May 5, 2015

The day of debt reckoning is nigh

Posted in Sunday Business Post · 56 comments ·

Could the governor of the Central Bank have resigned early because he expects some nasty surprises to come down the track, and because he doesn’t want to be around if a mortgage timebomb explodes?

As long as interest rates are low, the huge personal debts incurred by hundreds or thousands of Irish people are made manageable, because the real cost of these debts is diminished. This is obviously most evident in the area of tracker mortgages, where the banks are losing money because they are charging minimum interest on a huge part of their loan book. They are trying to recoup this money by very high variable rates of interest.

But will interest rates remain low forever? What would happen if rates were to rise? Does Patrick Honohan know something, or at least suspect something, that the rest of the population doesn’t? Could his move have been accelerated by the recent moves in the European bond markets?

In the past few weeks, long-term interest rates in Europe have risen, despite the ECB doing its best to drive them down. The reason is that the German economy is overheating. Property prices in Germany are flying, wage inflation is rising and unemployment is as low as it has been since the 1950s.

Much of the reason for this is that the ECB’s policy of the weaker euro of the past year has uniquely benefited Germany because it is by far the biggest exporter in the eurozone. Its more competitive factories have been operating at full tilt, driving up demand, wages and property prices. Soon Germany will need higher, not lower, interest rates.

If pressure for higher rates builds in Germany, what happens to peripheral bond markets with huge debts like Ireland, Spain, Italy and Portugal? What happens to countries with huge personal debts like Ireland?

These are legacy debts from the borrowing binge which have not disappeared.

The Irish balance sheet is still stuffed with debts that have been made tolerable only by emergency low interest rates. To get to the root of this, we have to go back a few years to the time when the men who are now apologising at the banking inquiry were blowing the balance sheets of their banks.

One of the most memorable ads from back then was the one where a bloke on the top floor of a bus stands up and admits to everyone, half-petrified, that he doesn’t know what a tracker mortgage is.

The ad captured the confused thoughts of the average punter on the bus going to work, in an era when everyone was using financial jargon, pretending they knew what it meant, but scared stiff to confess that they had no idea what they were talking about. No one wanted to admit that they weren’t up to date with the new lexicon, at a time when they were being bamboozled with incessant financial propaganda.

By locating the ad on the top of a bus, it reinforced the notion of ordinary people making extraordinarily important financial decisions without full knowledge. Most people now forget that the purpose of the ad was to reassure us that while we might have been perplexed, the Financial Regulator was in control.

The tracker mortgage pandemic spread like a virus though the homes of Ireland from 2001 to 2007. When the tracker virus crossed into the general population, it multiplied extraordinarily swiftly. Today the figures are startling – they reveal the extent of this financial pandemic and how it devoured the population.

Today, trackers account for 60 per cent of Permanent TSB’s €26 billion Irish residential mortgages. They account for 54 per cent of AIB’s €27 billion book and 23 per cent of the €16 billion book at its subsidiary EBS. Some 62 per cent of Bank of Ireland’s €28 billion book is made up of trackers.

All told, that works out at €51 billion, or about 52 per cent of residential mortgages at the four main banks. A higher proportion of buy-to-let mortgages, about 70 per cent, are on tracker rates.

Some 85 per cent of trackers were lent between 2004 and 2008, when they financed the vast majority of the new estates that were built in our suburbs. The trackers were injecting €51 billion of new credit into the market. This prompted builders to keep building; as the trackers grew and grew, so too did house building. They moved in tandem, the tracker and the hysterical end of the property splurge.

The banks knew they would lose money on trackers, but were confident that once they had you on a tracker, they could make money by lending to you for cars, kitchen extensions or holiday finance on top of your overdraft and credit card.

The number of people affected was staggering. The tracker went from zero per cent of all Irish mortgages in 2001 to 15 per cent in 2004 and over 50 per cent by 2008. This enormous debt is the great unexploded financial timebomb ticking away in Ireland, waiting to be detonated by rising ECB interest rates.

Had the Central Bank managed to get this debt off the banks’ balance sheets by orchestrating a large debt-for-equity swap with the ECB’s backing, this time-bomb would have been defused. As far as I know, this was never even broached under Patrick Honohan’s reign.

So if rates rise – which they will at some stage – who’d want to be the Central Bank governor when this one blows?

To avoid this, the new governor needs to put a significant New Deal for Irish mortgage holders right at the centre of economic policy. Otherwise, we are likely to have another tracker-inspired financial crisis when interest rates rise.

  1. jccusack

    “Could” “but” “If”

    Germany is 21% of Europe’s GDP…Where is the other 30% that will cause the ECB to raise interest rates?

    • Tony

      Chances are it doesn’t matter. What Germany wants/needs, Germany gets.

    • CallerNJ

      Living in a fantasy world if you believe interest rates will not rise. One must also look at forces OUTSIDE of the EU to truly complete an estimate on the direction.
      They will move, and there’s a lot of history and fundamentals and buffer for them to move South…. NOT.

  2. Mike Lucey

    ‘He who pays the Piper, calls the tune’. What Germany wants or in this case needs for its economy to survive / prosper they get regardless. So its a case of buckling down for the rest of us and hope for survival, never mind the ‘soft landings’ BS, it will be a very hard crash landing.

    The ‘Bail-In’ structures would appear to be all quietly and nicely for this very reason. It might be time to pull whatever few bob one has on deposit and buy a bit of gold or better still some silver to barter with while we wait for the IMF currency to kick in.

  3. cyberjohn

    When interest rates rise inflation will more than wipe out the tracker repayment rise.

    Hounihan left for the easy life and why wouldn’t he. The hard slog is over for him. Sorry but he certainly did not leave because of tracker mortgages.

    • EugeneN

      More than? There is generally a difference of 200-300 basis points between the interest rates set by a central bank and inflation, the former being higher. The idea is not to lose money.

      Rises in interest rates are always cause repayments to beat inflation, particularly from the low level they are now. Any increase compounded over the entire time of the mortgage. Just find a mortgage calculator, put in 1.25% for a 400K mortgage and then put in 4% and see exactly how good an inflation busting 2.5% increase in wages will do for you.

      • cyberjohn

        I believe it will. BIG inflation always gets ahead of interest rates. Interest rates are slow to react and finally they loose and the value of money is permanently devalued along with debts.

  4. acunning

    ‘where the banks are losing money because they are charging minimum interest on a huge part of their loan book.’
    Q. If the banks charge a rate which is greater than ECB lending rate, do they not “make” money on their loan book? Is the problem here, not that they are losing money, but they are just not making enough of a “margin” on their loan book?

    • SMOKEY

      No, it is loss making. When you calculate the overheads to service trackers it is a loser. Yes they need more margin, first to break even, then to make profit, but 1 or 1.5% over cost aint gonna cut it!

    • Tony

      The banking system works on a ponzi scheme. They borrow from day to day to fund 30 year mortgages, so when costs of borrowing go up they’re caught by trackers that are linked to a lower rate. So when AIB borrows 300k and lends it to you over a third of your life, chances are they have to pay it back before you make your first payment. So they borrow again to pay it back and so on and on ad nauseum.

  5. michaelcoughlan

    “To avoid this, the new governor needs to put a significant New Deal for Irish mortgage holders right at the centre of economic policy. Otherwise, we are likely to have another tracker-inspired financial crisis when interest rates rise”

    Correct. If he doesn’t Sinn Fein will AFTER the people put them in in a land slide.


  6. “the men who are now apologising at the banking inquiry”

    The way I saw it they were lying their asses off in a bare-faced manner, trying to change the official version of history and totally exonerate themselves.

    Sad thing is it will probably work and on they’ll trot on their merry way with pockets bulging full of tax-payers cash.

  7. michaelcoughlan

    Hi David,

    The the thought ever cross your mind that highlighting (even accurately) the nonsense the Irish banks are and their underwater tracker positions is like being on the Titanic worried that the heavy shower of rain on the upper decks might cause the ship to sink when total eurozone public and private debt is now 275% OF GDP DATHI!

    I said it before and I will say it again. Do a simple sum; Lets just say interest rates are 1%. So 1% is the interest payment on a 275% shit pile of debt. This 1% equals 2.75% of the underlying eurozone economy which has to be recouped and paid to the originators of these loans.

    If the eurozone economy doesn’t grow by 2.75% then 2.75% (whatever the figure is) of the total debt has to be ASSET STRIPPED OUT OF the Eurozone Economy and paid to the banks causing ECONOMIC CONTRACTION. This will cause DEFLATION.

    The snake is eating it’s own tail Dathi. You are in the control room of a nuclear reactor complaining that the authorities are doing nothing to cool down the reactor but the reactor has already run away and all that’s missing is the bright flash and free suntan. Hone-a-scam knows what’s happening and is heading for his lead lined and gold filled bunker Dathi.


    • michaelcoughlan

      Furthermore, As the economy contracts the People who call the shots will need to make sure their share of the wealth doesn’t contract.

      They will ensure this by making sure everyone else has smaller families to make sure both parents keep working to preserve the taxation streams coming off labour and reduce the need for capital to be spent on young kids etc.

      They will force everyone else’s circumstances to contract at a faster rate to compensate for no contraction in their own.

      They will replace the reducing numbers of Irish born citizens over time with an endless supply of dirt cheap immigrant eastern european labour.

      Mad as a brush/bonbon/box of frogs (take your pick) these people are,


  8. So the tracker punters will get a bit of a shock and have to pay a rate closer to the SVR I will pay if I take out a mortgage today – my heart bleeds for them, I must say.

    • SMOKEY

      Yes it may be, but not quite that much in my experience…..Arent you happy for so many of us tracker holders that were lucky enough to get them? We have stayed away from default so far!

  9. antispindoctors

    I’m confused, “All told, that works out at €51 billion, or about 52 per cent of residential mortgages at the four main banks. A higher proportion of buy-to-let mortgages, about 70 per cent, are on tracker rates”.
    1) is the total €51 or do we add the Buy to Let lot?
    2) what about Ulster Bank, didn’t they have a substantial Tracker book?

  10. Adelaide

    The buy-to-let landlords/ladies will pass on the increase to their tenants. What happens after the tipping point when rents become unaffordable across the board? An average-waged employed tenant will have a more secure future buying outright an inexpensive property in the rural Ireland and collect unemployment welfare than to continue to work and rent in the urban centres. With the former you’ll be broke but housed, the latter you’ll be eventually broke and ultimately homeless. These are the stark choices that is dawning on employed tenants on the average wage.

    • Jill Kerby

      Hmmm…’after the tipping point’ – German pressure for higher rates, or even the end of QE in 16 months time – and rates jumped, I doubt if anyone could count on the same level of social welfare payments or qualification terms. Six years along (since 2009) and not a single reduced SW payment has been restored or increased (ie state pension.)

      Selling a house with positive equity in Dublin and exchanging it now for a less expensive one in rural Ireland – if you could get a job or start a viable, even modest business – is the strategy people should adopt now. Debts paid, lower cost of living, perhaps extra space to start a veg/fruit garden, keep chickens, maybe even check out a little rooftop windmill to heat the water.

      But few of us plan how to reduce a stubborn credit card bill, let alone a strategy that avoids a ‘debt day of reckoning’.

      Not knowing when, of course, is both worrying for those us who ponder too much on these things… and strangely consoling for the vast majority who do not, and expect our politicians, central bankers and world improvers (especially economists!) will keep pulling their levers and pushing their buttons and we’ll all just muddle along as usual.

      Just like Greece…*ahem*

  11. padser

    Anybody know the terms of the loans i.e. how long for? How will NAMA portfolios fare?

  12. Grzegorz Kolodziej

    This article on interest rates should be red and commented alongside the previous article on the new ‘Spring Economic Bulletin’ in which David informs us (thanks David!) that labour productivity growth is going to fall from 3pc this year to 1.2pc by 2017 and remain so until 2020.

    David McWilliams wrote that ‘A 4pc growth rate without large increases in productivity implies that […] the growth, if it comes without productivity, comes from more credit being injected into the economy to temporarily boost the growth rate’.

    He also wrote that ‘this implies that all the fruits of this type of growth don’t go to workers but to landlords and – to use the Marxist expression – to the owners of capital’.

    In his next article David asks a question: ‘But will interest rates remain low forever? What would happen if rates were to rise?’

    I think the first thing we have to consider is the fact he does not mention that ECB announced that until September 2016 it will buy assets for €1.14tn – double its current monetary base. Those assets are in 88% government bonds.

    So there are two interconnected questions.

    Q1: Why do we have growth with no increase in productivity?
    Q2: Will interest rates remain low forever? What would happen if rates were to rise?

    To answer my first question I need to go down the splitters with the macroeconomic theory behind the ‘Spring Bulletin’ on the one hand and its backer, the ECB (and FED in the States or the Central Banks in China) on the other hand:

    The government project economic growth with no productivity growth because the government hopes to use the change of heart in ECB policies manifested in intensified usage of the Keynesian multiplier mechanism in order to win the election, not because it has a long term plan (like China had) – very much like President Obama used FED to win his election (BTW, did you know that the number of people unemployed in the US is actually higher than in Ireland but they are simply not counted as unemployed?).

    Now I owe the explanation as to why the multiplier theory is so important if we want to understand ECB movements and at the same time why it is so flawed that applying it can result in growth increases with no productivity increases.


    The popular wisdom is that Keynes advocated in bad times

    1. lowering interest rates,
    2. lowering taxes and
    3. increasing spending (in order to close the output gap – the difference between what the economy is actually turning out and what it could produce were it employing all available capital and labour inputs – by stimulating aggregate demand)

    and in good times

    4. increasing taxes and
    5. saving money for a rainy day.

    In fact what Keynes really demanded – as opposed to more sophisticated neo-Keynesians like David McWilliams (and less sophisticated like Paul Krugman) – was not to stimulate the aggregate demand (i.e. through QE), but to stimulate the effective demand. In other words, governments were to transfer purchasing power directly.

    So it is quite true that he did not really believe in monetary policy, but neither he really believed that fiscal policy will suffice when the economy is already in a big slump; that’s because he thought the private sector to be unsuitable to tackle the problem of unemployment since he believed that capitalism itself has a structural tendency to generate unemployment and so private demand cannot produce full employment (which is a funny thing to say if we compare the levels of labour participation in Keynesian stagflated 70s or in recent crisis, which is peppered with various aggregate or effective demand stimuli programmes, with the 19th century US or England, where no such government stimuli existed and all stimuli came from increases in productivity).

    And this brings me to addressing popular misconception that Keynes wanted to raise taxes because he wanted governments to save money for a rainy day. In Keynes’s theory the government stimulus has to be ongoing; furthermore, the economy is in need of employment-generating public works at every stage of the business cycle. Thirdly, most self-professed Keynesians (and who reads Keynes original works nowadays?) would be shocked to hear that ever greater fiscal stimuli as advocated by the likes of Paul Krugman were explicitly rejected by Keynes as too late to jump-start the economy which is such as big slump as ours (took me a while to find it over the weekend): J. M. Keynes, Activities 1931-39: World Crises and Policies in Britain and America, in Donald Moggridge, ed., Collected Writing, volume XXI, London: Macmillan, 1982, p. 394.


    Another thing I have noticed that had been written about on this blog about Keynes and savings from taxes during the boom is that most neo-Keynesians do not seem to realise that Keynes did not mean as savings money that has been earned, but money that is borrowed from the future. Fiat currencies can in his theory take the place of traditional savings.

    This is exactly what the Irish government plans in his Spring Bulletin – to borrow money from the future in order to win the election (and I am afraid it does not matter which one of the four big parties would be in the government).

    What Keynes – and all European governments with a possible exception of Estonia, which has a record low debt and predictable governments but an unpredictable neighbour – failed to notice was that injecting money alone in order to bring down interest rates will just raise other prices – which we witness in property assets and stock exchange bubbles (Keynesians need the interest rates to be low in order for the government to incur more debt to finance the old one – therefore 88pc of 1.14bn euro worth of assets that ECB will buy until September 2016 are government bonds; much as in the 80s socialist, overregulated Poland where the army was sent to shops to check if they adhere to maximum prices, resulting in no other goods than vinegar being available in the shops, the costs of EU overregulated system for, overleveraged banks and excessive legislation are getting too high to service them – in Jaruzelski’s Poland the interest rates alone doubled in dollars within a few years while peoples life savings had been wiped out – I know that you can say that Jaruzelski was first of all, from a different space and time (in 1988 he supported the legislation ending socialism because he did not understand its meaning, so he was a bit dim; as a result Poland became for a year the third most economically free country in the world and if we include the black economy, experienced nearly 20pc economic growth in 1989/1990 before they started to reintroduce socialism – the IMF did, not Jaruzelski – the IMF was really scared Eastern European banks would be too strong and thus their countries policies too independent, so they quickly forced Eastern Europe to sell from 77pc to 100pc of their banks to foreign banks), and secondly, he did kill a 100 civilians, but that does not mean history will not repeat itself (this times not as a farce) in the EU this will be much worse when China sells their dollars and interest rates in the EU follow sky rocketed interest rates in the US).

    Another thing Keynes failed to notice is that his theory assumes that there will always be enough newly born kids in the future to finance government borrowing from the past and pension systems.

    A person of a more scientific inclination would also notice that in spite of all the good education he received in his privileged life full of spending, disdain for hoi polloi and debauchery (he writes in his letters to Strachey that young Greek boys ‘are cheap, plentiful and attractive’), they obviously did not teach him properly the second law of thermodynamics, otherwise he would know that a system revived with external input of energy would only run as long as that external input of energy continues to flow and that the system would quickly adapt itself to be dependent on that external energy flow.


    Interest rates cannot remain low forever because the whole Keynesian theory which supports them is based on a perpetual motion concept, with “friction” being private savings and government spending being the “grease” that keeps it from slowing down.

    If China does not go bust soon then perhaps jc1981 is right in his comment: ‘So the tracker punters will get a bit of a shock and have to pay a rate closer to the SVR I will pay if I take out a mortgage today’ (I would be surprised if China’s property market went bust before the 2016 election, but I would also be surprised if it DID NOT go bust in this decade – by which time there might be forced to operate in a gold backed yuan and worthless dollar system – that’s why it would be propitious to do debt for equity swaps with whoever, ECB, China, you name it – now)

    N o t s o i f (actually not if, but when) sovereign bonds, stock shares and property bubbles pop at the same time – then we will see the biggest deleveraging in history. Here Michael Coughlan is partly right when he writes that this will cause economic contraction and deflation, but if we go one step further we can see that with Keynesian multiplier policies pushed too far deflation has to be followed by hyperinflation of our currencies (in fact, we already have hyperinflation in property assets and US stock exchange) and this is because the multiplier cannot work in long term, which I wil explain in details.
    Implications for Ireland will be particularly severe as so many people here own property (that is some people own property and banks own properties of some other people). Why? Well, because in a hyperinflation scenario property assets will become almost worthless.

    Hyperinflations are often followed by war. Both Hitler and FDR understood that it is cheaper to have a war than to pay all government debts (again I would like to remain everyone that yes, FDR built roads and dams and what not as did Hitler, but it had to be financed by something and after they he had confiscated all the gold war was to only scenario – as to Hitler, he even had a meeting with his generals in 1939 during which, having been informed by Walther Funk that they will probably go bankrupt in 1940, he argued that he cannot wait with the attack on Poland until 1942 – when the German Army was supposed to reach its full potential).

    You can read more on FDR flagship infrastructure investments here (and if you would like to find out more on FDR and New Deal I recommend a book ‘The Forgotten Man’ by Amity Shlaes):

    Keynes’s book main inconsistency is that applying his multiplier mechanism creates bubbles which dilute all the savings made in good times. We see that when FED creates bubbles until they pop and the people’s money vanishes, including property, which will also become worthless along with stock market shares when the biggest bubble, the government bonds bubble pops or when China’s property bubble – a good model of Keynesian stimulus for from 2000 and 2015 they spent 28 trillion dollars worth of money they printed, but only 7 trillion dollars of that had been spent from 2000 to 2008 and from 2008 they added up another 21 trillion dollars, which means that they are getting less marginal returns, which in turn means that at some stage China will collapse and what is going to happen then is that they will sell 1.3 trillion dollars of US bonds, causing either dollar to collapse or interest rates to sky rocket worldwide, which renders investing in property market in Dublin now rather daft for the value of all assets which bring steady income (like property) will have to go down worldwide (unlike the internet bubble, the sovereign bonds bubble burst will be almost worldwide with few exceptions) because profits from renting would have to bigger than increased interest rates and they will not.


    What I am writing now is not a sheer speculation, but a pattern which repeats itself over and over again: it happened in the Weimer Republic, it happened in the late 80s Poland and it will happen in Ireland, but noone in Ireland I spoke with is worried about it because people here have no experience of hyperinflation so they delude themselves into thinking that property will make them rich in the times of crisis or at least it will not make them poorer.

    In hyperinflation times property is a liability, not an asset.

    Avid readers of economic history books would know that at the end of the Weimer hyperinflation in 1924, right before the collapse occurred, 25 ounces of gold was able to purchase one block of commercial real estate in Berlin which would be worth more than 20m euro in today’s money.

    Now, why do I think the whole multiplier theory which the ECB believes in is flawed and it will backfire and result in inflation (or deflation followed by hyperinflation if China’s property bubble pops)?

    Because Keynesian multiplier is a scam even much more than Anglo-Irish was a scam.


    In his famous multiplier equation 12 where Keynes claims that adding one pound to government spending increases total income by 5 pounds he makes a crucial mistake – he adds an extra pound to government spending where he is mathematically not allowed to do so (he multiplies the total income Y by 1 over 1 minus b and he claims that the extra pound added will increase total income by 5 pounds, assuming the marginal propensity to consume is 0.8 – the whole ‘General Theory’ is littered with such assumptions so much so that you could drive a Russian tank over them and still there will be a few dubious ones left).

    Keynes simply violated the mathematical order of operation which says that first one should resolve the content of parenthesis and only then to multiply that (by 1 over 1 minus b) and then add the pound. The multiplier for the baseline spending does not apply to the increment of spending. In other words, Keynes denies that 5 x 20 + 1 = 101 and he claims that it equals 105. He just ignores the baseline spending and adds the multiplied increment directly.

    I would also call your attention to the absurdity of his equation 8:

    Yt = b (Yi – T) + a + I + NX + G,

    In which Yt = total income,
    b = marginal propensity to consume (fraction spent) = 0.8
    T = tax
    a = autonomous consumption
    I = investment spending
    NX = exports
    G = government spending.

    Here he disguises the saved fraction of disposable income as ‘a + I + NX’.
    The marginal propensity to consume does not apply to tax or total income!

    Contrary to what Keynes claims, our real income can only increase by work and production, not by messing around with our fiat currencies and contrary to what he hoped for, the increased government spending is paid not by his fiscal multiplier (which is a scam as I just showed) but by us having less disposable income.


    Then again, considering that he wrote in his memoir ‘My Early Beliefs’ that Moore’s personal ethics ‘made morals unnecessary’ and that ‘we entirely repudiated a personal liability on us to obey general rules’ only to end the memoir ensuring us that ‘I remain and always will remain an immoralist’, maybe Keynes knew all of that and he conceived his book not as an economic book, but as a guide on how to win elections? David McWilliams is on the right track when he notices that the boost in economic growth due to injected credit would be temporary unless it is at the cost of lower wages. A for a penny, B for a pound – would he consequently admit that since people live longer, less kids are being born and real wealth moves over to Asia living us and our kids only with debt, the multiplier theory has no other use anymore than to win elections and leave the country in a hurry like David Drumm, if things go really bad after the bubble bursts?

    I personally would be the last person to dismiss Keynes as an intellectual – he had good taste, an incredible wife and he was friends with both Hayek and Wittgenstein.
    But there is no escaping from the fact that his multiplier theory sucks and that Keynes certainly gave politicians a justification for appropriating more money and power into the government and thus under their control. It is a paradox of democracy – voters always vote for more government spending than they are willing to pay for…


    I do agree that the fact that all the fruits of the growth will go to landlords is deeply worrying, but not for reasons proposed by Marx but for the reason of hiding and fuelling hyperinflation in property assets bubble via credit injections, based on the flawed multiplier theory – a diagnosis which has the ring of Hayek, not Marx or Keynes. But regardless of what the underlying reasons are, David’s question of who gets what is definitely apt: if in 1913 an unskilled worker would spend less than 20pc of his wages on paying rent for a flat in Dublin city centre and another 10pc on heating it, while nowadays minimum wage workers (let alone JobBridge people) – who have often already invested money in college – would not be able to rent an apartment in Dublin city centre for even 100pc of their wages then we should ask ourselves what has happened for the last 100 years that landlords nowadays are getting 5 times more out of workers salaries than hundred years ago (of course younger landlords are in turn getting ripped off while paying their mortgages); that’s before paying for the likes of Dublin Bus, Irish Water or RTE – I know they would tell you that they are not getting enough subsidies, but with short distance prices second most expensive in the world and prices of oil falling I wonder how come they still have to get ANY subsidies; put it that way – in Vienna you can buy an annual ticket for all public transport (which is at least 30 years ahead of Dublin public transport) for 365 euro as opposed to 2080 euro in Dublin and you would have to travel back in time 70 years in Eastern Europe to find bus systems so unreliable and this was mainly because most roads had been bombed; sometimes I wonder: if we have to subsidize Dublin Bus for some reason, would it not be cheaper for the government to pay taxi drivers instead to bring people to work? You think I am joking but they were doing that in Eastern Germany in the 90s because they could not find unemployed Germans willing to work in agriculture; DB would charge four people 12 euro to go 3k and with a subsidy that price would be almost 20 euro; a taxi would certainly charge less than that and think about how many more people you could employ).

    Someone should have courage to finally say it: monopolies such as Dublin Bus are a bubble too. I would call them The Untouchables Bubble – workers ranging from a Chinese take-away worker, Polish girl in Centra, Irish young college graduate on 21k or less and lots and lots of other Irish workers, both on minimum wage and on good salaries and last, but not least – young mortgages holders and small business owners who had been hit with multiplier property prices; all these people are paying for relaxed work-styles of bus drivers on 33k driving empty ‘Out Of Service’ buses who spend hours chatting in canteens while passengers are waiting to get to work that pays their unsupervised salary bonanza; and although the bus service has now improved and for the first time since I came here it is more reliable than in Africa, yet it is still not as reliable as in Belarus or Ukraine, not to mention Poland or Czech Republic (by the way, Dublin is the only major capital in Europe with no underground system – where did all the FF spending bonanza go to?!).

    Have you ever seen a ‘Godfather’ movie? I am sure you did. Dublin Bus business philosophy is exactly like that: We will make you an offer you taxpayers cannot refuse. Our costs halved this year, but we will increase our prices nonetheless so that we can get 50pc more than our bus driving colleagues in Brussels and provide half of the service they provide. And just to show you what happens if you reject the offer, we will show you that we are able to bring the city of one million to a halt, you stupid low income earners.
    Now, that seems to be a greedier attitude than in the ‘Wall St’ movie with Michael Douglas, if you ask me.

    Minister Varadkar, if you ever read this blog, please privatise all DB immediately, not just 10pc in 2019 (but make sure you subdivide them in order to break up their monopoly first so that it does not turn into a private monopoli)!!!
    Passengers who were terrorized and immobilized by trade unions this weekend (well, at least I could write this article :-) or lost their earnings on Friday: when the multiplier stops, tiocfaidh ár lá…

    • Thanks for that!! Much to reflect upon.

    • Not a single peddler of the Keynesian Multiplier has been able to make demonstrable predictions to date. Not one!

      As always with such deliberately quasi religious induced beliefs, test of time fails!

      The subsequent governmental propaganda droole is well known. We burden you with more public debt and have to increase some taxes and service fees, but we will create private sector jobs…. for YOU!

      That of course is the equivalent of a big pile of steaming pig shit sold as apple pie. How often was that dish served already, and how often did the public consume it?

      Herein lies the real test of time, and the result is that the Bullshit works, so it will be taught to the next generation of students who choose, for reasons beyond my understanding, to enroll themselves in economics.

      Nowadays these lessons are called new neoclassical synthesis and ironically they are even more radical that Friedman himself, as John Cochrane commented on “The Grumpy Economist”.

    • CallerNJ

      I live in what is supposed to be the most expensive city in the world to live in, but our transport is about 1/3 that of the cost in Dublin for the same distance, changing service (bus to train, is no extra expense, its calculated on distance only, its triangulates it so that sometimes it may only cost mere pennies to change onto a bus as I had to take a right angle, its in your favour), and you know what, the service is better and friendlier too, and the bus driver will wait for you at the bus stop if you’re stuck across the road!! True story.
      The whole place needs to look hard at itself and ask why it’s such a rip off for what is really on offer.

      • DB4545


        I don’t think anyone will argue that our public transport is not fit for purpose. The issue is rarely front line people who are slacking although there is a few and that’s fixable. The issue is the army of middle management that infects every aspect of our public services. For every one front line waster that’s taking the p**s you’ll find ten hiding in an office or on a golf course/second job/conference somewhere. Walk into a major hospital and you’ll find platoons of women walking around with files under their arms doing f**k knows what on 60K a year. Cut this waste and you’ll find plenty on money for frontline Gardai, Nurses, bus drivers etc.


        • Grzegorz Kolodziej


          My view of the Dublin Bus ignominy is that the issue is neither their frontline line people nor their management. It is the whole protective and corrupt system within they operate and which both frontline people and their managers support and which their trade unions impose on taxpayers much like Sopranos family – except that Sopranos terrorised only one neighbourhood and trade unions brought the whole country to a standstill (and they had the nerve to harp on ‘the working people’ while it was a strike of top-earners doing very little work directed against low-income earners).

          I personally totally understand DB drivers who, when offered 769.74 for a 5 day week (which in DB is considered overtime, for their normal working week is 565.95 for four days) – salaries which I would like to remind everyone are not earned but extorted from graduates on 21k who have just left college with debt avail of that salary bonanza.

          This whole ‘bus drivers v passengers’ thing misses the whole point.

          The point is that the ‘The Road Transport Act’ of 1932 provides a mafia-style cloak of protection around our family of Dublin BuSopranos. The second point is that this BuSopranos family cannot be narrowed down only to trade unions for governments are equally culpable: in 1999 over 200 applications were made to the Department for provision of private services and only two were granted. This was not because the applicants could not meet the standards for one cannot imagine lower standards of operating their service than in Dublin BuSopranos.

          Winter 2010. Me and my Irish girlfriend are returning from Dublin Airport where the runway cannot be cleared after a smidgen of snowflakes had been noticed while at the same time a small regional airport in Poland has a snow blizzard and can safely operate because they can clean it within half and hour. Obviously Dublin’s Alternative to Al Capone does not provide any compensation, accommodation or even tea and sandwiches for people waiting for 5 hours (the DAA manager alone could have bought them from his 600,000 per annum).
          We see Aircoach operating as normal so we embark on the last 145. Suddenly the bus driver with a charm of a Neanderthal man turns on what sounds like Jimi Hendrix distorted guitar and shouts: ‘ok folks, I am only going to Loughlinstown’. We are left with heavy luggage in the middle of the night.

          I do not need to tell you that in Eastern Europe all buses operate normally in heavy snow conditions (and their fleet is more modern and cheaper in towns where they had been privatised as opposed to Silesia region with public owned bus company which has a monopoly and is run by trade unions, which results in them having 30 years old buses because all money, including money for heating, goes to trade unions; they still run like a clockwork nonetheless) and you do not see increased number of accidents (in fact Poland has shitty roads but only the same amounts of road accidents as the small Belgium, the only country in the world where all motorways are fully lighten).

          Another scene. Summer 2006, Sunday. We wait one hour on 56A which is not coming (maybe his driver is coming ;-). After another hour the next 56A comes. The driver is approached by an agitated Dublin woman who asks why we had to wait for 2 hours. The driver is so shocked that someone would demand any explanation that he threatens to call the Gards. After a few stops the bus ‘breaks down’. ‘What is it?’ ‘Tis the engine’, says the driver with a certainty of Bill Clinton saying ‘I had no sexual relationship with Monica Lewinsky’ (Bill Clinton was so convincing when he said that he could have probably stood there and said ‘I am not here’ – it takes years of practice or working for KGB to learn that skill, our Bernie’s body language was rather unconvincing when he told us about winning money on a horse, though he was rather convincing in playing an eejit). After 15 minutes it turns out that noone will change him which we know from his frantic radio communication (other drivers and probably in a pub with inspectors in Stasi-like uniforms) so miraculously the engine self repairs itself and I arrive at home only 3 hours later with melted shopping bags.

          Another Sunday afternoon. We go on a bus to see the cats exhibition in Blanchardstown Plaza Hotel. Some knacker stops the bus to sell heroine to another knacker on the bus, whereupon he leaves the bus unbothered (by the driver would call a Gards if you complained about him too loudly).

          My friends from Poland who visited me said they travelled all around Western Ukraine and all Romania – including really dodgy places – but they have never seen anything like that on a bus.

          I have been on many DB lines and I knew someone who works for DB (hence I know they sit in canteens and talk and laugh till their blue in their faces) and of course, there are some very reliable lines with some very nice drivers. For example 46A is efficient and reliable (to me it is overheated in winter, but that’s a small detail) and so is 16A (that’s because there is no canteen on its way where the drivers could sit down and pleasure themselves). All 185 drivers are extremely nice and X-presso drive is a treat because it does not stop too often so there is no scumbags in it (though why it costs more than running a war in Iraq I fail to understand).

          But like I said, this is not a point. Our aim should not be setting up passengers against the drivers, who in turn have to pay extraordinary high taxes for the extraordinary high salaries. Out aim should be to liberalise the whole system and end all monopolies. How come country as rich as Ireland can lag Belarus in public transport services? And think of what a couple of two people could do with 3,430 euro if they were to pay 730 euro for two annual tickets like they would in Vienna as opposed to 4,160 euro they pay in Dublin.


    Bankers, who are bankrupt, having succeeded in getting legislation to bail in depositors, are now taking steps that force you to keep your money in the bank account while with negative interest rates they charge you for the privilege. The next step will be to ban cash altogether. Can anyone spell tyranny! It has arrived and becoming established.
    The next step is to seize all your cash and savings in the name of the common good.

  14. At the heart of the debt problem is the central banking system. All currency other than coin, all paper, digital or bonds are debts.

    When David talks about banks margin he ignores the fractional reserve system of currency production. He ignores the fact that the money borrowed for tracker mortgages or anything else is not deposited at a cost to the bank. Banks for decades have loaned out multiples of the money they have on deposit. 10 times is estimated as conservative these days and more likely it is 30 times.

    so does a bank care what the deposit rate of interest is paid to a depositor? No.
    All they care about is that the rate of interest is high enough to attract the deposit. Even if they paid out 5% on a deposit and loaned out money at 3% they make a substantial profit.

    $100 deposited at 5% costs $5.
    ten times that loaned out at 3% is $30 for a profit of $25 or 25% on the deposited funds. How do you think that the banks were able to buy all the best locations in all the towns and cities. The use leverage to the extreme.
    If the leverage were 30 times then $3000 is loaned out at 3% in this example or $90 of interest on the original $100 deposit.

    Where does all this extra currency come from? Well apparently it is printed, digitally produced or simply conjured from thin air by an entry on a ledger.
    Banks are legally allowed to create money from nothing based on the amount they want to lever the deposit.

    When they run short of deposits they go to the central bank who lends them money they can place on deposit. The central bank creates this money at will and charges a minimal interest rate to the commercial bank, so this too is a debt.

    Thus the only way money gets to circulate it is loaned into existence. The interest to be charged on the loan requires yet more money to be put into existence. In turn this is issued as a loan.

    Without a constant increase in the money supply he money system will implode as the debts plus interest are repaid. This constant increase in the money supply in turn increases the debts. The increase in the debt in turn increases the amount of interest payable. The increased interest payments speed up the reduction in currency used to pay the interest.
    Thus the debt gets bigger, the interest grows faster as a share of the economy, and new loans must be issued at greater frequency and amount. Eventually it goes exponential and cannot be sustained.

    Arbitrary reduction in the interest rates give some relief and delay the collapse. During this period interest rates cannot be raised without blowing up the monetary system. So despite the huffing and puffing no central bank will raise the interest rate so for the moment tracker mortgage holders are OK.

    When there is a default and a bank has too much leverage all available funds will be seized. They will be used to add to the bank capital. Because all banks are interconnected by lending to each other the default of one jeopardizes all.

    At some point there will be a general default. Those using the banking system will be ruined. All credit will be called and the bond and stock markets will collapse adding to the problem. It will be called the greatest depression.

    This will be the real day of reckoning and it will not be just the tracker mortgage holders with a problem.

    All valuations and markets are distorted by lies, deceit and general corruption because of the central banking system.

  15. DB4545


    I think you may have used the wrong ad as your example. The more accurate ad was from Permanent TSB using the actor Frank Vincent (Phil Leotardo) from the Sopranos. That really should have set off alarm bells with the regulator and the general public. A bank using the reflected glamour of mafia gangsters to sell its products while the real gangsters roped in the gullible gobshites on top of the bus and the regulator trousered his obscene salary and stayed silent. Even Alanis Morrisette might find that ironic.


      • PTSB

        Lets update this banks publicity stunt.

        If you visit any branch of this bank today you will see many dolls houses around the public area with a a hanging notice ‘your house is where your heart is’ .

        Do they mean in the ‘freezer’ ?Another gruesome murder scene ?

        Sack the publicity agent !

        • DB4545

          It makes me wonder did the advertising agency pitch the “mafia” series of ads knowing the type of client they were dealing with or did the “mafia” idea appeal to the client based on their self perception? Banksters indeed.


  16. Junk bond mayhem on the horizon

    In fact, I would bet good money that junk bond investors will wake up one day and find that the value of their holdings will be down 40-50% overnight. And that’s just for starters. Wait until the herd of insurance companies and pension managers try to unload their holdings.”

    • Re above

      “The Fed and the other western Central Banks have imposed this extreme moral hazard on the market in what is being termed as “attempt to prevent deflation.” However, I would also suggest that it is just another massive wealth transfer mechanism being used by the elitists to fleece the public.”

  17. “Of course, the IMF can’t leave the market alone because its very existence is an attack on the market. Its mission is not to help markets operate, but to stop markets from operating. This is necessary so that its international banker overlords can manipulate asset prices and further enrich themselves.”
    – See more at:

  18. [...] Day of debt reckoning is nigh – David McWilliams [...]

  19. Wills

    Watching the banking inquiry today Ulster bank spoofer up today, and reading the article it is hard not to be sickened by the way the banking system is run by amoral thug like ilk.

    • DB4545


      Always remember they’re just loan sharks with posher accents and more expensive suits. The methodology and skill sets are exactly the same.


  20. Check this one out guys:

    “The real value of bitcoin and crypto currency technology – Bitcoin Properly”

  21. michaelcoughlan

    Hello David,

    Bendan Hoelin asset stripping the underprivaledeged;

    Attachment orders on social welfare payments to ensure water charges are paid FIRST AND BEFORE food is put on the table.

    Is it just me or are the population sleep walking into Fascism? This fucker is supposed to be left wing!


  22. michaelcoughlan

    Hi David,

    PLEASE PLEASE look at the following keiser video between 13.10 to 13.30. The guy makes the same point i have only with china. He says china debt to gdp is 300% and cost of capital is 6% so the chinese economy hast to grow at 18% just to pay the interest.

    Not even you is highlighting this point.

    • From above blog. The real economy is down and down again and again

      OutLookingIn says:
      May 6, 2015 at 11:46 am
      The writing on the wall is plain to see Bill, for anyone to read! With the ability to comprehend and to accept what the message is saying.

      Some “per capita consumption” stats to add to your article;
      1/ Industrial (btu) use – down
      2/ Residential (watts) use – down
      3/ Total energy (btu) used – down
      4/ Daily transport (gals) used – down
      5/ Wholesale trade sales – down
      6/ New orders for consumer goods – down

      And yet, there still those that refuse to “see” or even “read” the message on the wall! They will all fall by the wayside. The “crunch time” comes ever nearer. Getting close now.


    This speaks for itself. It is about time our economists and politicians spoke up for us.

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