October 24, 2013

When you are punished for paying back all your loans

Posted in Banks · 108 comments ·
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The other day I was talking to a mechanic friend of mine who has a garage down the country in a smallish town. He told me an extraordinary story about a friend of his who came into the garage a few weeks back to get his car touched up before he flogged it online. The story explains why an economy needs demand as well as supply to boost the recovery. In the past week since the Budget, there has been lots of talk about job creation through boosting supply. This little tale explains why boosting supply is not enough.

A few weeks later, the same bloke was back to the same mechanic. He hadn’t sold it and so he was looking for the mechanic to get the car up to speed in order to pass the NCT.

He was doing the NCT on the old car because he couldn’t get finance to buy the new car. He wanted to flog his old one to save on tax, fuel and upkeep. He was going to put that cash towards getting a new car. He hasn’t changed his car in years. He aimed to use the cash, top it up with his savings and borrow the rest. He calculated that he’d actually save cash on tax and fuel each month.

The bank wouldn’t finance him after it discovered he had a mortgage. Before he told them he had a mortgage, the finance was going to be released. Once he said he had a mortgage, which he has been paying for the past eight years, the bank declined the car loan.

He went to four other financial institutions and they all refused him because he had a mortgage. The banks explained (unofficially) that they didn’t want to give car loans to people with mortgages because when it came down to deciding which to pay, people always choose the mortgage.

The bank had used the fact that he had paid the mortgage each month as “evidence” to substantiate its view that he would always opt for paying the mortgage over the car loan if he got into difficulty. This is a guy with a decent job, who has been working throughout the recession.

This is a bizarre example of the virtuous borrower being penalised because he is actually paying back his loans.

This is what the credit crunch does to an economy. It squeezes everyone and depresses demand. Even the people trying to do the right thing are penalised because banks put across-the-board credit limits on everyone.

This vicious cycle affects demand enormously because each individual decision has a massive aggregate impact on the overall economy.

When each car doesn’t sell, a little bit more liquidity dries up and, over time, little by little, case by case, the car market seizes up.

We can see this in the latest evidence on the second-hand car market.

Cartell.ie reports that owners of pre-2009 vehicles are finding it increasingly difficult to offload their vehicle and re-enter the market for a newer car.

The company found that 34pc of all 2008 vehicles are still on their first owner. This is higher than the comparable figure for 2009 vehicles, which stands at 31pc.

Thus there is no problem with supply. There are loads of cars out there, loads of dealers trying to sell them. The price of second-hand cars has fallen dramatically and it is not as if dealers in this hyper-competitive market are taking big cuts of each deal. The problem is there aren’t enough buyers.

In the language of economics, there’s plenty of supply and not enough demand. But there should be demand because Irish people love their cars and for many there is no alternative to owning a car.

The reality in Ireland is that Irish people depend on their cars more than most other Europeans. According to the NTA’s annual household travel survey, 85pc of all long journeys were taken by car. Seven out of 10 citizens said the car was their most used form of transport.

In addition, when consumer credit dries up it is not just the car market that is affected.

Consider that many of the people who can’t get the loans to trade up are having to pay large amounts of tax, upkeep and fuel consumption on their old cars. NCT failure rates are increasing, meaning much more money for the NCT testers.

For the man in the opening example, he was going to save on fuel, tax and upkeep while also saving a small amount every month. Without the loan, he has to pay a large sum so his car will pass the NCT and meanwhile save as much as he can afford in an attempt to buy some sort of car to keep him going. This means he can’t save for a rainy day nor can he spend today and then pay it back little by little over the course of the loan.

This is how demand in the economy is punctured and if credit isn’t being extended by the banks, there is no way to kick-start demand.

Consumer credit and money supply have been falling constantly since 2007/08. This means the amount of money in the economy is contracting.

There is no demand in the economy and without demand there can be no recovery.

The Government continues to talk about supply in the economy as if making supply more plentiful, demand will come and people will miraculously be inclined to employ more people. The small example from the second- hand car market shows you why this is unfortunately wishful thinking.

What is happening in the car market is happening all over the economy and why stories of an incipient recovery are isolated incidents, specific to certain sectors – like the south Dublin housing market – but have little meaningful general relevance.

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  1. 5Fingers

    Good Morning Everyone. My 10 yr old banger started 1st time. SIMI is foiled again!!

  2. Ukrainian Tractor

    I have more faith in my Odessa file ……full of bits and pieces ….that work.

  3. 5Fingers

    The thrust of this article is ultra important. Demand side issues need further airing in terms of destruction of spending power and the destruction of small company viability which has to cope with higher than ever input costs due to rates, economic rent (by the untouched/ unaffected class) AND comparitive advantage of larger operations where regulatory input costs are small.

    This is what I hate about this article and I wonder why you did not leverage independent technical competence in this field to advise you better than echo the idiot motoring pundits who support a burgeoning import and low skill retail business for big brand autos and the ludicrous costs on VRT etc.

    1) For any given power output car emissions and economy have not changed markedly/ at all in the last 15 years. Good roads mean cars run better and safer. The advertised claims are based on ideal journey cycles and many are proven bogus.
    2) Selling new cars does keeps the technology knowledge offshore. maximising an artisan/ mechanic/ maintenance culture keeps in onshore. It is a salient fact that dealerships have no incentive to have or develop expertise to do anything to a vehicle except change a bulb or the oil. Once beyond 4 years, you are far better moving to a reputable mechanic.
    3) Car reliability beyond 200K kms is now typical. Whoever is your sample, would do better to find a 10yr old for 10% of the new cost with same reliability.

    I want a burgeoning 2nd hand car market here. The derivative diversity is substantial. We need more of Micksgarage.ie and more motor factors and more customisation and we want it encouraged.

    The danger here is flogging big business and even more overtaxing.

  4. brophy31

    David, are you seriously suggesting that this guy would have had a better chance of getting the car loan if he had been defaulting on his mortgage payments?

  5. DarraghD

    Good morning all. Great to hear the industry I work in getting an article dedicated to it, the article is absolutely on the ball as well, although I work in a different end of the industry (parts supply), the story is the very very same. What we are dealing with now is a near obsession with not spending cash within our domestic economy, and nowhere will you see this more in action than in relation to car maintenance. Sure who in all reality wants to have to spend the little bit of cash that they probably don’t even have, on sorting out a car problem?!? Our clients are all trade garages, we hear stories every day of the week about retail customers/motorists, now deciding to “take ownership” of the entire business transaction, and dictating to their mechanic, where the parts are to be bought or sourced, (often in a scrapyard where the parts are second hand), whereas only a few years ago, a motorist with a car problem would have left the entire problem with his/her mechanic on the basis that the mechanic would have had to stand over the entirety of his work, the work being parts and labour.

    Now what is happening is that it is happening more and more frequently, is that the retail customer/motorist, is now “micro managing” his mechanic in this manner. They are doing so (and being told this), that as they are supplying the parts, which more and more are being sourced through UK parts websites, Northern Irish parts outlets or Irish scrapyards, that if there is any problem subsequently in terms of a warranty, that there is effectively no warranty whatsoever on the work carried out, because the customer is supplying (and is therefore responsible for and carrying the risk for), the quality and durability of those parts that he or she supplied.

    If you are dealing with NCT fail problems, stuff like airbag lights being on, emissions and ABS fails, you are seeing this more and more and more every day, people struggling to get the car back on the road while literally obsessing about how they can get out of the pickle they are in, on the cheapest terms possible. The same is going on when the car breaks down and needs work, where previously the car would be collected by the garage and the repair costed up and an authorisation sought to go ahead with the work, what is happening now from the get go, is that the customer is micro-managing the entire transaction! The garage operator can’t argue for fear he won’t even get the labour element of the job if he objects.

    I started my parts business only 3 years ago and I can tell you now that my faith in entrepreneurship has been completely undermined in this country in that time. You have to ask why people start up a business in the first place, as opposed to taking a PAYE job, where one is available? They do it firstly to generate a modest wage for themselves, (that isn’t even achievable at the moment and any small business owner who says otherwise is either very lucky or else spoofing you!), they do it to position themselves where a small bit of a surplus can be generated year on year, which can hopefully be reinvested to grow the business further. There are obviously other motivating factors as well, such as freedom to develop, explore and implement your ideas, something that is often not open to you in a PAYE job, etc.

    But the small business entrepreneurial model in this country is broken, it’s basically completely fucked if you think about this for a second. When you think of something as basic and as accepted as Maslow’s pyramid of needs in the workplace, and you look at the most basic needs that are set out there, food, shelter, clothing (all these things being a function really of your income), if you are dealing with hugely depressed sales, and hugely depressed margins, you can’t even tick those very fundamental boxes properly, if you are struggling to pay yourself a half decent wage from your business, let alone create profit to grow the business next year.

    There is a small business comment that I’m hearing a lot of lately, and it is this: “there is no viability, I can’t see beyond the end of this week!”. I’m hearing (and saying!), this a lot lately, customers of mine, suppliers of mine, business colleagues are all saying this. They can’t see what may or may not happen the week after next, for fear of what else will be inflicted upon this country that will cause sales and business activity to flatline again, be it a budget, a threatened US default, some other outrageous domestic news story on the politics front, another depressing ESRI report, a Troika warning to Ireland, or some other lump of bad economic data that will have people entrenched again in relation to any spending that they might have been prepared to do.

    And then in the background, the cuts on one hand, and the never ening price increases on the other, that are affecting people are being repeated and repeated, and are bleeding people dry, medical card cuts that are scaring the absolute Bejesus out of people, yesterday it was Irish Rail, Dublin Bus and Bus Eireann announcing price increases, today the headline is a 10% rise in the cost of private health insurance, tomorrow it’ll be the ESB, Bord Gais or some other semi-state union run la-la land, where the average salary is 95K a year, pushing their imminent price hike out there and blaming it on “international energy prices” or some such shite.

    Right now I’m struggling to pay myself a wage of 200 quid a week from my business, after everyone else and everything else have all been paid, which is fortunate because I have nobody depending on me. To do otherwise and pay myself more, would be downright reckless, as I have said above, there is no visibility, I can’t see beyond the end of this week in my business.

    For myself, the future is Canada, because there isn’t a hope for this place, not a fucking remote chance, for as long as these insane policies continue. The latest thing now is, “hey we’ll be out of the bailout and it’ll all be grand so we need you to all stay on message here!”. Absolute and total bollox, it won’t be grand, the domestic economy has been hollowed out and destroyed in the name of us having to appear to be politically correct in front of our EU masters, and the policy at the moment is: “lets be the first to get out of the bailout” game, “won’t we look great?!?”. Meanwhile, nobody has a brass pot to piss into and the country is being run by a school teacher and two union officials who never created a buck for themselves, or took a business risk in their entire fucking lives.

    I’ll enjoy reading this column from Canada please God by next Paddy’s day, that’s where my very best analysis has led me, and thanks to our host as always for shining a very bright light on the truth in this country…

  6. DarraghD

    Jaysis I didn’t think my post would be that long, apologies!

    • redriversix

      Enthusiasm Daragh…!

      “A mans gotta have enthusiasm’s”

      Al Capone

      have a great day

    • Steaf35

      Only long if its not interesting; Best of luck if you decide to go; Presently wrestling with a similar dilemma although I’m presently employed; Turkeys continue to vote for Christmas in this fair land…..!!

  7. Pat Flannery

    Running a national economy is like running a business. Without revenue there is no business. Without demand there is no revenue. When demand contracts because of forces beyond management’s control the business must find new revenue sources or quit that particular business model.

    The demand that traditionally drove local Irish businesses is gone and will never come back. It was based upon strong circulation of money locally. Now money is circulated globally. Goods and services are exchanged internationally. Container ships and the Internet, with its e-commerce air carriers such as FedEx and DHL, have replaced the local stores and local service centers.

    Like any good business manager a modern nation must face the realities that its old SMEs are never coming back. All the fiscal incentives in the world cannot revive a dead business model. It must invent new sources of national revenue by plugging into the new global demand structure. The good news is that this structure will in turn breed new local SMEs where money changes hands fastest i.e. where the life blood of economics, the multiplier effect, is most palpable.

    Miraculously Ireland has the solution at hand! As an educated English-speaking people, located at the busiest roundabout on the busiest information highway in the world, the European-American fiber optic trunk road, Ireland has a unique commercial advantage in the modern world.

    All Ireland has to do is build a national information service station. The whole island can become one giant service center for global information traffic. Local SMEs would then sprout up like winter wheat. The local multiplier effect would make Ireland one of the richest nations on earth – and one of the cleanest.

    Miraculously again Ireland already has the perfect infrastructure already installed! The National Broadband Scheme (NBS) http://bit.ly/1gHUTPO is co-funded by the Irish Government and the European Union in association with the Department of Communications, Energy and Natural Resources. This scheme provides more than enough up and down Internet speed to enable tens of thousands of e-workers to operate from their homes all across the country.

    Many small rural and mountain communities are developing and thriving around a core of such e-workers in the U.S.A. and elsewhere. If you call any U.S. airline with a seating or reservation question the chances are that you will be speaking to some nice ex-Los Angeles commuter person happily working in their spacious den overlooking a scenic valley in Utah or Montana. I talked to one lady the other day who readily admitted that she was on her exercise bike while talking to me. We both laughed and marveled at it all.

    Why can’t Ireland do the same? But then I am just a businessman.

    • 5Fingers

      My friend, you are wayyyyyy out of date. Virtual service centers whether they work via voice, mail or the whatever social network are being mechanised to minimise the e-worker content. Front tier low cost message passing, screen following work is now being replaced by conversational voice recog. Have a look are Nuance Systems. The aim ultimately is to eliminate all workers up to and including most of the super specialised in their fields. Things like IBM’s Watson (see it win Jeopardy) are showing the tech is better than any human at diagnosis or service delivery.

      I agree that while the current format of many SMEs may be under stress that does not mean they will be irrelevant. For example, building techniques that have been around for centuries will very probably be still around for a few more centuries. Likewise for cars, gardening, catering etc. Artisan skills will always be needed. Now, if you look at the other end of the hi-tech bright lit hyped stuff, I will be pretty well on the money if I predicted 80% to 90% of that will have evaporated within 10 years (and that includes Green Energy and many IT solutions we are like lemmings to rush for). So, traditional businesses have upside in the longer term.

      Now, what TRADITIONALLY drove our businesses up till relatively recently was a hyped ready to explode property bubble. Ireland’s lack of diversity at the feeder end to our tradional business is what is killing us…not some fanciful need to have the latest and greatest fad of innovation albeit IT driven or whatever. We need to avoid having big bubbles and lots of little ones.

      I still feel our fabric of industry around customisation and reputational driven activity is very very weak. This is Germany’s strength. Irish are still making bets on what are considered also rans elsewhere. We need to stop that nonsense. Stop buying garbage and start getting our own stuff fixed. There is no reason our friend with the spare parts business should be struggling if there is a good ethos of respectable artisans. Forget big names and brands

      • Pat Flannery

        You have an out-of-date understanding of e-working. Old fashioned call centers were just the early applications of it.

        Anything that can be done by anybody sitting at an office computer anywhere in the world, whether in a government office or in a business organization, can be done just as effectively and much more efficiently by an e-worker sitting at a home computer anywhere in the world.

        In other words government and business workers are becoming e-workers rather than commuting office workers. Fiber optics and wireless data technologies have made it possible. Dispersed teams working on projects and processes is the way of the future.

        Human workers will never be replaced by machines. They will always be needed and will always be in charge.

        “E” stands for electronics, the flow of which humans are harnessing in better ways every day in the Third Industrial Revolution. We no longer need to congregate in “workplaces” as we did in the First and Second Industrial Revolutions.

        • 5Fingers

          E-working is a 35 year old concept. CEO of Yahoo put an end to that a few months ago. It is not as simple as you think by a long long shot.

          On machines taking over…low level white collar now under attack. Even computer programming. the naive idea that machines only do what humans tell them leaves out the fact that such systems have emergent properties – meaning unpredictable and breakthro’ in ways we cannot imagine. So you are in charge? Ask your ABS system if you want it to say (are you sure you want to stop?)

          It is not that computers are “intelligent”… more a case of misunderstanding what intelligence really is. A lot of work makes people stupid. A lot of artisan work does the opposite.

    • bonbon

      Have you ever heard of silly.com? That east-coast dot-tyness around 2000? That financial bubble went quickly. Since then, well that’s histor-e. Now the thing is green-e, wind-e and sunn-e energy for export to the Brits. Cables? They will taker of themselves with e-baanking deposits bailed-in. I wonder at the looting of it all.

      Well the happy person on that e-phone sure ain’t from Detroit.

  8. michaelcoughlan

    Pat,

    In business when demand drops you cut costs and drop prices to drive demand.

    The government do the opposite ie raise costs for businesses to get extra revenue.

    • Pat Flannery

      Michael:

      I wrote: “When demand contracts because of forces beyond management’s control the business must find new revenue sources or quit that particular business model.” And “All the fiscal incentives in the world cannot revive a dead business model.”

      Dropping prices will not “drive demand” that is just not there any more. Ireland can employ ALL its people currently sitting at home watching TV all day if it retrains them as e-workers. There is unlimited global demand for e-services. Legacy local SME demand is never coming.

      • michaelcoughlan

        Thanks,

        Not everyone is suited to being an e worker.

        This gov is still raising costs to do business and taking spend from people’s pockets.

        I take your point though. However if they can get English speaking Indians or Chinese to e-work for $1/hr it will make no difference.

        Respectfully,

        Michael.

        • Pat Flannery

          Michael,

          You are right that not everybody is suited to be an e-worker but the nice thing is that it only takes a core of e-workers to create a sustainable local economy.

          As for competing with the Indians and Chinese as e-workers, we have a huge cultural advantage. They have to learn the Western cultural subtleties that we already know instinctively.

          If we can compete with them in manufacturing we can certainly compete with them in the highly personal area of e-working. We just haven’t tried.

      • Tony

        Flat Screen. You forgot to say Flat Screen.

        • Pat Flannery

          Tony,

          I actually did write that Ireland could employ ALL its people currently sitting at home watching “Flat Screen” TVs all day if it retrained them as e-workers, but scrubbed it because I had not liked Rabbitte’s nasty jibe.

  9. michaelcoughlan

    Hi David,

    My advice to your friend is to keep his current car in a good state of repair and save money to but a replacement. We would ve more like the Germans and he would save interest payments.

    My mechanic will take stage payments for repairs now for guys he trust.

    • DarraghD

      Hi Michael, what has happening there when you look at it in the cold light of day, when you say your mechanic is taking staged payments off people, is that he is giving them a banking facility/credit line that they didn’t previously have!

      Any guys I know who have tried this in the trade are spending more time chasing money and basically pulling their hair out in the process, than they are spending under cars.

      If this is what we need to do to get the economy moving again, it’s a sad place we are at, given the amount of money that taxpayers have ploughed into the banking system, on the understanding that this was what had to be done, to get people spending again, to get credit extended again, to get liquidity back into the real economy. None of this has happened, in fact the exact opposite has happened, and now the taxpayers (small business owners), are being expected again to do the job that we bailed out the banks to do?!? It seriously stinks to the high heavens if you ask me…

      • michaelcoughlan

        I agree with everything you say. The govt policies are not designed to help us they are designed to facilitate banks even if it means our young people have to be sent overseas.

        Let’s just say that the govt could increase the tax take on the virtual companies in the IFSC to 50bn. That would cover the cost of running the state. Local industry wouldnt be necessary. Matrix moment isn’t it?

        • michaelcoughlan

          Local industry exists in Ireland INSPITE of the politicians. When you work that into your mind and operations you are on the right track.

      • Ryu Hayabusa

        Hello,

        Absoluto,

        Everyone’s your brother… ’til the rent comes due!.

        People are trying all these capers to circumvent the fact we don’t have a banking system.

        It’s total insanity, while FG are strolling about whistling in the wind.

  10. Paul Divers

    What a load of old bangers.

    At 60 MPH the only thing I hear in my Rolls is the ticking of the clock!

  11. cooldude

    I have to agree with you Michael and for a number of reasons. Getting repair work done gives work to local garages who need the work. I agree with 5Fingers that if the car is over 3-4 years old there is absolutely no need to go to “recognized dealership” because these guys charge you 80 euro an hour for labour and if your car is an older model it simply isn’t worth it to pay these premium prices for labour.

    On the issue of debt I would have thought that most people would have now copped on that getting as debt free as possible is the ONLY way forward on a personal level. This applies right across the board and if you can’t afford something simply don’t buy it. Make do with what you have and stop supporting this bankster led debt suffocation that has caused so much grief in this country. Support local SME’s and exit the banking system as much as is practical before the now inevitable “bail in” arrives to these shores. Probably happen in Greece next but who knows with these criminals.

    • michaelcoughlan

      “exit the banking system”

      I couldn’t agree more have a look at this;

      https://banktothefuture.com/

      Is there any chance David you could put your weight behind something like the website above. The indegineous Irish industry needs it’s own parliament like the senior citizens have one because local in Ireland as you have repeatedly pointed out counts for jackshit in Fail Eireann.

      Like I said David when we accept the realities as they are and not wax lyrical about things like they should be we will focus our minds on proper solutions. Keep out useless quangos like enterprise Ireland and county enterprise boards!

      • DarraghD

        Great idea Michael, What we need is a small business banking community for this country where the Irish banking system is basically blanked. Don’t lodge, have absolutely nothing to do with them. Members who join up would also be part of an active and powerful grass roots network/organisation, )not unlike a credit union, except for small business), where it has a voice and it can influence decisions at national level.

        If you have small businesses up and down the country closing their business current accounts with these rodent Irish banks and lodging their funds somewhere else, then you have a real politcal voice.

    • DarraghD

      You can get as debt free as you want cooldude, but what you can’t shake off no matter what you sell, is the inordinate cost of doing business in this country, the absolutely punitive local authority rates, needed to pay for bean counters in the county councils on 50K a year and the rest of it, who are living under an illusion that they are poorly paid, the cost of the utilities, with the average wage in the ESB at 95K a year, and we haven’t even gotten to the core civil service yet, where teachers and those that work in government departments, our bloated civil serpent community, spitting nails at the rest of us while enjoying salaries of 50K plus.

      You can be debt free, but you can’t escape this stranglehold on the Irish economy. I remember back in 2006/2007, I knew a girl who worked as a secretary in the back office of a busy logistics company. She was paid 38K. The company downsized hugely and she was laid off as part of that process. After about 2 years, the same company hire someone to do the same job that she would have been doing, who is currently being paid 22K a year.

      These are the kind of unavoidable market adjustments that have been taking place in the private sector, this has not happened everywhere I accept, but in small business, these kind of big adjustments are common enough I think…

      But meanwhile back on planet public sector, how much have local authority rates reduced by? Not a cent, not even after a household charge and now a property tax has been extracted from practically every single house in every county in the country???

      • cooldude

        I agree with everything you say Darragh especially on the rates issue. What these geniuses do when a business goes wallop is increase the rates for the other surviving businesses. This then turns into a viscous circle of failure. What they should be doing is lowering their own costs in line with the reduced revenue but these guys don’t give a shit and run everything to suit themselves. The government’s only interest is to represent the multinational corporations and to hell with small local enterprises. The extra sick pay added on in the budget shows what they really think despite all their highfalluthing bullshit about creating jobs. I agree that banking should be made a much more open industry with ease of access and more importantly failure has to be allowed when they f–k up. This won’t happen because the system is run by the elite bankers and they protect their little patch.

        • Adam Byrne

          Maybe if everyone gets into Bitcoin then the banks can be circumvented and ultimately destroyed cooldude?

          • michaelcoughlan

            Hi Adam,

            There is way too much volatility in bitcoin to use it as a store of value.

          • cooldude

            I agree Adam alternative currencies are the way to go. If a Cypriot saver had his/her money in Bitcoin they would not only have not lost 45% they would actually have made a substantial profit on the increase in value since.

            There will always be extreme volatility in alternative currencies which are not under the control of the central bank cabal. These guys understand very clearly that such currencies are a very real threat to the extraordinary privelage they enjoy of creating what we use as money at zero cost to themselves. These central banks ARE private institutions with stockholders, who are the large commercial banks, and are PAID a dividend annually for making a mess of our currency system.

            That is why I keep coming back to the system of debt based money that we use. It is at the core of all our economic woes and it seems to me that this is a deliberate exercise to transfer wealth to the elite bankers. John Perkins explains how the IMF participate and perpetuate this system of fraud.

            On an individual level something like bitcoin is an excellent way to protect your hard earned from robbery by these criminals. I have gone down the more traditional route of precious metals and although it has not performed as well as Bitcoin that doesn’t really bother me. This is more about protection than profit and not being a patsy for the bankers when they initiate their “bail in ” strategy which is inevitable.

          • michaelcoughlan

            Hi cooldude,

            A good book to read is extraordinary popular delusions and the madness of crowds.

          • cooldude

            I checked out that book and it debunks some popular delusions of it’s time such as the south sea bubble. I don’t see what it has to do with alternative currencies though. If you consider bitcoin to be a delusion then you are entitled to your opinion but it is proving to be a much better type of money, both as a store of value and a medium of exchange, than the constantly debased unbacked stuff that the central banks are issuing. Why this is so
            seems mainly to be due to the inelasticity of it’s supply which is the exact opposite of the rapidly expanding central bank stuff. Also it takes people out of the possibility/probability of the bail in scenario in the commercial banks. This scenario is now law in ALL western banks and WILL be used when the system creaks again and it will. Nothing delusional about protecting the fruits of your labour from confiscation by a bunch of white collar criminals. Actually quite a sensible move really and it is becoming very popular on a global basis. Seems the IMF have released a new paper on confiscation of private wealth to bail out the banks called “Taxing Times”. It’s just a matter of time before these guys pull the trigger on confiscation of deposits.

          • Silver coin can be monetized as an alternative currency by any organization, town , district, coop, or Chamber of commerce etc.

            Millions are bought and sold world wide and minted by a dozen reputable mint that guarantees quality and weight.

            any group of people can set up there own money system. Not difficult at all. Just needs the will to do so.

          • michaelcoughlan

            Hi Tony,

            There are three considerations that spring to mind with own currency systems.

            1) govt laws re vat,sale, purchases taxes still apply,

            2) it may be illegal as far as I know to call an alternative a currency in some countries better to call it a barter unit.

            3). Volatility in metal prices especially manipulation of same.

            Can you email me at secretary.LCG@gmail.com with the pointers you outlined before re setting one up.

            Michael.

    • Getting as debt free as possible . It’s to Late for that were already suffocated And It’s only the start support Local Economies a noble thought trouble Is nobody has Money.
      Next Year Another €2.5bn will be paid out In Interest Alone That’s Without Paying one cent off what we Owe which Is Now Over €212.bn The Brains or Lack of Ensured We have no way out. The pricking About with Anglo IBRC or whatever They Now Call themselves has Made Bank Debt Sovereign Debt, So being Told We’re out of the Bailout This Christmas Is Bullshit. It makes no difference In or out We Will Pay €Billions Interest Every Year For years upon Years To Come,m

  12. pauloriain

    Bad example David. Yes this article is about supply and demand and the lack of finance for this purchase is taking away from economic activity.

    But let’s look at bank lending and how it distorts the market, because a lot like banks lending for house purchases, the price of items can increase because of the credit worthiness of the buyer. If they are a good credit, they can afford to borrow and will borrow more and not only does this push up the price, but because others are in the market with their borrowed money, it creates increased demand and increased prices. This is less likely to happen when people either save the money, or just plain don’t have as much cos they can’t borrow it.

    However, David as an economist should have done the numbers on new car purchase a long time ago. The fact of the matter is new cars depreciate horrendously, 20% in the first year, plus when you actually put all the figures down on paper and add the cost of finance, plus the opportunity cost of putting the money invested in the vehicle on deposit, buying the new car is a seriously stupid proposition.

    What people don’t think of is the extra cost of having a new car, like you’d be crazy to have anything except comprehensive insurance, cos if you wreck the car it’s a big loss to take. Cheaper second hand car, you can take the chance on third party fire and theft or even third party.
    Also most people with new cars buy into the “Full Service History” nonsense and send it to a main dealer for service @ €110 per hour, when with a second hand car you can just use any garage €40 – €55 per hour or fixed price service of your choice. That’s for repairs too and there is the advent of the mobile service guys too, who’ll come to your house or work to do the service at great prices.

    Right now there is a glut of good second hand cars at very low prices. Ok the tax costs more in some cases, but not necessarily the fixing costs, if you get the right vehicle in good condition, but either way when you put it all down on a sheet of paper, including a good healthy amount for repairs, the second hand car comes out way ahead.

    Maybe the banks, who know how many cars are repossessed are a little cleverer than we think in this case.
    Also, simply put, the banks don’t have money right now or any they do, is propping up their balance sheets ready for increasing mortgage arrears.

    • joe hack

      A logical Sensible thought process could only come to such a conclusion whatever the reasoning of banks themselves; however I don’t believe they are having morality debates on many issues.

      DMW wants to encourage more borrowing on non essential imports – a crazy idea exporting money -is that not how we got into this mess, there is a major contradictions here on this blog…

  13. Original-Ed

    I’ve heard of haunted houses but houses scaring the shit out of bankers is a new one on me.

  14. joe hack

    Buying imported cars exports money out of Ireland…Paying off all loans decreases the money supply – in theory this leaves only 3% cash left in circulating- the paper stuff = 3% of the money supply.

    The issue is what makes for sensible borrowing and more importantly -’the big flaw’ – the money system which is a mathematical psychosis, a dysfunctional tool is never debated here.

    Borrowing into the future starts at home ,“the government” is pilloried here on this site for doing exactly what is been suggested here above but at least “the government” is borrowing to help to keep the not so lucky form become homeless or hungry.

    Logic has long left this site and recently there have not been any constructive jibs at those in power.

    Private borrowing has brought Ireland to where it is now and those in power at that time did little or nothing to control it but they may argue that the EU were the budget master s and the “Irish government “ had little or no control, this has not changed………That’s democracy that’s what people voted for – money and cars is what people voted for and still do, even here above…

    Arguing against one form of borrowing in favour of another make no sense but speaks volumes as to where ones priorities lie…

  15. bonbon

    It’s odd, the obsession here that bankers are “in charge”. More like some kind of chant at a gold-dance.

    “Dr. Doom” says QE could go to Trillions

    Additionally, Marc Faber, the Swiss investor and Market analyst known as “Dr. Doom,” told CNBC on Monday that the Fed’s Quantitative Easing (QE) could increase to $1 trillion {per month}. “The question is not tapering. The question is at what point will they increase the asset purchases to say $150 (billion), $200 (billion), a trillion dollars month… The Fed has boxed itself into a position where there is no exit strategy.”

    That sure does not look like being “in charge” to me. It looks like total panic. And why are the metal chain gang in awe of them?

    • joe hack

      “It’s odd, the obsession here that bankers are “in charge”. More like some kind of chant at a gold-dance.”

      This is what happens after the Goldschläger is consumed; the imbibed metal goes to the head.

      Merkle went looking for her gold in the USA but could not find as it has become a consumable – it appears it is digestible after all.

  16. bonbon

    The fault of the thinking of economists today, an insidious mental disease, monetarism, spread by that arch swindler, Adam Smith, is best brought, dragged wriggling and spitting, to daylight with a little tale about autos.
    Have a look at this : a 250kw auto that runs for 300,000 miles on one charge. Before the Tigers have a fit, look at the individual technology challenges – Ireland could easily handle these.

    The Thorium Powered Car

    My point is that the Adam Smith disease makes primates of all, monkeying at greasy tills, when real development is what we must be doing. It just could be that the major auto firms have a huge problem with this, or maybe not. There has been some major ruckus’ lately at the technical development divisions of some firms, played up in the press as having to do with electric models. Well that report puts all this in perspective.

    • Ryu Hayabusa

      Obama’s “Sputnik moment” hmmm…

      This sham of a man is so in thrall to Wall Street he can’t see what’s going on in the big old world.

  17. strathspey

    I’ve just had a similar experience, only better. Get your heads around this one.
    I work for Intel Ireland, going on 14 years. Year to date gross salary €82 000. House value, conservative €220 000. Mortgage outstanding €100 000 on tracker rate of 1.3%, 15 years remaining with Bank of Ireland. No other loans and a perfect credit history. A previous personal loan was paid back 7 years early. Applied for €20 000 equity release loan for a kitchen extension and subsequently declined because, “my wife doesn’t work”. Our choice, as she minds our 2 children.
    I then applied to PTSB as they offered the cheapest personal loan. Last week declined because, “I don’t have a savings account with them”. My wife has €7000 in a credit union account, this is our liquidity buffer and I have €28000 in shares paying a nice 4% dividend, therefore reluctant to liquidate.
    The home improvements can now wait while I build up our cash reserves and a local builder, plumber, electrician and plasterer get to quote on a job but won’t get to work on for the next two years…….Irish banking cretins!!

    • Pat Flannery

      strathspey:

      Wow! Your story should be sent to every politician in Ireland. I have cut and pasted it as a Word doc for my own future use (with credit to David McW and hopefully without objection).

      Your experience is the true story of our Government’s bondage to the bankers. Thanks for sharing it. You should spread it widely.

    • michaelcoughlan

      Hi strathspey,

      They did you a favour. Forget the banks. With your earning power you can easily save for purchases so best of luck to you.

      Michael.

    • joe hack

      if only they had done this before 2008

  18. DB4545

    The internet is allowing people to do a Michael O’Leary and strip out the middleman and a lot of cost. Youtube is allowing people to upskill. The old style Irish consumer didn’t shop around and this tradition of accepting the first quote has been discarded through sheer necessity. I was recently quoted 350 Euros to replace the front discs and pads on a small toyota at a main dealer. Half an hour online and the proper(non spurious)parts were delivered two days later for just under 90 Euros. It took me two hours to fit them. I was also quoted stupid prices to supply and fit low quality tyres. I sourced a local tyre fitter and had 4 tyres( Continental) delivered from a UK website and saved approx 140 Euros buying a higher spec product.
    The average PAYE taxpayer has to earn approx 800 Euro to spend 400 Euro. Therefore 400 Euro saved is 800 Euro I have to earn before tax. If consumers grasped the fact that everything they purchase actually costs them almost double that amount they’d be far more ruthless when spending their hard earned cash. Get out of the loan culture and get into the make do and mend culture. Far from being punished consumers can make considerable savings if they shop around and bargain hard.

  19. Adam Byrne

    I’m just hearing on Vincent Browne that Direct Democracy have split due to ‘undemocratic’ manoeuvres by some of the members.

    I’m telling you lads, like I said in the last thread – you are all wasting your time getting involved in these aspirational political parties – it just doesn’t work and it’s never going to.

    Far better to put your energies into something that the likes of the admirable Barry does.

    Voting is also a waste of time – as I’ve been saying on here for 5 years now – seems Russell Brand is listening to me.

    [Russell Brand vs. Jeremy Paxman on Newsnight 2013 [Full Interview]]

    http://www.youtube.com/watch?v=xGxFJ5nL9gg

    David, will you try to get him for Kilkenomics next year?

    • 5Fingers

      Message is a very powerful one. You really should not vote just because there is no alternative.

      • 5Fingers

        I mean…it begs the question if you should vote even if there are no alternative….

        • Adam Byrne

          It’s a waste of time voting Philip. I was banging out about that for years on here when I was away before I came back to Ireland.

          Then I did it twice here at the ripe old age of 40, just to see what it was like. Waste of time. Nothing changes through politics.

          Political parties are just talking shops for psychopaths and liars. I steer clear of politics.

          Much better to get the head down and work hard at one’s speciality and help and inspire people that way. Look what Barry does – it’s amazing – helping people – and it’s not politics.

          Anyone proposing a new party on here and direct democracy and all that is talking through their arse. The results are always the same. We need a total change in our cultural and philosophy, not another set of the same old wafflers dressed up in new clothes.

          As far as I’m concerned they should close down the Dail completely – life would go on with very little difference if that shower of parasites were locked outside the gates.

    • Ryu Hayabusa

      Good Interview Adam, maybe he’s found his life’s purpose?.
      He made some straightforward points… which were met with the automaton stock response “You don’t vote, so you don’t respect democracy!” or words to that effect.
      You don’t want a democracy, as if the shambolic scenario that currently holds qualifies as such.

      I like the bit.. “I was too busy being a drug addict at the time!”

      As a guest he’d be slightly more conversation provoking than staring at the 25″ neckline of Pat ‘sense of entitlement’ Rabbitto.

      • joe hack

        That’s what is sad about people today they think political hard work should be: – entertainment- x factor -Russell Brand -David McWilliams – so called bono activism – or a yearly trip to Kilkenny .

        X-factor politics is feeding the mass of people with a feel good factor because the likes of Brand shouts at the status-quo now and then, the reality is that politics and leadership is not for the faint hearted:

        The number of hits Russell Brand got on YouTube demonstrates the problem not the fix.

        The New Statesman gets free add courtesy of the BBC. I’m not fan Paxman but he was close word prefect here, then again I don’t watch X-factor so what would I know…

        If for one moment anyone would consider this “man” as a leader then the future is not good…

        Russell Brand is a little child who may on occasion spout the odd clever word but the following shows the measure of the boy “it gives me a turn in stomach when here the talk of politics” yes Russell politics is hard it does not come with on and off switch.

        • Adam Byrne

          I think there’s more to Brand than just words joe, I would watch that space.

          • joe hack

            Sorry to hear that!

            It is said that most mirages breakdown when one or other of the partners realises that the pedestal which they themselves created and then placed the other upon does not exist.
            They are let down by themselves and not the idol that they created, in time this realisation becomes too much to bear.

            If they had married a man or woman they may not have been disappointed, but they did not, they married an idol that they created – a false god.

            Idols – heroes… the feel good factor

            Adam you will be disappointed

            Change takes hard work Brand is not capable of that, nor does he have the courage of is convictions, when the TV cameras are not interested he will not be seen.

            He is looking for new job – writing…

      • Adam Byrne

        I think Paxman was playing Devil’s Advocate asking those type of questions – he’s smarter that than and probably agrees with Brand on quite a lot of issues.

        ‘Democracy’ as it is presented is a total sham/scam, you are right Ryu.

    • Paul Divers

      Hi Adam and hope you are well.

      I used to associate Mr Brand with the Jonathon Ross incident but watching this video made me change my mind. I am glad I watched it and hope he gets more opportunities to speak because his passion is contageous.

      Do we have any Russell Brands in Ireland?

  20. Grey Fox

    No need to shop around on the web for the best deal in tyres or brake pads, car won’t be moving for the forseeable future due to my inability to pay the 800+ euro road tax on my 11 year old car which costs 300 or so for the equivalent new model 3 series BMW….losing the will to live….again!

  21. Have a gander at this Mike Maloney video on the banking system and see yet again why the central banking system must be destroyed , fractional reserve banking outlawed and legal tender laws removed.

    all else is in vain until this is done.

    in the meantime , protect yourself.
    Buy land
    Remove all assets from the banking system
    pay off debt
    Save in hard assets
    Get rid of any paper assets such as bonds, stocks, or fiat currency except that needed for day to day expenses.

    Stop worrying and go for a walk, ride a bike, ride a horse, sail a boat, enjoy family and friends.

    Work for changes required.

    not watching this is a dereliction of your duty as a father, mother, adviser, teacher etc.. Spread the message!!

    http://www.youtube.com/watch?v=iFDe5kUUyT0

    • cooldude

      Hi Tony, excellent video. I watched it last week and again today. Should be included in every child’s education but I guess these guys want to keep their dirty little secrets hidden. The emperor is not wearing any clothes and more and more people are starting to see this. Will be ignored by the lamestream media as usual but surely DMcW could do an article on money and how the present system of banking and money creation is simply a fraud designed to rob people of their hard earned. Good to have you back on the blog. Things were getting too quiet.

  22. Adelaide

    Short memories, big ideas…

    We are too premature in our pessimistic outlook. I am personally still waiting for the promised 50,000 jobs to come on stream. What 50,000 jobs, you ask!! Duh, from the heralded project that will “transform our economy” of course. Need I remind you?

    “The ‘Your Country, Your Call’ competition is open for entries until April 30th, 2010. The winning two proposals will receive €100,000 each, and both will then be implemented with the support of an independent working group and with a development fund of up to €500,000 for each project.”

    Do I need to further remind you that the winners from the 9,000 entries were Digital Media Centre and Data Island Strategy with projected creation of 50,000 jobs. Therefore, I refuse to listen to any ‘proposals’ how to kick start the Irish economy till I see the
    rewards reaped from the two very best ideas in the country.

    BREAKING NEWS. ‘Your Country, Your Call, Your Farce’. It all came to nothing!! I don’t believe it!! We’re doomed!!

    http://www.orlaithcarmody.com/wp-content/uploads/2012/10/Jennifer-bray-pod.mp3

    • Adelaide

      My entry proposal to “Your Country, Your Call’ was rather than creating jobs was simply reduce the Live register. I called it JobGateway. The project would take Dole Claimants off the Unemployment Register into a parallel scheme called The Activation Register, participants would still claim their dole but importantly they would no longer be registered as unemployed. The Activation Register involved the ‘Activated’ participants doing unspecified ‘activities’ on an ‘active’ basis for some unspecified local authorities. The JobGateway Activation Not-The_Dole Register Scheme (aka JANTDRS) would be compulsory and indefinite in duration and scope.

      • Adelaide

        Ps the ‘Activated’ can be leased out to the Private Sector for a nominal fee on a daily basis while those not under the JANTDR scheme but still clogging up the Live Register would subsequently re-classed as the Recovering Employed, akin to the language of Recovering Alcoholics, once an alcoholic-always an alcoholic, thus, once employed-always employed, and VOILA, in a world of ‘The Employed’ ‘The Recovering Employed’ and ‘The Activated’ there is no unemployment.

        • bonbon

          There is a jig and reel dance around the reality of what’s going on. Why not just say it? We had all this before. It was much admired by Milton Friedman and Hayek, even Keynes. RAD – Reichsarbeitsdienst, and as for the Gateway, surely you are not so naive?

          The utter cynicism of that Gateway, pure Nietzschean evil, is exactly where this is heading – look what the budget is doing to the old, ill and infirm. Tiger’s will say that could never happen here.

  23. 5Fingers

    What is going on is an attempt to control an unstable environment.

    Economics is a retrospective view which many pundits try to dress up as a predictive view to form policy. I am ok with retrospectives and spotting lessons to be learned, but there is one big lesson that seems to be completely overlooked over and over again…you cannot predict with economics and you certainly cannot plan with it.

    Planning looks to the past and any relative advantage derived will be neutralised. In competition that is how rational people work. No amount of planning can derive innovation, new next generation idea you name it. In fact, there is little I am aware of that was planned that led to the expected result. Either the result was flat…or something entirely unexpected happened.

    The current ideologies of incentives (Adam Smith et al) to spurn growth for an economy fail to take account of the winner take all effects in this highly interconnected world of ours. a) the Winner is random (with a retrospective justification of their success) and b) they get sooo big they lock everyone else out by the hype of what they are making alternative approaches uneconomical. Sometimes this is relatively harmless and useful – e.g. Apple iPhone, but for someone like a Monsanto, you could be asking for a lot of trouble (do you want such a winner take all to control your food logistics?)

    The current winner take all that is damaging our world is not banks (although they are an instrument of the process), nor is it the “big corporate”, nor the media (another instrument)…it is a way of thinking that is derived from too much schooling that leaves you with the crazy idea you can predict and plan your route to success aided and abetted by computer algorithms or other processes which have been sold to “decision makers” – you know it is hitting everywhere simultaneously becasue all the clowns in CNN, Bloomberg, BBC etc all seem to dress and sound the same irrespective of their culture or profession..Odd. My only name for it is a “Normalisation” that seeks to replace people’s ability to make decisions or think for themselves. It’s a worrying version of “I am a doctor, trust me and take your medicine or Mr Nursie will be coming”

    I am a great believer in process. For example, the process of building a bridge or making chocholate etc are fine examples. They survived the test of time and if they broke few were impacted. What scares me now is the “Normative” process that I see creeping in everywhere – this attempt to make the unpredictable, predictable – and people are screaming for it to have their pain relieved. The thing is, it has never been tested and God help us when it breaks.

    Ireland is following this “Normative” process. The “suits” are just doing their job. Just a slight prick and we are done.

    • michaelcoughlan

      Excellent post.

    • The current winner take all that is damaging our world is not banks

      Really, I disagree. A central bank has the monopoly control of the nations money supply (the entire continent in the case of the Euro).

      A collection of central banks have formed the BIS, the central banks central bank. Monopoly concentrated in a world wide scope.
      World wide austerity is issued by the IMF.

      Why is it that it is not acceptable for an industry to be monopolized but it is ok for the monetary system to be manipulated for the benefit of a few elite families?

      • bonbon

        You miss the point. See below for a refresher on Adam Smith’s Brutish principle.

      • 5Fingers

        Winner take all in general means 1% own/ dominate 99%. This applies to wealth, pop songs, popular pundits or elites of any sort. Banks describe a symptom – they are not the cause. People/ governments/ policy makers try to be like these “success” stories on the mistaken belief of their appatently planned effectiveness. Conspiracy theories and “how to be a” success narratives retroactively rationalise and explain success not realising they were essentially random outcomes brought about by events that no one ever foresaw – we find it hard to cope with randomness. It is so comforting to have an explanation.

        Blaming banks takes the eye off the ball. Not saying they are not dangerous but they are not the central issue. The problem is modernity’s attempt to normalise because it thinks it has it all figured out. The 1% are trying or have the audacity to believe they have a solution for us all…so we are all the same …same happiness same whatever and it’ll be done like whatever madness they come up with and…it is based on evidence that simply is without credence. The 1% are idiots…powerful idiots. The nutcases are running the show.

  24. bonbon

    There is an odd disconnect here. Talking about cars, while healthcare reforms are penalizing illness and age. Obamacare is such a murderous useless-eaters program it shut down the US Gov, and here Enda is doing exactly the same with the budget.

    Fire Obama. Repeal Obama Care. Irish and American action needed.

  25. bonbon

    @5fingers : Above we are told it’s “Not the Banks”, “not the big corporations” – that is a way of thinking from imbibed helplessness. It is exactly the edict of Adam Smith. A refresher :

    ADAM SMITH’S BRUTISH PRINCIPLE

    “To man is allotted a much humbler department …. Nature has directed us to the greater part of these by original and immediate instincts. Hunger, thirst,the passion which unites the two sexes, the love of pleasure,and the dread of pain, prompt us to apply those means for their own sakes, and without any consideration of their tendency to those beneficent ends which the great Director of nature intended to produce by them.”
    —Adam Smith Theory of Moral Sentiments —1759

    It never fails to stun me that this edict is regularly disgorged here and elsewhere. The Brutish Edict of empire does have a grip. It is the great leveler, the excuse of inept politicians , and voters alike. When one sees this seeping out of commentators “deep thoughts”, and Nobel prize tracts, and admired by the gullible, it prompts thinking differently.

    How Adam Smith fooled you suckers!: MOST OF THE TIME

    • michaelcoughlan

      The bonbon principle,

      Twist everything to suit your own warped agenda. You make the SAME mistakes as Adam Smith;

      1) no room in your warped mind for a point off view inconsistent with your own.

      2) look at smith’s quotation above hopefully you you haven’t warped it too much from the original. No room in Smith’s observation for LOVE as a motivating factor. Love motivated billions of people all over the world more so than, sex, fear of reprisal, fear of pain which are very warped limited and one dimensioned observations just like your own.

      Love will save you bonbon. If smith embraced Love his treatise would be more rounded and would have saved him too. Only nutcases who agree with him or are repulsed by him lake his work literally.

      Michael.

      • michaelcoughlan

        For example bonbon;

        Let’s just say a woman loves her kids more than her own life.

        Is it not true that she will endure, thirst, pain, Hunger, loss of love of pleasure, etc etc etc to protect that which she loves?

        Remember when Jesus was nailed through the wrists and insteps onto the cross by the roman army who saw his growing influence as a threat to theirs did he not do so for love of mankind? Endured all that suffering and misery and deprivation for love of humanity?

        The worlds most respected philosophers have concluded that no single human brain has the complete capacity to explain answers to all problems and circumstances. Might be time to reflect on such insight bonbon.

      • bonbon

        Brutish sentimentality is a rash symptom of metal obsessions. It should be listed in the Lancet as the Austrian School Itch.

    • How Adam Smith fooled you suckers!: MOST OF THE TIME
      http://larouchepac.com/node/15815

      Seem to be the ramblings of a mad man

  26. bonbon

    IN CANADA, GLASS-STEAGALL RAISED IN THE {GLOBE AND MAIL}, the national paper of record, on its news online (globeadvisor.com), in an Oct. 25 posting on today’s economic woes, “The Buyback Boondoggle,” by Eric Reguly. He asserts: Did things begin to go wrong, “when the Glass Steagall Act, the eminently sensible Depression-era hangover that separated commercial banking and investment banking, was killed off in the 1990s?” Canada ended its Glass-Steagall in the 1980s.

  27. bonbon

    More latin from the wise Shatter :

    “It is timely that we make the most of this annual return to where we were” – Carpe Horam.

    Kind of sums up the Brutish Sentiment, does’nt it?

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