June 28, 2010

Ireland learns Latin lessons

Posted in Banks · 63 comments ·
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You gotta love Maradona’s new look – and his team are playing like angels.

What more could you ask for?

I’d love to be a fly on the dressing room wall for his team talks.

Let’s hope the Argentinians go all the way, because they are a joy to watch.

Seeing the Argentinians play football got me thinking of the mistakes they have made economically over the years. As someone who visits Argentina regularly and has a small business in that country, I find it difficult to reconcile these clever people with the mess they have made of the macro economy.

However, one thing that strikes you when you are in Argentina is the sense that life goes on, no matter how many financial crises the country seems to suffer.

At the moment, Ireland looks and feels like Argentina in the late 1990s.A few years ago, this column suggested that a heavily-indebted Ireland in a currency union would end up like Uruguay or Argentina and that we should examine what had happened there. The idea that we might have something to learn from Latin America was derided in 2007.We are here now.

Let’s go back to the late 1990s – when Maradona was trying to super-size himself – to see what happened in the last crisis. The major mistake the Argentinians made ten years ago was to stick with a hard currency when all of their trading partners devalued in 1998.After the Asian crisis, the world’s emerging market countries devalued to try to get out of recession.

Argentina, under IMF and Washington pressure, didn’t. It tried to stay with a currency linked to the US dollar.

The problem was that Argentina had run up huge debts in the 1990s and, in the subsequent recession, it had no way of paying the money back. So it did what Ireland is doing now: it borrowed more to try to pay off more. Clearly, this policy was doomed.

But the IMF, as it is now doing here, told them they were doing fine and that a recession was preferable to devaluing the peso.

So, without exports, the Argentinian economy seized up. On top of this, the IMF imposed an austerity programme, which cut back government spending at a time when the average Argentinian was terrified and – of course -not spending.

This made the economy weaker.

Unemployment rose and rose, and money flowed out of the country.

As private money retreated and the private sector stopped financing Argentina, the IMF stepped in with loans and loan guarantees. This is exactly what is happening in Ireland.

The ECB is the only institution now prepared to finance Irish banks.

The interbank market is closed to Ireland.

The government borrowed money last week at twice the interest rate Germany pays – despite ECB and IMF guarantees, and even though we are supposed to be in a monetary union with Germany.

We are still paying more for our debt than Spain yet, last week, the IMF said we were doing just fine. How can we be doing fine if we can’t get any cash, if no one trusts us?

Maybe the reason the IMF (an institution whose forecasters completely missed our crash, by the way) said we were doing fine is because it remembers what happened in Argentina. As capital left that country in 1999, the IMF kept telling the government it was on the right track, possibly because the IMF’s own money was on the hook. I was working in an emerging markets trading team at the time and I remember it well.

The parallels with Ireland are chilling.

Eventually, the Argentine banking system imploded as people took out their savings – they could see the nonsense of incurring more debt to pay old debt.

Not just Ireland, but the entire EU seems to be now moving down the road of needless austerity, at a time when unemployment is rising and, more severely, debts are rising.

You can’t deflate your way out of debt.

Last Friday in Toronto, Argentina’s flamboyant president, Cristina Kirchner, warned that ‘‘many eurozone countries today have applied the same policies that led Argentina to disaster’’.

You might find it difficult to take advice from the botoxed ‘‘high priestess of Peronism’’ but, the same day, George Soros said something very similar.

Soros argued that there was a fundamental inconsistency at the heart of the euro. If the Germans want to keep the euro alive, they have to keep printing money to make sure that peripheral countries don’t default.

This means that the austerity Germany wants will simply lead Germany itself to default unless it is prepared to accept much higher inflation as a result of the ECB printing money.

Soros concludes that the Germans won’t accept this, so he forecasts that either the Germans will leave the euro because of inflation, or the periphery – Spain, Greece, Portugal and Ireland – will leave because of default.

While all this is going on outside, and will have a huge impact on what happens next here, we in Ireland are being asked to cheerlead while Ernst &Young tell us about our ‘‘jobless recovery’’.

How can a recovery be jobless? It is only a recovery if it leads to jobs.

The jobless recovery is exactly what we had in the 1980s. In the 1980s,we had nine years of economic growth.

Only in one year did economic growth fall – and then it was modest – yet we had 400,000 people leave the country, and unemployment hovered at 18 per cent. So the term ‘‘economic growth’’ was meaningless to hundreds of thousands of Irish citizens.

The jobless recovery is an insider recovery where the outsiders, the unemployed and the emigrants, get cast aside.

This is what happened in the 1980s and it is being championed again now. The country is turned into a large debt-servicing machine.

This is not a growth strategy, it is a debt strategy whereby we pay the huge debts run up by our banks and property oligarchs.

Eventually, as has happened time and again in Latin America, the people say ‘Enough!’. If the government is not acting in our interest, we take matters into our own hands and take our money out, rather than see it used to pay for the mistakes of the banks.

At least Argentina has the consolation of great football teams and a manager who looks like Cesare Borgia!


  1. michaelcoughlan

    This recent article got me thinking. Basically Ireland is f*&%ed as if we pull out of the Euro our own currency will collapse in value or if Germany pull out of the Euro the Euro will collapse in value. I am due to receive an inheritance shortly of several thousand Euros and was wondering should I put the money in Gold or in a safer currency like Canadian dollars with their surpluses and no banking collapses? My friend who lives in Germany has been buying allocated Gold through http://www.goldmoney.com for two years now. I suppose the German middle class is terrified of the hyperinflation of the 20′s. Any help would be very much appreciated.

    Yours sincerely,

    Michael Coughlan.

  2. SM

    I’ve started buying gold and silver coins from the Central Bank. Small amounts for now to see how the prices go.

    • michaelcoughlan

      Hello SM,

      I am not a financial expert BUT………… there is a description for gold called good delivery gold which means gold coins or bullion which havent been debased. If you buy coins and bring them home they loose this status which means you may have to go along an re prove their value at considerable cost. It is also worth noting that coins kept at home can be confiscated by the government in a national emergency as happened in the US in the 30’s whereby safe deposit boxes in banks were only allowed to be opened in the presence of government officials with an eventual outright ban on private gold ownership. The smarter Americans saw this coming and had their gold coins shipped to Europe before the ban was introduced. I would only buy gold stored in a vault in an offshore location. You can buy gold in the mint in Perth through a broker in Dublin as far as I know. If you buy gold in a vault (Switzerland, Hong Kong etc,) through the internet you should buy allocated gold as opposed to unallocated gold as allocated gold is your property. Unallocated gold is managed in trust for you by the institution and if the institution goes bust you just get in line with all the other creditors.

      Regards,

      Michael.

  3. Hi Guys I don’t no any thing about gold/investment, I have a small lump saved and worried that it is being plundered by devaluation of the Euro. I am a complete novice but is now good time to buy Yuan

    “China announced last week that it was going to let its currency, the yuan, rise against the dollar.”

    • Deco

      Corballis – just a thought.
      A currency is based on the credibility of it’s financial authorities, the resources at it’s disposal, the hard work of it’s citizens, the transparency of it’s state, and the honesty inherent in it’s culture of autority.

      In this case, maybe Singapore might be a better bet ? Just a thought. I mean if everybody is in favour of China, maybe there are better options ?

    • tony_murphy

      I won’t trust the Chinese

      Clowen & Co seem to be rolling out the red carpet to them, but who are they and what are they?

      • Deco

        You are correct. The behaviour of the Chinese leadership in the currency markets, in resource rich parts of the third world, in the UN Security council, and against their own citizens asks a lot of very difficult questions.

        We should bear this in mind when spending our money. And we should also consider Tibet, and Taiwan.

  4. Gege Le Beau

    Economic growth for who? And what do we mean by ‘growth’? What measurements do we use? We all know the issues around GDP V GNP, a rise of incarceration or increase in divorce leads to a rise in GDP….

    Is it growth so that those who fiddle their expenses, literally elected criminals and those got who get firms/think tanks to release positive economic forecasts so they can justify their obscene salaries and positions?

    We don’t live in a democracy, we live in a kleptocracy which is the Greek for ‘rule by thieves’:

    “Kleptocracy, alternatively cleptocracy or kleptarchy, from Greek: κλέπτης (thieve) and κράτος (rule), is a term applied to a government that takes advantage of governmental corruption to extend the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats), via the embezzlement of state funds at the expense of the wider population, sometimes without even the pretense of honest service. The term means “rule by thieves”. Not an “official” form of government (such as democracy, republic, monarchy, theocracy) the term is a pejorative for governments perceived to have a particularly severe and systemic problem with the selfish misappropriation of public funds by those in power.”

    NAMA would seem to fit under this description if the posts by McWilliams and other are anything to go by…..but then there was this in the Irish Independent:

    http://www.independent.ie/national-news/nama-to-go-after-homes-of-wealthy-developers-2237354.html

    • michaelcoughlan

      Hello Gege,

      The problem Our Country faces originated in corrupt banking not the construction industry although at the end the construction industry became totally uncontrollable with obvious unsustainable practices. I am not a financial expert or economist but it is obvious that the banks in America were lending in the subprime market KNOWING the loans would never be paid back. The bribes and corruption were out in the open as in Massive salaries and Bonuses (No one on $40m per year was going to call a halt). Banking became corrupted here for the same reason massive bonus and salaries for lending money sourced in the wholesale money markets where total money lent is substantially more than 100% deposits taken and to unsustainable property development projects/syndicates etc. I dare say that if you were a mid ranking executive in an Irish bank up to the crash and did your job prudently you wouldn’t have had a hope in hell of ever being promoted! The corruption filtered down into the construction industry whereby money was lent to investors to buy and rent properties at unsustainable yields or as Mr McWilliams pointed out for the purposes of pure speculation whereby a syndicate would form for the purpose acquiring a property and flipping it for a massive profit based only on an increase in value due to the availability of even more financing available to the next syndicate in line. However the kleptocracy you are referring to I would suggest is being foisted upon us by the people doing the lending as alluded to in Mr McWilliams article and not Nama. Despite all the corruption in the construction industry at least the developers tried to produce something even if vastly overpriced. If Ireland gets turned into a debt servicing agency the kleptocracy will be complete as the people now doing the lending to Ireland if you take McWilliams at his word KNOW Ireland will default and simply want to keep us in a never ending debt servicing position. These people don’t produce anything either and all our raw materials, creative genius, etc, etc, etc will be completely subordinated to these people for who knows how long?
      Michael.

      • Hello Michael, great comment on gold, very informative.

        On NAMA, Gege’s point is that NAMA is a kleptocracy device and as such by definition is corrupted and its function is aligned with the preservation of the kleptocracy.

        The construction industry blurred into property development and property development blurred into banking interests and banking interests blurred into the DofF which blurred into political interests and this is what a kleptocracy is.

  5. Malcolm McClure

    The key parameter in the present situation is the velocity of money. It wasn’t inability to service debt that sent the Japanese economy into a tailspin, It was prioritising deleveraging over investment.
    A young Nomura economist described the fatal consequences in Japan of this process on Newsnight last week.
    If I understood him correctly he said:

    “Let’s say you have a monthly income of $1000, spend $900 and use the rest to pay off debt. Next month the people who received the$900 spend $810 and use $90 to pay off their debts and so on, Within a year there will only be $282 in circulation out of the original $1000. That is the reality of deflation. Nobody has any money.”
    The money received by lenders in repayment of the debts doesn’t get invested in productive industries that will provide new jobs, it goes to buy Government bonds, which are considered the safest source of continued income in deflationary times.

    That’s our problem in a nutshell.

    • michaelcoughlan

      Dear Malcolm,

      I couldn’t disagree with you more.
      People only invest when there is a genuine prospect of a return in capital to justify the investment in the first place. When the majority of people and businesses are deleveraging there will be very little or no prospect of a return on investment until the deleveraging process is complete. We are fucked because of all perverse and pervase corruption in our banking, regulatory and administrative systems, not because of the velocity of money. The Japanese have prevented the normal run of events in a capitalistic society which is to close down business where capital was allocated incorrectly to “save face” which is why there on again of again recession has lasted so long.

      • Deco

        Interesting comparison there. The Japanese were concerned with saving face. And in the West, this was laughed at.

        But, now in the West, we have mega-bailouts, and a policy framework based on the principle that everything should be swept under the carpet.

        It is not so much to save face, as to preserve the status quo and prevent the rich from being forced to pay for their misadventure.

        There is a theory that the real cause of the 1930s Great Depression, was the concentration of wealth in the upper percentiles, which occurred during the high borrowing, high consumption ‘roaring twenties’. That basically, an overinflated economy always reverts to being a deflated economy.

        Except now we have the Paul Krugman dictum. Solve the post bubble deflation, by creating new inflationary bubbles. Greenspan tried it after the Dot Com Crash. It is a repeating disaster scenario.

        And it would seem that the Long Term Economic Value assumption is based on the same idea. That eventually there will be a bubble in the future to make it all look like sense. Maybe they are all gone stark raving mad ?

    • Tull McAdoo

      Malcolm , now is the time to push back against the recession or lean against it as us Economists are use to saying. Now is the time for Cowen if he has any self-belief and trust in those around him to implement his “smart economy” with a massive investment in infrastructure and technology and innovation. If he can use the cheap repo window that’s available now from the ECB to fund this investment , then he should be able to use the future enablers of wealth creation to grow the economy or GNP , which should have the added advantage of reducing the deficit as a percentage of GNP. If Ireland does not have the confidence to fund its own destiny, then its destiny will decided by others. Given the choice I would rather decide my own fate.!!

      • Malcolm McClure

        Tull McAdoo: I totally agree with you here. Now is the time for real visionary leadership. I don’t see much sign that Cowen is capable of it, but he could fake it and put ESB in charge of installing a proper broadband network across the country by adding a fibre optic cable to all its existing high voltage towers and poles.
        This would show the kind of commitment to the future that the original ESB expansion did in the thirties, forties and fifties of the last century, when Ireland was far ahead of UK in rural electrification. Homes in remotest Donegal could switch on a light when quite well-to -do farmers in Tyrone were still struggling with Tilley lamps when they went to milk the cows.

        • Deco

          Can somebody please clarify – but is it not possible that in South Korea you can get the internet from the mains electricity supply ?

          I know that it is possible to send the internet around the house via mains electricity. As usual, things that are possible for individuals on a micro scale are completely inpossible to implement when there are institutional factors at play. I am slightly suspicious that the establishment does not want the internet to spread everywhere. Otherwise RTE/Pravda becomes completely irrelevant.

          • liam

            Deco, Powerline networks are an option for LAN(local) connectivity, but in practice your mileage varies quite a bit and I’ve never seen anyone get it to work reliable with high throughput. Its totally not an option as a replacement for cable or DSL as far as I am aware. Fibre to the home or to the curb would be the preferred option.
            South Korea has I believe the highest aggregate throughput of any country in the world and the Govt announced last year that they would up the standard for cable from 100Mb/s to 1Gb/s in the next couple of years. Internet is treated more like a public utility over there (and in Japan).

    • Malcolm is your point that the controlling interests are manipulating the velocity of money to make a killing on the downside of the bubble they created by revving up the velocity of money.

      • Malcolm McClure

        Wills: You seem able to find a conspiracy behind every bush. Granted, you might be right, but I don’t think even the Gnomes of Zurich have the kind of co-ordinated intelligence that can manipulate the rest of Europe like puppets on a string.
        I tend to favour the blithering blundering blindness of blissfully ignorant politicians over black-hearted bloody-minded blatant manipulators.

        • Hi Malcolm, I dont think the politicians have any say in how the money supply run’s. I think they follow in step with the machinery in place motoring along the hybrid free market system rigged in the interests of a bunch of crooks.

    • liam

      Hi Malcolm,

      As someone else here has pointed out, Ireland is continuing to borrow rather than paying down its debts, and those of the banks. Unlike Japan, we may far sooner reach the point where we cannot afford the interest repayments. Japan could steadily take its national debt from somewhere around 60% of GDP in 2000 to 200% today because the bondholders are effectively domestic depositors/savers with the ‘commercial’ banks (getting close to 0% interest rates), the state-owned National Postal Savings Bank and pension funds, who in turn collaborated to provide the Japanese Govt. with a 2% bond rate. Naoto Kan seems to be the first serious Japanese politician to publicly admit the folly of this approach. (Its more darkly complicated than this when you start to look at what was funded with these loans but that would take a small book to explore).

      I can only conclude that the Irish Govt is reliant on the one thing that the Japanese don’t have ready access to and thats an export market for its citizens (though the Japanese response is perhaps more extreme: people are simply refusing to have children due to the costs involved).

      @michaelcoughlan no doubt you’re right about the refusal to deal with the bad debts, as I’m not sure that it contradicts what Malcolm is saying. I’m not very convinced it had much to do with face saving in the manner suggested: one must consider the relationships between the (at the time)ruling LDP, MITI (which in some ways operated a kind of planned economy at least on a strategic level) and the sources of capital, including large private corporations and even organised crime syndicates (the fingerless ones). “Face saving” is a convenient way for us (and them!) to exclude these factors.

      I don’t claim any more than a passing acquaintance with the events the toppled the Japanese economy, its born out of personal rather than professional interest, but I strongly suspect there was far more in cronyism and too-closly linked Govt and industry about the Japanese collapse than there was in cliched ideas of Asians saving face. Which is why I continue to reference it here it as an object lesson for us.

  6. paddyjones

    I am flaberghasted by DMcWs’ article he seems to ignore the fact that we are still borrowing to service our national debt, the party has not ended, we are still in the borrowing phase of our meltdown. We have not even begun to repay our national debt, everytime we have to repay debt we simply borrow more to service it.
    If we were not in the eurozone our currency would have collapsed by now nobody would lend us money, the party would be over. We will continue to borrow until 2014, ( by this stage we will be down to a rate of 3% of GDP ) but this still leaves us borrowing 7 billion a year so even then the party will not be over.
    What we should do is to immediately cut all of the budget deficit now, yes cut it all!! Why wait to suffer death by slow torture when what is needed is a short sharp shock. This means cuts of about 20 billion now not the measely 3 billion for 2011.
    If we make these cuts now we save the country if we wait then its Argentina for us. What this means is more public service pay cuts, more social wefare cuts, cutting quangos, cutting education, health etc etc.
    This may sound bizare but we are really are in a massive hole. Austerity is the new religion.

    • Deco

      Paddy – the Irish lifestyle is financially unsustainable. Unless you are Bertie Ahern and you dicover money in your account that you never knew was there, or you get a dig out from yer pals, or win money (36K I think it was) on the horses that you forgot you won.

      The only way to sustain the expensive Irish lifestyle is by borrowing money. We were borrowing massively in the private sector. And now we are borrowing via the state. But the point is, we are still borrowing. We have not changed our lifestyle expectations, and cut our cloth to measure. Officially we are in favour of austerity, but as Ivor from Clontarf showed us, some are less inclined to follow the path of austerity than others.

  7. Tull McAdoo

    @ Gege Le Beau et al…..I would be carefull not to place to much on anything Fionnan Sheahan had to say , as He mostly acts as a conduit for the spin doctors in Fianna Fail. That story in the Indo is part of the softening up process for the folks in Ireland who may not have been aware that these so called developers were going to be paid for their efforts to save their own asses. Ha bloody Ha. There is nothing new otherwise in that story, that was’nt already known, oh yea, throwing in that bit about McNamara’s art collection had nothing to do with NAMA or the DOF etc. as it was down to macca’s own creditors now that his empire has collapsed, and given that it was mentioned at all suggests to me that people in FF have already started to distance themselves from one of their former party stawl-warts, from the banner County.
    p.s As for Fionnan , he would be as well going out and doing some Primary Research for his musings, maybe some requests for information under the FOI would be a better use of his budget, as the people are not as easily manipulated as they were when he started off as a FF party Hack.

    • Tull, the laughable thing is this chisler McNamara is off in the middle east employed on a number of projects so does anyone really think he gives a fiddlestick about his art been carted away by the revenue.

  8. Deco

    Interesting article.

    Authority Ireland Inc would like to reassure everybody that Ireland will not end up in Argentina territory. We are far more sophisticated than the Argie’s. Yeah. I bet that thought has you all thoroughly reassured.

    At the moment on the Radio stations it is non-stop coverage of the English soccer flop. There is a lot of schadenfreude in it. And some arrogance also. Basically, the subtle message you are getting is that the Irish are more sophisticated than the English. Reassuring, isn’t it ? On the financial front the new Brit regime is rolling up it’s sleeves, trying hard to get it’s house in order, to the point that bitter political rivals are working together and using each other’s best ideas. They know that they are in a battle with time before the bond market implodes again. I used to think that ‘bread and circuses’ was a bigger problem in England than here. But now I am being forced to think differently. In fact, the leadership in Ireland is providing more reassurances than the Roman Emperors provided in the run up to the Goths invasion of Roman Gaul.

    David – thank you for telling people to be alert, and to get a grip of reality.

    This past week seen the passing of former Army Chief of Staff, Dermot Earley. It was heartening listening to many senior military figures talk of concepts that are completely alien at the top in this country. His successor, talked of concepts like leadership, honesty, integrity, bravery, respect for his subordinates, and a sense of moral purpose. It is possible to have these virtues in our culture, and running organizations in our society. Here was a man who really knew what leadership meant, and who lived it to every sinew in his body. To those that knew him, Dermot Earley had greatness. Real greatness. There was a lot of false greatness in Ireland in the past decade. Well, we need to identify that humility, the opposite of pride/arrogance is a defining characteristic of true leadership.

    But, it seems that leaders in society who have that humble greatness are the exception, rather than the rule. Examples like Dermot Earley crop up in places where political influence (and interference and patronage) is limited. I mean could you honestly say that any of the cronies that were appointed to state quangoes by Bertie the Socialist and pals have shown any of these virtues ? Therein lies the problen with the state in this country. Significant parts of it are run by wasters !!!

  9. michaelcoughlan

    Hi,

    I started by asking if it was a good idea to put cash (Euros) into god or Canadian dollars. Would anybody know if this is the right course of action if Mr McWilliams article turns out to be true and we leave the Euro or Germany does?

    Michael.

  10. Tull McAdoo

    If Cowen does’nt get his finger out shortly then my advice for what its worth is to put your money in your carry on luggage. Qantas are doing good value seats at the moment, and Brisbane is a good launching pad for those who want a freash start. Now say thanks to Tull. ;-)

    • Deco

      Conor Caseby tried to get the message across also, and it was not well received. Time to get our act together before the country ends up in the toilet.

  11. “Maybe the reason the IMF (an institution whose forecasters completely missed our crash, by the way) said we were doing fine is because it remembers what happened in Argentina. As capital left that country in 1999, the IMF kept telling the government it was on the right track, possibly because the IMF’s own money was on the hook. I was working in an emerging markets trading team at the time and I remember it well.”

    Greetings from Moonshadow, Pines Lodge, Cambria on Pacific 1. I’ve always argued to be dubious about Kowing’s and Lenny claims our fiscal policy was backed internationally. Yeah, too right, they want their money back.

    http://bit.ly/cf0pTa

    Michael Hudson mentioned by coldblow

    Austerity plans” IMF and EU style is an antiseptic, technocratic jargon for life-shortening and killing impact of gutting income, social services, spending on health on hospitals, education and other basic needs, and selling off public infrastructure for buyers to turn nations into “tollbooth economies” where everyone is obliged to pay access prices for roads, education, medical care and other costs of living and doing business that have long been subsidized by progressive taxation in North America and Western Europe.

    Here in Cambria, local theatre group closed down cause they can’t afford sprinklers. News this morning of 275,000 American teachers unable to find work…austerity!

    Public utilities/infrastructure across Europe are being hoovered dry of resources. This will result in a killing of the goose that lays the golden egg, consumer well being. Even capitalism should realise its not good to starve the chickens if the chickens are needed to pay the bills.

    So here’s an idea: What if debt reparations were redirected to target public infrastructure/utilities. At a certain point, say agreed by the EMU or the G20, a country requiring debt stabilisation and recovery was allowed to default, but only on certain terms. The terms being that debt service capital be redirected to infrastructural development to create jobs and better quality of life for citizens.

    The detailed question of the ownership of the services and utilities could be worked out later. Some transition from ‘bondholder schools and libraries’ where these utilities belonged to external banks, on the improvement of an economy could be the subject of research and refinement….Meanwhile kids would have their teachers, books their libraries and so forth ..

    • michaelcoughlan

      Hi,

      May I respectfully suggest that this post is just a tad naive? The people lending the money aren’t in the slightest bit interested in the citizens, public services, hospitals, schools etc they only care about getting a return on their capital. The ultimate aim of advanced capitalism is to accumulate wealth NOT to create it as the creative process uses up capital. The point that Mr McWilliams is making is that Ireland is going to be turned into a debt servicing nation where the lenders who produce nothing control the wealth creators who produce everything to the extent that all wealth created is transferred to the people controlling the supply of capital. It would be far preferable for people who posses such a mindset to kill every “golden goose” available to them which they don’t control so that these uncontrollable “golden geese” don’t dilute their control of the available supply of capital in any society and allow the citizens to control capital of their own. This is why they are telling our political leaders “everything is fine”. If you think the way these people do of course you would think everything is fine as the more money the wealth creators borrow the more you will have them over the proverbial barrel.

      Regards,

      Michael.

      • I think the idea of the richest people in the world priority one *getting return on their capital* is a tad short sighted. If these people own more than they can enjoy and so on it seems to me common sense would determine their modus operandii is to always be at the top of the tree, regardless.

        • michaelcoughlan

          Hi Wills,

          Thank you for your response although I didn’t fully understand your point. “Own more than they can enjoy” is however ambiguous and subjective. In the first instance for some people enjoyment has nothing at all got to do with it. If you examine competitive sport for example many athletes will readily admit that sometimes you have to be more afraid of dying than losing to “succeed”. With regard to car ownership for example would a person enjoy themselves more if they were driving a top of the range Opel or a top of the range Mercedes? It’s rather subjective. I think that the “pursuit of Happiness” was written into the US constitution to reflect this ambiguity. I would suggest however that if our country is going to be turned into a debt servicing agency as outlined by Mr McWilliams then return on capital is the only thing that matters to these people and I would agree being on “top of the tree” is the only consideration.

          Yours sincerely,

          Michael.

          • Michael. Appreciate thoughtful response. I would say that the only thing that matters to the top 1 percent is for them to stay the top 1 percent doing whatever they must do to stay in place lording it over everyone else. And if this means turning Ireland into a debt servicing agency so be it, which is what they are doing.

      • Hi Michael,

        I take your point. From one perspective I agree it may appear to be naive to expect creditors to forgive debt. But I’m not appealing to creditors to forgive debt. Rather I’m enjoining G 20 world leaders meeting in Toronto, or other global powers such as the Federal Reserve or ECB, who need to address the facts you describe, plus the fact of the eventual non payment of debt, to look at solutions to the problems of global/national debt with humanitarian solutions that will have to be imposed on creditors. The debate about these solutions has hardly begun. Governments like our own plus creditor bondholder banks and creditor nations plus those in blind subservience to failures of capitalism evidenced in the global financial meltdown need to look at solutions outside the box. It’s time solutions such as debt forgiveness tied to humanitarian goals were put on the table as a counterweight to the illegal broadsides placed against them by creditors in breach of fiduciary responsibility such as bondholder lending to banks that allowed breaches of commonsense equity to debt capital reserve funds allowing the wild fires of irresponsible lending to burn out of control. If need be, humanitarian goals need to be enforced. One immediate way of doing this would be to bring rating agencies under control, so e.g Moody’s is not allowed to burn nations who cannot pay back debt.

        • Cbweb.

          These private corporations listed here in your comment, the fed, ECB etc, do not want to fix the debt problem. They let the debt problem manifest, in fact they run the money debt system behind the madness we are living in.

  12. David, you say in article,

    ‘This is what happened in the 1980s and it is being championed again now. The country is turned into a large debt-servicing machine.

    This is not a growth strategy, it is a debt strategy whereby we pay the huge debts run up by our banks and property oligarchs.’

    My GOD how far will the occupiers and owners of the power centers, in this rigged economic system gobbling up the buoyancy of economic life and ‘sucking the oxygen out of the room’, how far will they dare to go to ‘have their way’.

    • michaelcoughlan

      Hi Wills,

      I think perhaps your question would be better directed at “they” however with regard to one example the American civil war “they” didn’t concede defeat until more American soldiers were slaughtered than in all wars conducted by the US in the 20th Century combined. Why? Imagine how effectively “they” could control capital if the human beings you had creating the wealth were forced to work for their dinner only, bred like cattle to produce more productive humans, whilst simultaneously enjoying legal status equal to that of cattle all based on the colour of their skin? Rather sobering thought isn’t it?

      • michaelcoughlan

        Hi Wills,
        In my previous post I meant to say “more afraid of losing than dying”. It scares the living be Jesus out of me that the citizenry are so indifferent to what is happening. I liken this phase of the “recession” to the first six months of WW2 and call it the “phoney recession”. My two pence worth is that within six months the banks will be fully nationalised as second and third waves of debt on credit cards, car loans, small business failures etc will sink the banks. The government will be forced to put a restriction on the amount of savings people will be allowed to withdraw if anyone is still stupid enough to have money left in an Irish bank at that stage. I nearly chocked recently on my half price latte when I heard Peter Sutherland saying “we” overpaid ourselves during the Celtic Tiger years. Who did he mean by “we”?
        One point of view not discussed by any commentators in Ireland or our utterly incompetent opposition in Dail Eireann was an idea proposed recently in Australia for which the Australian PM lost their job is the idea of wealth distribution once a certain level of return on capital was achieved by the company. In the Australian proposal they were suggesting 40% corporation tax on profits achieved above 6% return on capital. I would suggest a different proposal. I suggest that the current low level of corporation tax of 12.5% be maintained so long as the company distributed any share of the profit above a 6% return on capital until an average salary of at least €15/hr is achieved by all workers. I don’t believe in taxing the rich out of existence but I do believe that a working man or woman should go home with a decent wage if they put in a decent shift. The lowest level of corporation tax could be achieved by the company once all workers were earning at least €15/hr only in the event of the organisation achieving a 6% return on capital in the first instance. The rate at which the company is taxed could be set at an initial 40% whereby the company would earn a tax break for paying people properly rather than for investing in property for example. Included with this new arrangement would be a clause similar to that enjoyed be lesser high profile soccer players playing in the same team as world renowned players where their contracts contain a clause which guarantees their wages rise in a defined ratio with the more high profile members of the same team. Imagine if such a clause had existed whereby Mr Goggin the former Ceo of Bank of Ireland who had received €4m compensation in 2007 (I think) had to redistribute €2m to the bottom 1000 workers in Bank of Ireland. No increase to the costs of the bank. Mr Goggin still in receipt of a stupendous amount of money and the bottom 1000 workers taking home an extra €2k per annum minus tax. Imagine Mr McWilliams what that would do for spending power in our local economy now that the establishment has abandoned us to the sharks in the ECB. We can’t devalue our way out of our trouble; or spend our way out of our trouble. This would achieve a number of different goals. No tax revenue would be spent collecting and distributing the money. More money in people’s pockets when they really need it. No net cost to the body corporate. No dilution of capacity to attract top talent to top companies as this arrangement would have to be administered equally in all companies throughout the state. “Top talent” is now a dubious statement anyway considering the complete failure of all our top talent.
        Yours sincerely,

        Michael Coughlan.

        • Deco

          The last person we should be taking advice from is Suds. I see that Suds Junior is keeping up the family tradition of being paid too much. Jr. is in MGQ’ EU Commision Cabinet. Deirdre De Burca took the view that merit was not a requirement to get a job in Brussels – as evidenced by her canvassing, and her long sulk when canvassing did not work. Gormless did not think that there was anything wrong with de Burca’s canvassing. In fact he talked as if he did his best to apply nepotism for her. (none of these clowns seem to have any shame).

          Goldmine Sucks strikes again. Nepotism as the way of advancement in the Irish commercial-political establishment. Suds Junior in a key place of influence at the heart of Europe. Now, you all what you voted for last September. It was definitely “Vote Yes for Jobs” alright. Jobs for the cronies and the turkeypluckers who destroyed this country, and their relatives.

        • Michael, good read on comments. Comment above in the end boils down to the economic system and cheating and can one get away with cheating and play the game.

          Much like the world cup.

          The world cup 2010 is the pits. Cheating has destroyed the game as a sport.

          Cheating and the economic system is rancid and has destroyed society.

          The economic system will only stand a chance when cheating is routed out as the (to quote dunphy) “cancer that it is’.

          To do this, money creation must be handed back to the citizenry.

  13. Tull McAdoo

    Now Dan o Brien has a go at the Dept. of Finance in Mondays Times which seems to have eluded some people, but not the old Tull. Tull has been on a few times now about the DOF and how they are not fit for purpose in this present crises. Come to think of it they were not up to it during the currency crises either when they flushed most of our reserves down the bloody toilet before de-valuing like they should have from the get go. When I think back about the opportunity cost of that debacle it makes my blood boil.
    Now they are back at the same shit again, throwing money at problems in the faint hope that they will go away. Sacrificing even the most vulnerable to try and placate “ the markets” which they don’t and never have understood. These f….rs are paid vast amounts ,running to hundreds of thousands each including credit cards which they splash around “the best restaurants” etc. like there’s no tomorrow. Anyway my blood pressure is going up just talking about them ,so ye can read what Dan has to say in his measured way.http://www.irishtimes.com/newspaper/opinion/2010/0628/1224273464255.html
    Now the original report from which Dan bases his critisim is included below just in case anybody thinks that me and my new bestest buddy Danny Boy would make this shit up. My problem with my new buddy Danny boy is where the hell was he back in 2007 when this report was given ???.
    http://ec.europa.eu/economy_finance/publications/publication338_en.pdf
    Now ye know my little secret, what introverted,neurotic, type b personality Economists do in our spare time, WE READ BLOODY REPORTS FROM EUROPE FOR FREE AND TELL PEOPLE ABOUT THEM FOR FREE BECAUSE WE GIVE A SHIT ABOUT THE BLOODY COUNTRY……aaaaahhhhhh deep breaths Tull, deep breaths……. calm….. maybe its all a bad dream and I’ll wake up and the DOF will be able to sort this mess out…….

    • Deco

      Dan O’Brien is a spoofer, a BS artist, call it whatever you like. Over in Geneva lecturing the people on the dole to go and get jobs. And he can’t do his own job properly. Economist. Really ? In the same category as who, may I ask ? The same way that Dan McLaughlin is an “economist” ? Or Austin Hughes ?

      These people are clowns. The more public critique they get the better.

    • Deco

      Here is an interesting quote from the chapter “Hungary”. (By the way Hungary is practically bankrupt – soon the Hungarians will eb doing like Gormless – introducing property taxes on all homes).

      {…of the convergence programme, the general government debt ratio is expected to further increase from 67.5 % of GDP in 2006 to 71.3 % of GDP in 2008 and start decreasing again in 2009.}

      So there you do. The brains in Brussels were predicting that Hungarian state finances would be very good in 2009.

      I also had a look at chapers on Spain and Greece. In the chapter on Greece, there are references to the progress that the Greek Parlaiment is making concerning tax evasion. And in Spain, no reference whatsoever to the increasing debt levels as a result of a property boom fuelled by ECB rates, and no reference either to the Spanish Labour market being distorted by the property ponzi-onomics inflationary effect.

      I didn’t read the Irish chapter yet. I suspect it is full of DoF/CBoI/IFRSA ‘the boom is getting boomier’ ‘we can afford it’ ‘why not’ 2006 thinking.

    • Malcolm McClure

      Tull McAdoo: I agree with Deco that Dan O’Brien is a spoofer. He says:

      “The study turned out to have considerable predictive power. In 2009, Ireland had the largest budget deficit among the EU 27″

      Here’s what the study actually says about Ireland, 2006-2009, on page 271:

      “Overall, the public finances are expected to
      remain strong over the forecast period. However, some of
      the macroeconomic risks (notably related to developments
      in the housing sector), if realised, have the potential
      to weigh negatively on the Irish public finances (4).
      The government debt ratio is projected to decrease further
      in 2007 and 2008 to less than 22 % of GDP.”

      Not only was the quoted EU conclusion completely wrong about Irish finances but Dan O’Brien has managed to distort their study to imply that DoF officials were negligent in not heeding obscure warning signals, in not seeking high quality advice from abroad, and in not expanding their empire so that they wouldn’t have to work so hard.

      Perhaps this O’Brien puff piece is part of FF spin strategy to deflect blame from Cowen’s ministerial ineptitude onto the DoF?

      • Deco

        Cowen’s current line on the whole thing is the greatest piece of nonsense you ever heard.

        Basically, Cowen accepts responsibility, but will not explain the blame. In consideration of what happened, they are both farily much equivalent. But Cowen is very careful with his phrases. (Well he is a lawyer, so we should expect this).

        But he does not want the to let the people know he was not responsible or irresponsible. Actually, it appears to me that he was drunk at the wheel and Ahern was in the back seat shouting instructions, talking gibberish, while reading the racing post, and taking orders from IBEC and ICTU.

        • Deco

          I meant to say

          “Cowen says he was responsible, but he will not accept that he was to blame. ”

          Greatest load of politically twofaced wording you ever heard.

  14. Tull McAdoo

    Just a final link for Malcolm, Deco et al who like to read about these things in context and with an interest in the historical data. Here’s all the reports from the Bank of International Settlement published in pdf format dating back to 1931 or the last depression. Some of the Irish figures might raise an eyebrow, given some of the info that came out of the DOF and else where down through the years. Spin doctors have always been with us…..
    http://www.bis.org/publ/arpdf/archive/index.htm

  15. stanb

    This is what my friend Stan P. (aka “Dozent”) wrote after reading your article. You may find it interesting.
    Stan B.

    Quote
    ———-

    I read both McWilliams articles carefully. This guy is really smart yet he does not get it at all. The problem wit Argentina was not that it has had a hard currency or soft currency The problem is that it has a way too big government – just like Greece.

    The government jobs are the ONLY well paying jobs in Argentina
    So If you are a government official you try to place your sons, daughters and nephews on the government payroll. In Argentina nepotism is – and always was HUGE, corruption is – and always was HUGE and it was draining all the assets of the country

    Just like Greece.

    Soft currency and devaluation would NOT save Argentina. It does not matter whether you default on loans or pay them back in a devalued currency – Like the Weimar Republic. What matters is that the government sucks the last drop of blood out of the country. You can be a financial Einstein yet you can not run a productive business in Argentina. You can not run a productive business in Russia either. Nor Venezuela. Nor Cuba. It does NOT matter if the blood-suckers are called a Communist Party or a Peronist Party. The point is – the government is too BIG and the economy can not support it, PERIOD.

    If you have an Indian tribe who does have 50% of chiefs then the average hunting-and-fishing Indian Joe will starve!

    The second idea he is wrong about is a statement – “with a government austerity program where the growth will come from?”

    Oh my God! The government does NOT create growth. It does not produce wealth. EVER!

    The money it spends come from somewhere else – either from taxes or from debt to be paid by future taxes or from currency debasement = printing. Show me one government in 10,000 years of human history which was a successful wealth-creator. You can not. It has NEVER HAPPENED.

    The role of the government and the only role of the government is to provide Security and Law. Government are by definition PEOPLE WITH GUNS. They are necessary, but guns do not create wealth.
    Guns may create conditions in which wealth MIGHT be created (and not stolen from its creators). It requires a personal freedom, personal safety the rule of law – including commercial law and a stable currency. Nothing else is required. Not even a government Pension Plan. Not even a government Health Care.

    A government run Health Care creates conditions in which you can not buy Aspirin because it is too cheap. It creates condition where population is force-fed Lipitor because it is profitable.

    When the government borrows the money it means these money can not be used by someone else and it is a GUARANTIE of higher future taxes and/or unstable devaluing currency. Do not forget the fact that these people have already proved to be inept and corrupt. Mr. McWilliams, do you really want the same people to spent any more of your children’s money ???

    There will be a recovery and there will be growth. It will happen in the countries which will limit the SIZE of their governments.

    Here is the primary LAW of ECONOMY

    MORE GOVERNMENT = LESS PROSPERITY
    LESS GOVERNMENT = MORE PROSPERITY
    TOO LITTLE GOVERNMENT = BARBARIANS AT THE GATES
    TOO MUCH GOVERNMENT = GRADUAL ECONOMIC COLLAPSE

    Pure, simple and verified by 5,000 years of practice.
    Stan the Dozent

    ——–
    end of quote

    • Stan b.

      David is not writing that government ‘creates wealth’, he is writing that government fosters conditions for the ‘creation of wealth’.

  16. insider

    Deco – you have once again hit the nail on the head. I am off to Singapore next. I think it might pay off to bunker down there for a few years to survive the next storm.

    Gotta take action folks. It’s a risk leaving a great job in Australia in the hope of finding something decent up there, but I think AUS is about to be hit by GFC part deux – I can feel the banks drying up here – looks like global credit markets are tightening. I don’t have much faith in the new PM either (or the old one for that matter).

    • Deco

      Insider – anybody relying on politicians do sort out their personal problems, is already finished.
      I see strong evidence that suburban real estate in Australia is extemely overvalued, on the basis of cost of residential real estate to incomes. Now, maybe in the mining areas, things are different, but a career as a miner is much shorter than a career in other areas. It should be possible to make money shorting banks that were lending all the money on crazy multiples. It would be worth invstigating the Australian financial sector, to find the Aussie equivalent of Washington Mutual or the Anglo Irish Bank – for the purposes of short selling. As far as I know that is banned still in Ireland. IBEC’s key members don’t like it.

      • insider

        Unfortunately the likes of Babcock and brown etc are finished. Made a few dollars shorting that mob in the last fall. This time it’s a bit more difficult to pick as the big 4 have eaten up a lot of the smaller players so I will stay away from shorting as that is a dangerous game. 

        The big 4 aus banks are profitable but those with less deposits depend more on overseas borrowing. Any serious disruption to that capital flow will have major consequences on home lending and this won’t bode well for the average Aussie. My mortgage is sitting about 7% at the moment it’s not insubstantial. 

        Anyways among other things my family are keen for an adventure so it’s Singapore for us. Sometimes a silent dictator is a good option. 

  17. Deco

    Argentina had Peron – Ireland had the Ditherer.

  18. Malcolm McClure

    There’s a good article by Paul Krugman in the NYT warning about deflation leading to a long term depression. He considers that European policy is based on Herbert Hoover’s approach and will have equally disastrous consequences.
    http://www.nytimes.com/2010/06/28/opinion/28krugman.html?src=me&ref=general
    See also the current American view of our plight:
    http://nyti.ms/df9cwn

    • Good links, thx. In order to save the turkey pluckers jobs, there is also a policy to export people. This will reduce cost of infrastructure, unemployment, get people off the streets. Progressive efforts to stimulate the economy by providing jobs is not on the cards at the moment, strong pressure to emigrate is being applied. The one’s who have jobs will be sufficiently grateful for them next time round, they’ll vote in the same turkeys again! Its all about unwise moral injustice. Calls above re profit sharing similar to Michael Moore’s calls in ‘Capitalism: A Love Story’ will go unheard. No special provision will be made for Ireland Inc. It will be expected to take its medicine, detroitification or not.

  19. Greetings from LA back soon: Word from Obama here is Financial Services Bill on the brink of going through with financial reforms that will prevent the recent meltdown happening again. Plus US is enjoying growth once again. In the financial game of poker that is global economics, we are the losers waiting at the players table for any crumbs. That’s our policy from kowing and Lenny.As most posters on this site have already picked up, this is the way the Irish turkey pluckers get to keep their jobs. Bad news for taxpayers so it appears no moral enjoining on a fairer deal to allow default on debt, debt renegotiation, a change in bankruptcy law to provide a better deal for mortgage holders on the cards. Kowing & Co believe they can deliver on the reparations and survive and prosper….

  20. aodhanc

    David,
    But if we leave the euro zone and devalue our currency, what happens to your external debts which are held in Euro? They will still stand and have to be repaid?

  21. Just heard government spokesperson, Daragh Cleary and Karl Whelan on radio debate this http://bit.ly/dj42YL

    NAMA business plan to be released later this week should be a must read.

    The fact above performing loans guesstimate should underestimate by 50% comes as no surprise to us, but I’d go further and estimate that all NAMA return figures should be halved downward.

    Don McClean, “So bye bye Miss American Pie
    Drove my Chevy to the levy but the levy was dry”:) No, not that levy, the one they say can be imposed on the banks to make up any shortfalls, for which there’s no provision legislated for as yet.

    Consider this. Levy imposed on e.g BOI/AIB/Anglo etc. Another scam. Levy will be passed on to customers; or, taxpayers being the present funders of the banks, more than likely we’ll end up levying ourselves:)

    A good sense of humour helps!

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