January 29, 2015

Aer Lingus needs to think about global trends in air travel - not local concerns

Posted in Irish Independent · 103 comments ·

Like most Irish people, I like flying Aer Lingus. I like the staff, I like the feeling of being at home, but I can see what is happening. The airline is caught in a rapidly changing market having to offer a traditional, almost nostalgic, service in a world where customers’ expectations about flights are changing rapidly.

The reality of Irish aviation is the fact that Aer Lingus will fly nine million passengers this year and Ryanair will fly 90 million. Yet for many Irish people, Ryanair is still the upstart and Aer Lingus the national treasure. This disparity between reality and perception appears to distort the discussion around the Aer Lingus takeover by IAG, the British Airways-led airline conglomerate.

But Ryanair hasn’t just powered ahead of Aer Lingus, it has moved ahead of everyone. It carries three times more passengers than British Airways and 20 million more than the German giant Lufthansa.

The airline business is going through enormous change and the question is where all this will leave a company like Aer Lingus? If Aer Lingus needs the protection of a big owner like IAG, then the Government needs to act in the best interests of the company and let it go. So let’s stand back a bit and try to assess the reality of the aviation business right now.

Low-cost airlines are the only ones really growing in Europe. What this tells us is that the low-cost model of airline travel is winning all over Europe. Ryanair has spawned copy-cat airlines like Norwegian, Pegasus Airways, Wings and Wizz, all challenging conventional carriers. British Airways is actually only the UK’s third biggest airline after Easyjet and Ryanair. The future of mass-market air travel in Europe is low cost. And the trick the low-cost carriers stumbled on is a bit of consumer psychology that we never thought about: people don’t so much travel to destinations but travel at a price; if you make the price low enough, people will take a chance.

What does Aer Lingus do in this context?

There are other global trends in the airline business that will affect Aer Lingus.

Last week, I had the pleasure of interviewing Gus Kelly, the Irish CEO of the world’s second largest aircraft leasing company, Aercap. Kelly runs a huge global business, leasing planes all over the world.

One of the big trends he alluded to is the massive growth in air travel across Asia. He told me that orders of planes from China are still very strong. Typically, as a country gets richer, air travel grows two times as fast as GDP and this can be seen very clearly in global trends.

People like to travel. But the type of people who travel has changed rapidly.

Twenty years ago, passengers were most likely to fly on an airline from Europe or North America. Over the next 20 years (according to Boeing), 62pc of air traffic will be from outside North America and Europe. Emerging markets will grow faster than established markets. Regions growing above trend are Asia Pacific (6.3 pc), Middle East (6.4 pc), and Latin America (6.2pc), while European (3.9pc) and North American markets (2.9 pc) will be below trend.

Today, there are nearly 21,000 jet airplanes commercially operated in the world. The world’s largest fleets are in the United States, China, Russia, the United Kingdom and Germany. Over the next 20 years, the world’s fleet will grow at an average rate of 3.6pc annually. This means that more than 36,700 new aeroplanes will be built.

Of these new aeroplanes, 13,000 have already been sold and are awaiting delivery. Isn’t that extraordinary? The countries with the largest backlog are the United States, China, Indonesia, Russia, and India.

With all these planes in the skies, the battle for the customer will become intense. This brings me to the Heathrow slots.

Conventional wisdom says these are necessary for Irish people to connect with other destinations. As a reasonably frequent flier I can tell you I will do almost anything to avoid Heathrow.

Over the past few years I have been working in Abu Dhabi a bit and the planes of the Gulf carriers from Dublin are always packed with Irish people going to Australia and Asia.

Each day 1,200 Irish travellers use the Gulf carriers. Dublin-based travellers can use literally dozens of airports to make connections. We don’t need Heathrow.

Maybe I am not representative, but it seems the idea that we need Heathrow to connect is a bit outdated. For travellers from Cork or Shannon, maybe this is not the case.

So where do all these changes realistically leave a company like Aer Lingus?

It seems logical to accept this bid because the fall in oil prices has re-rated up the value of airline companies. It could be a great price. Some €1.36bn is more than twice what Ryanair offered a few years ago. Think about it: between 40pc and 45pc of an airline’s cost is fuel, so if fuel costs collapse, profits shoot upwards.

A tie-up with a bigger player could open up all sorts of American cities like Dallas, Miami, San Diego and Denver to Irish tourism because they are well served by BA and Aer Lingus could piggyback on those networks.

All told, this is a national deal which shouldn’t be scuppered by local concerns articulated by the TD who shouts loudest.

  1. shnaffled

    Check Mate Aer Lingus ,,, you’ll soon to join Concorde in the aviation history books imho

    I sure hope they can loose gracefully ?


  2. crossroads

    Personally, I prefer to fly Aer Lingus for the comfort of the seats which recline and have great headrests, allowing one to catch forty-winks in comfort rather than getting a crick in your neck from lolling around like a rag doll in the bolt-upright Ryanair versions.

    I happily pay a bit extra for the comfort and knowing I’ll be in better condition stepping off the plane at the far end.

  3. shnaffled

    I choose Ryanair each time i fly,without exception,but i travel light.

  4. West Awake

    I enjoyed reading this article. I still need to protest nevertheless.

    There are a number of factors :

    International Freight has not been factored in for places like Shannon where the Heathrow slots are very important .

    If I ask the question why does London not have Ryanair Head Office and Head Quarters of the worlds largest aircraft leasing companies ? Why does Shannon not have same either . After all it was in Shannon that all these activities commenced initially and why did they change to Dublin ? Political fudging to demean Shannon ?

    Why do the historical records always show that Shannon has always been the original source of new activities such as : Ryanair , Aircraft Leasing , Cross Atlantic Commercial Flights , International Duty Free , Irish Coffee and other alcohol coffee brands , International Duty Free Zones , Cold War ( Russia ) cooling zone in the 1980′s etc etc

    • British Airways price offer will be the highest they will get and this price has an embedded premium for a reason .

      There is a reason ……there is a reason….there is a reason ..

  5. StephenKenny

    It must be interesting for economists to have seen that, in contrast to the classical theories of the horrors of deflation, falling prices have caused demand to increase.

      • StephenKenny

        Prof Krugman doesn’t really agree:


        Prices fall, so demand falls as people delay consumption, waiting for lower prices.

        • what is wrong with equilibrium? It is a state achieved in nature. A form of harmonious balance. Just like a mature forest, in a state of decay and constant renewal at the same time. The big problem is we have to interfere and upset the balance, sometimes with disastrous consequences.

          Left alone mother nature teams with abundance. Get the central banks out of the way. Get the government out of the way. Let it all flow and flourish.

          • StephenKenny

            As I sit in a heated cafe, sipping coffee made from Kenyan beans, toast from Canadian wheat, and marmalade from Spanish oranges, I don’t want to return to nature. Civilisation, as I see it, is one long struggle to get away from the horrors of nature.

            My point, badly made, was that this is yet another, another, and another, case of falling prices increasing demand. The international meme, in all the news papers, on all the TV stations, on al the radio station, from all the journalists, from all the professional economists, is that this falling prices causes a fall in demand, as people wait for lower prices.

            I feel like they’ll try to assure us that rain goes up, and we’ll all sit around, watching the rain fall, saying how extraordinarily clever all these experts must be, with all this rain going upwards.

        • Tony

          That deflation nonsense again. My home phone just went kaput. I was never going to change it, but now that it’s broken I have no choice, so I just ordered one online. I don’t care that it could be a tenner cheaper next month. I need it now. Same goes for fridges, ovens, furniture etc. Do people really sit on worn out couches or sleep on broken beds just because the price of couches or beds might come down? I don’t think so.

    • zapit

      Would be nice if the classic theory does not hold true. But I wonder if it’s that it does not apply to certain kinds of thing. If you’re thinking about flying somewhere, usually you want it to be around a certain in time. Waiting say a year to see if prices drop further might not do. You want to go visit your cousin in Australia next month, not next year.

      • StephenKenny

        It seems to me that this reasoning was probably useful in depression era US & Europe, when people were comparative poor anyway, and goods were comparatively expensive.
        On top of that, we live in a strictly consumerist society. People expect to be buying new washing machines, and new/replacement cars, every few years. I hear that modern Audi’s have a design life of about 5 years. The era of the 500,000 mile car is long gone.
        Everything is disposable. Everything is on credit. This must play against the ideas of careful, deeply price conscious, consumers.

  6. Principality of Justice Zone

    It is now time that the Shannon Area leave the Republic and reboot and restart with its own independent sovereign principality with its own laws and banking …..with a logo saying……’ free from dubs’ .

    • Mike Lucey

      LOL, John! And maybe the total western seaboard counties from Donegal down to Cork should join ‘independent sovereign principality’ and take back the 840,421 km² (x10 area of Ireland) of rich fisheries. Now that would be a solid and sustainable natural resource on which to build a prosperous economy!

    • DB4545

      Free from Dubs? Who the f**k do you think pays taxes in this Country? The country & western brigade sucked wealth out of East Coast for two generations and achieved sweet f**k all. The Shannon stopover may have made sense for about 10 years for aircraft re-fuelling but it then became a political pork barrel that sucked up taxes and hindered inward investment. Nobody wants to live or invest in the ar**hole of nowhere in the 21st century. Look at the inward investment into the Leinster region since the ridiculous stopover ended. More important look at the tax base it supports. The financial services centre relocated to two-mile-borris or Tralee? I don’t f**king think so. Charlie may have been a stroker but at least he had a bit of imagination. The country & western taoiseachs gave us bullshit about “de real capital of Ireland and a dog food factory. The most recent one practically bankrupted the Country on his watch. The South and West is nice for a holiday but then it’s time to get back to reality. Remember decentralization? How much taxpayers money did that waste? What about the two runways built on the West coast that cost taxpayers 9 million Euro have never been used and cost taxpayers 400K a year to maintain? The ability of the West to squander taxpayers money never ceases to amaze me.
      Let’s reboot in the morning. Give us regional government on a provincial basis. The Leinster region will be a Singapore within 15 years and the rest of the Country will be a farm or a forest. But at least Dubs and the Leinster region won’t be putting their tax money on a bonfire for the South and West.

      • Shannon Region does not need money only a sovereign mandate to make its own decisions . Hugh Gough ( a Limerick man ) founded Hong Kong where his statue is celebrated . SHANNON can be made a new World Capital if it were given the choice .Being ‘Free From Dubs’ is all we ask .

        • DB4545

          John I don’t know what scares me more, the bull***t that you’re coming out with or the fact that you actually believe it. Shannon got a shot at the title for re-fuelling just like Gander in Newfoundland. It was heavily subsidised and died anyway. The DAA has pumped millions of Euros generated in Dublin to support Cork and Shannon with no useful effect. Meanwhile Dublin Airport is growing in leaps and bounds picking up UK and European business for transatlantic flights. Dublin, Leinster and Europe pumps billions into the South and West for farm subsidies. Dublin County is one of the few farming regions in the State that doesn’t rely on subsidies because its market garden economy serves Dublin. What rational business serving global markets would even consider an operation outside Dublin without subsidy? They all pull the usual stunt of setting up for ten years until the tax breaks end and then pull the plug and turn the local economy into another welfare town that again has to be paid for by Dublin taxpayers. Put up a border, set up a government even have your own police force if you’d like. We’ll see who you’ll be asking to pay the bill. The West isn’t asleep it’s in a coma and Dublin pays for the life support.

    • mcsean2163

      Would be awesome, all the money dumped down there, it must be one of the greatest failures in Irish history. There is no VAT and still it’s just limping along. Would be interesting to see how much subsidies they get per year…

  7. Deco

    This entire episode has been highly informative in several aspects.

    1. The junior party in government are making highly pronounced and deliberately ineffective noises of concern. In other words, they have already decided that they want the deal, and their key concern is on how to present their position on the matter.

    2. The Competition Authority of Ireland, have nothing to say. Not even the smallest concern. [I find their silence, deafening. Once again !!!].

    3. The EU commission have not waded into this, for the sake of competition.

    4. Aer Lingus are aligned with United Airlines in the US. Aer Lingus also have agreements with KLM and other sky-team members. In other words Aer Lingus have options.

    5. British Airways are expensive as a provider. They are a high cost carrier. And the pampering that is provided on long distance flights is highly absurd, when luggage gets lost in Heathrow. The Heathrow lost luggage experience is not one that to remember. Having AL taken over by a higher cost service provider, does not auger well for the consumer. At times they are absurdly expensive.

    6. British Airways are not doing this for the sake of IRL-UK traffic, or Heathrow slots. Once a range of commentators on the Dublin media have gone silly, in a thoroughly enthusiastic manner. Like as if they know what they are doing.

    This is about British Airways trying to compete with KLM/Air France, Delta Airlines, United Airlines, and Lufthansa. A lot of the time, the direct head-to-head competitors with British Airways.

    7. British Airways are losing customers from northern Britain, who are using Dublin as hub to fly to North America. BA will not want this to continue. [ Does the EU Competition Authority, the CAI, or the UK equivalent have any concerns about this ?].

    8. ICTU and the Irish trade union movement are terrified of Michael O’Leary, to the point that they will do anything to stump. Personally I would not trust David Beggs (Bertie’s mate) as far as I would throw a cement block. He is routinely on the opposite side of the public interest in Ireland.

    9. Anything that is decided by consensus, as a result of “buy-in” from Ireland’s unions, tends to get presented on RTE News [ "Pravda" ] as “fait accompli”, and as something progressive.

    10. Ryanair will decide this, and will have a high price to be brought on board. I can even see ICTU foaming at the mouth, and the prospect that Ryanair will put their own interests first. Long term, ICTU are in a continual battle with businesses like Ryanair, Lidl, Aldi, etc..

  8. Deco

    Why is there an absence of discussion from the perspective of competition ?

    The air travel is one of the few markets for consumers where there is actual competition. And now we are seeing the possibility that this will be reduced.

    I find the attitude of the state bureaucracy to be completely lazy in respect of protection of the public interest. Almost deliberately reckless.

    But the unions are in favour of the deal, therefore it gets presented to the people as being “morally acceptable”. This is utter bullhs!t.

    The unions don’t give a toss about the broad mass of working people. They are just behaving like another political party, using pressure to get what they want from the system, for their members.

  9. The shareholders should be glad they would be getting more than the IPO price per share- it looked like a bad investment for most of the past 9 years especially after considering new shareholders had to invest at least €10,000 at the time. Many people, just before the IPO, thought it would be another Eircom flotation. We all know government and companies are usually a dangerous mix- the 25% stake couldn’t influence keeping flights to California even once a week, so we had about 5/6 years where no airline in the world flew from Dublin to California direct – considering the amount of trade with USA it would be like having no direct flights to Spain. As MOL has called it a pension deficit on wings- the govt should take the money and run. It really is best to avoid Heathrow- never been in such a long que of aircraft to take off as in Heathrow- JFK seems much better.

  10. michaelcoughlan


    The government should sell it’s stake and send each taxpayer a cheque from the profits which would be an example of a good Keynesian fiscal stimulus without increasing national debt OR the money supply.

    Will it happen?




  11. Pat Flannery

    “A tie-up with a bigger player could open up all sorts of American cities like Dallas, Miami, San Diego and Denver to Irish tourism because they are well served by BA and Aer Lingus could piggyback on those networks.”

    Speaking as a frequent flyer between Dublin and San Diego I would be apprehensive about what this BA deal would do to the excellent fare share between United and Aer Lingus.

    If there is a change I will probably stay with United all the way to Dublin. I could use BA right now but it has lousy connections and even worse fares. No way will I ever go through Heathrow to get to Dublin.

  12. DaveG

    Aer Lingus makes sense for British Airways. Dublin is another hub airport for the USA, particularly as it has US pre-screening which is a big deal. It opens up a lot more destinations in the USA for any airline.

    Aer Lingus is an even better fit for Ryanair. It gives them a premium product and it opens up their Atlantic ambitions. Ryanair is also a much better strategic partner for the country of Ireland. Irish owned and vested in Ireland, Ryanair can deliver a lot more than British Airways (IAG) ever will.

    Aer Lingus is a minno in the airline world. Ryanair is in the world’s top ten by passenger numbers. It will be in the top five within seven years. The addition of Aer Lingus to Ryanair would probably put the combined group in the top three airlines worldwide within 10 years.

    Let Ryanair buy Aer Lingus. It will be a lot better for the irish traveling public, workers, investors and government for the long term. Letting emotions and union intransigence get in the way is anything but strategic.

    For those that object on competition grounds, just remember when Aer Lingus and British Airways were the only options. There are just too many airlines vying for a slice of the Dublin/Shannon/Cork pie now for that to happen again.

  13. Heathrow is no sweat.

    Two years ago I flew in on an Aeroplan points flight (Aer Lingus affiliated ) by Air Canada. Landed at Heathrow, recued my bike wrapped in a soft plastic bag, and spent 20minutes in the baggage claim area putting the bike together.

    Now dressed in cycle gear and the 4 paniers, sleeping bag and tent strapped to the bike I casually walked out of the airport. In the meantime 2 security officers ambled over to chat about cycling and bikes.

    I then cycled out of the terminal to continue my wanderings awheel.

    Recently we, a couple, flew into Heathrow on our way to France, and later returned the same way. More recently we flew to Heathrow to trip around England and Ireland.

    Allowing an extra hour to process the airport we found the flow to be easy and in fact the hour was not needed.

    Coming back through Vancouver was slower through customs and baggage claim than was Heathrow.

    As for direct trips to Dublin, from Canada, that must be done via Toronto. Getting to Toronto from Vancouver, and then to

  14. cont.. The computer or site gobbled my commentary and posted it without my direction!!

    Dublin takes as long as via Heathrow and costs the same.

    The other way to avoid Heathrow is to fly to Frankfurt and then Dublin which is a nightmare of extra time in the air.

    I think once I have been directed by Aeroplan to use a leg by flying Aer Lingus.
    I do remember , with some affection, flying Aer Lingus, the friendly airline, in the 1960′s but it is not the same today.

    • michaelcoughlan

      “cont.. The computer or site gobbled my commentary and posted it without my direction!!”

      I doubt it Tony. I’d say when you leaned forward to get a closer look at the screen the gold chain around your neck hit and depressed the enter button.



      • Hardly Michael

        The enter button gives a new line , not a new page.

        I do not wear gold jewelry as it is ostentatious and a poor investment. Not to mention subject to robbery.

        The melt down value is likely a third of the value of the gold contained. All show and no go!! as is said, and so 1980′s Michael.

      • jaysus

        Ha ha ha, brilliant, I can just imagine what Tony looks like, a cross between Jimmy Saville and Mr T, blingwise that is. He probably cant type properly cause of the huge gold bands on his fingers. Got the smile of a Romaninan gypsy too I bet…

        • Dream on!!
          Gold is money, silver is for chattels and coin cash.. . Plates, goblets and cutlery. It kept them healthy as does colloidal silver today. colloidal gold is good for the organs and brain too.
          A lot of us could use both. It would create a healthy body and a healthy mind. Then we could think and act in a more logical fashion!!
          Your celtic ancestors wore gold around their neck and as armbands.
          They did not have wallets in those days. Good horses though!!

  15. Pat Flannery

    Hi Michael and Tony: it was just a bug – a gold bug.

  16. Forthcoming Full Moon does not seem to favour Aer Lingus Take Over ..later next week all will be understood

    • StephenKenny

      Just by-the-by, does March 17 mean anything, according to your lunar and related interests?

      • Lunar Landing

        Full Moon is on the 5th March and that is long before the 17th March so that monthly full moon seems a normal phase in passing . However on the 20th March is a Solar Eclipse and Jewish New Year for Kings and to be immediately followed on the 4th April , 2015 with the Passover .

        The biblical theory of the blood moons show that from the 17th March will begin a period of unrest in the world where Jews are involved . Last year in Ireland during a similar Passover Alan Shatter ( a Jew) was the center of attention in Irish politics and Gazza was subsequently bombed . Expect something similar at a local level and the world stage will show more unrest in the Middle East .

        • shnaffled


          Considering the evil power puppeteers of Wall St,MSM,U.S. judiciary,U.S. Govt etc are for the most part jews [and the Middle East already in flames]i have little choice but to agree John.

          As a Gemini,my travel plans to the Middle East in Feb and March are heavily restricted due to Mercury and the changing signs when entering Aquarius in the 9th house and being posited in opposition to Jupiter. (*bloody obvious)

          It’s said that a weeek is a long time in politics, but my mind is set at ease that our Leader Enda has anticipated every future danger and assuredly has all under control.He even has the moon covered,but in what ?


        • Colin

          John, Gazza has been bombed out of his head every week since the incident in the Hong Kong dentist’s chair in 1996. Gazza nearly died last year.

          Gaza, on the other hand, only gets bombed after rockets have been fired into Israel from Gaza.

  17. McGoo

    Ireland is a small island, and it’s ability to participate effectively in the world economy is totally dependent on affordable, reliable international air travel. It is essential infrastructure, like roads and rail, and therefore we should not rely solely on foreign airlines to provide it. We need a national airline that will put Irelands interests first. Aer Lingus should never have been privatised.

    Speaking from the perspective of a Cork resident who works for a US silicon valley company, I can safely say that losing Cork’s direct connection to Heathrow would be the end of foreign investment in Cork. Currently I can get to a meeting in London more easily than I can get to one in Dublin (incredibly, there are no flights between Cork and Dublin), in fact Cork functions largely as a suburb of London.
    US executives already complain bitterly that they have to change planes in Heathrow or Amsterdam to get to Cork (and they snort with disgust if you suggest flying to Dublin and getting a bus to Cork). Losing the Heathrow link would turn Cork into a small isolated town on a barely-inhabited island somewhere in the north Atlantic.

  18. SMOKEY

    Haven’t been on a plane in over 6 years, thank Christ, but I plan on being on one in 2020, taking the kids to see my Hometown. I remember TWA and other airlines who are no longer operating and so what?. I will be shopping for the best price for a direct flight in five years time, off the plane and into a vehicle, no stopovers. I am pretty sure this is how people think about air travel. Come to think of it, all of our passports are out of date! Oh well, I will just stay put for the time being. Jesus, more money out the gap! They are about €80 ea. to renew I believe.

  19. Just saw that gold price in Russian Ruble is at all time high/. 30% above the 2011 level.

    Only those with gold in hand can afford a plane ticket out of Russia!!! Any connection on the cheapest flight will be fine.

  20. no ticket required to wing this from North america in just seconds.


    Andy Hoffman. Economic summery.

    • michaelcoughlan

      From the link.

      “the continuing fall in Eurozone bank lending”

      It doesn’t mention the simultaneous increase in taxes required to pay the extra interest on new bonds issued.

      Like keiser myself and adelaid have been saying this round of QE will lead to accelerated DEFLATION.


      • Details details.

        Those guys have been talking the results of a credit infused boom. Why an equal sized bust. What is that if not deflation Michael.

        If we are looking at bragging rights Michael then I remember standing outside my office door 20 years or so ago when mortgage rates had been 10.5 – 12 % for 30 years with the 23% interlude in ’81.

        I told anyone who would listen, and few did, that I saw the days when mortgage rates would be reduced to close to zero as the public were tapped out in debt and the only way to stimulate the economy would be a constant lowering of interest rates.

        well at least they can’t go below zero said my audience. But they can , I forecast, they will go negative. You will be paid to borrow and charged to save.

        That day is here.

        Well few are listening still Michael, and you are correct. The law of diminishing returns for QE has now turned negative and every new dollar added to the debt is as you say a drain on the economy bigger than any benefits.

        As the Mogumbo Guru says, “we are all freeking doomed”!

        David will not agree. Economically educated in Keynes. Centrally bank molded in thinking, and continues to advocate people should spend what they do not have as that spending is his income. Too bad that source of income is drying up.

        now he wants the frugal to write off the loans of the profligate. morally wrong. But that is what occurs when you use corrupted money. morels go out the window. All become amoral as nobody know the difference between right and wrong. It is just what is. Psychopaths describes the bankers and most of the rest of us. Sad isn’t it.

        Everyone is going down and few understand why. Welcome to the New World Order.

        survival is in smallism. deal locally, know your neighbours and have a source of food and water close by. One day the mega stores will be empty.

        Hard to do but that is where we will survive, to grow again and prosper.

      • I have been thinking about your statement that additional rounds of QE lead to accelerated deflation and realize you and I do not define the word deflation the same way, Michael.

        I see as do the Austrians, that the word inflation or deflation relate to the money supply and not prices or economic activity.

        Simply, increasing the money supply is inflation. (The money supply increases) decreasing the money supply id deflation, which hardly ever happens.

        QE is huge inflation but the result is recession or even depression but not deflation. The symptom observed is higher prices.
        The result of decreasing the money supply is a symptom seen as prices falling. In a static money supply situation it is possible to have falling prices as the result of increased economic efficiencies which is a good thing.

        I’ll leave you with this essay by Dr. Ron Paul who says it all better than I do.


        • michaelcoughlan

          “I have been thinking about your statement that additional rounds of QE lead to accelerated deflation and realize you and I do not define the word deflation the same way, Michael”

          Thanks very much for this insight. You are correct I hadn’t seen that deflation means different things to different people.

          Let me offer you an insight in return; There is a difference between value and price. If the money supply inflates but the total number of assets remain the same the prices rise but value remains the same.

          If on the other hand the money supply increases and over burdens the population with taxes and the reduction in the velocity of money slows economic activity the prices in some cases of fixed assets rise like land building and gold but mobile assets fall especially ones needing oil in the mix which means the total number of assets can have a value less than prior to the printing.

          Another way of saying it is printing more money leads to wealth (value) destruction which is exactly what greece is experiencing.

          One other way to say it Tony is this; 1 oz of Gold bought you a fine suit of clothes in the time of Jesus, does now, and will in 2000 years time irrespective of price in other words the value of gold remains the SAME even when the price rises.

          When you link to the price rise of gold against the rouble for example you are showing the collapse of the fiat currency NOT the increase in gold value which has remained CONSTANT for millenia.

          I really enjoyed this series of posts Tony because you highlighted a blind spot in my own understanding of deflation so many thanks for that.


        • michaelcoughlan

          From this excellent link Tony;

          “Lessons yet to be learned:

          1. Increasing money and credit by the Fed is not the same as increasing wealth. It in fact does the opposite”



      • “QE adds to the money supply and slowing velocity is killing the economy” “the Euro is on its last legs”

        Jim Willie from the Golden Jackass . com


        • michaelcoughlan

          Jim Willie;

          “The Germans will leave the euro. The Swiss abandoned the peg to reverse a massive short position in gold and are now going to go long gold. The neo cons in the US are Nazi’s” The US stole Ukraine’s gold. The euro to go away sooner than we think”

          • michaelcoughlan

            China to buy massive amounts of farms in Europe. Divert 1/3 of the production to China which will drive up prices of food in Europe.

            China already bought huge farms in US to produce to feed livestock in China.

            Jim Rogers on farming;


        • michaelcoughlan

          Jim willie 2 trillion in oil fracking subprime bonds to blow up. WORSE than the US mortgage subprime. This is the financial atom bomb Saudia arabia is unleashing on the yanks. It’s prima fascia evidence to prove adelaide’s point re malinvestment driving deflation.


          • Again, define deflation here. Creating mal investment, causing a lowing of economic activity. Not deflation. A blow up depression caused by the hyperinflation of the creation of money through the use of leveraged derivatives.
            A BUST!! from a bubble!!

            If capital (defined as working plant and equipment) had been raised from savings rather than credit then a fall in the oil price would lower profit but there would be no bust as is caused because the level of debt can no longer be sustained.

          • michaelcoughlan

            Hi Tony.

            Thanks for heckling me again. You once again have forced me to think critically and I am going to attempt to better define my point and I will say that you are right that the word deflation doesn’t accurately describe my point. So let me clarify again. I think perhaps economic contraction would better define my point.

            For example; If a small farmer produces 10 aberdeen angus heifers and the price of these are 1000 each then should the fiat currency be inflated by double then the new price is 2000 each for the same value 10 heifers.

            However if the government’s policies cause the money supply to increase by twice and the corresponding increases in tax on the farmer reduces his ability to deploy capital resulting in only 9 heifers being produced you get the double whammy of inflation in the money supply and contraction in the economic output of the farmer reduced to 9 heifers.

            The new price per heifer is 2222.22 per heifer with a corresponding lower level of output of 9 heifers.

            Therefore deflation is the wrong word to describe what’s happening from an economic output perspective.

            My previous posts therefore should read that QE will lead to inflation in prices and contraction in economic output.

            Thanks and regards,


          • michaelcoughlan

            on third thoughts……

            My analysis still isn’t complete. Because the economic output of the farmer is lower his margins are reduced and subsequently his profits.

            He will have less money to spend on input cost causing their prices to fall. Thats where DEFLATION occurs in the productive economy I feel.


          • Hi Michael

            Interesting that we all learn from each other.
            Putting ones thoughts into writing crystallizes the process.

            The best writer here is David himself. However his point of view is often disputed. He is gentleman enough to let the alternate opinions ride.

            Perhaps he too learns from us. We can only hope. It is the most difficult thing to change an opinion once it is formed!!!

            Take care, Michael.

  21. vote of confidence
    Something else stood out today, and that was the yield of the 10 yr T note made new lows for the move down, falling to 1.67%. Not long ago it was a big deal when that yield breached 2% on the downside. Talk about a serious lack of confidence for future U.S. economic growth.—-Midas du Metropole

  22. War talk intensifies. you do not wat to be aboard a jet like the malasian one over Ukraine!!


  23. IMF points to failures in Ireland bank bailout: The FT cited an IMF report, which said that the failure of policy makers to impose losses on some bank creditors at the height of Ireland’s financial crisis was a mistake that forced taxpayers to foot a bill that should have been borne by the wider Eurozone. (Posted at LeMetroPoleCafe.com )

  24. michaelcoughlan

    @ Tony Brogan.

    Look here Tony. Sprott Agriculture up 40% in two years. Better than gold in my view.

    Sprott Global Agriculture Series A



  25. If we want to be free, therefore, we must shun the State, its methods, and its language. – See more at: http://www.thedailybell.com/editorials/35445/Llewellyn-H-Rockwell-Jr-What-Exactly-Is-Racism/#sthash.PUivOPk4.dpuf

  26. Pat Flannery

    This should clear up all the arguments about deflation:


  27. Pat Flannery

    Irish capitalism: they have two cows, who graze on the abundant green grass. One cow is owned by fat cat “gombeenmen” the other by multinational corporations. Neither pay tax but consume 95% of the milk. The cats who live on the remaining 5%, are controlled in just the right numbers to keep the rats of social unrest at bay by shipping the surplus kittens to Canada, Australia and the U.S.

  28. Thoughts on banking in a Canadian context.
    It lends weight to my proposition that a country like Ireland::
    DDitch the Euro
    Form its own currency issued by the government from Treasury.
    UUse the National post office as a national bank to act as local outlets.
    Said money to be issued without interest.
    Repudiated onerous debt.
    Pay off the balance when due with the national script and thus retire all debt.
    No further interest need ever be paid.
    The national account now operates with a huge surplus.
    Income tax act can be repealed . Income taxes would not be required.
    The people would all receive extra disposable income without any increase in the money supply. Not inflationary.
    The economy is boosted with money in the hands of the people.
    Government can fund infrastructure projects and social programs at little cost by supply the required funds from Treasury.


    • Pat Flannery

      This is why we all love you Tony. This is one of your best gems so far (no pun intended). Now I finally understand money.

      PS: I was just a little surprised at the hooker giving credit – not in my town.

    • michaelcoughlan

      Hi tony. The story on the blog is inaccurate. It says no one had earned or produced anything which isn’t right. Both had been done prior to the debts being paid down with the 100 euro note.

      Also the blogger says that people create money when the produce things. This is not correct. People produce wealth when they create things. Money is meerly a tool subsequently created to facilitate the exchange of wealth already created.


      • Pat Flannery

        Michael: how does the hooker fit into this? Are services wealth creating or just tangible goods? Was the John wealthier after her services? Did she create money when she gave her services on credit? Maybe we ordinary mortals will solve this conundrum yet. The economists sure haven’t?

        • michaelcoughlan

          Hi Pat.

          There is no conundrum. You never ask an economist how the economy is doing you ask a small business man.

          The article on the blog the link goes to is a complete nonsense. It assumes that the 100 euro note used to pay debts only has one creditor cost to pay which is fundamentally wrong for example;

          In the case of the butcher the 100 euro note pays the farmer BUT if you apportion ALL the costs the butcher incurs as a percentage basis you will find that the 100 euro incorporates a portion for his own wages, tax, interest, rent or mortgage on the shop, accountant fees etc. The blog is a pure fallacy.

          With regard to the hooker and whether she does or doesn’t create wealth to understand that she does in fact create wealth you must first understand that one of the definitions of wealth is;

          “a plentiful supply of a particular desirable thing”

          So the hooker’s service constitutes “a plentiful supply of a particular desirable thing” which she uses to trade for money, money being simply a tool (no pun intended) she subsequently uses to trade for wealth produced by others which to the hooker comprise “a plentiful supply of a particular desirable thing” like condoms for example.

          If the money becomes worthless the hooker can pay in trade which is the point I have been waxing lyrical about all along. The real wealth in in the skill and capacity of the individual to provide a good or service which meets the following criteria;

          “a plentiful supply of a particular desirable thing”

          When the banks closed down in Ireland in the 80′s due to a strike people simply issued their own iou’s (money) and life went on. The fuckers in charge of the worlds financial system are increasing the taxes to pay interest on the money we use issue by them which is causing economic contraction leading to deflation defined as a contracting economy (wealth destruction due to a decrease in the supply of “a plentiful supply of a particular a plentiful supply of a particular desirable things”) but simultaneously inflation in the money supply leading to higher prices in financial markets.

          Hope this helps,


  29. Do not send your sons and daughters to Canada, but fix your own house and get it in order. It is only a matter of degree but things are not necessarily any better or greener over the fence.

    Pat’s capitalism has cows grazing in green pastures. Take control of them and get the milk for the neighbours too.

    Here is a Canadian political option.

    Your option is the New Democracy Party. Go to it. Give it support. change the system to everyone’s benefit.

    It is time for the people to look after themselves.

    • cantgoback

      @Tony Brogan

      “Do not send your sons and daughters to Canada”

      Yera, what a load of cobblers.Why not send them? Answer me directly.

      Since time immemorial,the Irish have been nomads…it courses through our veins for God’s Sake…to discvover that of yourself which you yet know not of.You bear too stubborn and strange a hand to posters here Mr.Brogan.

      but hey,what do i know,right…it’s all Greek to me !!!

      • Gar ODonnell

        Beware the Ides of March !

        sounds rather ominous,don’t you think? and aside from it’s esoteric connection with the synchronicity of moon cycles and calendar months [and of course before Shakespeare made it famous], i heard tell that it was a deadline for settling debts?

        but that could all be bull*hit ?

        • twopoundpokes

          The chattin’ in this place would deafen a body.

          and Ireland is not such a bad aul bugger of a place.If you’re not happy and content in a place,then you’re not happy and content in a place..

          it’s a matter of total indifference to me.

          Yap!bloody yap!

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