November 11, 2013

Draghi rolls the dice - and boosts the value of your house

Posted in Banks · 131 comments ·
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Mario Draghi has ensured that the mini-boom in Dublin’s trophy houses will continue for a while. This is what happens when interest rates are cut to almost zero – the people with savings think there is little point saving any more, so they don’t bother any more. They think, what will I put my cash into?

In Dublin, in certain small areas, expensive houses have been rising in price, and it will not be surprising to see the savings of the already wealthy going into houses, pushing up house prices further and make the already wealthy, well, wealthier.

This has been the pattern over the past five years all over the western world, particularly in Britain and America. By reducing interest rates and printing money, central bankers have put themselves on the side of the financial markets. It is not that they love financial markets, but to achieve their objectives they have to go through financial markets. This bizarrely puts central banker and financial markets on the same side, less than six years after excesses in financial markets nearly destroyed the global economy.

It seems that memories are short and both in Britain and the US the central banks have used lower interest rates to boost asset prices. They are hoping that the ”trickle down” effect will drive consumption and spending, allowing the economy to achieve a lift off.

Given that the Irish economy displays many characteristics in common with the Anglo American economies, we can safely say that the same will happen here. The cheap money will encourage the banks to lend against trophy assets again and will encourage people with savings to draw down their cash savings and put it towards buying property, where prices are rising.

This might not be a bad investment decision in parts of Dublin and some other metropolitan areas in the country, but for the most part, interest rate cuts will have am ambivalent effect on borrowing and lending. This is because, while tracker rates will fall in tandem with the ECB rate, this will cause the banks to lose even more money on these trackers. This implies that the banks will have to claw back profits somewhere – and that somewhere may well be on variable rate mortgages.

So the variable rate mortgage holders will end up subsidising tracker mortgage holders to an even greater extent in era of very low interest rates. Similarly, in the rest of the eurozone we are seeing the spectre of deflation for the average guy and inflation for the rich guy.

Cutting interest rates, in the face of deflation on the continent, implies that money will also certainly cascade into financial assets. The banks will make sure of this – and the process will line the pockets of the already wealthy, increasing the divide between the very rich and the struggling poor and, of course, driving a deeper wedge between the haves and have nots.

The cut of the ECB interest rate to a historic low, signals that the Berlin-inspired policy of cutting European budget deficits is not leading to growth but is leading to deflation. Once deflation – falling prices – takes hold it is very difficult to eradicate.

The ECB’s inflation target is 2 per cent per year. Eurozone inflation is rising at only 0.7 per cent. This implies that prices are almost static. Static prices sounds like a good thing, doesn’t it?

If we look at it a bit more closely, we see that if you have static output prices, then you must have falling input prices for sellers of that product to make profit. The biggest input price in the European economy is wages. If you don’t get falling wages, you will get fewer and fewer people employed, this will drive up productivity and thereby, increase profit at the expense of wages.

This implies that Europe will see a return to profitability – yet unemployment is still very high. This will drive up stock markets and make Europeans who rely on stocks for their wealth very rich.

However, by rewarding the owners of capital, stockholders and punishing workers, through lower wages, the people who depend on wages for their income (most people) suffer. In contrast, the people who depend on the return of capital for their income – stockholders and in Ireland, landlords – will do well.

This is what we have seen in the US over the past few years, where the Fed’s quantitative easing policy has made the very rich exceedingly rich, while the income of the American middle class continues to stagnate.

All the while the money cascading into asset markets will push up asset prices and these higher prices, by definition, increase risk because all this new credit is pushing the asset prices way above fair value.

This is the counterintuitive thing about financial markets. Higher prices create higher risk, not lower risk. When prices are rising as they are in stock markets all over the world, people misjudge the risk. The higher prices make them feel not only rich but clever – as if it’s their own genius rather than cheap money that is driving their investment portfolio upwards. This belief in their own genius prompts them to commit more money and then to borrow money to put on the rising stock market.

Look at the chart. It shows what is happening and more to the point what has happened before. It shows the amount borrowed to be put on stock speculation in the US over the past three boom/bust cycles. What we see is that we are now back in dangerous territory.

The more the ECB reduces rates, the more European cheap money will be driving global stock prices. And now that Mario Draghi has opened the Pandora’s box of deflation, we are likely to see a European version of quantitative easing – printing money – some time next year. This will continue to fuel the prices of financial assets up further and further.

We are now in the situation where all the central banks of the world have engineered themselves into a hostage situation. The kidnappers are the financial markets, that threaten the central bankers that they will kill the hostage – the frail recovery – by crashing and bringing down the economies with them unless, the central bankers don’t deliver yet more and more cheap money.

The question now is whether the central bankers will pay the ransom? If they do, prices go even higher, risking crashes in the future. If they don’t they risk a crash now.

My guess is that they pay the ransom now – and worry about the future later. This will keep interest rates down and this is good news for tracker mortgage owners. And even better news for the owners of posh property in the capital cities of the developed world, including Dublin.

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  1. Grey Fox

    Hostage=Central Banks and by extension Government.
    Most people have no clue who the agressor/kidnapper is, nor do they want to and if the Hostage just simply let the people know that it is in fact a Hostage, who knows what might happen.

  2. Fat Tony

    The plot thickens…

    MF Proposing 10% Supertax Bail-in On All Eurozone Household Wealth…

    http://www.marketoracle.co.uk/Article42669.html

    • bonbon

      The Dragi faucet, fountain of cheap money will steal that 10% even if the IMF was forced to “postpone”. They are blood-sucking!

  3. michaelcoughlan

    Deflation for the average guy?

    Where is that David other than in his wages!

    Falling wages leads to more employment? Really David? Ireland is a country with the jobsbridge scam going for a while and min wage now 8.65/hr and the country awash with eastern Europeans willin to work for min wage and we have 14% unemployment. When wage costs were much higherediting the boom we had 4% unemployment!

    Landlords doing well are they? No chance.

    Regards,

    Michael.

    • EugeneN

      Deflation in goods and services. Its clear that Dublin is as cheap, and/or cheaper than 2006.

      • michaelcoughlan

        Thanks for that. I live outside Dublin. I’m doing my best to rid myself of a bias and a blind spot I have identified in my own observations. Another blindspot Id like to deal with is the contention from others more knowledgeable than I Have said America is recovering because I can’t see that either.

        Thanks,

        Michael.

    • bonbon

      Correct, as far as it goes.

  4. redriversix

    It doesnt matter..anymore…situation has moved far, far from economics……

    What’s important now is what can people do…and they have choices…once they realize, they have the power within themselves to take action…….not siit around , waiting for permission to do what is right. ..

  5. Adelaide

    Bravo, David.
    Our first time down to Kilkenomics, we attended five shows Saturday, heartened to see full-house attendances, a great atmosphere, a great weekend and great to see Max Keiser in person. Will definitely be returning next year.

    ps Anyone who missed the show “Pulling it out of our Arse? Economics, Statistics, Predictions and Lies”, well, it was a cracker!

    Congrats to all involved.

  6. 5Fingers

    Pretty overwhelming is it not? But it sells papers.

    The fact is that such news we see here and will continue to read about will only get more dramatic. Last 50 or so years only around 15% of the then S&P500 remain today. And so it will go on today except faster. My guess is that next 25 years, will see 15% surviving and 12 years after, 15% surviving and so on (a kind of Moore’s Law in reverse) And googles and twitters will come and go even more dramatically than banks and I suspect with more dramatic effect – I still maintain and can see I am being proven more and more correct that Banks and CBs are becoming irrelevant. Yes, the rich will get richer, but there will be dramatic losers as well – but that is not the point – it is that concentration effect of winner take all and too big to fail inevitably comes crashing down to create turmoil that will change all rules – any you can think of.

    For Glass Seagull types, it is impossible to impose a legal framework on something so globalised and so fast moving and where maritime law is essentially mid 19th Century and utterly inappropriate.

    For Bitcoiners and other value store addicts, it means robbery becomes trivial – bail-in/out direct theft etc. In the world of the internet, your profile, social security number etc etc defines what you can get and if you wander outside it, you will be corralled or eliminated as a threat and it will be your community that’ll do it to protect themselves – not boogeyman government.

    As I said, much of this is very overwhelming for the average Joe Soap..like most of us here. It is actually getting tiresome becasue nothing is changing and that is because the winner take all is pretty well immune to attack until you are one of the biggies. So let random events do them in. S&P500 survival rates says so.

    Best bet? Just train up on something or do what interests you. Stay in touch and remember it is only turmoil for those who want the status quo to remain – and oddly enough, that’s not just elites and big organisations – but a lot of the ordinary Joe Soaps. And if you want to buy property after all that that has happened recently, maybe a trip to the chemist is advised.

    • michaelcoughlan

      “For Glass Seagull types, it is impossible to impose a legal framework on something so globalised and so fast moving and where maritime law is essentially mid 19th Century and utterly inappropriate”

      The store of value bit is misplaced. The REAL Value is in your own skill. The metal is a tool only.

      • 5Fingers

        I knew I would strike a nerve :-). Use whatever tools suit your means. My point is about rules. No one anticipated what has mushroomed or blown up in recent years. It is utterly rule changing. 20th Cen business or policy thinking no longer applies. Look at S&P churn rates from boom to bust. It is accelerating. We need to embrace this or be made irrelevant. Economies of scale that old fashioned thinking is promotung are destroying the place. Too big to fail is meeting its inevitable end across many spheres. Banks are not the only thing breaking…they are merely a precursor or indicator. Other large operations will fail as well and institutions of all sorts. Rules are changing.

        • bonbon

          Wrong again. And “embracing” the death rattle of a catastrophically bankrupt system is very bad for the health!

          Now what good farmer would jump into the sheep dip?

          • michaelcoughlan

            Any farmer would face the sheep dip rather than put up with your gibberish.

          • bonbon

            I had a little chat with a modern sheep farmer on a mountain the other day about Glass-Steagall. He told me what it is really like in the Dail – inside they all consense, outside it’s as if nothing happened. Absolute murder.

            To clear the murky waters it is much better to put a clear idea on the table.

          • michaelcoughlan

            “To clear the murky waters it is much better to put a clear idea on the table”

            Once again, read your own posts and take your own advice.

            Sd.

        • michaelcoughlan

          +1.

          I hear your message thanks.

          Michael.

        • Ryu Hayabusa

          These rules are no different to the rules of a computer system… some can be bent, others can be broken!

          Love these flexible rules.

          http://www.youtube.com/watch?v=gwx87LLZib8

          • whatamess

            The Matrix is Empire

            Obama (or the Queen) is the Architect

            Dwalsh is The Oracle

            Whatamess is The Keymaker

            Bonbon is Morpheus

            Countless job applications for Agent Smith ;)

            You Ryu , are “The One”!!

            “You are here Ryu because Zion is about to be destroyed, it’s every living inhabitant terminated, it’s entire existence eradicated”

            We all need to drop our conditioned and rigid thinking and be creative, with intent. We can choose an alternative future, a future designed with purpose and not wishful spontaneity, whatever that may look like.But without the strategy of breaking Wall St,we will surely continue to be slaves to the oligarch system.

            The timing now,with the empire crumbling,couldn’t be better to reinstate GS. Opportunity is knocking…I hope someone answers that door !!??

            “I prefer counting from the emergence of one integral anomaly to the emergence of the next, in which case this is the 4th version ,or as you said before Ryu, The 4th Reich.

            15mins
            http://www.youtube.com/watch?v=VZdssVmgDJM

            Well, I gotta flight to catch, and no not thorium powered, not yet anyway

            ciao all

          • michaelcoughlan

            Hi whatamess,

            I’m not surprised that your flight isn’t powered thorium or not. It’s impossible to supply power to flights of fantasy or flights from reality like your one here.

            Michael.

          • michaelcoughlan

            I forgot to mention (since you and your colleagues don’t have the courage to implement that which you extol others to do and implement GS) let me tell you what would happen if you found yourself a backbone and tried to put GS on the empire;

            The empire strikes back!

            LOL.

          • Ryu Hayabusa

            @whatamess,

            “What’s your name? Smith.. Agent Smith.

            You all look the same to me!”

            If I could just offer you one piece of Advice…. Wear Sunscreen.

            ….And trust me on the Sunscreen!

            The heat is stifling. .

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

    • bonbon

      It was impossible to impose Glass-Steagall in 1933, JP Morgan said. It took $350 million to remove it. It is the one thing the crumbling empire fears the most – sovereign nations putting t through the sheep dip. And it will happen. It will become very clear, as if impossibly, that it is either survival or the sheep dip.
      It is no empty, fawning deceit,
      Begot in the brain of a jester,
      Proclaimed about in the heart is it:
      We are born for that which is better!
      And what the innermost voice conveys,
      The hoping spirit ne’er that betrays.

      The doomed empire has a much better appreciation for what awaits it, it just neglected to tell Tigers.

  7. bonbon

    DMcW perhaps sees a repeat, and short memories? Well of course, and here is why :

    GLASS-STEAGALL IS THE LITMUS TEST FOR BANKING REFORM

    Nov. 10 (LPAC)–”[T]he reinstatement of Glass-Steagall is a litmus test of whether or not one is serious about reining in the giant banks,” wrote Mark Karlin, the editor of Buzzflash at Truthout, on Nov. 8. Karlin made the observation in response to the remarks of New York Federal Reserve President William Dudley at the Global Economic Policy Forum in New York City earlier that day.
    “Dudley clearly sides with making incremental adjustments that will allow banks too big to fail to continue to exist,” Karlin noted. “He promotes more accountability, more technical adjustments in structure, and a touch more regulation. But he is opposed, in general, to limiting the size of financial institutions.” In short, “a pabulum solution,” Karlin said.

  8. bonbon

    DMcW : “We are now in the situation where all the central banks of the world have engineered themselves into a hostage situation. The kidnappers are the financial markets, that threaten the central bankers that they will kill the hostage – the frail recovery – by crashing and bringing down the economies with them unless, the central bankers don’t deliver yet more and more cheap money.”.

    After visiting the KSA the other day, maybe it would be better to say another 9/11, likely nuclear, is the threat? The insanity of the doomed financial empire is that the cheap money will have exactly the same effect as the threat – witness Detroit, Greece.

  9. cooldude

    I’m not too sure that this analogy of the central banks being hostages to anyone is factually correct. All central banks are privately owned institutions which have shareholders, who are mainly the large commercial banks who they are supposed to regulate, and they pay these shareholders an annual dividend. This is not a hostage situation and is more of a cabal of bankers who move frequently and easily from commercial banks to “serve” on the central banks and then back to some plush job on the board of a commercial bank again as a reward for bailing out the bank with tax payers money.

    The only hostages in this situation are us the tax payers who have to put up with this corrupt revolving door method of banking which is somehow considered normal. It is anything but normal and is the root cause of our global economic woes. What we are experiencing now is the death throes of our current debt based money system through a nasty bout of stagflation. That is inflation in the basics such as food and deflation in non essentials. What will come next will be more theft by the bankers such as the 10% wealth tax that was mentioned or a bail in of bank deposits or even both. These guys run the global financial system which is one big casino and their rule is the house always wins and we always lose no matter how much they screw up.

    • michaelcoughlan

      stagflation.

      +1. Our host seems to think we have deflation. No one has a monopoly on knowledge so I’m perplexed why he thinks this. Can anyone explain better why McWilliams might think we have deflation so I can learn because I can’t see it other than badly located houses outside Dublin.

      • bonbon

        Following Horse Sense will not explain it. It seems DMcW mistrusts the HS and BS (a little). Much better to have a look at the animated Triple Curve for the combned Hyperinflation (which you do smell) and the physical deflation which is killing others.

        The killing is going on right now with Obamacare, Euro-rescues, TARP, LTRO’s. That is deflation!

    • cooldude

      A good example of this revolving door banker policy is Mario Draghi himself. He is ex Goldman Sachs and was in charge of the fraudulent accounting methods which Goldman devised for the Greek government to hide their real debt so they could pass the ECB regulations. Now, despite this fraudulent past, he is in charge of the ECB. Everything he does is for the benefit of the large commercial banks most of whom are basically insolvent and need constant supplies of LTRO type schemes which buy all their dodgy securities off them for 100 cent on the Euro. These securities are usually badly impaired and are only worth a fraction of what they are paid. The banks then in turn buy their own governments bonds as part of the deal and this keeps the whole house of cards going for another while. Draghi will be rewarded with a cushy job at some major bank when he has done his “service” as his reward. Even politicians are getting these perks now with war criminal Tony Blair earning a cool million per annum from JPM for turning up once a month for a few hours. This appears to be more of a crime gang than a hostage situation.

      • EMMETTOR

        Agreed, it’s a crime gang and as long as they are operating ALL the other stuff means NOTHING. It’s like studying blood-splatter patterns while the stabbing is actually happening.

        • bonbon

          Right. And CNN asking the victim “how does it FEEL”, “Tell the viewers”.

          Much better to deal with the gang with RICO and Glass-Steagall.

          Let CNN ask the banksters how they FEEL for the viewers. Meanwhile the stabbing stops.

      • michaelcoughlan

        Crimegang Is one name. Corporatocracy is another. Perkins uses this word in his superlative book confessions of an economic hitman.

        http://en.m.wikipedia.org/wiki/Corporatocracy

        Regards,

        Michael.

        • cooldude

          I read that description of Corporatocracy and it is spot on. Power Elite is the other one mentioned in the article. Google up 147 corporations that rule the world. A scientific study shows that 147 corporations control most of the world’s commerce and that the same shareholders keep turning up on different boards. Now I wonder would these same shareholders also be shareholders to the Central banks.?

          • 5Fingers

            The article you selected very correctly points out that “the super-entity is unlikely to be the intentional result of a conspiracy to rule the world and that such structures are common in nature.” You see it in the internet, phone networks and even transport networks etc. Banks are not known as value networks for nothing. They are a relatively recent experience to the human psyche over the last 100 years and are therefore very poorly understood intuitively.

            The clincher is “Newcomers to any network connect preferentially to highly connected members”. Just like we flock to superstars, trends, media and so on. Nodes (or banks in this case) have a tendency (due to people associating sure bets with bigness) to become very big very fast – winner take all. In a highly connected world all you are witnessing is an effect. It was never planned.

            Believe me, as a very experienced planner in networks, there is not enough compute power in the universe to predict the evolution of these systems with any precision from the day 1. All you can do is watch it evolve. Welcome to the 21st Century

          • michaelcoughlan

            Hi 5fingers,

            “The article you selected very correctly points out that “the super-entity is unlikely to be the intentional result of a conspiracy to rule the world and that such structures are common in nature”

            Excellent post. I don’t believe in conspiracy theories either. I do believe manny of these super banks etc are led by idelogues and sociopaths and in some cases corporate psychopaths however.

          • cooldude

            The problem with this network is that most of these companies are large banks who also are shareholders in the central banks. So you have the same bunch creating our money at zero cost to themselves and then being allowed to lend it out to everyone, including governments, at interest and benefiting from the asset bubbles this excess liquidity automatically creates. There is nothing random at all about this but a well planned and highly successful method to gain complete control of what we use as money and to turn us all into debt slaves in the process. Until this power is taken back from this crowd of sociopaths there won’t be any type of real progress in economic terms or in terms of freedom from constant government intervention in our lives.

          • 5Fingers

            Just as with football teams and radio stations and large corporates you get to see the same old faces That is what happens with winbet

          • 5Fingers

            Winbet?..winner take all setups. Guess what? They collapse. Yes, they will protect the status quo using every trick in the bag. That is expected. But it is not some megaplan. It is defensive. You see this in all transnationals or multinationals. As for sociopaths and similar, their time runs out as well. The Worry I do share is they could trigger an event arising from their highly empowered position. These networks of ours…once we become dependant they become far too essential to our existence.

      • Ryu Hayabusa

        Draghi is guilty by association, he’s still a GS henchman working ‘deep’ cover!

  10. Voltex

    Just read through all the comments here…and I really can not understand the constant reference to Glass-Steagall. Has some pseudo-intellectual just read about it and feels its appropriate to every discussion?
    As regards the longevity of organisations Theo Levitt’s seminal HBR article “Marketing Myopia” clearly demonstrates the fate that befalls product orientated firms.

    Anyway..back to DMW…I don’t like this article. Is it based on empirical evidence or pure conjecture? If I had €100k to invest…whats the bottom line bench mark for investments these days?

    • michaelcoughlan

      Hi voltex,

      The people who keep referencing glass stegal are doing so for their own purposes and to suit their own agenda. McWilliams requested they stop diverting the board in this manner about a year ago but they completely ignored him. Pseudo intellectual is part of it as some of them are really smart and well informed. However what it amounts to is a ham fisted attempt to brainwash and indoctrinate other users and readers alike into focusing solely on GS as a solution to the worlds ills. Regular users of the blog know that and ignore them.
      Hope this helps.

      Michael.

      • bonbon

        You speak for the blog, I think not! Never mind patrolling – it’s boring. There are 2 of ye now on night watch. Ye’ll be seeing things in the fog soon!

        The pseudo economics presented here is a bad case of Tiger breath.

        Glass-Steagall clears the fog like nothing else after all it emanates from the sewers of the London-WallStreet Urinal, otherwise known in polite blogosphere as Journal.

        • *yawn* Nobody’s trying to curtail your Free Speech, it’s just all a bit needle stuck in vinyl. What have you got to say about artificial scarcity in residential property in Ireland and the boomlet in pricing around Dublin?

          • bonbon

            There should be no “scarcity” with all the youth emigrating. Ask them what they think of the HS and BS.

            The Tiger economy is stuck in vinyl, even DMcW sees the replay, hence the blog lead.

            Glass-Steagall is a different music altogether, a harmony of interests, instead of the cacophonic screetch of banshees stuck in vinyl.

          • michaelcoughlan

            Sd

    • 5Fingers

      The DMW article is in my opinion a fatalistic acceptance of banker dominance of all world affairs to the detriment of trying to stand back and see what is really happening in this very complex world of ours. This naturally attracts the “lets fix banks” mentality and so we descend into currency, GS etc etc which do nothing.

      I think there massive opportunity in the world – scary and all as it may be. Yes, banks are a problem, but the over focus is akin to taking tablets for a headache rather than address what may be the physio disorder of a bad back due to poor exercise regime. A few minutes ago, I read with great delight that the 75Million USD mission to Mars by India is back on track. 75Million!!!! a pittance relative to the mega budgets of ESA and NASA. It’s not money is the issue, it is sheer lack of imagination.

      Back to your 100K…Stick most of it in the post office and take a punt on a few asian or silicon valley or other wacky concerns which have real thinkers in them and have fun. As for big concerns…bad smells is all I get.

      • bonbon

        NASA’s MAVEN and India’s Magalyaan are hopefully on their way over the most dangerous stretch ever. More than 50% of all missions failed. It would be suicide to attempt this with astronauts and simple chemical engines. But Mars will be useful as Curiosity shows daily.

    • 5Fingers

      The challenge with Levitts idea of meeting customer need is that for a lot of what is happening today we have no real idea what the market is. Yes, Railroads are transport…but iPhones? is it really Info tech or? or Internet? is it really telecoms market…all these businesses (and I think Google will also be subject to huge risk) I believe are stumbling around the place building markets no one understands or have offerings which can be explosively dispersed leveraging naive trendy followership and go poofh a few years later. It is not business as we know it anymore and I maintain that banks are struggling how to be utilities in such environments because they have the dual role of financing and yet providing some haven for earnings. Looks like the day of a sure bet is over no matter who you are or what you bring to the table.

      • Voltex

        Hi 5Fingers, You make a very good point regarding the blurred definitions of industry..especially within the tech sector. But I think we need to bare in mind that Levitt wrote the article in the 60′s, yet the message remains true. Just look at yesterdays news of BT (telecoms) purchasing TV coverage to certain football games…industries as a whole need to broaden their view of the customer base they serve…otherwise they narrow their strategic options.

        Richard, Womack and Allaway (1992)discussed this even further by suggesting that bringing in industry outsiders brings considerable benefits. I wont go into it, for fear of boring people, but consider the current Ford CEO Alan Mulally…he went from aircraft to cars…may seem very different businesses on the surface, but his leadership ensured Ford was one of the only big American car manufacturers that didn’t need a bailout and then through to the resurgence of the brand.

        If we follow this through to banking..the natural question is; are the current cohort of bank CEOs are the correct fit for today?

        • 5Fingers

          +1 Banks are in dire need of a gene pool reshuffle at upper management level. As knowledge or content gains more tangible or exchangable value,I can imagine telco/ media or similar value network taking over. It will be obvious when it happens. PayPal, Google Pay etc maybe?

  11. mishco

    +1 Voltex. Best investment: 99k in land and the rest in good tools and seeds. It’s November so don’t forget some manure.

  12. Frequently Monetary Excesses = Financial Crisis

    As the title states, this is the definition of a financial crisis, describing the underlying essential condition for a boom & bust cycle the can be observed over and over again.

    Back in 2007, John B. Taylor presented a chart and a paper to central bankers in Jackson Hole explaining to them that thier extra ease policies are responsible for the insane housing bubble.

    The ECB’s interest rates decisions are influenced by anchor currency decisions made by the FED, this is no secret.

    The epimistic forces that reshape, in fact they destroy it, the social fabric bow to no one, they are not accountable to anyone. The new European slush fund the ESM ist structured in the same way. no one can be hold accountable, and they impetus on social structures can be observed in all european countries. The increased movement to ultra right wing political groups is a result of such monetary policies.

    What we see now is nothing but the pretext of social upheaval likely to happen in Europe around 2020. Governments are well aware about this and prepare for this already by legislative changes, destruction of liberties and more.

    Remember this:

    Goldman Sachs/G-30 Draghi pumped 1 trillion Euro into the banks via LTRO in 12/2010 and 02/2011 at the same time he insited on austerity to continue, calling it fiscal adjustments of course.

    Reality?

    Now the German government negotiations are determined by financial markets, too powerful Lobbygroups and self interest. This matters to the rest of Europe in many ways.

    Such are the signs and the pre text of inevitable social upheaval on the horizon.

  13. Adelaide

    QUESTION: Can any Bitcoin’ers tell me the best process for buying Bitcoin? There is so many options out there. Much appreciated.

    ps I’m following the advice, “Only invest money you can afford to lose.”

    • michaelcoughlan

      Hi,

      Did you ask keiser what he thought of bitcoin?

      Michael.

      • Adelaide

        Yep, go for it.

        Although, personally, researching the process it’s not exactly user-friendly. I was expecting a one-stop shop process, or maybe I’m not looking properly.

        • michaelcoughlan

          Hi Adelaide,

          O forgot to tell you my own bitcoin experience. Like you I bough 1 bit coin just for sport it cost around $100 at the time. I sold it for $125. This was on the european bitcoin 24 exchange. Just after I sold it the polish authorities confiscated the bank accounts in Poland belonging to the operator. The operator retained a legal firm in Germany tompursue the matter. However nothing to date has happened even though the polish authorities have no case the money isn’t being released. You can check this on the bitcoin 24 website as they post PDF documents there from the solicitor.

          The authorities sooner or later will crush bitcoin.

          Just be careful. Freedom Is something which has to be taken, protected and held from tyrants. If bitcoin were to be the panacea claimed it will be crushed.

          Michael.

      • Adelaide

        Hi Adam
        Have you used this website, if so, what wallet type that they recommend did you install?
        Thanks

        • I use blockchain.info for my wallet

          That Irish exchange is fine – the operator David Fleming is an honest guy.

          • Paul Divers

            Adam. Hope you are pucker my boy.

            Blockchain sounds like reinforced steel. The business. Makes me think of a block and tackle used for hauling engines from cars

            It also sound like a great branding that should appeal to Scotsmen.

            Ps. It’s not true that my wallet is full of spiders webs.

          • Adelaide

            Hi Adam
            Quick Question: I made the initial request for bitcoins but I’ve yet to receive their email confirmation/follow-up details of my order. Did you have to wait long before they followed up your request?
            Thanks

          • I’m sure he’ll get back to you very shortly Adelaide if he hasn’t already. He’s a courteous guy. Let us know when you are sorted.

    • 5Fingers

      a) Compute power rapidly increases to mine at a rate beyond the power law associated with NP hard problems. Will quantum computing do it? Who knows?

      b) Someone develops a new attack based on new maths that makes it possible to counterfeit or generate new numbers without power law issues. Godel’s Theorem suggest that this is possible and will become likely as value of pot increases to allow genius to be incentivized.

    • michaelcoughlan

      Hi Adelaide,

      No one can aford to lose money. It’s better to invest wisely than put money into something for the sake of it. You won’t be investing if you buy bitcoins you’ll be speculating because there I’d no dividend. Be very very careful re bitcoin. Look at the charts and only buy AFTER a crash which happens periodically due to govt intervention possibly or the original owner retaining a price moving quantity and short selling possibly.

      Be very careful.

      Michael.

      • Adelaide

        I’ve looked into its pros and cons. Speculation is not my incentive, it has the potential of being a functioning currency and I’m prepared to lose money in my small effort of aiding its realisation. Its success would be genuinely revolutionary and a historic game-changer. The spectre of quick-buck speculation disgusts me.

        • michaelcoughlan

          Hi Adelaide,

          Try this website for an alternative Irish currency.

          http://www.eirebank.ie/

          Much better to spend your money at home if that way inclined.

          Michael.

          • cooldude

            Thanks for that link Michael. Will follow this with interest.

          • michaelcoughlan

            Ok cooldude.

            I don’t know anything about those guys. I have done ablot of work on creating a new currency not debt bearing in Ireland par with euro and have contacted bill still about it. He thinks it’s a great idea if you want to contact me whatamess has been fuc@”ng around with my email but youll find it on the previous article.

  14. EugeneN

    To talk about the real content of the article – Irish house prices. Its not much of an argument to say that low interest rates in the EU caused the recent bump in house prices, because the house prices were falling for years as interest rates fell. What happened was that Cash – which was waiting in the wings – jumped into the market to get some returns on their cash, but they waited until the ( then, perceived) bottom of the market. Expecting this to continually boost the house market is ludicrous, if house prices rise by 20% this year,which is the South Dublin figure, then cash needs to provide 20% more next year. And the number of houses bought by cash this year was about 12,000 units at an average price of about 200K, being conservative*. That 12,000 units was 60% of the market, by the way. Thats 1.2Billion this year, and 1.44B next year if prices continue ( but read on). And so on. We’ve probably run out of ready cash already.

    Further as house prices rise, sellers who are underwater will start to put out more property. Say there is a temporary blip to house prices to two hundred and fifty thousand, from two hundred thousand . The reason houses increased this year was low transaction rates ( a bit like the AIB stock price). In fact about twenty thousand sales will go through, because there were twenty thousand properties for sale. Demand was higher hence the price increases. If only ten thousand people react to these higher prices in Dublin next year by dumping on the market and credit conditions remain tight ( that is only 8,000 are granted) then Cash needs to buy 22, 000 houses at 240K to lock in the price increase. Which would be 5.3B. And so on. Credit might improve, but not that much.

    And lets not mention repossessions.

    This is a temporary blip.

  15. Paul Divers

    A chairde,

    This was a very dry article and that may suit the purists who prefer to get down to business fast and start talking banking, gold and interest rates but you have to admit that all that stuff sends you to sleep especially when Michaal and Bonbon begin their daily duel in mid day sun. It’s a yawnfest lads. It’s tiring and it’s like watching two artificial intelligence systems having an argument over a comb

    As I write I notice the comment above re facts and logic and it must be a sign. Who must this sign be from and what does it mean I ask. I can see ‘temporary blip’ and something about repos then it ends. I won’t scroll up. Apathy is raging again Irish Bros and I have other things to do

    Anyway I just thought I’d pop my head around the door and see how you all are. I am still laughing about the time David referred to Hipsters. I am laughing because 99.9% of people don’t know what a hipster is but they have all heard one.

    Hope you all enjoyed Kilkie and that is gave you conviction.

    Mise le, meas

  16. So, if you find a few hundred thousand euro behind the sofa, buy a trophy house/flat to rent out to Googlers or IFSC wannabe bankster drones. If, however, you need something as tiresome as a mortgage to try to buy a roof over your head: caveat emptor. Property is illiquid, when the interest rate cycle changes, many folk are going to be shafted. No lube.

    The entire world economy has been hijacked/held hostage to ensure the previous cycles loans are kept viable, rather than the process of Creative Destruction be allowed to kick in. Whilst there was some value to the initial defibrilation/pacemaker stuff in 08, we’re no way past any rational attempts to justify QE & ECB variants thereof. The asset bubble in property will end in tears as the previous one did, but this time, it’s going to be Tokyo 89. The elephant in the Irish “Good Room” remains the Euro:

    “inflation is turning negative in parts of the eurozone periphery. But please don’t call it deflation. No, in euro-speak, this is a relative price adjustment, which will in time render these countries more competitive.Perhaps, but what it also does is constrain demand and increase the size of existing debt burdens; these countries need decent levels of nominal GDP growth if they are ever to repay their debts, not relative price adjustment. ”

    http://www.telegraph.co.uk/finance/comment/jeremy-warner/10441966/Dont-blame-Germany-for-the-eurozones-travails-blame-the-euro-itself.html

    I really, really enjoyed Kilkenomics and will comment further when my liver recovers…I hoped to speak to David but all I saw was him getting in and out of limos with his minders and Ray-Bans, being pursued by screaming fans. I didn’t realise he was such a one-man boy-band. Anyway!

    The non-stop Glass Seagull/”it’s gold, Jerry! Gold!” stuff is getting on my nerves, much as I’m sure my endless hallucinogenic diatribes get on the nerves of all the ‘serious economists’ who read/lurk/comment under silly psuedonyms. Is it maybe time for a spin-off forum with “The Gold Thread” and “The bonbon O’bama Nuclear Terraform Shannon to Siberia Thead”? David’s either very patient with all this or doesn’t read this mad shite. Either way, the threads need a bit of self-moderation as the “look at me!” stuff is getting a bit tiresome. And yes, historically, I’m the worst offender, but ‘going forward’, maybe some decorum and precision? Some great comments, but also quite a few *rolleyes* at the usual suspects.

    • michaelcoughlan

      Hi Andrew,

      You are correct re gold and glass seagulls.

      I’m finished with the nonsense.

      One last parting shot though; Might be the ideal compromise;

      http://www.trocadero.com/grazyna/items/972353/en1.html

      LOL.

    • bonbon

      I’d watch the liver – you may need speen.

      Now that the psychotropics of Kilkenny wear off, think of Shutter Island. Maybe you are on withdrawal!

      Others are facing existential threats to healthcare, pensions, savings, emmigration, and all you mention is your liver!

      Glass-Steagall takes the life out of the booze – the Iceman Cometh, Kilkennylivers!

      • bonbon. I said I enjoyed the event, not that I uncritically endorsed every speaker, every nuance of the debate, which I didn’t.

        I’ve no idea why you link to “Shutter Island”, please don’t bother to elaborate as I already have a headache reading your obtuse contributions to this thread about housing. There IS artificial shortage in family houses around Dublin and in a genuine market economy, there would be house-building, not hysteria mongering and the return of property porn.

        I’ve no idea if your circumstances prevented you from attending on financial grounds, or if you just couldn’t hack the face to face stuff. Some of what you write is interesting and thoughtful, but the constant droning noise about your Tamagotchi Topics which have to be fed and watered every single time an article gets posted are becoming a real distraction. Can’t you just have an unread blog or a bizarre social media timeline to rant about that stuff, like me and others?

        “Others are facing existential threats to healthcare, pensions, savings, emmigration,and all you mention is your liver!”

        That includes people I know both on the island of Ireland and elsewhere, you patronising chump.

        So, the money that came into the Kilkenny economy via Kilkenomics wasn’t welcome? And the Bruce Springsteen shows? Was that just another useless distraction? Did you parade outside with placards of the triple curve or whatever the hell it is you keep banging on about?

        Lighten up, get a life, stop being so censorious about a few folk having a laugh and a few jars to lighten the gloomy mood music. You know nothing about me, yet assume you have insight into my life. I hoped you’d turn up to add a certain spice to the late night rants, but no, you’d rather scowl behind a screen. Chill.

        • Paul Divers

          He doesn’t give a damn about anybody. Yes his / her posts are interesting but everyone takes the bait therefore the problem persists.

          I challenge everyone to avoid Bonbon until christmas.

        • bonbon

          Hey come on, you are not in touch with the mood at all. Just look how Bavarians rejected the Alps Olympics in a poll. The politicians and global sport are reeling, totally taken off guard.

          So get in touch – the greasy till is about to get heaved into the sea.

          Anyway so far, no comments here about any kind of resistance, rebellion to any of the speakers. It looks like it was rounds for all!

    • cooldude

      Hi Andrew, I find your “hallucinogenic diatribes” very entertaining and I hope you keep them up. I admit I post a lot on the subject of banks/money creation but I am convinced that the banking system and our crazy system of money creation is the real source of most of our economic woes. David consistently avoids any real investigation into these type of subjects so maybe he should do an article on our system of banking and money creation and let’s have a full debate on it. Asset bubbles such as housing are mere symptoms of these systems. Bonbon is entitled to his opinion and is sometimes very good but he does himself or his cause no favors with his pseudo intellectual dismissive style of delivery. If he could debate normally he would do much better.

      • cooldude, thanks! Nice to know some find humour in my venting, but I’m soon to become Mr Sensible, i’m afraid, as take on the bearded policy wonks on their own territory.

        David was pretty scathing about The System at Kilkenomics & bonbon’s assumption that it was a vat of Kool-Aid is just bollocks.

        When the time is right, I’ll be part of a siege unit to topple the temple of neoliberalism, but for now they have to have their final bonfire of the vanities with fracking & QE. I’m actually incredibly optimistic and hopeful suddenly, now that the familiar Cornucopian and Wonk Witchcraft Spells are being spun by the usual suspects as evidence that 08 didn’t happen or didn’t mean much at all.

        Let the kids have their final play in the sandpit then the demolition squad moves in and they’ll have to put childish toys and superhero cloaks away:

        http://www.positivemoney.org/2013/04/news-from-ireland-sensible-money/

        “When you extend to bankers the power to create money ex nihilo, you can hardly be surprised if they start to believe themselves superhuman”

        http://www.positivemoney.org/2012/08/irish-times-privately-owned-banks-create-and-destroy-money-at-will/

    • Well many see it coming as pointed out in the article.
      Profligate money production is the basic problem.
      The operators are allowed make a profit which is skimmed into the pockets of the elites to buy solid assets , which is used to accumulate the wealth of the world and its productive capacity.

      It is reported that the same shareholders of the central banks also own about a third of the worlds major corporations.

      Not random but a nice business plan.

  17. bonbon

    The Kilkennylivers have now a few patrol code words. Self censoring. It must have something to do with Shutter Island (sorry Kilkenomics).

  18. Ryu Hayabusa

    Hi,

    Kenny & Co.,his counterparts were in gay Par-is fretting over the youth unemployment problem…. and what they could do to exacerbate the problem!

    Just keep doing what they’re doing.

    http://www.independent.ie/business/irish/enda-kenny-attending-paris-conference-on-youth-unemployment-29747191.html

    Whilst simultaneously working on his Benito salute.

    Bella Enda Bella.

  19. Adelaide

    The Max Keiser Report discusses his run-in with Karl Whelan at Kilkenomics.

    https://www.youtube.com/watch?v=MNXmL771mBA&list=SPPszygYHA9K2ZtV_1KphSugBB7iZqbFyz&index=122

  20. redriversix

    http://p.ost.im/RNAKmb via @southweborg

    As talked about here by me for ever..!!

    Stability in Africa…!

    excellent time for investment

    Good Afternoon

  21. Colin

    David,

    Hope you had a happy and successful Kilkenomics last weekend. I wasn’t able to make it this year, but I’m sure its going from strength to strength. Hope all the contributors had a rare auld time.

    I was looking for the chart but I couldn’t see it. ‘Look at the chart. It shows what is happening and more to the point what has happened before. It shows the amount borrowed to be put on stock speculation in the US over the past three boom/bust cycles. What we see is that we are now back in dangerous territory.’

  22. 5Fingers

    OK..It’s Wed evening. Next article coming. Looks like Kilkenomics was a hit yet again and maybe a few insights will be derived accordingly.

    • 5Fingers, hope you’re well. Kilkenomics was fantastic, at least what I can recall through the alcoholic amnesiac fog, I’m afraid..

      Actually, I was pissed and paying attention. I got a lot of *rollseyes* from the Lucan Lads for leaving the bar to go to a Sat night event on Corporate Taxation, but it was incendiary, off-the-charts controversy.

      I’ve got LOTS to say about the festival, here or elsewhere. I went to 9 shows & only regret no going to more, but got distracted by visiting relatives/graves/ancestor worship in my parent’svillage 14 miles away. Next year, I’m going to be teetotal and taking notes for use in later court cases, etc.

      It was a seriously weird w/end, even weirder than Dublin in April. LOL! But extremely good VFM/entertainment. It wouldn’t work in a big metropolis, but in The Marble City: it’s perfection.

      • 5Fingers

        All’s well. Your reaction seems to be commonly echoed. DMW needs to get his calendar right so I do not miss the next one. The lack of consideration these days *rolleyes* :-)

        They should do a gambling theme next year where everyone can be a banker and the idea is to form the biggest banker team. (Like monopoly) 4 days to rule Kilkenny and collapse the local marble based economy and the winners get a few trays of the local brews based on the amount of marbles created and lost. Marble will start at parity to the Euro and be allowed to QE to destruction. I know there’s a board game here in the making or we should make it online for the occasion. We can have rules like anyone “not failing” a breath test will be immediately disqualified. I think it would be a pretty good simulation of real thing.

        • very good. yes, we could pull some bankster Marbles out of our arses. “Pulling It Out of Our Arses” was one of the show titles, which was really rather clever!

          copious alcohol as medicinal prophylactic to prevent brain damage from spurious economic theorists: but “it’s all good” etc.

  23. I have no doubt that all markets in the world are manipulated. It is sufficiently documented to not be a matter of opinion but a pure fact.

    The manipulation of governments was started centuries ago by the money lenders who morphed into bankers. I am on the same page as Cooldude.

    most of today’s happenings are planned and premeditated and not happenstance. I’ll not argue with David except to say that he is mostly wrong.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/13_Man_Who_Predicted_Gold_Smash_Tells_Investors_Whats_Next.html

    http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=223

    • 5Fingers

      While there is no denying the historical fact of clubs, masonic societies etc etc that “Dan Browned” their way through whatever wacky historical narrative one cares to conjure up, their influence today (which no one denies may exist to protect a status quo – it is only human) are an emergent property rather anything planned 100s of years ago. PLans, like weather forecasts, all come apart on first engagement with reality/enemy or whatever.

      Happenstance is why we are blogging today (e.g. it is very likely we have dodged 6 or more incidents of nuclear armageddon due to stupidity and a collapse of failsafes). No one planned it. And same for bankers and big corporates. Their size is an emergent property of modern day networking and very heightened resultant efficiencies never witnessed before. And it was all seen as a great idea (courtesy of half witted Government and policymakers and others) and it does work to absorb small cockups and problems. But…when you are that big and with little means of redundancy, 2 big 2 fail is a result. That’s the thing about networks, peaks and traffic jams happen suddenly and without warning for the smallest of reasons. All you need is one car to blow a wheel and you have instant gridlock.

      BTW; I think we are only months away from another collapse (meaningless share price rises and reverse tapering are a symptom) and I think this one will be the finisher and no one will escape. The consequence is not just banking…logistics/ supply chains for material, food etc will instantly wreck lines of credit that will stop everything including the internet on its tracks (a global Cyprus). I also expect that a lot of the pent up niceness created by interventionism of the last few decades (equality, social supports etc etc) will suddenly unravel and gloves will be off. Oh…and we got very efficient at warring as well…so that should go off pretty smoothly and efficiently as well.

      The human tragedy is that we do not know what it is to be human and how we con ourselves. Dumb historical narratives are killing us by creating division. There is no concept of a shared problem…them and us all the time – each preserving their version of a history created by accidental winners. It is beyond a joke and it is fostering incompetence over clear thinking.

      • bonbon

        You speak for humanity right now?

        Now is definitely not the time to dumb down. People will smell it, and as you say at the unbelievable crisis that is just about to hit, kills, everyone will see its
        WORSE THAN “WEIMAR”!

        What is needed is solidarity, something forgotten, perhaps the only thing to fall back on.

      • You are likely correct in the coming chaos but I disagree with you that it is random.
        It is fomented and planned on the way to the socialistic one(new) world order.

        To not see that there are planned strategies is to not be able to arrive at a solution.

        Not all the winners are accidental. The premeditated forces have followed the plan with constant adaptations for the last 3 centuries. Bonbon would say 7 centuries!!!!

      • a great discussion on “the capitalist network that runs the world”.

        it’s ALL the factors discussed. a self-organising, self-policing algorithm of culture, politics, social anthropology and technology which I abbreviate as “Genes, Dreams, Memes & Temes” in a book of that name.

        We have a genetic legacy of mixed chimp/alternate human/bonobo from which our status anxiety, social grooming and competition/co-operation clusters form as evidenced in bloodline history, anthropology,etc

        There’s the whole discussion of Freud/Jung including cultural archetypes leading to the Dawkins/Dr Susan Blackmore ‘meme machine’ stuff.

        Then there’s the exoskeleton infrastructure of the internet, all business and transport systems etc.

        Put it all together and the ‘water cooler’ effect goes global, gossip is the glue of human interaction and so is social conformity and deference to heirarchy. Sociopath and psychopath faux Alpha male/female chimps exploit all this and build lifetime and Bloodline systems of Privilege. My avatar “end extreme wealth” isn’t Communist, even if it is sourced from pinky Swedish genderqueer Intersectional theories: it’s actually a reference to Andrew Carnegie’s maxim “he (she!) who dies rich, dies disgraced”. Again, there was a tentative discussion of some of this at Kilkenomics, but it wasn’t developed as it’s off the radar for most.

        Capitalism and Technology are alogorithms, once they begin replicating they don’t stop until the resource base that feeds them are exhausted. Hence, the crisis in Ecology and Energy which was almost totally ignored by the Kilkenomics panellists. Culture is a self-replicating, self-organising alogorithm too, but with massive discontinuities such as we are on the verge of.

        The last bit I’m working on is the dilemma of balancing the right of successful Capitalists to pass on their genes/memes/dreams/temes to their heirs against preventing bloodline privilege on the scale of the British Royal family or certain banking dynasties. There’s no simplistic solution as it’s hard to see how an initial personal/familial capitalist success story can self-perpetuate over the generational lifespan of the average corporation purely through mass-market shareholding and crowd-sourced management skillsets. We need genius entrepreneurs in business and culture, but we also know that we all fear Death and seek to avoid it by transmitting our genes/dreams/memes/temes via inheritance. That’s natural, but balancing all this is the Big Policy issue for C21st Civilisation ‘going forward’. And, erm..you read it all in synopsis here first. LOL!

        Anyway, I’m buzzing from a great night out and this is a quick rant whilst I wait for my daughter to finish faffing about and be ready to get her school bus!

        A great discussion on this thread. Thanks folks.

        http://www.newscientist.com/article/mg21228354.500-revealed–the-capitalist-network-that-runs-the-world.html#.UoXMReJtWM3

  24. bonbon

    “Free Trade” never existed – it was from the British East India Company CEO Adam Smith’s get go, a political invasion tool. As We have clearly the Panopticon, now exposed by Snowden, it should be clear that is also from the very same get-g, same source.

    By the way, everyone has heard of 5 Eyes, 7 Eyes ? Well most have forgotten Odysseus blinding One Eye, Polyphem (eats everone and everything). Snowden has blinded One Eye alright!

    But to claim “premeditation” is to believe on One Eye. I’d rather say cannibalism, not premeditation.

    But that’s a matter of taste, now wanting to argue !

  25. bonbon

    It is Worse Than Weimar Germany in 1923. But
    Lombardy Regional Council Unanimously Passes Glass-steagall showing the only response that works.

  26. bonbon

    And Barrak O’Bama is Not Amused, nor are his Royal “betters”.
    Just see what Clinton and Kerry and Warren just made public!

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