to go and make as much stuff as they can and the US would buy it, the idea being to creat a powerful model for market economies in the far east. The resulting relentless growth in Japanese GDP created all of the things its possible to create when you have a guaranteed steady national income. The Japanese made the assumption, like the Irish that these circumstances would last forever. Their bloated and out of control banking system brought everything crashing down in 1989.

    The Japanese leadership (up to that point unchanged in over 30 years) believed the myths about their own success, instead of recognising that their success was based on a unique and unprecedented coincidence of favourable circumstances that were no longer in effect. So all they had to do was throw money at the banks and at public works, and sooner or later growth would return. Instead they got stagnating domestic growth, high levels of savings and a complete dependence on the export market. Most of their export driven gains since then, it could be argued, were fuelled by debt driven western consumer spending, funded ironically in large part by the Japanese themselves. The Japanese failure to adapt to changing circumstances is what guaranteed their lost decade (now nearly two, as most of the export lead growth from 2000 onwards was wiped out in the last two years). Declining personal incomes in the US, the funding of US spending by Japanese bondholders, and the collapse of communism should have been the writing on the wall for the Japanese. (Similarly for Ireland, the rise of China is the writing on the wall for those who think the US and UK will continue to be the engine of the global economy forever.) The major challenge for Hatoyama’s government, beyond reforming the political system and restricting the power of the civil service, is to finally shatter once and for all these myths.

    The lesson here is, that so many people in Ireland, including its under-educated and ill-experienced leadership and civil-service believe similar myths about Ireland, and fail to appreciate that we are living in a new reality that bears no resemblance to the last ten to fifteen years of abnormality.

    @PhilRuss1:
    Ireland is not Japan and it cannot export its way out of trouble, since it has no high value exports. Ireland is also not Japan, being smaller and ‘lighter’ and can in theory manoeuvre much faster than a bloated bureaucracy like Japan, sadly there is zero evidence of this happening. Rather everything that has been done to date has been directed at preserving the status quo. I agree a vision is needed but the Irish need to understand that if the country is to have any future, it has to start taking decisions for itself and not merely copying everybody else.

    You are absolutely off your rocker if you think NAMA is going to work and that relying on the recovery of the US and UK (in other words, the restoration of the status quo) will save Ireland. Belief in NAMA, and casting those that doubt it as pessimists and doom-and-gloom mongers, is just clinging to the myths of the past.

    • Hi Liam

      Thank you for reading my post – I dont know if NAMA will or wont work; I dont know if Ireland withdrawing from the Euro will or wont work.

      But if I had to make a cholce I would back NAMA ahead of leaving the Euro.

      All I see from the majority of posters here is a closed mind set – take a look at yourselves…….

      • Ruairí

        PhilRuss1, that’s generalist in the extreme. There is a healthy debate here as to how our collective national problem should be resolved.

        Some even think that NAMA is possible, but we must analyse what NAMA is and how it is implemented. Not simply say, NAMA or bust, no pun intended.

        NAMA has already significantly overpaid for assets based on any measure of current values and future NVAs. That casts doubt on the credibility of LTEVs and therefore the State (taxpayer) tab. If the burden was shared, and realistic asset prices were paid now, with risk shared equally by taxpayer and debtor, then PERHAPS more could see some light at the end of the NAMA tunnel. But, as is? Its a wheeze, a 2 card trick!!

      • liam

        Thanks PhilRuss, I have read this and most of the other posts you have made over the previous articles.

        If we cannot understand the ideological and philosophical delusions that Ireland and the Irish accommodated for the last ten years then we have no hope of producing a plan for the country. NAMA is merely a continuation of this deranged thinking, evidence of a complete failure to make a clean break with the mistakes of the past.

        I don’t think anyone can reasonably claim not to know how NAMA will work out unless they are clearly doing so from a position of ignorance. Even an elementary amount of digging up of professional analyses suggests that it will be a disaster, both in the scale of losses it (and ultimately YOU) will have to absorb, and in its utter failure to restore credit flow in Ireland, its primary stated objective. The Irish political system is incapable of coming up with a better alternative, as it is configured to protect centres of wealth and power. This is an optimum solution for them and is being sold as an optimum solution for everybody and this is plainly a deception. If you want to interpret such assertions as the product of a closed mind-set, that is your right. That doesn’t change the facts.

        It is a pity that the archived comments for older articles are unavailable, I think you would find a thriving debate there that would be very interesting for you, and here if you continue reading. Resist the urge to question peoples motives. That is an old Irish debating tactic that is employed to defend a weak position and produces no useful outcomes.

    • Eireannach

      @Liam

      Interesting story about Japan.

      The US treats Ireland and the UK as bridge-heads into the EU, just as it treats Japan and Korea as bridge-heads into Asia.

      • liam

        Geopolitically, sure, why not? In all other areas, its possibly not as simple as that, though as I say I am no expert. Having lived in both countries, I have the impression that in general terms Japan’s relationship with the US is or was in practise much more as a subordinate vassal state rather than the type of partnership they have with the UK. Practical steps towards redefining this relationship as more of an equal partnership is a current and ongoing hot topic in Japanese politics.

        I don’t want to overplay the role of the US, there were certainly significant domestic factors at play, but the backdrop of the cold war, and its abrupt end are certainly factors in Japan’s ‘miracle years’ and its decline. I don’t think it is possible to assign substantial blame for Japan’s financial crisis on the US though, it was a problem of their own making, much as Ireland’s problems are.

  15. Philip

    This long term/ short term debt crisis scenario described above by DMcW has put the final jigsaw pice in place and has turned to again to favour a Euro exit.

    Malcolm, You of all the sages in this blog are too well aware of the fickle nature of commerce and that International respect at a commercial level is an illusion. Hell, anyone will play with the devil as long as they give a return. That’s all that nonsense is about. We need to destroy the nonsense that debt is the fundamental driver business. It is not…it is the driver of grabbing market share from more prudently run operations.

    PhilRuss1 – Interest rates will definately shoot up and destroy businesses in this country. No doubt about it. I know many many business who have no debt who have been nearly put out of business by businesses who raised too much debt. Good riddance. I wnat to see the real businesses with real business plans back. There are lots of them. But as long as capitalism is not allowed do its cleansing work, the mistakes of the past will haunt us and kill this place off.

    Moral renaissance has been stopped in its tracks by NAMA and those fools we have governing us by faciliatating the same bad habits. Those business that grow from next to no debt will be hampered and the vacuous nature of our nation will become more highlighted as hard worker just chuck in the towel.

    Debt drive trivia. Hard smart work drives industry and real wealth. It is really that simple.

    • Ruairí

      “I know many many business who have no debt who have been nearly put out of business by businesses who raised too much debt. ”
      Agreed. This phenomenon is another phase in the bursting of a debt bubble. Businesses that borrowed massive amounts now start to offer free rents (eg business parks writing it off agaisnt future unit purchase), lower prices etc etc, all in a bid to get a mix of market / share and bearable margin. “Old” businesses, e.g. a silage contractor who owned his machinery, or a pre-1990′s owned hotel, cannot compete against this ‘new’ money and this is the direct result of irresponsible lending by banks. Unsustainable growth and competition in key sectors in their client base. So much for banking economists……..

      essentially, bad business can break good business. Especially now if its rotten short-life agenda is now government-backed by a NAMA monster that delays the market’s natural purging. Which would save good businesses. There was an excellent business case spelled out in this regard (shopping malls or business parks) but I can’t put my hand on it. I think I’ve linked it on DMcW before, over a year ago. Fascinating stuff, how bad loans rot a society.

      Its also not a million miles away, paradigm-wise, from Gresham’s Law: Bad money Drives out Good http://www.fff.org/comment/com0306q.asp

      • Ruairí

        Apologies, that reads incorrectly. The reason that the ‘old money’ competitor gets put out of business by the ‘borrowed money’ competitor is that the borrowed money guy runs out of steam, defaults, his asstes get picked up at 10-20cent in the Euro, and then the new guy has a much lower cost base from which to extract a profit and hence offer silly prices into the market. Hence destroying ‘good money’ competitors. This is the rot that Wills constantly avers to when he demands that moneylending must be a utility. Derivatives, and the like, mean that in a value-investor world, you would be better keeping your wallet in your back pocket, as NO ONE currently knows where the value lies. Or the roadside financial bombs.

      • tony_murphy

        That was a great post Ruairí, your link to Gresham’s Law was an eye opener

    • Malcolm McClure

      Philip: Even if the views offered at 13 were a ‘straw-man’ argument, they point to an essential truth about the double standards often expressed here.

      tony_murphy said at 7 above: “having worked on a major IT project in the UK.
      The transparency and honesty surrounding the project was unlike anything I had experienced in my time working in Ireland. The project was a success because of the honesty of the people I worked with and for.”
      i.e. Honesty works to everyone’s benefit.

      I cannot see the logical consistency of those who argue against cronyism, nepotism and totally unscrupulous bankers, yet who argue, as you do, that “anyone will play with the devil as long as they give a return”. If that is what is taught in Commerce departments in Ireland then its students will find that though it might work in darkest Africa, it won’t wash in any civilized nation.
      Anyone who tries it there will find themselves led up the garden path then right royally shafted. Comments Mooney?
      Those who argue that we can all just default on our debts and walk away from our commitments are living in a Fool’s Paradise. We cannot condemn the Cute Hoors on one hand whilst endorsing their practices on the other.

      • @Malcolm,

        I think you are missing the point.

        What is argued is that there should be a basis upon which we consider defaulting on bond holders or renegotiating.

        ‘Defaulting’ is the extreme end.

        Just as we had 100% mortgages and taxbreaks eg Section 23 on rental property http://www.daft.ie/content/taxissues.daft , along with greedy bankers, bondholders knew about our credit rating and where their money was being invested. Due diligence went out the door. OT isn’t it time to end the banking bonus culture for good and to set a cap on banker salaries for those banks in receipt of taxpayer’s billions?

        Bond holders just had to take one look at the bank balance sheets and know to whom and where money was going. Arising from this they have ownership of a good proportion of responsibility in our banking collapse.

        This should be the haircut upon which we need to renegotiate.
        As a layperson, at a minimum to protect our future, we need to renegotiate NAMA with ECB to include the clause; if losses in excess of Government claims, over the lifetime of the NAMA project, say 10 years, occur, they will be written off by the ECB and not levied upon the taxpayer.

        We shouldn’t accord bondholders a blanket guarantee but rather negotiate on the basis of their irresponsibility and lack of due diligence.

        Government have been backed by the ECB through the bonds issued to support NAMA. Here again our Government have shown how easily it is to separate fools(themselves) from their money.

        It should have been possible through risk sharing to agree a deal with the ECB for payback terms conditional upon the success or otherwise of the NAMA project. This deal would have protected the Irish taxpayer.

        Unfortunately, unconditionally, the Government have thrown in their lot with the bankers and eurocrats who’ve both fleeced Government and taxpayers together.

        Concerned economists like D, Taylor, Lucey, Stiglitz and others continually try to point out the folly of our Government’s approach.

        We need an Inquiry to tell us if there was collusion between eg Anglo/Developers/Politicians. With a forensic, detailed, evidence based conclusion we can build a future on more than layman’s conjecture.

        Hopefully, the distribution of accountability of ‘we are all in this together’ will be shown to be false and accountability will be accorded to the small busload of errant Irish oligarchs, Section 23 politicians/bankers/developers who led us into the mess.

        OT anybody read the wanton, crazy, madcap, list of absurd investment decisions by McNamara over the weekend, you could only cringe!!

        If the euro continues to ruin our economy, if the ECB are intent on plundering us through NAMA, if we do not receive a decent economic towline from the EU, then, I agree, cut the towline and lets sail free of the euro.

        Let’s look to the US and the Irish diaspora and with their help and experience build a better place from the ground up.

        By all means, though it shouldn’t be our first option, lets seriously consider declaring Ireland Inc bankrupt and default on our loans. We could consider a monetary linkup with UK and Sweden perhaps or partial decoupling from the euro.

        Many banks would fail and should fail, but from the ashes, we’ll be back to build a better place for taxpayers including better banks:)

        • Malcolm McClure

          cbweb: The time was not so long ago when a bond was as good as gold. It was backed with everything you had. No renegotiaton. No senior bonds. Just bonds. Defaulting on bonds spelt The End.

          Then somebody invented Credit Default Swaps. Soon bonds became an elastic commitment whose value was determined by credit agencies’ ratings. Who cared? The default was covered by insurance. Those insurance policies were traded as if they had value independent of who owned the bonds they covered. That value increased if the assets backing the bonds decreased, providing a jamboree for speculators, who could play both ends against the middle, which they did. Consequently, if every bond defaults, based on the assumption that someone, somewhere, has covered that bond with an equivalent CDS, then we only become liable for those bonds whose owners can prove conclusively that they have never been covered by a CDS. Likewise for all other debts. In this way we pass the burden of the debt to where it rightfully belongs, the guarantor of the CDS.

          Regarding bank salaries and bonuses. Whilst BOI and AIB remain un-nationalised, the government has no way to control how they are managed. Long-standing shareholders have given up on them. Bond-holders are covered each way. Having divested most of their physical assets, each banks’ total value is mainly as a manipulative organization, which will evaporate if they are nationalized.

          Regarding the Euro. We have nothing to lose by hanging in there with it. There is enough uncertainty about, without trying to launch a new floating currency. I, personally don’t think the Euro can survive without enormous inflation. We can deal with that when it happens.

          Forget the Diaspora. They love Kathleen Mavourneen, not the corruption endemic in modern Ireland.

      • Philip

        Malcolm, We are talking 92K per working head at current employment levels which are heading downwards Exactly what logic do you not understand?

        • Malcolm McClure

          Philip: Wait until the cork comes out of the Euro bottle. Then you’ll understand.

        • Eireannach

          @Philip

          That’s 92K per head IF people service their debts, which is clearly impossible beyond a certain point.

          Ireland will remain in the eurozone, and the number of bankruptcies will be astonishing by the measure of any precedent anywhere in world history.

          ATM a bankrupt in Ireland is undischarged for 12 years (at least that’s my understanding from DMcW’s article a few weeks back).

          So all these people you know – perhaps even your good self – will be bankrupted. You’ll then have red ink beside your name at the Credit Bureau. But life will go on in Ireland.

          We will remain in the eurozone. I can’t understand why otherwise pragmatic commentators on this site won’t accept that we will not leave the eurozone – it’s so utterly out of the question, it’s practically absurd.

          YOU WILL BE BANKRUPTED by our remaining in the eurozone. Big deal – life goes on.

          In 1841 there were 500,000 people living in Tipperary. There were 250,000 in Roscommon. Today Roscommon has 60,000. That’s a much bigger change to Ireland than the horrendous flood of bankruptcies now swelling toward our shores.

          But life will go on in Ireland, and Ireland will REMAIN in the eurozone and, finally, I think you all know it but still won’t take eurozone membership as an a priori starting point for your constructive suggestions for Ireland’s future.

  16. Original-Ed

    Foolish Penny – I think that you’ve got a comprehensive plan there – it may need some tweaking . Something drastic has to be put in place to get us out of this “slow bust” downward spiral trap. I’m sick of the bullshit spin like the “worst is over” clap trap coming from the powers that be. Most of us can see what is happening now and people like Tony the engineer and myself saw what was happening during the boom period. Unlike Cowen then and Lenihan now, we would have had a reasonable grounding in probability and risk and it was blatantly obvious from early on, that the construction sector was going nuclear.
    Phils concern about interest rates, would not necessarily be a problem for business if a devaluation turned the economy around to where it was again lead by demand – turning over the same working capital a number of time a year with high interest rates is far better than tuning it over once, if at all, at low rates. There would be a problem with mortgage repayments, but something could be done there to dampen the initial shock.
    The big plus would be a resurgence in activity and falling unemployment.

    The debt overhang denominated in Euros would increase by possibly 50% relative to the new currency, depending on the devaluation of the Punt Nua, but so what, we would be generating wealth and not dying a slow death as we’re now doing.

  17. Cantonisation of IRELAND – Schweiz on Atlantic ou Suisse sur Atlantique
    We are surrounded by Floods of Debts and Demands from Creditors from afar that are nearer than ever before.Switzerland is a small place surrounded by very large countries and many have been hostile to it in the past .Ireland is in a basin of water while Switzerland is surrounded by mountains.Switzerland decided to cantonise itself to remain together as a federation and thus it speaks many languages as a result to pacify its neighbors.
    Ireland essentially owes all its debts to Germany and rather than criminalising the general public and injecting pain into the well being of the country why don’t we cantonise Ireland .Maybe Germany will want Kerry and West Cork .In exchange for this ‘change of politics’ our debts are forgiven.It’s simplistic and practical if there is a will and way sold by our politicians.The north is a plantation by Calvinist in culture and Britain by Politics .We need to re-invent our political dream and make it work and sell it .
    The pain we have is a financial one and no worth while cure can be found in it’s economic structures .Maybe new political thinking will bring that to us instead.

  18. strathspey

    John Allen, comparing Ireland to Switzerland….you have to be kidding me. Have you ever visited Switzerland? The Swiss are so disciplined, driven by the constant need for perfection that they make all Irish seem like rough, delinquent amateurs!

    • G

      Ah but the Irish are great craic don’t you know, surely that tips the balance firmly in our favour.

      Or as Harry Lime in the Third Man put it, the Swiss had 500 years of peace and what did they produce…………: http://www.youtube.com/watch?v=dv1QDlWbS8g

    • Ruairí

      The Swiss also had the best-trained mountain guard / riflemen in the world. And a shocking terrain to attack. Since the late 19th century, and the development of modern weaponry, few countries neighbouring Switzerland, in fact, have devised a pragmatic plan for invading it. and that includes Hitler. Hence ONE of the reasons he never did. Of course, there are others too ;-)

      ps I think the Germans already own substantial amounts of West Cork and Connemara. Now if we could just get them interested in our midland bog vistas……..

      • Deco

        I know a German from work living in Germany. I was telling him about the Irish pub experience on the continent. How in the heat of the summer you go into an Irish pub – the windows are blacked out. Inside it is really cold – like the Irish summer. You smell the home smells, Guinness, crisps, Club Orange, Potatoes, Lamb stew, etc…And then sit down and watch a match from Corker. It is a home away from home. After an hour an Irishman forgets that he is away from home-until he walks out into to heat of a continental summer.
        And the German replied – I do not go to Irish pubs. Everytime I ever went to an Irish pub, I always met somebody who was trying to sell me something.

        I responded. “Trying to sell you something ? Unbelievable. So much for the Irish being sociable in a pub, when there were trying to do business instead – and tell me – what were they trying to sell you ?”

        And the German replied. “Real Estate”. “Investment schemes”. Usually “Residenz real estate”. Promising to make me rich.

        An I replied. “Unbeleivable. We obviously have gone way too far on the whole property thing now. These clowns are giving the rest of us a name for conmanship”. We are the Arthur Daley of Europe. And he was Irish too !!!

      • G

        The other reason for not invading (Hitler could have no problem just send in the bombers, flatten Zurich and the Swiss would have sought terms – at least that’s how it worked out the strategy game the other night :-) was the Swiss banking system, which the Nazi’s more than availed of, along with depositing stolen art work and God knows what else………..American Jews and others are still trying to get their money back, so Lime’s comment, although humourous, is not accurate, the Swiss get to Guard the Pope and created one of the most famous banking systems in the world!

        As for the Germans owning half of the West of Ireland, slightly overstated :-) – , they almost came to ‘own’ the whole lot, as you probably know, ‘Operation Green’ (highly original) had photographed Irish installations for bombing as a precursor to invasion, in ’95 the Cork Examiner had an interesting article outling the plan, first oil and port installations bombed in Cork’s lower harbour as well as major sites in Dublin (not sure if that included the bottle factory site :-), bombing of all major Irish cities followed by invasion on South East and Southern shores, with parachutists dropped at important intersections and bridges, could have cleared a lot for future construction projects which the German controlled ECB would have funded (with the ‘silver tongues’ talking of Berlin style possibilities)………

        http://www.youtube.com/watch?v=perjAnGd6-U&feature=PlayList&p=F3C3C7089F0EB1D5&playnext=1&playnext_from=PL&index=63

        • Ruairí

          Careful G, slippery slopes, I can see those military metaphors infecting you! Next you’ll be preaching liberation theology, Von Clausowitx and Sun Tzu back at me !! :-)

          • G

            Indeed, I’ll just have to hold the impulse, on Clausewitz, funny you mention him…………………….. :-)

            Sorry couldn’t help myself………… ;-)

  19. Thanks for the feedback so far gang, Here’s a slightly updated draft. Assuming you’re against NAMA, do you have any specific comments on the below?

    ——-

    Optimal Layman’s Proposal for the Economic Future of Ireland (Draft Version 2)

    Why do we need an alternative to the State Bank Guarantee, Tax increases, NAMA and Welfare Cuts?
    - We will see continued wage and price deflation. Deflation of say 7.5% plus interest rates of 5% will result in real interest rates of 12.5%.
    - Increase in rate of mortgage defaults, and families losing their homes.
    - Export costs remain high. Salaries remain high by international standards. Expect 100,000 more job losses, marriages and families destroyed, mass emigration, property “value” deflation.
    - Banks (AIB, BoI etc) remain in business, carry on.

    Proposed Personal approach for ordinary Irish people:

    1. Check personal status (pensions, insurance, investments etc) with independent financial advisors.
    2. Place / move all savings and investments to international institutions (euro denominated).

    Proposed National approach for Government:
    1. State should not buy any loans (bad or otherwise) and should not roll out NAMA.
    2. State should not renew state guarantee after September 2010.
    3. Zombie banks (BoI, AIB) should be allowed to fend for themselves. Live by the knife, die by the knife.
    4. Reduce income (job) tax on employees and employers.
    5. Leave euro and default on sovereign debt.

    Results:
    - “New Punt” drops in value — exports and foreign investment rises, imports drop. Personal assets held internationally in Euros can be transferred back in, taking advantage of new FX rate.
    - Local assets drop in cost and value — net / net, no local impact.
    - Foreign held assets increase in cost and value.
    - Main banks nationalized, wound down or sold off.
    - Investors currently wary about Ireland. For a brief period, all will retrench when Ireland defaults, but will then flood back in for cheap, well educated, English speaking, low tax, work force which straddles European and US timezones.
    - At a later stage, “New Punt” can be pegged to Euro (or USD or GBP etc) a la Sweden.

    • mewho

      well here we. there is no clearer case for ignoring the advise of the superego mcwilliams then has been set out about. ‘move ur savings and investments etc’. why is that piece of info instructive? because it is assumed by all posters here that u have them. mcwilliams himself and the vast majority of posters here are from a recognisable social class. rugby school educated boors. leaving the euro would cause carnage and inflict terrible pain on the less well off. mcwilliams might know his sums but his understanding of society, the broad social contract and his sociological commentary are primitive in the extreme. we are in a very tenuous position at present but economic blitzkrieg is not the answer. and until mcwilliams acquaints himself with the the complexities of both the social and economic spheres of the body politic his rhetoric is useless.

      • Ruairí

        That’s a pretty mad claim to make!

        I’ve never played rugby in my life! Not even tag rugby. Went to a CBS. I’ve worked in sales and marketing all my life, consequently never had a secure job, lost savings through businesses, made great money for others, never bought property, bought gold with what I had.
        Like other posters here, I believe in the honesty of work, the inherent value required in transactions etc and can see the rot that is present in our current financial system.
        I advocate cutting our banks off at the knees. others do too. But I’ve never seen david McWilliams ask for that? Can you point to that amazing statement please?

        There are all walks of readers here on D McW. I would wager that most have never played rugby to be honest. Others?

      • wills

        Never played rugby.

        If ever i’ve observed an economic blitzkrieg its NAMA.

        The problem is if one gets too bogged down in all the complexities one will never make a move.

        D is all about balancing thought with action.

      • Colin_in_exile

        Never played rugby, did not receive private school education, survived Christian Brothers institution and to top it all for you – I’ve never owned property.

      • tony_murphy

        Never played Rubgy, don’t even watch it. Don’t think much of the many Beer guzzling fanatics that follow the sport either. I have similar opinions on soccer and the GAA I’m afraid

        Educated in a Vocational school – just about as far from a Rugby school as you can get.

      • Tim

        mewho, I am an impecunious teacher who knows nothing about rugby.

        What extraordinary assumptions you have made about those who read here!

      • Fergal73

        I played rugby once (got me a half day out of class) for the C under 15 team. Never played again. Played soccer and GAA.
        Went to a public comprehensive – CCC in Limerick that had people from all income levels (except the very top). Looked at buying in 2002, decided it was a bubble then. Emigrated in 2004.

      • Ruairí

        “because it is assumed by all posters here that u have them” This is at the heart of our malaise mewho. This victimisation, this powerlessness.
        This ‘grass is greener on the other side’ nonsense.
        No matter who you are , and whatever your circumstances, it behooves you to be in control of your own personal finances. Until you are, you are a child in the world of men. If you are laden down with debt and nowhere to turn, you still must take control with 1. knowledge and 2. that first step. As the ad says “trust me, I know what I’m talkin about”. It takes little guts, in fact it takes cowardice to get into debt. It takes real guts to get out of it. Those that take these lessons will learn some of the most valuable things in life self taught. A lesson that our cabinet has not experienced yet. They’ve all been in power in the good times and there was no shortage of funds to waste.
        I say it again, to all who are in debt. Take responsibility. Read the Richest Man in Babylon. Be humble and accept the simplicity of the stories and the core principles. And if you’re too proud to hack it, you’re going nowhere. I was in major debt when I first started reading DMcW. Along with Rich Dad, Poor dad and many other such teaching aids / mentors, I decided to stop feeling sorry for myself and take responsibility for the debt of my 20′s. Some here say you cannot invest in gold, for instance, if you are laden with debts etc. Perhaps not gold, if you are wary of it, but save? Invest? you can and you MUST. Alongside the other elements of your financial plan. You do have a plan, don’t you? The wake up call is here. Every euro you put to work now in paying down debt or investing / saving (even a tenner a week into your credit union or PO) has a cumulative effect when you let it. Ditto for your debts. Deco preaches constantly about responsibility and Malcolm McClure too. It is one thing to disagree about eurozone participation but saving and investing? Gimme a break. If you can’t take control of your life and even start somewhere and save €25 a month into Prize Bonds, then you should not be in receipt of any money. You are a danger to yourself, whoever may be reading this, not just the victimised mewho.

      • liam

        Good grief! And I used to think nobody but the home-counties British could display such obsession with social class…

        A friend of mine spent a couple of weeks this summer hitch-hiking around Ireland on a budget of about €5 a day. Basic food and accommodation and a lot of reliance on the kindness of strangers. His summary comment on the experience was that Ireland is not the Irish Times or the Irish Independent.

        The class cliches and conflicts (public versus private sector?) presented in the popular media are irrelevant in the day to day lives of most people, so why bring them up here? Are you suggesting people with middle-class backgrounds should be ashamed of this fact? The background and upbringing of people, factors over which they have zero control, is of no importance in this debate and you would do well to remember that before castigating people about which you know nothing on this basis alone.

  20. G

    In response to David’s article, part II of this ‘crisis’ is definitely on its way, the tsunami that follows the earthquake, sometimes things ‘don’t just work out’ or ‘will be just fine’, sometimes, in fact, the piper has to be paid, this is one of those occasions………it will be a rough year for many, the macro consequences, in good political fashion, will be put off for another day through massive borrowing and putting out ‘the worst is over message’……….those in the know see the figures, alas, they do not lie, game, set, match – you will the consequences (like I saw in the US in 2004-5 when huge resources were being spent in Iraq and Afghanistan), with public infrastructure declining, roads not being maintained, public schools closing, hospitals making ‘life and debt’ decisions, the same will happen here, the kitty is empty so you will see a gradual depreciation of the State, God help the poor, while I would prefer to stay I think it may be time to look at international postings and a better life, regrettable but my depleted pay cheque at the end of the month will be the decision-maker.

    • Ruairí

      In George Carlin’s assessment, the poor are there to put the frighteners on the middle-class and make sure they turn up to work to keep the juggernaut on track. Not far wrong.

      • G

        Interesting take on poverty – ‘pour encourage les autres!’ as NAP once said.

        It could well be there for such a reason (among others), few things surprise me anymore.

    • Ruairi – come on. Martin Weis…… have you signed up? and how many dollars did you pay?

      Too many links for me – trouble with the web you can find so many posts to either refute or support arguements it actually becomes counter productive.

      So I am signing off here for a while – perhaps I will come back and inform you how my vegetable plot is doing.

      But I leave you with this message – ineffective financial regulation combined with over used tax breaks were largely responsible for the problems that we could have controlled.

      We are too small to let the free market rule here.

      A sustainable strong property market is a good thing as it is a basis for confidence – and has worked very well in Australia; Canada; USA; UK and Ireland – until / unless people tried to skin it (i.e. ineffective regulation and market interference by Government; and personal greed) over and over again. Different in Europe because 20th Century history created a reluctance to own property.

      Please could we get a blueprint together so that we dont make the same mistakes again if we ever have the opportunity to do so.

      I estimated that had Ireland undergone sustainable growth over the last 20 years we should have been expecting Exchequor receipts of circa 42billion this year – I think that may be a good ballpark figure.

      We have motorways now from Dublin out to the main regional centres – thats a dynamic positive.

      We have tthe Euro and EU to give us some protection – because we are too small without it.

      We have water all around us and that makes me feel secure.

      My doom and gloom worry for our planet is the fact that both India and Pakistan possess nuclear weapons. But that is a positive for us.

      Good luck to you all

      PhilRuss1

      • Ruairí

        Yes Phil, I have signed up About a year ago. And I receive very valuable free information. For those with assets to defend, then there’s very valuable paid info also.

        Why valuable? because like David, they respect economic cycles and have called so much correctly that its almost conspiratorial. Except they’re outside of Wall St and a pain in the ass to most of Wall St too.

        Martin Weiss’ father was contrarian at the end of the Great Depression and built up a substantial, trusted business. His son has done likewise. What are you afriad f PhilRuss1? Why did you protest to a link to MoneyandMarkets? That’s a tad bizarre to be honest. Weiss are feted for their vision and accuracy.

        Don’t fear good info.

        Also well worth checking is another guy related to Weiss, Larry Edelson, on http://www.uncommonwisdomdaily.com

        You say there’s too many links for you. Until we all start taking responsibility for our health, finances and lives, we will spend our time cleaning up the messes that others have caused. A few hours a month reading up on such issues and making decisions for ourselves is all that is required to regain personal power in our lives. Simple as.

  21. petercice

    an interesting point for me in the relation on how we work things in the civil service here compaired to germany is something very simple that i picked up when i was over in berlin about 2 years ago.
    i was over on a trip with a friend of mine how was doing some business with a company there and as we were collected from the airport and been taken to the company office for the meeting we both noticed that the grass along the main roads in the city was very overgrown and untidy.
    my friend asked the driver why was the grass not cut and he turned and replied in a very simple answer we either cut the grass or pay for the hospitals which do you think is more important.
    maybe if our government took such an aproach to simplistic things like this then we would have been in a better position than we are now.
    in relation to german people now buying gold early last year the chinese government had told its population that they should be buying gold to hold in there personal savings this is a clear sign to me that we are in for a long term struggle within the world economy as there is now a massive move from spend to save if this is the case then i feel that we as a nation are going to be in a darker financial situation than we currently are as our government is banking on a pick up of the international trade market to get us out of this hole.
    http://newirish.blogspot.com/

  22. Tim

    Wow! Just look at this, for a perspective from outside of our country:

    http://www.newstatesman.com/economy/2010/01/ireland-irish-social-dublin

    • I’m outside Ireland at the mo & sent that one to my family “back home” – how come there ain’t riots on the streets right now?

      The only thing I can think of is that 90% of Irish people are confused, and even though they don’t trust FF, they see no other option to NAMA.

      That’s one of the reason why I’m trying to develop a “Layman’s Alternative”. Sorry to keep harping on about this. I think it’s worth putting effort in to – feel free to disagree.

    • Ruairí

      My Jesus!

      “Such is the level of misery being endured by the increasingly bewildered citizens of this little republic that even Brian Lenihan, the man principally responsible for inflicting it, has publicly acknowledged that fellow Europeans are “amazed at our capacity to take pain”. The finance minister added, slightly boastfully: “In France there would be riots if you tried to do this.”"

    • Well hello every body …so many posts so many just been repeated again and again.
      Blaming the Germans for saving !!
      So I’ll just give you this link ..take what you want from it But Take a Side.
      Real Action is needed now , enough talking and bull shitting with our every increasing lines of prose .

      http://www.youtube.com/watch?v=MTN3s2iVKKI

      David when are you back out on the road , Matt Cooper sold out before Christmas and he’s on the same side as you .

      Start The David McWilliams party to challenge our FF FG SF Lab,and silly waffling Greens. Give The Youth a Better Choice ,…please

  23. Strathspey – think harder and political it can work if you try.We can change if we want or remain in the dark ages.

  24. wills : I agree .However Sex is not a choice it has to be used .The Bankers FcUk#d It.

  25. Deco

    In Ireland, fortune favours those who are sceptical of everything that they hear from their betters in “authority”.

    Pity those who believed all that business, and the media told them. This time it is different. Eh, actually, no. This time it is not. Just another ponzi scheme going the way all ponzi schemes go – dragging the entire economy into bankruptcy.

  26. Deco

    David – I am reading your article. And most of it is interesting. But you rant against the Germans for saving too much makes no sense. The Germans have been prudent. So have the Finns, the Dutch, and a significant proportion of the French.

    A much better question would be direct to the electorates of the PIGS – who beleived scoundrels like Ahern, Zapatero, and Berlosconi, and believed that you could operate an extensive system of state patronage, fostering nepotism and waste. And in the case of Zapatero, Brown, and Ahern, that you could have a ponzi scheme economy with banks on steroids and people getting rich buying and selling real estate to each other.

    The Germans did not cause Ahern to be Taoiseach. He got a landslide of seats on all constituencies touching the Irish Sea. The only thing stopping Ahern from getting his overall majority were all the fringe candidates scattered along the Atlantic corridor, and McDowell’s “Single Party Government” no thanks manoevre.

    Mainstream Ireland is responsible for this mess. We chose to borrow all that money. We lost the plot. We have to grow up and behave like responsible adults. I think that we have behaved, on aggregate like irresponsible children during the Ahern era.

    • Original-Ed

      Decco, less of this “we business” – I didn’t get involved – I had an interest in industrial property for my own use and bank shares for my pension before the madness. Still have the property, but dumped the shares when AIB sold its headquarters. I didn’t gain much – it was always only a small side show to my main activity which is an obsession with exports. Caught the bug in my youth abroad when I worked for a Company with 4,000 employees, 900 of whom were in R&D, and exporting world wide. There I got my first glimpse of the promised land far, far away from all the political strokes and cronyism that was and still is the norm here.

    • Fergal73

      Deco – full agreement on your German point, that was my first thought on reading it. Why should the Germans spend to save our A$$et$?
      The Irish electorate put FF in charge, ignoring the pedigree of CJH, the Flynns, turned a bling eye to the Galway tent, the digouts and wins on da horses. The Irish electorate is the problem – the pathetic assumption that Enda Kenny is no better than the corrupt incompetents we know.

      I didn’t buy, I emigrated in 2004. I’ll stay away another 5 years or so and see what it looks like then. Property prices may bear some realistic valuations then.

      • Ruairí

        Fergal73, not saying I agree that anyone should spend, but I think David might be continuing the thread from another article whereby he likened a union of European States to the American federal model. So when we stop spending (crazily), someone elese should be stepping into the void etc. perhaps that’s what he’ s hinting at. But again, I’m only guessing.
        everything is cyclical but, with a culture of wealth preservation, and some financial scares in their history, Gunther is not likely to start buying our stuff anytime soon. Have we any stuff left to sell that’s not MNC? !! Although MNC exports will look v sexy when we look back in 5 years’ time and they’ve walked too :-(

  27. Emperor Charlemaign is our real banker not ECB and his twins Sarkozy and Merkel are co-joined at the lips.So we must listen to what they say always.Oversized lips don’s fit so to have a say in your own affairs learn to sing from the same hymm sheets and enjoy the music.

  28. AndrewGMooney

    Msg 2 Jean-Claude Trichet: “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” J. Paul Getty
    Given that DMcW’s has to ‘moderate his tone’ for the MSM, this is as blunt Bruce Arnold’s recent piece:

    http://www.independent.ie/opinion/analysis/bruce-arnold-the-sooner-brian-resigns-the-better-for-the-economy-2006138.html

    But what ‘end-game scenarios’ need to be considered? It seems to me there are the following possibilities:

    1] Years of grinding deflation to bring the Periphery into line with the core Euro zone. Move towards full monetary and political union. This seems to be the favoured outcome of Trichet, McCreevy, Lenihan and the like, and it’s the action plan currently in place.

    2] Fracture of Eurozone into Core-Euro and Peripheral Legacy new ‘Lira-Drachma-Peseta-Punt’ zone. Could happen if Stavros Zorba Lorca Flatley can’t / won’t put up with the societal impact of 1] above.

    3] Pressure from US/UK forces Germania / China to rebalance currencies / trade flows. Unlikely in my view, although a discussion of the ‘barbaric relic’ and J.M Keynes’s ‘Bancor’ could usefully be tabled at the next G20 summit.

    4] Failure of 3] above leading towards some kind of managed ‘war’ for Peak Cheap Oil and other resources. The Gulfo Zone implodes due to this managed resource conflict as the LPG implications of the Shale Gas Game-Changer become embedded in the liquid fuels crisis-management energy markets. Economics is war by other means. Sun Tzu, etc.

    5] Outlier option: Ireland decides to follow through on DMcW’s long-held vision of an entrepot Atlantic trading hub, shifting alliances and allegiances as per Venetian example. This would require the absence of a Euro ball and chain to Continental bloc. Radical but ‘they’ won’t allow it to happen. Although it could come about as a strategic response to 2] if Ireland is part of a general blow-up and not the errant pupil being punished alone. This would require visionary thinking and planning by the current FF/FG freak clique, thus is highly unlikely.

    I can see various combined scenarios as equally likely. Some mean Ireland ends up no longer a ‘sovereign’ nation but rather a region of a greater superpower, like the various Han-absorbed regions on the periphery of ‘China’. Whether that’s good, bad or indifferent depends on your view of Ireland’s past history and its’ present unfolding dramas.
    Extrapolating wildly, and for no particular reason, I can see the following Orwellian C21st outcome by 2030 with estimated circa 9 billion population as follows:

    NAFTA America under ‘new dollar/amero’: 1 billion. Neu-Euro Europa-Zone + Russia: 1 billion. NACTO ‘North Atlantic & Caribbean Trade Organisation’ of island nations- Britain, Greenland, Iceland, ‘Commonwealth Caribbean’ including French-reparation reconstructed Haiti as new Eden. 0.5 billion. Chindia. Population: 3 billion. Non-Chindia Asia: I billion.
    Africa +Af-Pak ‘Post-Pandora Chaos Zone’. Population: 3 billion.

    Or maybe there will be a Kunstler-esque end to the ‘yeast people’ instead of The Singularity? I won’t be around, but my children will, God help and protect them.
    Cameron’s ‘Avatar’? Haiti / Hispaniola was Pandora and the Omaticaya were/are the Arawak. Haiti is an island crushed by the slavery of debt peonage. I guess Iceland, Ireland (and possibly Britain) face a more subtle form of debt deflation devastated by the latest Overlords of New World Disorder.

    http://www.avatarforhaiti.com/

    • G

      A movie in the US makes $1 billion and rising globally.

      US spends 100 billion on annual military operations in Afghanistan alone (set to rise) more on Iraq, trillions on ‘defence’ overall.

      US contribution to Haiti, the site of the worst humanitarian disaster in UN history and supposedly in the US ‘backyard’ – a nominal $100 million! Think that about sums it up for me.

      • PaulJCollins

        US budget for defence is $600 Billion this year. Sums it up for me too. $100 for every person on the planet they are spending on defence.
        But bearing in mind they did cause this whole mess by rescinding the financial constraints put on the free market after the great depression, they probably need to spend this much.

        • G

          That’s the figure from the US Dept of Defence, which excludes many “military-related items that are outside of the Defense Department budget, such as nuclear weapons research, maintenance, cleanup, and production, which is in the Department of Energy budget, Veterans Affairs, the Treasury Department’s payments in pensions to military retirees and widows and their families, interest on debt incurred in past wars, or State Department financing of foreign arms sales and militarily-related development assistance. Neither does it include defense spending that is not military in nature, such as the Department of Homeland Security, counter-terrorism spending by the FBI, and intelligence-gathering spending by NASA.”

          Total US military spending is easily in excess of one trillion dollars. Stigliz estimates conservatively that the war in Iraq is a ’3 trillion dollar war’ when you take into account equipment, current and future spending and that is just Iraq. US has to maintain over 200 bases world wide,

          They are spending over 100 billion for one year in Afghanistan alone just to keep 100,000 troops in the field, and that is a relatively small operation. Again, this is probably separate to Defence dept. number.

          You are talking a couple of trillion, easily, more than all the world put together. So .1% to .05% will go to Haiti as aid if at all. As Ocean Colour Scene once sang: “No profit in peace boys, so we gotta fight some more”.

  29. Jonathan Hannon

    Has anybody noticed that the infamous Rothschild banking family have been slipped in very much under the radar. To anyone that doesnt know who these guys are, be careful where you look for your information. A lot of the sites loose the run of themselves and go off on one of these controlling the world theories. But there’s no smoke without fire. There’s no doubting that the Rothschailds have significant power and influence. They are to be feared??

  30. G

    Dr. Martin Luther King’s Economics: Through Jobs, Freedom
    http://www.thenation.com/doc/20100201/engler

  31. I meant as well as a salary cap for bankers in receipt of taxpayers support, also an end to bonuses!

  32. Philip

    Look, let’s forget about the pros and cons of NAMA, Political parties etc. I would like someone to explain a way out of the following scenario…
    We are around 1.8M employed about now.

    1.8M employed – payback 94K each
    1.7M employed – Payback 100K each
    and so on to 1.4M – requiring 120K each

    and all of this with dwindling wages etc. not taking into account that our debt will rise due to more SWel hits.

    PhilRuss1 maintains we need to hold steady and wait for the UK and US to come back becasue all other options will bury the lot of us. Malcolm maintains we need to honour our debts or forever be banished from the world of honest commerce. Both maintain we will always be in trouble if we do not address the core dishonesty and mismanagement in this country. And personally, I believe there is adequate honesty and savoir faire if unshackled.

    Good to see everyone wants everything to be better.

    A quote from William Blake…Prudence is like an old woman weighed down by the cloak of necessity.

  33. Art1980

    As we enter phrase 2, take a look at this Economist from Argentina at the following link.

    http://www.youtube.com/watch?v=UlDNMB6wYmI

    Let me know what you think.

    • Deco

      Thanks for the link Art. Never heard of this Argentine economic thinker before. He has a strong emphasis on hyperinflation. His views are relevant to us here in Ireland, because we too have a bunch of cowboys in charge, and a corporate looby group which expresses undue influence on the government of the country regardless of who is in power.

    • Colin_in_exile

      Thanks for the link Art. Very interesting, I think Option 3 will eventually occur, WW3. If there’s any survivors, and they write updated history books, you can be sure funny money will not go down as a cause for the war, instead it will be the assasination of some public figure.

      Another way of looking at it is a clash of civilisations. Samuel Huntingdon’s book predicts WW3, with the muslim world being wiped out.

      http://en.wikipedia.org/wiki/The_Clash_of_Civilizations

    • mewho

      what a load of bollocks. i crazed anti semitic crank.

    • tony_murphy

      Thanks Art, it makes a lot of sense

  34. wills

    David.

    Fascinating Article, really fascinating, the wind is at your back and you are steaming down the tracks.

    I do not agree with the point on germany savers are a problem though.

    In my estimations i do not agree with this concept that one must spend savings.

    For me it is a red herring.

    One can never build up too much savings.

    One can rack up too much debt though.

    The argument is put that if we all saved spending would go down and consumption and production follow.

    So what i say.

    Davis it is like this. The operating system of a free market is not contingent on consumption. It is contingent on innovation. And savings in the bank is essential for innovation to bloom cos,

    savings = capital.

    • G

      Apparently (according to ESRI) the Irish are saving like ‘crazy’ – no wonder why, but horse may just have bolted…………….hope the savings get stuck into the local credit union!

  35. Deco

    { We can still borrow, but this is just part of the long-bust strategy. When you have private sector debt that is three times GDP — before you take into account the fact that public debt is moving towards 70 per cent of GDP and prices are falling by 5 per cent a year — the short-bust is the best of the bad options.}
    So basically we need to admit that we need a short bust, and we also need to stop propping up failed banks of no systemic importance, Anglo, Nepoto (INBS), Edo (EBS) and Permo (Irish Life). We also need to stop borrowing 20 billion a year, and cut down of the ludicrous tax breaks in certain areas like Ditherers book and certain property schemes.

    And we need to get real as a society. Ireland is facing bankruptcy, and we need to get a grip of the reality of the situation.

  36. wills

    David.
    The exploitation of government bond issuance is another issue in article which is worthy of an article unto itself.

    The ‘controlling interests’ are using gov bond issuance to stage a gigantic ECB print run of euros, under the cloak of a cover story titled NAMA, and all this cash on the way rolling into the banks will be siphoned off.

  37. DOBrien

    I have a modest amount of saving which I put aside while the country was going mad buying stuff they couldn’t really afford. Is it safe to leave my money in Ireland? Is it a possibility (greater than 10% say) that the government guarantee could collapse ?

    • Fergal73

      Yes – it is a possibility that the guarantee could collapse.
      2 Options
      1) they don;t renew it.
      2) the IMF come in and the guarantee becomes worthless.

      Where you put your money is up to you, but don;t leave it all in irish controlled or backed institutions.

    • No such thing as “safe”. You can try to look at Ireland’s CDS rates to guage likleyhood of a default etc. To be safer, you could out your savings into an international bank with an Irish presence.

  38. If every state employee in the numerous quangos,civil service,and HSE were told that their jobs were gone and they were being rehired at a salary of 19,000 Euros per annum our debt problems would be on the road to resolution.
    now one member of my family who is a professional (solicitor) is now employed on these terms in the private sector.
    How much can Fianna Fail screw out of her in taxes(of any kind) in the coming years to maintain the state sector in their relative luxury.?
    the question that interests me is,why do foreign lenders continue to lend money to the irish government?

  39. Alan42

    That article really hits the nail on the head . The part about Mc Namara really says a lot about what is wrong in Ireland .
    While I was in Ireland I had a very interesting conversation with a business accosiate about the scale of the problem with Irish banks .
    This guy has been in business over 30 years and is a well known company within their field . They employ over 100 people in Ireland and 40 in the US .
    He has a major contract with one of the biggest companies in the world . This business relationship goes back about 20 years .
    They will not pay him for work done until May ( its part of the contract and a long standing arrangement .) He has no cash flow until then . The banks will not extend his overdraft . They have not even asked who this company is who will be paying him .
    I asked him what he will do and he replied ” beg , borrow or steal ,and failing that , its 100 more people on the dole ”

    I am in business a long time and that conversation shocked me to my core .
    He thinks 2010 will be just as bad as 2009 .
    Through other conversations I have discovered that its not just developers who had personal guarantees . I heard horror story after horror story from business people .

    • G

      No doubt about it, those who went out on a wing and a prayer will have the wing clipped and the prayer unanswered………….hurricane coming……………….business failures and rising unemployment, government forecast another 75,000 unemployed for 2010, could surpass the 100,000 figure by year end if the domino effect kicks in, finger nails stuff, you couldn’t make it up…………

  40. MaxKeiser

    At some point in the near future if all this come to pass, the Euro will no longer be our currency & before this happens there will have to be a point where, to allow transition (for a while) Euro money will not be allowed out of the country / Irish Bank a/cs ( as Deco wrote months ago).

    How could ythis be achieved while retaining civil order & still satisfy our Multinational Corporations…

  41. wills

    Sections from new statesman link from tims post.

    It puts very well the points Davids wrestling with in article above into a back story with a twist in the tail at the end.

    1 – At least two generations look destined to pay a painful price for the follies of the golden circles whose scams, swindles and con jobs have lumbered Ireland with zombie banks that make RBS and HBOS look relatively vibrant. Anglo Irish alone may swallow over €30bn of public cash, equivalent to the total revenues collected by the Irish exchequer in the whole of last year.

    2 – Dublin’s fragile coalition government seems far more spooked by the danger of international investors downgrading their country’s credit rating (which would make the cost of borrowing substantially higher) and the spectre of the IMF seizing the financial reins. Dublin is determined to distinguish Ireland from Greece, whose continued profligacy threatens to destabilise the entire eurozone.

    3 – The 20 per cent cutback in state expenditure that the Irish want to implement within the next four years is intended to comply with an important requirement for membership of the single currency that member states keep their expenditure deficits down to a maximum of 3 per cent of GDP.

    4 – The European Central Bank (ECB) agreed to bend this rule when the extent of the global crash became clear, but it has set firm deadlines, between 2012 and 2015, for each state to recomply (Ireland’s is 2014). Members of the cabinet have stated repeatedly in recent months that everything they have done to address the country’s economic crisis is in accordance with ECB advice. No one in Dublin doubts Ireland would have been in the same mess as Iceland had it not signed up to the single currency, the main reason the Lisbon Treaty was passed by such a huge margin at the second time of asking.

    4 – The term “Tory” originated in Ireland. It derives from the old Gaelic word tóraidhe, meaning outlaw or robber, and was initially a term of abuse for the isolated bands of guerrillas who resisted Cromwell’s brutal campaign in the mid-17th century. Since these rebels were allied to royalists, the term became embraced by monarchists on the British mainland, and, in time, by the modern Conservative Party.

    Ireland’s self-styled republican party, Fianna Fáil is obviously anything but monarchist but has it become monetarist in an ideological sense; is it too simplistic to say the party is engaged in a zealous crusade to squeeze the country’s money supply, re-engineer society according to a social Darwinist blueprint and neuter the trade unions.

    Interesting back story on ‘tory’ and its origins in ireland and FF and its supposed allegiances and where one may find green is something else all together.

  42. wills

    In relation to the debt deflation phase it is important to keep in mind what the shape of our economy in the “boom times’ was. Here it is, again new statesman link.

    The one-time island of saints and scholars had become a land of spivs and speculators and a manufacturing outpost for American multinationals. Ireland’s economic miracle was always somewhat hallucinatory, because these US firms, heavily concentrated in chemicals and pharmaceuticals as well as computer software, used it as an Atlantic tax haven and route to the EU marketplace. Ireland Inc was always far richer than the national workforce, three-quarters of whom earned less than €40,000 per annum, even in the good times.

    And the post celtic tiger ‘boom times’ shape,

    During this period, popularity – and peace with the unions – was bought by slashing income tax and shovelling much of the proceeds of the nation’s property boom into a bloated public sector as well as vastly increased social-welfare benefits. When Ahern took office in 1997, the average single person on €40,000 a year paid 40.6 per cent of their annual earnings in tax. By 2004, this had been cut to just 19.7 per cent. His government cultivated rather than cured a widespread phobia towards taxation of any sort. Even when the price of a three-bed semi in Dublin rose to €1m, there was no serious move to introduce a council tax (or any separate source of local government finance).

    Meanwhile, concern mounts that Dublin’s shock therapy risks a deflationary shock that could not just collapse public-service provision, but propel Ireland into a full-blown, Japanese-style depression.

    Liam @ 14 for the japan info.

  43. wills

    Fergal @ 3 nails the bottom line on the motives across the board who went with the property POnzi model of easy money post 2000 here in Ireland.

    As is with all POnzi scams it ran out of new comers and collapsed.

    We now are in phase II as D’s article points out to this collapse.

    Sean kelly shouts out @ 9 the straight forward solution the economy must go through to re juvenate, which is, leave the free market be and let it find real market equilibrium price on property.

    Rents will fall, house prices will fall and the re adjustment will be short and the outcome will be good.

    NAMA stops this happening.

    NAMA prevents our economy going through this cleansing process.

    NAMA keeps the free market operating system in Ireland on rigged ‘mode’.

    ECB is facilitating the implementation of NAMA.

    If we were outside of the EU and issued our own currency etc we could not get away with doing NAMA and its cost and property would find its real market equilibrium price and more of us could afford to own a home.

    People are been deliberately been kept from been able to afford and buy their own home.

    People are been forced to pay outrageous rents on dodgy properties.

    Why?

    Why are the controlling interests doing everything they can possibly invent up to do to interfere with property prices.

    This weird weird neurosis is still with us in bringing in NAMA and continuing the POnzi property scam down a new avenue.

    Bizarre.

    • Fergal73

      I wish it was bizarre. I think it is pretty simple.

      The controlling interests (property developers, bankers and FF) assets are predominantly preperty related. If prices approach true market value (average house = 4 – 5 times average wage) then those controlling interests lose money.

      They are therefore doing everything they can to prop up property prices. NAMA is a support to the property market.

      No neurosis is involved at the upper end. FF have been financially supported for the last 15 – 20 years by developers and others in the property game. FF know their funding from regular joe’s will not be forthcoming. FF wish to survive. The only way they can is by supporting the developers.

      FF action in that light is entirely rational.

      That they may (will) fail doesn’t matter to them, it is their only option for survival. The Irish taxpayer now and for generations into the future will rue the folly of electing FF over and over again.

  44. paddythepig

    http://www.irishtimes.com/newspaper/breaking/2010/0118/breaking31.htm

    Here you go. Put everything on the credit card, and let the kiddies pay for it.

    As for Trichet admonishing the Gerries for saving? Well even if you put a gun to their heads and made them spend, what would they buy that we produce? A few packs of ham? A frozen pizza? The problem is that they make and sell desirable stuff, and we don’t. Forcing them to spend will, by and large, only end up churning around their own economy, and other producer economies. The real problem is we have too many fly-by-night merchants trying to think of ways to welch on their debts, inflate their currency & run for the hills, instead of knuckling down and thinking how to innovate, how to make products and services that people abroad want to buy. It’s the Irish people who need a change of approach.

    As for schadenfreude. Well, I nearly felt sorry for BM after his telly interview the other night. Then I heard he had hired a PR company to help him with what he had to say. That’s a good one ; a guy is billions in debt, and he’s hiring a PR company. Then I thought, what about all those poor unfortunates BM was happy to stick with a ridiculously over-inflated price for a roof over their head. Did he cry then, when Billy-no-job signed on the dotted line for a 500K mortgage? No he didn’t. So less of this ‘he’s from the Burren boo hoo’ and ‘let’s be generous and be nice to the lad’ shite please. And BTW .. I doubt anyone here was hanging out of BM’s coat-tails David .. they were too busy out there trying to scrape a living.

    Paddy

    • tony_murphy

      “The real problem is we have too many fly-by-night merchants trying to think of ways to welch on their debts, inflate their currency & run for the hills, instead of knuckling down and thinking how to innovate, how to make products and services that people abroad want to buy.”

      I agree that Ireland Inc needs to start producing and exporting, but who would be bothered taking risks in a country run by FF? or FG or labour for that matter. Where is the investment going to come from? Are people in the private sector going to break their backs working to end up paying huge taxes for the benefit of bankers, politicians, bond holders, casino capitalists and the like. I can’t see it. Ireland is very broken and will remain broken until there is serious reform.

      Bloated public service (is it 3000 in Entreprise Ireland, Quago’s everywhere employing the friends and families of the politicians).

      My guess is that massive emigration and unemployment is the future.

  45. Haiti has always been a suffering country and in dire poverty and no one seemed to care until now.What is interesting are the following:

    1 It took an Act of God to cause a new interest in this country; and

    2 Americans have taken total control of the land sea and air of this country; and

    3 All Criminals have got free and are in hiding and back in business again ; and

    4 More suffering continues dispite the best efforts so far ; and

    5 Mogul Business CEO’s have arrived to protect their business in Haiti ; and

    6 New Political Paradigm is being prepared as we speak;; and

    7 The country’s Political Houses are distroyed; and

    8 Arrival of a new language ( English ) ; and

    9 Local Political Parties have disapeared ; and

    10 Their Nationhood is LOST.

    should we compare this with our Irish situation how does it differ?

    • CREST

      You forgot, both with a majority Catholic population.

    • Deco

      Point 3 { All Criminals have got free and are in hiding and back in business again ;}

      That sounds as if Haiti has gone down the NAMA route.

    • G

      “Haiti has always been a suffering country and in dire poverty and no one seemed to care until now”

      I’m afraid that is not true, people have been writing and highlighting Haiti for years (maybe not in Ireland); I personally have been monitoring Haiti and reading material since at least 2003.

      Maybe in Ireland it might seem like that as international news is covered so poorly (something I wrote to the RTE DG about but received no response) – look at RTE’s coverage of Copenhagen – non-existent, no context, no follow up. Look at RTE coverage of South America (argubaly the most exciting place on the planet) – nothing.

      Charlie Bird has been exceptionally poor, I saw him in Haiti last night give an extremely lack lustre and poorly put together report, Channel 4 with Jon Snow were streets ahead, far more impassioned, far more insightful.

      The Irish Times has a bit of international coverage, but its pretty mainstream and sometimes appalling. The Irish Examiner had an article on the evils of Morales in Bolivia, that his policies were exacerbating poverty etc, which was a total misrepresentation of the facts, again no context, no history bar the last six months to a year, ignoring the rape and pillage of the indigenous country in the previous 5 centuries of course, again I tried to correct the record with the ‘journalist’ involved.

      At times it feels like we live in our own little bubble and it can quite infuriating, conveniently no articles on US troops going through Shannon and the consequences for Iraqis and Afghans. Only one article I spotted (Irish Examiner) on Ireland’s role in the international arms trade. You’d need to be a full time academic/researcher to analyse the Irish media entirely, these are just my observations.

      Thankfully people like O’Toole and Peadar Kirby are still writing good stuff, but they are exception that prove the rule. Lara Marlowe in the Times had an article ‘analysing’ Obama’s Nobel speech, but not too critical, all pretty mainstream, no one gets too upset at their breakfast etc………no wonder events like 9/11 come as shock, people are not informed of events on the ground.

      Do they know why Haiti is poor? Has been kept poor? Do the Irish know of France’s role is raping and pillaging Haiti for centuries? For demanding reparations for the successful slave revolt? Do the Irish know of US intentions to militarise space? Obama’s refusal to sign a treaty to ban landmines? Of the 400 million covert fund to destabilise Iran? of the 4-5 million Iraqi refugees in Jordan, Syria and elsewhere? The countless displaced in Afghanistan? Of AfriCom? Of the Chinese role in the Sudan? Of Ukranian arms deals? Of Israeli Nuclear weapons? Of the extent of theft of Palestinian land? Of the dissolution of Mexico? The revolt in Chipas? The terrible poverty in Guatemala/Honduras? Of Liberation theology and its role in empowering the poor in Latin America before the Church tried to snuff it out?

      There was the big hoop-la about the fall of the Berlin wall, but what about the construction of the massive wall in the Palestinian territories, illegal under international law that has led to creation of cantons, or open air prisons, as bad as anything under the apartheid system in South Africa, supported directly by the US and indirectly by the EU, I could go on…….

      Haiti is the mere tip of the iceburg of injustice in this world.

  46. Deco

    http://www.independent.ie/opinion/letters/cowen-is-ringmaster-of-political-circus-2020781.html

    The title says it all. The picture of Clowen and McUseless, both laughing on the back of their excessive salaries, is also highly relevant.

    • adamabyss

      Did you write that letter Deco?

      • Deco

        No. I remember reading it and thinking the contributors on the board will think it was me because your name is called Declan.

        No, actually I just seen it, and concidentally it expressed perfectly how I feel. I suppose this is a good sign. When the number of people who are able to see through all the nonsense is continually increasing, that you can become confused with another because that individual has also woken up.

        Message to the K Club Clique – we are increasing in number !!!

  47. Good Morning everyone and thanks again for all the comments and the vibrant state of the debate.

    I’d like to clarify something on the “Germans saving too much idea” and it is this; for a monetary union to work without political union and fiscal federalism (which may be two, if not three, generations away) it is incumbent on all members not to run up too many imbalances, either surpluses or deficits.

    Germany’s gargantuan surpluses are a sign that its economy is dreadfully imbalanced. It is saving too much; maybe because the real rate of return on investment in Germany is too low or because its population is too old and has passed its consuming years. There are lots of other reasons which we can discuss. However, the upshot is a glut of savings in the Eurozone which will try to find a home where the “promised” returns are highest.

    In Europe this home tends to be on the periphery which (by definition – if the EU is serious about convergence) is faster growing. The return on equity will be higher in a faster growing region than a slower one, and thus, money with no exchange rate risk but enormous real risk, flows into the likes of Ireland from the like of Deutsche Bank. The lack of exchange rate risk is misdiagnosed as a lack of actual risk, leading to bad decisions.

    This creates boom/bust conditions and makes the Euurozone unstable and inappropriate for some countries as this carryon will be repeated time and again

    I am not denying our culpability (i’ve been highlighting this for some time now) but I am looking at the supply of money in the Euro as well as the demand.

    As always, i’m open to be refuted and challenged, or even dismissed. Thanks again. David

  48. Original-Ed

    McNamara built a new Hospital in the hope that his mate Bertie would organise a swop for an old one in a prime location. You couldn’t make it up!
    “Nama awaits most of McNamara’s other acquisitions once the new agency’s personnel have completed their evaluations. These include the €400m Elm Park development near the Merrion Gates in south Dublin (accommodating 28,000 sq m of offices, a hotel and a hospital) which McNamara developed with O’Reilly, his Killarney-born partner in the €65m Galway Radisson, and which was built by Michael McNamara.

    The shell of the new hospital strikes a forlorn metaphor for Ireland’s economic crash. McNamara had banked on the National Maternity Hospital (NMH) moving there from its antiquated premises in Holles Street, following a formal resolution by the board that its long-term strategy was to relocate to the Elm Park district of south Dublin.

    That plan was dashed when the NMH put its relocation plan on ice and embarked instead on a €15m extension to its existing premises. McNamara’s hospital has not even been fitted out.”

    http://www.timesonline.co.uk/tol/news/world/ireland/article6990959.ece

    • Good article on McNamara, Justine is one of my favourite journalists.
      “He has often averred that he was never interested in the money and this may be just as well because he will effectively be working for Nama from now on.”
      You could not make this drivel up.!
      For a Prince of Fianna Fail patronage with ” no interest in money”,he has managed to impose a serious interest in money-and survival- among a few million people who will be paying for his ruined empire for generations to come.

  49. Philip

    As DMcW points out the elimination of exchange rate risk never eliminated the risk of boom/bust/default which resulted from mismanagement. I believe the local regulatory authorities dropped the ball on not monitoring interest rates becasue it was not their currency anymore. The local currency was the litmus paper test for local performance which got thrown out of the local dashboard for monitoring economic performance 10 years ago.

    We need to understand the interconnected nature of Euro not just within Europe but outside it as well. If Greece throws a wobbly, the contagion effect on Ireland will be immediate. ECB will pull in its helping hand from the PIGS to defend the Euro. It has no choice – either that or it goes into Greece right now and acts as an IMF – but where is the material enforcement? And then we have all those US military bases there and their own army – keeping the Muslims at bay. What a tangled mess this is becoming. Pull the Euro from Greece and you risk destabilising more than just the Euro. Greeks have the ECB over a barrel – but how long can the latter hold out if things do not improve?

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