July 13, 2011

Three years on, we are no closer to solving debt crisis

Posted in Debt · 90 comments ·

Irish Debt CrisisExactly three years ago this week, this column argued that this financial crisis might result in Ireland (and others) leaving the euro. The argument was not based on any ideological/political antipathy to the currency but on some basic economic analysis about how debt crises and associated recessions end.

Unfortunately, it is very easy to use the “anti-European” slur to dismiss legitimate questioning and, as a result, discussion on this crucial topic has remained largely stifled. But the problem is not going away. The evidence from all over Europe is the opposite — it has become more acute.

In Ireland, querying the currency is tantamount to treason in establishment circles. These people prefer to replace hard thinking with mantras. One of the mantras is that dissent on the euro is “anti-European”. But mantras are no substitute for thinking and we should consider the obvious possibility that the single currency is doing untold damage to the political unity of Europe. Looked at this way, the euro itself is “anti-European”. Right now, as the euro bond markets face a massive debt crisis, it is worth revisiting the logic of the single currency argument.

First let’s consider Ireland’s dilemma and why the single currency exacerbates it.

If the economy is in a currency union and is suffering from a ‘balance sheet recession’ where the private saving rate has skyrocketed because those with money are petrified and not spending, there is only one way out. It involves changing the currency, making it considerably cheaper and inflating away the debt. Otherwise, the country defaults. Given that the response to default might be more fiscal federalism in Europe, with us losing our corporate tax sovereignty, alternatives are worth considering.

Why are people saving in Ireland? One reason might be fear of the future — they are hoarding for the rainy day. With increases in taxes, negative equity and unemployment, this seems like a reasonable claim. The other reason might be that people have seen retail prices falling around them and believe that if they hold off spending today, they will get a bargain tomorrow — so they hoard. This pattern is precisely the opposite of the behaviour during the boom when rising house prices forced people to bring forward spending.

At the same time, the Irish banks are not functioning as banks. Whatever savings are going into them are not being recycled as investment elsewhere in the economy. The banks are nothing more than safe deposit boxes, strangling the flow of credit throughout the economy. So the economy seizes up and the debt mountain — at prohibitive interest rates — spirals out of control, bringing default closer. This is what Keynes called a “liquidity trap”.

This is the position in Ireland and amazingly, the troika deal of last year, which was heralded by the economic establishment, just adds more debt to this debt mountain in the hope that something will turn up. Well, something has turned up — a contagious debt crisis — hardly the outcome the so-called troika expected, but one that people with a passing knowledge of financial markets and economics correctly forecast. So what is the way out?

What we need in Ireland is not deflation but inflation and not just random unexpected inflation, but targeted inflation.

We need our central bank to engineer inflation. (Sounds like heresy if you have been schooled on a diet of zero inflation, but stay the course).

At the moment, the ECB has an inflation target of 2pc or less. This is appropriate for a country with an old, rich workforce with a perennial current account surplus, but not for a highly indebted country with a young workforce.

A generous inflation target would mean that debts (once converted, which they would be) would be gradually inflated away and more importantly, as people see inflation rising, they would bring forward spending, driving down the savings rate and generating the growth that is necessary to ease the debt burden.

This is how economies recover from debt binges. But it is also crucial to understand cause and effect. In an ideal world, most economists wouldn’t advocate this; but we are not in an ideal world, we are in a crisis and crises demand new thinking. Inflating away debt is the consequence of, not the cause of, too much debt in the first place. So how do you do this?

The country that wants to do this must revert to its own currency and adopt a moderate inflation target of let’s say 8pc to 10pc. This would cause people to reverse their saving behaviour. If we don’t do this we will be faced with years of low growth, debt default, emigration and unemployment.

Yet anyone suggesting modest inflation might be a “good thing” will face huge opposition, despite the fact that countries with moderately high inflation perform no worse than those with very low inflation, in fact, in terms of growth they perform much better.

But people will rightly say: “Hold on, if the new currency fell by say 40pc against the euro, wouldn’t our euro debt jump overnight in the new currency?” This is true, but the same is true for the present policy of “internal devaluation”. The present austerity and internal devaluation policy, where the Government grinds down wages and prices over a number of years, is designed to have exactly the same effect. Your euro wages will just fall for longer and you will still not be able to pay the euro debt you took out in the boom when your income was much higher.

So the internal devaluation is just a slow version of the overnight devaluation. Why do things slowly and prolong the agony?

A good way to think about devaluations is to consider what happens when we turn the clocks back. Each October, we have a choice in order to make the days longer. We could all get up an hour earlier and go to work an hour earlier, or we can all ‘agree’ to turn the clocks back and get up the next day and pretend that it is 8am when we all know that it is really 9am. But we all agree that 9am becomes 8am because this is easier than forcing the whole nation to actually get up an hour earlier.

Devaluations work the same way.

We know that austerity won’t cure something that was not caused by excessive government spending but by profligate private lending in the first place. And as austerity causes deflation, it can only make the debt mathematics worse.

Moderate inflation is the answer. A vibrant inflation target, plus tighter fiscal targets with a government financed by new domestic inflation-linked bonds is a way out. It has worked before in many countries. To arrive at such heresy, we all have to go through a process of replacing mantras with hard thinking and replacing steadfast rules with nimble flexibility. We are in a crisis.

Einstein said the definition of stupidity was doing the same thing over and over again and expecting different results. The result of the last three years’ nonsense has been continuous crisis. It’s time now for a totally new plan B.

  1. adamabyss


    • juliehogan

      I’ve a feeling that the view of Europe is to now give all the contagion countries the heave ho. Give Greece, ireland, Portugal etc one last lump sum and say there you go, you’re on your own. I predict we all default within the next year and will be back to our own currency pretty soon.

      In relation to people stashing away money? I don’t agree with this. I work in a mid to high end retail business in wexford, the difference I’ve seen in the past two to three years is obviously huge.. most of the one time regulars are not shy about telling you they just don’t HAVE the money any more.

      • Deco

        Well, if Irish people are starting to be honest, then that is a massive improvement from the Binge (Cringe) era.

        • juliehogan

          I agree completely with you. Hindsight is a great educator. I doubt the majority of us will every be sucked in again by the promise of ‘the magic porridge pot’ of money that we believed this country supposedly had the capability of producing!

    • Thinking outside the box my Boll**ks!!! Again, just banking solutions David. Now if you are such a fan of central banks manipulating the money supply why not dissect other alternatives such as those proposed by Ellen Brown or Bill Still who have exposed the central bankers. Or critique this proposal for a constitutionly controlled money supply.

      In Short: Government lets the current system fail, as you love to say “it’s capitalism”. This wipes out some of the Debt. Reimburse deposit holders 1 to 1 with a new debt free treasury issued Punt. (our new money supply)
      Government can expand this to meet the deficit over the following four years, reducing it
      from say 10 % to just over 4%.
      Our constitution would limit Government to issuing 1 % of the money supply each quarter. The citizen are now more in control and informed. The money supply would double interest free about every 17 years in a controlled manner. A known tax.
      Bankers would only be allowed to loan capital at what ever interest rate they like and not be allowed to collateralise people’s income, productivity, and possessions to expand credit as they do now.

  2. wills


    Very informative read, explaining rather convoluted economics in an easy to understand and grasp way.


    If ireland returned to Punt who would watch the printing presses.

    Because the case has been proven that the printing presses are owned and operated by gangsters.

    • Deco

      Modern Ireland would operate the currency system the same way Modern Ireland operates the transport system, the health system, the planning system, the food hygenie system, the education system, FAS, etc…

      With a litany of disasters.

      The Irish culture of management – generating failure, and making us proud of something (that is usually a deceitful scam, a lie or cheating).

      • Julia

        That’s all right then. We’ll probably win the Eurovision again soon and we can be proud of that, God help us.
        I can’t wait!

        • Deco

          It is amazing the amount of coverage that is given to events of significance to national pride – so as to induce a response in the population.

          Never mind the fact that people cannot find work, and the best and brightest are in despair, whilst the clubhouse boys are still working for the “two pillar banks”….

          I am seeing the “pride trip” as a scam by the insiders to make the outsiders feel as if they are part of the system that actually is robbing them rotten.

  3. There is a mistake in the above cartoon:

    ‘Contagio’ is the word in Italian & Spanish

    ‘Ansteckung is the word in German

    I cannot write the word in Greek

    The problem is I cannot find the word in Portuguese there must be NONE .

    Now that this word is contagious I am confident it will borrow the Spanish /Italian version.

    How close is the word ‘virus’ to contagious if it matters?

  4. AndrewGMooney

    David sets out the economic arguments for radical change once again.

    Another heretic, Richard Douthwaite echoed David’s statement- ‘It’s time now for a totally new plan B.’

    ‘Truth 4. There is a Plan B. Ireland doesn’t have to take anything that is offered. It can leave the euro quickly and easily.’


    ‘Moderate inflation is the answer.’ says David McWilliams.

    ‘Some of the suggestions such as Richard’s argument to allow inflation to correct the debt-income imbalance, goes directly against the prevailing wisdom of neoliberal economic policies.’


    ‘Fleeing Vesuvius’, courtesy of FEASTA, looks a worthwhile read, as it sets the economic dilemmas within the wider energy/ecological collapse framework.

    ‘Benign inflation’ or ‘hardcore price stability at all costs’? I think the ECB will trigger The Greatest Depression rather than recant their discredited nostrums. Until, of course, the collapse threatens Core Europa rather than the peripheral ‘delinquents’.


    • Deco

      There are aspects to Douthwaite’s “Growth Illusion” Theory which are extremely accurate.

    • coldblow

      I also read his Growth Illusion some years ago. I didn’t realize (or rather had forgotten) that he is an economist. I’ve always liked the title he gave to one of his chapters: Ned Ludd Was Right. He also argued that the 1950s represented about the optimum position in the growth vs sustainability trade-off continuum (as it were). In other words the 1950s is about as good as it gets.

      He could be invited onto the Late Late together with another balanced panel to ‘discuss’ the proposition. I’ll be ready to text in a comment to run along the bottom of the screen: “What does he know about Ireland in the 50s? If he thinks it was so good HE should GO AND LIVE THERE!!!”

      It just makes me soo angry…

      • coldblow

        I could prepare a script if RTE are interested. Nothing too risky, all based on the tried and trusted formula. Get a few of the regulars involved. Probably want a light entertainer there as well, not to agree with the **** of course or make light of the subject, just to defuse the tension so the audience stay in their seats. But let him sweat a bit first…

  5. John Q. Public

    This is nothing new. We know all this. Let the ECB bail out, partially only, the bondholders. Then the Eu pig states involved owe the ECB. We then have an EU referendum on giving the ECB a haircut, and then we do just that!

  6. idij

    You misspelled “inflate away the hard earned life savings”. Everything has a cost to someone.

  7. The only Plan B I have ever known is when the school decided to divide the class into those that talk too much and those that only listened thats how I got into Plan B.

  8. There is only one plan B that can empower the people and that is when each and every local community set up a ‘ Stamps Credit Union ‘ that has no legal recognition but has respect and tradition .

    It would be tax free and outside the austerity tax measures and essentially it is more of a formal charity between people among their own local area .

    Each stamp has a unit recognition and every person in the Parish that registers their skill to cooperate has an agreed unit per hour allocated and people can seek their own hourly rate and exchange what they do with someone else so no money is exchanged .Thus in essence a hairdresser might cut two heads of members of the family of an electrician for his one hour work in her salon to fix her electricity.
    It is important for each person to twin with someone in the parish for each service needed.

    And again there is no legal recognition and operates on the donation basis .Trust is the oil in the wheel that will allow it to thrive.

    • John,
      I love this idea. I’ve been thinking along the same lines recently….how does one get this up and running and utilise social media?

      What about a new site called something like:




      You sign up, log your skills and then search a skill you require…contact that person and hey presto.

      Josey :-)

      • I agree with you .The name must be more meaningful at a basic lever that the ordinary people can connect with and my preference would be one along the lines of: Stamps Credit Union .This conjurs more in common with the people that matters .Your proposed names may cause a confusion in some form – just my opinion only .

        As the way forward it means the following :

        Appoint a representative committee of at least three reputable people to give a Unit Stamp to the member of that community and that associated skill and this stamping process must have a uniformity between all the parishes so it can be a fair value and respected .Trust must be built upon to give it an alternative barteing technique .To call it a currency will attach tax so there are safe rules that must be adhered to and no bank of personal data must be stored to avoid other problems and the stamp must have a ‘recognition code’ only with the name of the bearer.

        It is for the persons to the ‘welfare act ‘ as opposed to ‘the contract’ who do their what they want in privacy .The Stamp Credit Union only denominates the local operson with a Stamp and Unit Number and the name of the bearer on it and a recognition signature …no more .

        • I have taken the initiative to register the domain name :


          If anyone wants to make this work they are welcome .

          • First step.

            How will these people be appointed?

            In my opinion we should aim for the youth who’ve taken to facebook and twitter.

            Lots and lots of very skilled people with too much time on their hands surfing the internet bored and itching to use their talents.

            Companies are taking on people for free, ok they gain experience but that’s all…then back to the scratcher after six months. If they could gain a favour in return they’d be far more motivated.

            Barter a skill.

          • If you’re not happy with the skill you have you could still use it to barter for training in another skill.

          • @Josey

            Where there is a will there is a way .Its that simple.Pragmatism before philosophy .

          • It would create thousands of jobs and cost nothing.

          • Then let’s start!!!!!

            I’m an network engineer, I’ll provide my time and enthusiasm :-)

          • Julia

            Brilliant. I have skills, but they don’t include attaching a new door to my oven after an unfortunate accident. Please make this work out guys, it’s a really good idea.

          • @Julia:
            You too can help, in fact everybody can and must :-)

    • @josey

      I am available to give what I can and I know others on site will too .Anyone wanting to meet to discuss matters can e-mail me :


  9. If Miss Piggy dominates the Irish Parliament Debates and Newspaper Reports how far away is any Plan B?

    Its time for the People to decide what they want and to do it NOW.

    • Deco

      The Dail was full of muppets before Wurzel Gummidge and Ming the Merciless started allocating names like Miss Piggy.

      Actually, it is a case of Wallace bringing Building site humour into the Dail.

      The builders – they have not gone away, you know.

  10. Mick1975

    David, if we devalue our currency how can this be good for Mick. His outstanding mortgage is €300k. Devalue by 40% as you say and now he owes £420k on his house. Am I completely mis-understanding this? If not, then I should be selling my house now, getting out of all debt before we devalue.

  11. Malcolm McClure

    Those who would espouse inflation have never lived with inflation. It leads to black markets run by the kind of chancers who used to be called ‘Spivs’, along with all kinds of criminal activity. There would be an ‘Official’ exchange rate for the new currency and a ‘Belfast’ exchange rate against dollars and sterling. The main cross-border roads would need to have custom posts again but minor roads would be patrolled by highwaymen, just like in the old days. ‘Stand and deliver’.

    So that’s our ‘Plan B’? Better think it through for a while and make that ‘Plan Z’.

    • StephenKenny

      I must agree.
      Assuming weak and dishonest politicians, inflation is the inevitable result of the nonsense of the past 10-20 years. It is unfortunate that it will only benefit the standard bearers of the pinnacle of the Celtic Tiger insanity. Those who didn’t take out 100 mortgages, and those who saved rather than used ‘equity release’ to buy a Merc for the use by the nanny, it is these people who will be ruined by inflation.

      If incomes increase by the same rate as inflation, then the inflation will continue – it is necessary for price levels to rise faster than incomes until the imbalance that caused it, disappears. As has been said here many times, it is the politically expedient solution – anything else takes leadership, and a population prepared to be led.

      Along with inflation, of course, comes rising interest rates (rising cost of money), and I’m sure I don’t need to elaborate on the effects of that.

      The social changes wrought by a period of high inflation of this sort (e.g. 10+% a year) can be visualised by the fact that after the last such period, property was almost universally seen as a sure-fire way of losing money.

  12. Deco

    David – I think that you sussed where this would end about the same time as Bertie Ahern gave his speech about suicide.

    When an entire society is in debt, it is essentially controlled by it’s creditors. In the ebullient mood of 2006 nobody in mainstream Ireland felt controlled by anything except the move and sway of the crowd.

    Ireland is now rated as Junk by Moody’s. According to Pravda, the problem is Moody’s. And even more hilariously, the EU Commission thinks the same thing.

    I was listening to Nicholas Taleb about a month ago on youtube, and also Marc Faber. Taleb pointed out that banks are not very good at protecting wealth, or at financing productive investment either. Faber pointed out that large parts of the world should prepare for zero growth(the richer countries). Faber’s viewpoint is that inflationary policies are actually creating more social chaos, and no real change to the growth rate. Effectively because of globalization, the benefits leave an economy, and the inflationary effects make it less stable and also less productive.

    Maybe the real effect of the Information revolution and the Internet on economics have yet to be properly understood. Forget the mania, and the usually nonsense. Maybe there is a new level of uncertainty, and also a new level of competitiveness. And like the world after the printing of the Gutenberg Bible, maybe there is a new survival code.

    Anoth concept that I am thinking about here is “ephermalization”. Maybe consumerism and peak oil have reached their peak ? Maybe all that is happening in the West is that we are living in the delusions of a previous era – using flawed logic, and a belief in the primacy of lifestyle which is no longer viable.

    Maybe with a massive increase in the level of insecurity in the world, the lifestyle is no longer a valid objective, purely based on the level of unpredictability.

    Maybe Germany, with it’s belief in low inflation rate knows how to deal with this ? Maybe China also ? And the debtor societes are completely clueless – trying to get too many objectives – trying to get everything right and ending up getting nothing right. As evidence I provide the state policy framework of the Irish state over the past twenty years, the US, the UK and the EU (excluding DE, NL, SE, DK).

  13. Deco

    One country that is playing a blinder with regard to the strategy that David advises is the one next door under the Con-Lib coalition.

    Britain’s interest rates are extremely low considering that British state finances are still as bad as Greek state finances, and the scale of the bailouts engineered in the last twelve months of Gordon Brown in charge.

    • StephenKenny

      The UK is borrowing in excess of £200bn a year at the moment, and this will come to an end when the markets realise that the government cannot possibly cut, let alone remove, the structural deficit. The UK has been living in never-never land since the early 1990s (some say the 1970s), and, however long extra debt puts it off, it will have to end eventually.

      • Deco

        Actually, now that you mention it, I reckon a large proportion of Ireland is also living in never-never land.

        The markets are appearing very foolish in regard to British debt, because inflation is continually undermining investors.

    • Inflation is sky-rocketing in the UK.

      • Deco

        I think it might be understated officially.

        Though not to the same extent as exists in the US with the scam that is called the “inflation adjustment” that takes account of improved performance of Silicon chips.

  14. Gege Le Beau

    “It’s time now for a totally new plan B.”

    We are almost there now that Italy is finally front and centre, the issues they tried to ignore and postpone is finally kicking in the doors in Paris and Berlin.

  15. Gege Le Beau

    “It’s time now for a totally new plan B.”

    We are almost there now that Italy is finally front and centre, the issues they tried to ignore and postpone are finally kicking in the doors in Paris and Berlin.

    • StephenKenny

      I hope you’re right, it can’t improve until we know where we are. I have a feeling that they will try to extend and pretend for a long while yet, and they still have some more tools in their bag: Private pension funds can be taxed to death; a group of central banks could start buying each other’s bonds, creating the ultimate peta-IOUs; property markets can be goosed – I notice that both the US and UK governments have recently announced significant direct financial intervention in their property markets.
      There’s a way to go until this, and the next, generation have been completely put into so much debt that a 1920s style inflation event would be necessary to dilute it away.
      In the US, QE3 is not far away, and that will also provide a respite for Europe.

  16. Gege Le Beau

    Along with the plan B, maybe we can finally have an edit function so we can avoid the above.

  17. piombo

    David’s proposal to withdraw from the Euro as solution to allow Ireland to restructure it’s public debt through devaluation and high inflation is a throwback to the 1992/3 ERM era. It cannot work in 2011 given the degree of interdependence between Ireland, the EU and the US, which simply was not there two decades ago.
    As an Irishman living and working in the UK, Ireland and Italy for the last 20 years, I believe the most effective way out of Ireland predicament can be summarised in four dimensions,namely:
    I) Productivity in the Public and Private sectors. Simply, Ireland has to become at least as productive as Germany through lower wages, longer hours and higher quality of management and output;
    II) Social Welfare needs to be cut to be brought in line with our neighbours in Northern Ireland;
    III) Central and Local Government reductions. Ireland has the population of Milan and it’s hinterland, yet Ireland still permits itself a Central and Local Government with attendant quasi government structures assimilating that of Austria, which has more than double the population.
    IV) Privatisation of all state utilities with no exceptions.


    • Deco

      You are suggesting that we get realistic with regard to the scale of the problem.

      Yet, on Pravda, there has been a consistent message since Moodys rated Ireland at Junk status, to dismiss Moodys (‘they are only one ratings agency’).

      I understand that there is a Chinese rating agency. And they are even more harsh in their assessment of profligate Western politicians than Moodys. It will be interesting what they say. Though Pravda might never even cover that at all.

      FF/GP dithered for months on end over the problem – with the GP focussing on stags, badgers etc.. and FF focussed on face saving, and protecting Irish pride.

      Now we have a variation of the same theme from FG/ILP. The more assertive (publicity seeking) ministers are on a continual PR campaign with announcements every second day. There have been semantic level changes (minsterial cars, Obama visit, etc..). But in terms of economic cost and economic output, there is still a continual state of denial. Everybody is living as if Disneyland is a right, an entitlement, and an existence – and not a location in Florida.

      If FG decide to introduce new levies, taxes, etc…then that will be the end of FG. Any ILP initiatives to reform the public sector will result in them cratering.

      Part of the problem is the poltical class – but a part of the problem is also the media and the way they have completely misled people over the duration of the continual build up of debt.

      In other words, at it’s core we are in a real intellectual bind. And this always comes about because people are too lazy to think, or because the crowd effect manages to prevent any serious thinking.

      But effectively, there is a continuation of the state of denial.

      • Malcolm McClure

        Deco said “ministers are on a continual PR campaign with announcements every second day.”

        On present evidence, I think FG are doing a commendable job in very difficult circumstances. Minister Brian Hayes on Newstalk this morning warned against ‘headcase unilateral measures’ to remedy’ (the economic situation).

        The silver lining in this economic cloud is that it has concentrated peoples minds (all people, not just the government) to understand that there is no easy way out of this. We need to o go systematically through every item of expenditure and eliminate waste.
        If politics is about anything useful, it is about persuading the majority of the population to accept reality. FG is quite effectively at doing this.

        1. For the economy as a whole(preventing matters from becoming even worse — so far)
        2. For the state’s relationship with the Vatican. (Hopefully disposing of the last vestiges of ‘Laudabiliter’.)
        3. For the whole issue of healthcare. (Closing the Roscommon A&E because of ‘lack of sufficient traffic to make it viable —surely a cause for celebration by local people?)

        In my opinion, FG deserves encouragement to ‘keep up the good work’.

        • piombo

          Malcolm ,
          I believe FG is managing the spin quite well, but not much more. It is not their fault, they are effectively powerless as they neither sought nor obtained the remit to take the actions necessary to turn the ship around on their own.

          The government (and perhaps we as a nation as well) are in fact waiting for the magic from Brussels as it knows the screw is tightening around the necks of the French, Gerrman, US and UK banks faced with the prospect of Greece and the others defaulting in the coming weeks. Giulio Tremonti, Italy’s Finance minister, yesterday used the metaphor of the Titanic in persuading the Italian senate to pass an emergency budget of €70 billion.
          The budget passed and there is more to come. In addition, he reiterated his 2003 idea of a Eurobond as a solution to backstop the entire banking & sovereign funding problem in
          the EU. My feeling is that we are closer to this state of “fiscal union” than we care to imagine, perhaps it is a question of weeks, maybe a couple of months, but not more.
          The real crux for Ireland will emerge at that point.
          Fiscal Union will mean for Ireland, additional taxation of a significant measure plus a momentous reduction in the State apparatus to facilitate structural balanced budgets, the latter being guaranteed by a zero current deficit provision enshrined in Bunreacht na hEireann, just like what Germany has in its constitution.

        • coldblow

          If it could be solved by eliminting waste it would be quite easy to do. I don’t believe it can.

          1 They haven’t improved matters as I see it
          2 Neither important nor relevant – where does this come in?
          3 They justified the closure in terms of patient safety – spin. Why didn’t they say that it’s the obvious place to start as Roscommon figures at the bottom of nearly everyone’s list of priorities?

          The Min. for Health lives in a mansion and writes of renovation costs against tax, on condition of public access, as it is a heritage property – probably can count the no. of visitors annually on one hand. Can we expect this tax loophole to be closed?

          In contrast to FF’s sleazy Peronism FG offer good old-fashioned values (as adjusted for current trends, as it were) ie shore up the old property-owning economic and social order. I can’t prove it, it’s just how it appears to me. They seem to manage to be both up-front about this and shifty at the same time. So on the cardinal virtue scale they score 1/2 for honesty, probably less on the rest.

          What do they stand for? Perhaps better phrased: Who do they stand for?

          • Malcolm McClure

            1. At the moment efforts need to be directed to prevent matters from getting even worse
            2. Important because it influences international perception of Irish moral fibre and our determination to correct the wrongdoing of the recent past.
            3. Roscommon emerged from the misty wilderness because of Kenny’s personal guarantee there, which he has said was overridden by party priorities. An understandable U-turn, not an obvious place to start.

            Honesty is a good place to start for any political party, and the shiftyness is a reflection of their discomfort when cute hoors in the opposition and the media fail to follow that lead.

        • Deco

          Sorry, but I have seen through Brian Hayes a long time ago, and think that his has too much smile in him to be any use.

          • Malcolm McClure

            BH seems smart enough. His widow’s peak looks more like John Travolta’s than Zinedine Zidan’s. His smile seems less forced than that of most politicians.
            One to watch.

  18. Afternoon from sunny Croatia,
    It is very funny the way being in government changes everything. The Sir Humphreys have got to them.

    Up to last year, the leader of FG and presnt Taoisech was on the record in the Dail calling yours truly a prophet for seeing stuff or at least calling stuff, before anyone else. Now one of his underlings implies that the same prophet is a “headbanger”.

    This is the way of things. As I said before, we have to think our way out of this crisis. Whether we like it or not, Ireland needs domestic inflation to wipe out debts and it needs a currency that falls faster than the rate of inflation rises to get labour intensive exports going.

    The quickest way to bring down the real public sector pay bill is also through inflation but this doesn’t appear to have dawned on anyone.

    People’s biult up savings in Euros remain as they are. The banks get hammered – which is what we want. New banks come in – which is what we want and then when the job is done we turn off the taps and start again.

    The key is to get back to an equilibrium where unemployment and output are at full capacity. I believe that we have a massive capacity deficit now and the infationary impact of a new currency will be modest, if negligable.

    So there you have it. A bit of economic history and learning plus a bit of understanding would go along way to stop people throwing mud at others. But maybe that’s too much to ask:)

    Best David

    • piombo

      Cheer up, take comfort in our Lord’s observation “nemo propheta in patria”.
      Enjoy wonderful Croatia.

    • Deco

      I think that if we are to find a new equilibirum concerning employment and output, that it will only occur at lower prices. In other words deflation will get us there. This will mean deflation, debt default, and possibly a breakup of price fixing arrangements and state levies that increase the cost of production.

      I am thinking along the lines of the manner in which the South Koreans, Taiwanese, and Malaysians responded after 1998. That is a faster template than the Keynesian template used in the West in the 1930s (which ended in war as a means of distraction over debt).

    • Julia

      Hi David, it’s a good time to be in Croatia. Hope you’re on hols with the family. Rain is forecast here.
      Have you noticed this strange attempt to get the new TDs to conform? Suits, shirt and tie, they should cut their hair. Amazing how people feel threatened by anyone different. Mary Mitchell should’nt wear pink, neither should Mick Wallace. What they say might be remembered if they stand out in any way. I suspect some of the complainants would like everyone to wear a uniform. ( I recommend a school uniform considering some of the exchanges in the Dáil).
      Back in 2008 when this all blew up conformity was the order of the day again. All the political parties thought the bank guarantee was brilliant, ‘the only show in town’. Brian Lenihan sat back and decided to fit in with the European Commission, conform, all through fear.
      I think we should be very wary of complete conformity. Too much conformity and intolerance of nonconformity is tyranny.

      Remember The Life of Brian.
      “You’re all individuals”
      “I’m not”

      • coldblow

        The dress code thing is telling us something at the symbolic level: this govt is serious. There was an amusing piece by Kerrigan in the latest Sindo – he was once asked to leave press gallery because he was wearing the wrong kind of jacket. Keir Hardie turned up at the Commons on his first day wearing a flat cap and this caused a scandal. An elderly gentleman once told me, or implied by the way he was speaking, that the most important quality in a President is to dress correctly. Michael Foot was pilloried by the English Press (probably Murdoch’s crowd more than the rest) because he wore a donkey jacket at the Cenotaph.

        But I’d agree with Deco. If Wallace doesn’t want to dress smartly then that’s good reason to make him.

    • Deco

      You completely underestimate the power of the Public Sector Unions to get increases above the rate of inflation. They will simply not let it pass them by. They have power, and they will not allow salary levels to come down. Our public sector costs will remain high compared to our main trading partner, and the rest of Western Europe – and completely out of whack with Eastern Europe – which is targetting our investment location as a competitor.

      Basically Jack O’Connor and chums have the power – and they will do nothing about relinquishing it.

      Only if the social partnership deal is completely scrapped will it work.

      And then there will be capital flight – resulting in a shortage of capital availability, as ordinary Irish people with savings tranfer their savings in Canadian Dollars, Swiss Francs, Norwegian Krone, Polish Zloty, or whatever else they regard as more stable than the Euro. There is a fair amount of money on deposit in the Irish banking system by Polish nationals and it could disappear overnight.

      • Julia

        Deco, I have to say I’m fairly ordinary and I’m a public sector worker. I’ve had three/two paycuts since this began, I can’t remember. I pay the same taxes as everyone else and I never get a bonus. Along with my coleagues I work flat out every day and frequently far more than my ‘official’ work hours. I don’t begrudge it – I wouldn’t work extra hours if I didn’t enjoy it or didn’t think it was worth it in other ways. I’m a member of a union. After 25 years in the public service I don’t earn the kind of money that would buy me an apartment in Spain, nor am I one of the people David talks about who are saving lots of money and moving it to foreign banks. My money is in the credit union and actually I’m paying off a loan at the moment. I have the same bills to pay as everyone else.
        What is it you hate about unions? Are they the cause of our woes? If unions disappeared tomorrow would the the country be a better place? Would we, the workers work harder for longer? Polish the bosses shoes perhaps? I don’t know. I suppose we’d be working for less. Divide and conquer after all.

        • Colin

          I’m waiting on news on the Allsop’s distressed property auction of second homes in the Med which all the taxi drivers, plasterers, electricians and even low paid teachers own …..but there hasn’t been any developments yet….. so are they all quietly paying off their mortgages in the sun without any difficulty, or have they stopped to prioritise paying off the home mortgage in Ireland? There seems to be zero/nada investigative journalism into this area of former exuberance.

      • John Q. Public

        Deco you are right. Every pay rise increases the average industrial wage slightly. These bastards along with private sector unions have been part of our downfall. Why do you think Dell left? Part of our future is in their hands.

    • Praetorian

      Medjugorje is well worth a look if you haven’t been. Apart from the commercialism etc, it is easily the most peaceful place I have ever visited, very positive experience.

    • uchrisn

      Was the TD trying to imply that David likes heavy metal concerts and moshing? Thats what I always thought a ‘Headbanger’ was.
      I imagine the guy knows nothing about economics. Its a pity that George Lee decided to walk out on FG though hearing stuff like this you can understand why.
      Its true that Ireland needs devaluation to increase employment. The ECB are being quite unfair about the whole thing and EU partners are intent on saving their own financial industry. Ireland should at least put leaving the Euro on the table.

    • Thinking outside the box my Boll**ks!!! Again, just banking solutions David. Now if you are such a fan of central banks manipulating the money supply why not dissect other alternatives such as those proposed by Ellen Brown or Bill Still who have exposed the central bankers. Or critique this proposal for a constitutionly controlled money supply.

      In Short: Government lets the current system fail, as you love to say “it’s capitalism”. This wipes out some of the Debt. Reimburse deposit holders 1 to 1 with a new debt free treasury issued Punt. (our new money supply)
      Government can expand this to meet the deficit over the following four years, reducing it
      from say 10 % to just over 4%.
      Our constitution would limit Government to issuing 1 % of the money supply each quarter. The citizen are now more in control and informed. The money supply would double interest free about every 17 years in a controlled manner. A known tax.
      Bankers would only be allowed to loan capital at what ever interest rate they like and not be allowed to collateralise people’s income, productivity, and possessions to expand credit as they do now.

      O forget, your banker friends would be exposed and out of the loop.

  19. stiofanc02

    They are booking flights and planning dinners. Let th Holidays begin! You dont seriously believe these are worried about the economic collapse when they are in clover to the level they enjoy do you? By the way do they do quesadillas in Croatia? Im buying US dollars.

  20. paulmcd

    David, While you are away, I think the gremlins are at work on the site.

    Comments which appear are not uniform across the various Internet Service Providers to which I have access. This may result in some contributors being unable to post their comments, or, to think that they have posted but to discover otherwise if they go mobile.

    In fact, on one ISP, it is impossible to access the current article.

    If you go to the previous article you will see significantly different results for the total number of comments made depending whether you are on page 1 or newer comments on page 2.

  21. Philip

    In brittany at the moment. Roads are superb. Health services are by all accounts second to none. etc etc. Jobs? There are none. Nahdah. Unless you are into pork processing, agriculture (large scale), insurance, banking, health and house maintenance. The place has a nuke for power generation (97% of their power is nukes) and the grub is not bad at all.

    But if you are young and want to work in hi tech – forget it.

    7,5Mbps uncontended wireless broadband everywhere which I am using now. Goes like a snot. And Windturbines everywhere. But still….no “real” jobs. All roads lead to gay Pareeee.

    In this new federated EU of ours (may as well stop denying the reality of federation), I get a sense of Brittany emerging in Ireland. As I approach the geriatric state of being end of career and being an empty nester, I could take the position of not giving a toss. But, I suspect I shall be working for a lot longer than the average Franchach – so I need to wake up.

    David says in his post above that we have a massive capacity deficit and that the jump to a new currency will have its painful side effects ameloriated by this sudden available capacity at the right price. Capacity to do what pray tell? And why should we be in a more unique position than anyone else? This is dewy eyed and is predicated of an a so called US re-ramp.

    Economics is the social science that analyzes the production, distribution, and consumption of goods and services – according to da Wikipedia – nothing there about banks simply becasue their purpose if derivative and not causative – and never was. The neo-con economics of the last 20-30 years was predicated on growth fuelled by funny money. We now need to start moving from growth and working on the basis of sustainability. For example…how do we rid ourselves of the real yoke of Oil…and start to spend money on energy that employs folks like we saw there the other day in Athenry.

    Guys – focus on where it matters…production, distribution, and consumption of goods and services. Dumping the Euro will not solve the overbalance we have in Production of houses and the consumption of oil. Banks are just conduits…who’s to say any other banks will differ given the fundamentals that are still out of kilter.

    • Philip,
      banks are not just conduits,
      they lend out money they dont even have and expect us to pay it back + interest.

      It’s called fractional reserve banking. They can legally lend out 12 times the amount of money they have….what a swindle that is….and nobody bats an eye.

      Why should our Government have to borrow money in the first place when it has the power to create it DEBT FREE???


      • Philip

        A few years ago we bought German Cars using German money with a promise that we could pay that back with money from sold houses. We forgot the basics that for every euro’s worth of import there should be a euro’s worth of export – irrespective of where that unit of exchange came from. So…assuming we did restart the economic engine with new debt free issued money, you stull have to import and make the equivalent in expert and given we are so Oil burdened and our productivity is so heavily domestic (aside from the FDI stuff in viagra etc.) we are still in a spot of bother. One way or the other you’ll be trading in a world currency to do anything of meaningful value. Fractional reserve banking, currenccy manipulation etc etc only accelerates or decelerates in time to allow benefits to be brought forward or nasties to be delayed or spread over.

        The best way of looking at it is that the conduits/ banks had so much floating around in them that it hid the underlying fundamentals in the western economy…an economy that continues to die on its feet. It is naive in the extreme to believe this has anything to do with banks or currencies – although I do accept their influence has acelerated the process of decay.

  22. Colin

    Official Ireland is quite happy with Plan A, so that’s that. Can we change OI’s mind? No chance, they know its wrong, but it rewards them handsomely, and if you’re not on the gravy train, hard luck pal! Your fault, I’m fine, I’m alright Jack. Only the cataclysmic after effects of a full blown financial meltdown will bring OI along to consider Plan B.

    Bring on the meltdown!


    With employment falling by 40,000 per annum and 100,000 people leaving the education system each year, 16 % unemployment is the best equilibrium we can hope for.Oversized families are a continual curse on this country.ASDA Enniskillen is still far cheaper (33%) than prices down south.Well worth the monthly £ 500 shopping spend.Ditch the euro.

  24. paulmcd

    FALLING SPENDING + Falling Savings Rate


    “Yesterday’s savings figures for 2010 suggest that the household savings ratio fell sharply from the spike of 2009. This was unexpected. A fall of more than four percentage points in the savings rate would usually fuel spending, as measured by private consumption. But private consumption fell by 1.4 per cent in 2010 compared to the previous year.”

  25. Principles of Knockers

    If the weight of the lossed debaters contributions is added up and is equal to the popularity of the new government then the purpose of this Forum has been LOST.

    • Malcolm McClure

      John ALLEN: Only Praetorian has protested that he didn’t want to be a knocker— in the previous blog. I trust you are not becoming obsessed with knockers. If you are, the purpose of this Forum has indeed been LOST…. but out of respect for your enunciation of ‘The Principle of Knockers’ all is forgiven;..
      or, as Georg would say:
      “Ja, und….?”

      • @malcolm

        that does not explain why the weight of the lost contributors seems equal to the increased popularity of the government and by extension does this Forum matter anymore?

        Are we economic loyalist to a lost cause now?

        As paul moriarty would say : leave me alone I am bagging my chalices .

        • @Malcolm

          the word knockers can also mean in hiberno irish : contagion

          isn’t that what we are talking about ?

        • Malcolm McClure

          John ALLEN: Of course this Forum matters. I have never felt constrained from disagreeing with David when I felt that was justified. I also gave him full credit when he had hit the nail on the head, which was quite often.

          To err is human. The pressure to maintain a twice weekly output of columns on economics inevitably involves risk. Of course David will be attracted up some blind alleys, and will have to retrace his steps. However, someone has to spell out the implications of alternatives to concentrate people’s minds and David’s columns have performed a useful public service. Sometimes events are moving too quickly for decisions to be made on mature reflection on those alternatives. That has been the problem ever since the construction boom imploded in 2008.

          David has been outstanding in that he has tried to do something positive. He has directed attention towards the role of the Irish diaspora and the widespread goodwill towards the Irish, which is still there, and will experience a resurgence when it is realized that we are addressing the problem carefully and rationally, taking political constraints into account.

          The present debacle is fundamentally a Bank problem that should have been left to bank investors to sort out. The problem in Greece is largely a Fiscal problem due to Greek reluctance to pay taxes. The emerging problem in Italy is caused by the perception that the entire country, from Berlusconi down is riddled with corruption, and it is the biggest debtor nation in Europe. Foreign investors have seized on this view to cover their losses on Greece by shorting Italian Bonds, in the expectation that Italy will cave in sooner than Spain.

          Let’s give FG credit for preventing national melt-down and restoring the sinking ship to an even keel. If our fragile barque should be hit by a Euro-tsunami it will be ‘Every man for himself’ but unless that happens let’s continue to discuss realistic alternatives.

  26. The Fragile Barque

    Since my presence on this site a few years ago I have learned how we went through the worm hole to change those in Denial to Accepting reality and subsequently influencing the mindset of those readers of these articles ‘ how to think outside the box’ and assisting in a change of government etc .

    Now since recent months something far greater is oncoming towards us and that ‘us’ has both a meaning ‘on our isle’ and the EU and The World.
    For many the term ‘us’ is themselves and how to pay the house mortgage and keep a roof over their heads.

    For the government the term ‘us’ seems re-defined since their becoming to office and is far broader than the national psyche .I am finding the government is now the ‘yes men’ to EU and that our national problems are the EU problems to share and to ignore our immediate problems on our doorsteps.

    The term ‘us’ as defined by us on this site has no longer any voice from elected representatives and to find that voice we now have to look at those who protest in public whether they are in roscommon or at the gates of the Dial( M for Murder ).We have been divided before by the illfated FF and we recovered only to be divided again by the FG/Lab and again we are trying to stand up again once more in exasperation . So many on this site are becoming exausted and some forced to emmigrate once more only this time they know it is terminal because there will be nothing to return to again.

    There is a deafening silence as we experience what is ahead of us and that silence in the roaring decibels of the EU and Money Markets is what we have yet to face .Up to now we ( those of us lucky enough ) have been fortunate to manage the winds of change .The moments of NOW are FRAGILE .

    The timing of the end of that silence before the Storm is a fools guess and all the time we walk around like headless chickens to celebrate Christmas .

    Our faces are numb ( from imported soap operas ) and we have lost the experience of how to cope with pain and managing a way forward.

    I hace read dmcw next article and I noticed subconsciously how he has gravitated to that time when Hell Arrives .

    I will expand on that when he opens that article on site.

  27. The Fragile Barque is the moment we on this site find ourselves now and its another Contagion that might blow us away should we flee in droves.

  28. David says : Three years on…..

    We never ask how long a woman become pregnant we only ask when is she due .

    Using an Egg Timer it takes three minuits to boil an egg .However you only put the egg into the pot after the water boils and then use the timer .So the timer measures from the boiling point to the end when you take it out.

    The boiling point is striking a chord now in the Markets ( of boiling pots ) and the Timer must be called upon to be used . Three minuits is a very short time to make a runner .

    The questions to be asked now are :

    Where is the timer ?

    Is the egg in the pot ?

    Is the water boiling ?

    How do you want your egg hard or soft ?

    How many more want your egg ?

    Will you get it on time before others do ?

    Where do you go to eat it ?

    Three Minuits is a SHORT TIME .

  29. Original-Ed

    The big one has arrived , as David predicted and by this time next week you’ll all be either compliant federal (German) Europeans or well on the way to becoming what in effect will be British subjects. The game is up for the peripherals and there can be no middle way, it’s going to be either in or out and out will not be a comfortable place for a small country in a fragmented Europe, so to avoid a freefall we’ll have little choice but to hitch the wagon to our neighbour’s currency.

  30. Colin


    Something for you folks to chew on.

    Did Rupert Murdoch make Bertie Ahern ‘premier’ of Ireland?

    • coldblow

      I linked here a few weeks ago to Douglas Hyde’s Importance of De-Anglicizing Ireland where he discussed the Irish habit of aping Englishness in all things while at the same time protesting their hatred of the country.

      In Irish Catholic Mary Kenny argues that Hyde’s main motivation in writing this piece was concern at the damage done to cultural and intellectual life by the inroads being made by the British gutter press, in particular the NOTW, into the Irish market. Apparently that paper was getting extremely popular back in the 1890s.

      I notice in all the comment in the papers about the scandal that the NOTW’s readership don’t have anything to answer for. Indeed, according to one account it was the ‘essential decency’ of the (British) public that brought Murdoch down. So uplifting. To use an earlier image, they are like the lads at their mates’ (the joyriders) funeral or the crowd of onlookers as a stranger gets his head kicked in: shifty. It’s like they are not expected to get involved in the morality play.

      • Colin

        I agree.

        Memo to RTE: Stop importing British TV – 90% of us have Cable TV, and if we want to watch Coronation Street or Eastenders or Emmerdale, we can find that on BBC/ITV. And don’t give us Irish versions of British Programmes. Is it asking too much to demand Original Irish Programmes? If it is, then pack it in lads or stop looking for a licence fee.

  31. BKK

    Dagong, the Chinese credit rating agency, gave Ireland’s Sovereign Debt a BBB rating in December 2010.


    I would be interested to hear people’s comments on Dagong’s analysis of the negative impact of the US quantitive easing on the Irish economy as this is the first I have read about this.

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