August 27, 2015

China's crash could take Dublin property market back to bad old days before Nama

Posted in Irish Independent · 88 comments ·
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Almost 20 years ago in Hong Kong, my mind was opened to what actually happens when financial markets unravel. I witnessed how panic spreads like a virus from market to market. It was 1997 and the Asian crisis, which had started as a small problem in Thailand, suddenly engulfed the entire region. By the time it was all over, Russia had defaulted, as did huge swathes of South Korean industry. Meanwhile, LTCM – the most feted investment fund in the US – imploded. In such a panic, markets that appeared strong become weak and traders who appeared to be superhuman, masters of the universe, are revealed to have feet of clay.

 

The very remote can become local too. So, for example, the crash in China may well affect Dublin’s commercial property market. I’ll explain this transmission mechanism later but for now let’s focus on the cause rather than the consequences of the Great fall of China. The culprit is always leverage or borrowing. Once people borrow to speculate, the move from greed to fear and from fear to greed is lightning quick. In leveraged financial markets, there are only three certainties: death, taxes and margin calls.

Margin calls are what happens when speculators use borrowed money to speculate. When things are going well, they can make ridiculous profits but if the assets bought with borrowed money fall in value, the speculator has to come up with cash to plug the gap.

In order to find cash, the speculator must sell “good” assets that other people are prepared to buy to cover losses on “bad” assets that no one is prepared to touch.

This is how initial sell-offs of overvalued markets become massive routs, with speculators panicking all over the place. It appears that this is what is happening in China right now.

The question is whether it will spread and whether it could touch Ireland. We could be at a very sensitive tipping point for the global economy, where contagion is possible. There are a number of reasons.

The first is that there is no obvious locomotive for global growth if China slows down. China, a $10trillion economy, has been dragging the world along for the past few years. This dynamic looks like it is petering out. So what will replace it, particularly as half of the 30 biggest emerging markets – countries that used to be growing strongly too – have seen their stock markets fall by 20pc?

The world is now looking to America for economic strength. But the US economy, a $16trillion engine, is finding it difficult to grow at a sustained 3pc even after five years of recovery and even though interest rates have been at zero for most of that period.

Thankfully, unemployment has fallen down to 5pc but wages are not growing strongly in the US because productivity – output per worker – is still low.

The flipside of low productivity is low investment. US companies are not investing in machines and instead are using their profits, selfishly, to buy their own shares. This bit of financial engineering pushes up share prices and makes rich people richer because, in general, rich people own shares and poor people don’t own shares.

Meanwhile, the average guy, who depends on wages for his income, sees his standard of living stagnate and therefore despite being in work he doesn’t feel confident to go out and spend.

Although spectacularly wealthy himself, Donald Trump appeals to this disgruntled average guy. He is translating this blue-collar anxiety, which used to be Bruce Springsteen’s soundtrack, into the marching song of Trump’s foot soldiers. So we are not just talking economics here; these financial developments are political.

The second reason to be fearful is that commodity markets are signalling deflation and low growth ahead rather than inflation and high growth. West Texas oil prices are below $40 a barrel. In addition, falling commodity prices are getting more acute as the dollar rises. This is because all these commodities are priced in dollars.

The world has got to figure out whether China is a brilliant long-term story experiencing some short-term hiccups or whether it is a shorter-term success about to embark on a longer-term decline blighted by huge problems such as terrible demographics. Or to put it another way, will China get old before it gets rich?

These are the sorts of questions that will occupy policy makers in the years ahead, but for now let’s look at the root cause of this week’s financial/economic/banking problem.

The root cause of all this is too much borrowing – as always.

Since the 2008 financial crisis, the world economy has been bathed in the soothing balm of cheap money. The central banks all over the world responded to the crisis by reducing interest rates and printing money. However, only those who were solvent could access this once-in-a- generation cheap money. Therefore, the rich got their hands on the means to get ever richer.

This cheap money drove up the price of all assets worldwide. In time this cheap, borrowed money found its way into the most blighted nooks and crannies of the world economy.

One of these dark places was the post-bust Dublin commercial property market. This twist is where the fall-out from the China slump may become very interesting for Irish people. The type of guys who bought up the Dublin commercial property market are very much the same types speculating on currencies, stocks and countries.

Nama has succeeded in selling Ireland to US private equity outfits, which are from the same gene pool as the hedge funds that are selling China. The new guys who own Ireland have only a short-term time horizon and their sell signal will have much more to do with the general mood of global financial markets than anything that happens in Ireland.

They may well look around at all these leveraged investments – Irish commercial property being one – and decide to sell. Then who will they sell to? Why Irish investors, who are the “natural” owners of Irish property. But what will happen? These Irish investors will borrow from Irish banks to buy Irish assets from the foreign short-term leveraged merchants.

And we will end up in the curious situation where a property bust that was caused by Irish investors borrowing too much from Irish banks to own Irish property ends up with Irish investors borrowing too much from Irish banks to own Irish property! The foreign investors will get out and sell to Irish speculators, who will buy at a premium the assets they sold at a discount and the broker will be Nama – an arm of the Irish State.

You couldn’t make it up.

As the old Chinese curse says: “May you live in interesting times”.


  1. Colm MacDonncha

    Subscribe.

  2. michaelcoughlan

    Hi,

    When you say too much borrowing is the cause of the trouble I think what you mean is too much debt. The two are different.

    The word productivity means different things to different people. For example; a tank factory in a communist country is producing 200 T72 crew cooker tanks (they catch fire so easily) per month at a financial loss. The commissar comes in and threatens to starve the families of the workers and production goes up to say 250 tanks per month still say at the same per unit financial loss. Productivity went up.

    Take a capitalist country. A factory producing 200 tanks per month full capacity gets the CEO to threaten to starve the families of the workers. The factory still only produces 200 tanks per month but now that everyone is on a zero hour contract on Min wage and working extra hours not being paid for then profits increase so productivity went up.

    You have never been more right about deflation. Gold bugs are going to get crucified.

    What’s obvious more than ever is that neither the Keynesian nor the Austrians differentiate enough between the word currency and the word money.

    China is falling apart in my view for the exact same reason that the crash destroyed America in 1929. The ordinary workers, farmers, shop keepers etc. were gambling on the stock market. That’s what’s causing the problem. The large hedge funds will mow all these people down with one enormous transfer of wealth from the middle to the top.

    It will cause enormous turmoil and drive increasing conflict the world over.

    Michael.

    • McCawber

      A little gem in David’s article.
      The US is a $16Tn economy.
      What is it’s Government debt/borrowing level now.
      The level is increasing but is the rate of increase slowing or ….

      How much of it is borrowing and how much of it is debt.
      Is there such a thing as borrowing to debt ratio.
      If there is what is a”safe” ratio.

    • McCawber

      Not sure what you mean by Gold Bugs are going to get crucified.

      • It is an erroneous statement. Gold thrives in deflation as a well as inflation.

        https://www.goldmoney.com/research/analysis/economics-of-a-crash?gmrefcode=gata

        Here is an analysis of the monetary manipulation. Already posted on the previous thread but better suited here.

        • McCawber

          There is a lot of sense in what the article says but the last statement is no longer true.
          “Only this time the threatened currency destruction will be global, because where the dollar goes, and the dollar is still the reserve currency, so we all go.”
          I don’t think the $ is the only reserve currency anymore. The € is certainly in the mix too. Will it make a difference??
          Is this why the Germans have built the EZ because they could see (And given their history you’d have to believe it’s possible) that the financial systems as designed by Alan Greenspan was going to end up in major ????.
          I mention Greenspan because maybe his rescue of the financial system in 1987 was too successful and as a result he set a very dangerous precedent.

          • US dollar is still the reserve currency as it is the single largest currency used as asset reserves by other major trading partners and most countries around the world. Several trillions worth will be looking for a buyer with none in sight if confidence in the $US is lost.

            The value of those US bonds/treasuries will be diminished by major percentiles and the national reserves of all will be trashed.
            Meanwhile nobody will be buying any US bonds so what about the annual deficit financing.

            The Federal Reserve will be forced to monetise the US debt by printing more and more phony dollars and buying the debt.It is the last resort to prevent rising interest rates that will in turn kill the economy. This is the road to financial ruination.

            As goes the US so goes the world.

        • Mike Lucey

          History so far proves that gold does thrive in deflation as well as inflation.

          That may not be the case if the Central Bankers have their way, first with cash and then with PMs.

          Financial Times Calls For Abolishing Cash. “To Give More Power to Central Banks”
          http://www.globalresearch.ca/financial-times-calls-for-abolishing-cash-to-give-more-power-to-central-banks/5472522

          • michaelcoughlan

            very scary stuff.

          • McCawber

            AM I AN ANACHRONISM?
            I have only one DD, I avoid them like the plague.
            I use online banking money to pay bills because it’s convenient.
            I have a credit card and use it mostly where I’ve no other choice – Flights, car hire that sort of thing.
            Otherwise for me cash is king.
            Is the behaviour of most of the population or does it just classify my age bracket.
            As you might perceive I’m thinking f^ck the CBs, they’ve already too much say in my life.

        • michaelcoughlan

          Hi,

          I will explain what I mean re gold bugs but first I will explain the context. I had the biggest learning experience I had on this board (for the few years I have been on it) in recent weeks when a view I held was exposed to be completely inaccurate.

          MCwilliams wrote an article a few weeks ago about his theoretical idea that the Greek government should implement the Chinese currency as a solution to its problems. I responded with a tongue in cheek post about the irony of a Keynesian economist arguing for a country to adopt a currency whose government was hoarding all its domestically produced gold AND importing the stuff hand over fist.

          A couple of weeks later I had my nemesis. The Chinese bubble blew apart. The Chinese government then did something very telling which it hadn’t done for years; It revealed its gold holding quantities. Around 1600 tones I think. The world was expecting around 10000 tonnes. It is a straight forward lie. The gold bugs reckon of the 10000 tones in the country the Chinese Govt. is holding about 2200 to 2500 (still a low figure) with the other 7500 plus tonnes held off balance sheet in private hands.

          So why the timing of the release of the figure and why so low an official tally? Ans; the VERY LAST thing the Chinese Govt. needed the world to believe was it’s currency was way stronger than it is and then wham; the devaluations all in the hope of preserving exports.

          This is why I feel that gold bugs are fucked for the foreseeable future. No Government in its right mind will back it’s currency with gold. Germany also has a weak currency in the Euro rather than their own strong currency (the deutchnark) for the same reason which is why Greece was destroyed to protect the Euro/German exports.

          The world is is being run by Keynesian madmen who are far more insane than any bonbon (remember them).

          Finally the craziest and most insane thing I have ever heard was an interview I saw on youtube with Bernanke when he was quizzed about inflation and deflation the smug arrogant unconscionable scumbag that he is he responded by saying that if the average American was buying goods made in America it made no difference to them internally as they would only experience the extra cost as they went abroad. In other words he doesn’t give a fuck about the budget or current account deficit.

          To understand the reason he is so smug in my view can be described by the following; Lets just say your mortgage is 1000 per month and all Michael O’Leary is paying you in your zero hour Min wage 15hr per week contract is say 130 Euros per week or Max 600 per month. Because you are “working” the bank will allow you to release equity on the unleveraged part of the value of your house and you use this to pay the mortgage. You are using capital and NOT income to pay your expenses. The day will come when you can release no more equity however you have a machine gun. You go across the street and shoot your Muslim neighbour dead, take his house off him claiming the house as your own. You then ring the bank and say look my property holding has increased and so has my balance sheet so please release more equity and walla! MORE moola.

          In the real world Bernanke’s mates send the US armed farces to confiscate the assets of countries around the world and this allows the US Government to do the same thing and so goes the merry go round.

          Gold is still vital for the ordinary person though not in the way most people think. To preserve your wealth you will have to have a dual play in gold. You will have to Short the metal using a derivative or spread betting account but go long an etf in gold which is selling options against gold . If the Keynesian drive down the price your 50% short will rise in value. If the gold bugs are right your 50% long position in the etf will rise in value. You will preserve your capital AND have an income stream.

          Michael.

    • Mike Lucey

      @michaelcoughlan

      “The large hedge funds will mow all these people down with one enormous transfer of wealth from the middle to the top.”

      The large hedge funds have already done this. The penny dropped for me when I saw a Chinese man being interviewed on RT describing how he had lost most of his $20,000 life savings. He was captioned as an ‘Egg Seller and Investor’.

  3. ‘A cliche too often tried’ rather than ‘interesting times’ .

  4. Viscount Hugh Gough of The City of Limerick is the only western man to have successfully mastered the control of China that subsequently led to the creation of Hong Kong and to be honoured as Commander in Chief of China by Queen Victoria .His skills and strategies have never been matched since.

    NAMA does not lead . It follows without consequences.

  5. Adelaide

    “Years ahead”?
    A lot of prominent American commentators are saying next month, September, may well be ‘Black September’ and the start of the great unravelling. Interesting times indeed.

    • michaelcoughlan

      +1.

      David’s bull trap graph of about a year ago will tell all. History is just repeating itself as the events now are mirroring 1929. God help anyone retiring soon.

      Michael.

  6. McCawber

    One little nugget in David’s article “will China get old before it gets rich?” sticks out. The answer is Yes, definitely so what will the consequences be.
    A bit of local knowledge first. approx 5M Chinese people cross the border into into former RSSR countries every year. That’s roughly the population of Ireland and this has been going on for quite a while.
    China, a bit like Ireland, is exporting it’s young.
    The Chinese like to gamble too so there will probably a lot of Chinese speculators/citizens being burned as David has implied.
    The old are staying at home but like Ireland the young send money home.
    So what does all mean for the world economy.
    It appears to me that another cut in global consumption will occur.
    The foreign chinese will tighten their belts to send more money home and that money will go to Tony’s favourite people the bank’s who recklessly lent/leveraged them the money to speculate.
    A fall in global consumption is bad for everyone.

    As regards David’s Ireland property speculator scenario we can but hope that the Irish lads read his article and at least look at their navels before they gaze at the imaginary pile of profit they are going to make.

    Leverage is the mortal sin in the global financial markets. The CBs and governments have singularly failed to even acknowledge this fact never mind do anything about it.
    Leverage comes in many guises. Spread betting, CFD etc. Bluntly it’s another word for gambling.
    The bookie (Banker) always wins.

    • The Cb’s know exactly what they do. They need to be rid of. Replaced, eliminated. They are the blight, the scourge of society. They are the source of all the problems. They are evil.

  7. Sideshow Bob

    I read in some articles recently in Forbes and elsewhere (below copied) that a lot of the money gone into this is borrowed on margin, often with property as collateral. Property is already in a huge speculative bubble in China. If so, this whole thing could turn into an unprecedented double mega-bubble burst. The main Chinese solution so far, apart from devaluation, so far is to encourage more lending, as I understand. Keep the drugs flowing more or less?

    However this money, or debt if you like, is largely internalized in the country so I can´t see where the external exposures for the likes of hedge funds, etc are. or immediate ramifications for Ireland. I think maybe imports of luxury western goods and technology and also raw commodities for the domestic construction industry in China will be affected mainly. I think they could stop buying houses in London and Hong Kong, depends who is affected most. I think Germany and the US and any other luxury goods suppliers to China could take a big hit here, something like Australia, Canada and Brazil are already taking in the commodities trade. I think if Ireland feels it will be mainly indirect as pointed out previously in the comments here.

    Links:

    http://www.forbes.com/sites/jessecolombo/2015/07/12/watch-these-charts-to-better-understand-chinas-stock-market-crash/

    http://triplecrisis.com/the-bursting-of-chinas-housing-bubble/

  8. mike flannelly

    Surely since the Irish ponzi bank share profit growth strategy of 2003 to 2010, Irish Banks/ Central bank of Ireland have learned about REAL VALUE DEBT. Metrics are the METHOD of servicing debt targets.
    We have reaffirmed REAL VALUE house mortgage debt metrics at 3.5 Times joint gross earnings.
    No Irish bank will give a mortgage of more than 80 Months rent for Buy to Let property. Thats approx 80,000 euro for a 120,000 euro property with 1,000 euro per Month rent.
    REAL VALUE DEBT for Buy to Lets was ALWAYS about 100 Months rent.
    During the peak Ponzi Bank Share Growth days the Intelligent Professional Lenders valued FALSE VALUE DEBT at 300+ Times a months rent.
    The Irish Central Bank and Patrick Honohan will ensure that Irish Banks use REAL VALUE DEBT METRICS from now on. There should be Attachment with Intelligent Professional Bankers pensions that are misselling or have sold FALSE VALUE DEBT.
    REAL VALUE RENTS need to be applied when calculating the Metrics for Irish Commercial Property.
    Irish Banks dont have the money to lend out for even buying REAL VALUE commercial property. They are spoofing along to pass stress tests.
    Stonewalling industry best practice split mortgage restructures and the 2% Failed Bankers Charge on the Real Value variable rate mortgage.

    It would be nice for Irish couples to get 30 Year fived rate mortgages at 2.5 % to 3% like France and Germany.
    1000 euro per Month for 250,000 euro mortgage for a couple earning a joint gross of 80,000 euro. Financial room to raise a family and enjoy their ONE LIFE they have together while being able to put money aside for retirement when the time comes.

    Recognizing Real Value Debt was the quality assurance lesson we learnt from the Irish BANKERS Abuse and is the key to Restructures ( for bank customers)
    and the continious improvement programme that is to have a Real Value Irish Domestic Economy.

    • McCawber

      Let’s hope then that if the speculators (Developers) don’t read David’s article that the banks do and the CB sees fit to remind the banks of their etc………

  9. McCawber

    I’m going to ask a very fundamental question.
    Your answers must include one proviso, it must not be used to justify government debt/borrowing unless purely for completeness.
    We can have price inflation, deflation or stagnation.
    Why is inflation (Controlled at 2%) good?
    A supplementary might be why is stagnation bad?
    And perhaps a second supplementary, why is deflation bad?

    • An annual deflation of 2% is what basically happens when the economy is growing and reflects the improvements in efficiency. Everyone benefits. Savers are rewarded. There is no requirement to expand the the money supply in order to have a healthy economy. The opposite is true , one cannot have a healthy economy if the money supply is expanded.

      A 2% inflation is not good as those putting aside current production for future living, i.e. saving for retirement find their savings spending power devalued by 50% during their lifetime. Inflation is usually a function of money. Friedman , I think it was, said that inflation is always a monetary event. Such monetary action distorts economic decisions and caused malinvestment thus destroying the economy. We have it in spades today.

      a healthy economy borrows only form what is already produced. I.e. first production, second savings, third lend/invest savings.

      We must eliminate the credit production and monetary expansion produced by fractional reserve spending and creation of money by central banks as debt bearing interest laden currency.

      We must have a return to real money. Honest money fights corruption.

      • cooldude

        Correct as usual Tony. A mild deflation in consumer prices is a sign of increased productivity and improvements in design. Just look at electrical goods such as tvs where the product is constantly improving yet the price declines year on year. This is a healthy market functioning properly. Keynes and Mc Williams theory of postponed spending if prices drop is clearly rubbish especially when you look at the mobile phone market. People queue to spend big money for the latest fad in the full knowledge that it will be a lot cheaper in 12 months time. Mild deflation suits consumers but doesn’t suit speculators using margin in the asset bubbles that are constantly created by a money supply expanding much faster than the rate of growth.

        The reason inflation is promoted is that it suits those who speculate on the asset bubbles caused by the constantly increasing money supply. Inflation is a stealth tax on everyone bar the speculators. Keynes himself knew this well and openly admitted it.

        “By a process of inflation, governments can confiscate an important part of the wealth of their citizens” John Maynard Keynes

    • McCawber

      Tony and Cooldude.
      Your two relatively concise posts actually makes an awful lot of sense.
      The politicians obviously are well groomed by the financial industry.
      Lads pitch inflation at 2%. It’s a nice low number, nobody will question and etc (your posts come into play)
      My own added insight/experience confirms to me what you have explained.
      I’m retired about 4 years.
      And frequently I say to my wife (scrathcing my head). The government would love to get at people like us, no mortgage etc, managed our finances well, built for our retirement, frugal/careful consumers (we’ve known leaner times like most people).
      The best they’ve managed so far is the pension levy, which is another time bomb.
      Added to that I’ve had no income increase (I know the general pop. are in the same boat).
      So here is the clincher, why on earth would I want inflation and then you say to yourself, well the CB (and governments) of the world all want a nice low steadty 2%, very gentle sure you’ll hard notice the value of your savings decreasing and sure anyway shouldn’t you be spending it and not hoarding.
      There won’t be a rainy day because trust us we know what we’re doing and everything will be fine.
      They know what they’re doing alright. They’re trying to rob us blind.
      Somehow they they’ve managed to f^ck things up so bad that they’re going to get me in the end but it won’t just be me.
      Here endith My Eureka Moment.

  10. mike flannelly

    Patrick Honohan and the Central Bank know what Real Value Debt is but wont admit it for fear of a misselling Tsunami.
    To be honest, i would prefer mortgage restructures and a Real Domestic Economy for the future of our children than a witch hunt of Failed Bankers.
    Patrick Honohan needs to take responsibility and help restructure the Domestic Economy. Failed Bankers have too much say about what THEY want, thanks to a weak media and weak Politicians.

    • Fire the central bankers. No witch hunt. Just remove them and get rid of the central bank money.

    • Deco

      Honohan is a EUnuch.

      If Honohan stood up for Ireland, the corrupt ECB would demand his resignation. The corrupt CDU party in Frankfurt would be demanding (and getting) the same.

      • That is why it is time to dump the euro and revert to a national currency based on sound money principles. The current route is the way to debt, slavery and one world autocratic government.

        • McCawber

          The problem for a small country like Ireland going it alone is a sharp rise in interest rates and inflation.
          This would be particular the case giving the nations financial state both public and private.
          That leaves Stg and their CB.
          Is that what you are suggesting.

          • No.
            A national currency will be issued from treasury directly. It is simply based on the assets of the country. Unlike the CB fiat it is not issued as a loan with interest attached. It is simply issued, no strings attached.

            The odious national debt will be thrown out and not paid. In the Case of Ireland that would particularly relate to the 60+ billion dumped on the tax payer to bailout the banks.

            The rest of the national debt will be paid off with the new currency unit for unit. That is what all bondholders will receive in exchange.

            The country now has no national debt, no interest payments to meet and no need to borrow on the international bond market.

            Therefore it matters not what the interest rates are in the rest of the world.

            Then introduce a silver coin money. It would be like coins of old. Made from 92.5 % silver/ copper alloy known as sterling silver. It is hard enough to handle the wear and tear of pocket change.

            The main coin will be of one troy ounce of silver. Subsidiary coinage will be in decimal denominations of the ounce. 50%, 25%, 20%, 10%, and 5%.

            Each coin will be given a name, and have inscribed the weight and purity of the silver contained in the coin. There will be no denominated currency value stamped on the coin.

            The currency value of the coin will be as announced by treasury based on the value of the silver spot market. To maintain a silver coin in circulation the coin trade value must always exceed its silver melt value or the coin will be horded and go out of circulation.

            The trade value of the coin will rise as the silver spot price rises but will never fall with a fall in the spot price. Roughly speaking the trade value of the coin will always be at least 20% higher or more of the world silver price (its melt value) and will then stay in circulation.

            A government can always buy silver at the market price. Today that is roughly 13 Euros. There is the cost of minting and distribution. I do not know the costs but assume it is 5 euro (it may be considerably less)for a 1 ounce coin. (this is the coin to start with and subsidiary coinage will be introduced after in due time). Add in a profit margin or seigniorage say another 5% and the mint purchase price of the coin to be 19 Euro. Round up the value to the nearest multiple of 5 and the declared trade value of the coin will be 20 euro. The coin will be an attractive design with items engraved of historical interest. The mint will be instructed to produce as many coins as there is demand for.

            The seigniorage will accrue as a profit to the mint with which the mint will buy further supplies of silver. Also with each sale the original amount of silver can be bought again. Thus the mint will always be able to meet demand of any amount at any price.

            At first the coins will be saved as attractive pieces of silver. But later will more and more move into circulation. goods will be bought and priced in weight of silver as well as the currency price.

            What happens if the world price of silver rises, say to 15 euro or 20 euro.
            Let us look at 20 euro as a price for silver.

            20 plus the mint cost of 5 =25 plus 5% seigniorage 1 euro =total 26. The trade value is moved to the next multiple of 5 and the fix is a trade value of 30 Euro.

            This will be the only money that increases its buying power if inflation rises. It is a policy cast in stone that the trade value will never drop so if the price of silver fell again to 10 euro the trade value of the coin will remain at 30.

            People knowing that the coin will only increase in value and never decrease will be assured to use it. Also it will be the preferred money with which to save.

            In the meantime the mint is able to increase its holdings of silver using the profit and so the paper national currency (yet to be named) will gradually come to be backed by silver bullion.

            In a short period of time this national currency will be accepted by other peoples as a currency not subject to debasement like their own and so the international trade value of the currency will rise to a commensurate level.

            The specter of inflation will be defeated and the prospect of a gentle deflation reflecting the increased productivity of the people and the soundness of its currency, will hold sway.

            As there will be no national debt there will be no interest payments having to be accommodated by the national budget. The budget will be balanced and reduced. The demand on the taxpayer will be reduced and thus income taxes may be able to be eliminated. All residents will thus get an effective pay raise as their purchasing power is increased with earning the same amount of money. This may stem the flow of the emigration and reverse the trend.

            There is a sound plan for sound money and it can be implemented. It is what Greece should be doing to break the shackles of financial serfdom and economic slavery. The IMF, BIS and the CB money system is an abomination. It must be defeated and abolished.

            In as much as I think I read that silver and gold coin is banned by the EU and ECB it is another reason to leave the Euro currency and the EU to be really independent. This would be a grand project for the 100th anniversary of the Republic. It would be Ireland’s coming out party. What a national celebration!!!

            The Islamic State thinks this is a good idea too.

            http://www.bloomberg.com/news/articles/2015-08-29/islamic-state-finds-gold-coins-are-a-steal-as-throwback-currency

  11. mike flannelly

    Perhaps 2% inflation helps diminish the negative effects of long term mortgage debt and improves the descritionary portion of income.

    • All inflation, high or low is a stealth tax on your savings. Besides which 2% as reported is a manipulated stat as the things that count are going up faster than that. food, rent, insurance etc put the rate closer to 8%. That will rob you of half your savings buying power in a mere 9 years (rule of 72) or conversely double the cost of the mentioned items in 9 years and most of us with no increase in income. That is why the middle class is squeezed to extinction.

      http://www.shadowstats.com/alternate_data/inflation-charts

      Look at the chart based on the compilation of information as existed in 1980 but since changed read manipulated by government ever since. You will see that the 2% rate is a lie anyway.

  12. Adelaide

    The global economy is like the final scene in ‘The Italian Job’ where Michael Caine and his fellow criminals are perched precariously on the edge of a cliff, one false move or indeed any move will send their entire loot and themselves tumbling down the precipice. “Nobody Move!”.

    I see the Fed has signalled there will be no rate increase next month. That’s right, Nobody Move!, Stay Perfectly Still!!!!!!!!!!

  13. Bamboo

    Not Sure how to read this sentrence in the article:

    And we will end up in the curious situation where a property bust that was caused by Irish investors borrowing too much from Irish banks to own Irish property ends up with Irish investors borrowing too much from Irish banks to own Irish property!

    • People borrow a mortgage from a bank to buy a high price property they cannot afford. they get foreclosed on and go bust still owing the money and loosing the property. NAMA owns the property and sells to offshore investors on the cheap. Prices go up and offshore investors sell newly high priced property to local investors just in time for the next bust.

      Fool me once but fool me twice??????????

      That is how I read it!!! Maybe there is a different take on it.

  14. http://www.gata.org/node/15682

    Is the Fed behind the commodity crash and the stock market gyrations. A challenge for David to explore

    ” These are matters financial journalism would pursue if it existed in the West.” Chris Powell.

  15. “Another BRIC in the Wall.

    Red Capitalism is thriving. The Communist Party (CP) has managed to authenticate and legitimise the gambling habits of a billion plus people, that is its very own party members. They have officially sanctioned a stock investment boom, providing untold riches to its people. They have instigated one the greatest feats of financial engineering, barring the US sub-prime heist, to mitigate risk by implementing the largest debt-to-equity swap in history. Ben Davies–Hindesight

    https://hindesightletters.com/blog/another-bric-wall-ben-davies/?utm_source=HindeSight+Blog+Subscribers&utm_campaign=55a80152f6-Breaking_China&utm_medium=email&utm_term=0_a70c6e658d-55a80152f6-299801525

    • “The Chinese regime is ailing and it bodes ill for the global economy and the interaction between State and man. China’s continued mishaps prove the State is not omnipotent and the control of the issuance of money has untold and harmful ramifications for sovereign rights, both national and individual.” Ben Davies

  16. “History is replete, however, with how government indebtedness has led to continuous economic
    failure. The 2008 Crisis itself, far from being a failure of free markets, symbolised an innate failure
    of a form of State capitalism, that of the State monopoly of the issuance of money. The abuse of the
    supply of money in ever increasing amounts to arrest the failures of TBTF and various private
    institutions has enabled a far more protracted demise of our economies than if failure had been
    recognised. Such failure, so needed in capitalism to allow fresh roots to flourish, is considered
    almost unconscionable by policymakers today. ” Ben Davies

  17. dubya

    “Nama has succeeded in selling Ireland to US private equity outfits, which are from the same gene pool as the hedge funds that are selling China.”
    But what alternative would you propose, that private property is nationalised? Or that a state agency would have sold to selected investors based on nationality? Because that’s cronyism and never works out well.

    • There should have been no NAMA in the first place.

      The crony capitalism produced NAMA in the first place. Government interference in the market place is rampant and destructive.

      Get the government out of the market place. That includes the market place of the money and interest rate manipulation.

      Revert to honest money. Fire the central bankers. Hardly anyone including 90% of this blog understand the root cause of the problems and waffle on about non issues that cloud the mind and dull the senses and occlude the the real view, and that includes David.

      It is the structure of our money and how it is issued that is the basic problem. All else oozes out from there.

      • PS there should have been no bailout of the banks to the tune of 62 billion euros. This alone doubled the Irish national debt.

        The banks you all bailed out are foreclosing on all the citizens who are in trouble with their mortgages. So you the tax payer paid the banks to stay in business to be allowed to throw your neighbour out on the street.

        Read all about it here

        http://awaken-longford.com/2015/08/28/harsh-reality-of-eviction-in-ireland-2015/

      • McCawber

        I slightly disagree.
        In the beginning God created man.
        Sometime later man created money.
        Around the same time man also created politicians.
        The politicians are the main culprits.
        They created the Central Banks and gave them the powers they have and those powers have been increasing gradually over time.
        Once upon a time the Chancellor of the Exchequer in England dictated interest rate policy and money supply policy. Now Britain’s Central Bank decides.
        The politicians have used the CBs to do their dirty work for them.
        When interest rates go up/down (particularly out of normal bounds) it’s the CBs fault, nothing to do with the mismanagement of the economy by the politicians.
        That 2% inflation target, that’s the politician’s wriggle room for waste. That’s a mind boggling amount of waste and it’s every year so it’s 8/10% over the lifetime of most parliaments. It’s staggering.
        Bottom line the structure of our money will not change until politicians change their ways.

        • Politicians will change their ways when you tell them to. Not before. People need to understand the problem before they can correct it

        • DB4545

          McCawber

          I’d like to agree with you on that one but we elect and re-elect politicians. We have a responsibility. We elect sales reps and give them unlimited expense accounts called public finances. A quick example. Remember the Channel Tunnel project? Huge publicity involved and British and French politicians falling over themselves to claim credit for spending taxpayers money. Irish politicians are no different. The Swiss have just completed the worlds longest tunnel the Gotthard Base tunnel on time and on budget. You’ve probably never heard of it and I came across it purely by accident.

          If Swiss politicians tried to claim credit for spending Swiss Citizens money and spent money on PR in the process they’d be ran out of office. This is a Country that allocated 1.3 billion Swiss Francs on fallout shelters and spent only 750 million Swiss Francs. They have a very high rate of turnover for politicians and consider it an insult to be called a “professional” politician. It’s your duty to vote politicians in and then vote them out again with fresh faces and ideas.In Switzerland it’s everyone’s responsibility to be an amateur politician. There are some qualities I certainly don’t admire about the place but look at the the results they achieve when people consider themselves to be their own leader and won’t accept bullshit from anyone. Bottom line is that Irish politicians won’t change until Irish people change their ways.

          • Yes and you will be an instrument in that change by advocating for it. One by one we grow together until we can not be ignored.

          • Mike Lucey

            Couldn’t agree with you more DB. The first thing we need to copy from the Swiss is the power to call a referendum which was taken from us.

          • McCawber

            DB4545
            I don’t disagree with you at all.
            However DeValera stitched us up rightly with the constitution he gave us.
            And as pointed out by ML the general population have almost no ability to call a referendum.
            But that is just a bit of an excuse too because we got a chance to give our politicians a firm kick where it hurts when we got the senate referendum and what did we do.
            Thinking like the cute hoors we are, we let them keep it.
            You only get a chance to send a message like that to the politicians ,once in a lifetime, and we sent the wrong message.
            We SAID “Carry on lads, no need to change a thing, you’re doing fine”
            So it’s not the CBs fault at all.
            But they are a very concevenient scapegoat and we know who put them in that position.
            It’s one hell of a vicious circle.

          • DB4545

            It is a vicious circle but we can move on it. The Swiss model shows a way to break the circle. They have a high turnover of politicians.Stop voting for incumbents and vote in fresh faces. Vote them out again at the next opportunity. This isn’t a personal dig at some people who really try to do their best given the system. But career politicians are just that, they’re interested in their career and not the good of the Country.

            To be fair the system will corrupt most people with time, I’m not claiming moral superiority or that I occupy some high moral ground. We’re all human and we all have the same common vices and failings. That’s why people need to be moved on. Maybe a maximum of two terms as a TD or any political post holder right down to councillors(who are redundant anyway).

          • Mike Lucey

            @McCawber

            As regards the Senate Referendum, I think you are partly right when you say, “Thinking like the cute hoors we are, we let them keep it”.

            Was it more a case of an anti-government vote and more so an anti EK vote. Many voters were happy enough just the see the smile wiped of his face.

            As regards the Senate, I’m positive about it but would like to see it reformed and broadened so that it is not dominated by the party whip system.

          • We have a senate debate in Canada. Basically it is regional representation with allocated seats to provinces and territories.

            The problem here is that they are appointed by the ruling federal party. No democracy here.

            #0 years ago the Reform party proposed an elected senate but the structure of representation was not changed.

            all countries are ruled by urban centers and there is no real understanding of what makes the rural economy and lifestyle operate.

            My suggestion for an elected senate is to be based on a geographic grid of the country. Lay a square grid over a map and apply the size of the squares to reach the number of senators required. Then allocate one senator to each square.

            Elections every 6 years and no repeats consecutively. No party affiliations allowed as each person can run based on ability and a small government stipend to offset costs if they achieve 5% of the vote or better.

            Government reps to the Dail come mostly from the cities and are partisan. Senators would be largely non partisan independents. Balance achieved as all legislation must pass both houses.

            Just random thoughts here :)

      • cooldude

        An interesting fact in relation to Nama is who the government were advised by in relation to setting it up. This well paid service was provided by non other than Rothschild Bank of London whose family are also shareholders in every central bank in the world. We were stitched up by these bunch of chancers and they sold off our country to their favorite hedge funds and everyone made a fortune at our expense. We really need to wake up on what is going on right in front of our noses and condemning our children to a future of debt slavery unless we first of all understand all of this and then take the appropriate steps to stop this pillage. Cromwell must be laughing at us in his grave.

        • You’re dead right in what you say cooldude but they’ll never wake up. Never.

        • So you have given up all hope Adam. Do not give up hope or you will then be ineffectual for change yourself. That would be a real shame. Hope is the future. It may not occur in your lifetime but do not give up on hope. :)

          • Wasn’t referring to you Tony, you’re a very enlightened and enlightening person, as are many on this blog and elsewhere. I have plenty of hope for this minority. The majority are a dull bunch though and I don’t see that changing.

            Weather lovely here in Antigua on my first full day back – 31 degrees, heading to the beach in a short while after I buy a few cans of baked beans just in case.

          • Yes I know you were not referring to me.:) You are very complementary.

            Enjoy the tropics.

            We have a sudden change from the driest of summers to wet and windy. Heavy showers more reminiscent of november but warmer thank goodness as about 19C

            Processing beans myself!! at present as the Scarlet runners gear up production. Pears on hand are delicious, apple windfalls by the bucket, just planted more lettuce, brussel sprouts, and having the odd strawberry treat. Blackberries have produced volumes this last month as I was rewarded with a hornet sting yesterday. I tripped over a stem in my hurry to escape and fell hard while a pot of berries went flying in the field.

            Such is the life of a subsistence gardener gatherer!!

  18. DB4545

    The global impact of the events in China may well have have implications for our local property market and economy but it does present us with the opportunity to open our eyes and wake up to reality if we really want to. Make no mistake a serious amount of money has been made in the last few days and some of the key players have been options traders.When people lose serious money other people make serious money. I’m an average Joe with an interest in economics so I try read up on people who know what they’re talking about. I’ve read a number of books recently written by Nassim Nicholas Taleb. He made his money assessing probability and uncertainty and allocating resources accordingly with some degree of success. He is brutally honest about the operation of markets and corporations and also about himself. He doesn’t pretend to be a nice guy and his frankness is refreshing.

    David mentioned LTCM or Long Term Capital Management which blew up some years ago. Taleb discusses LTCM in detail in his books but I’ll try to get to the point quickly. This hedge fund had two key principals both Nobel prize winners Dr. Robert Merton and Myron Scholes. These “Nobel winners” both thought that they could scientifically “measure” their risks. Their theories didn’t factor in the reality of human behaviour. They lost their arse and more importantly the capital of the investors/gobshites who placed their trust in them. So much for experts. And so much for experts who claim that their theories deserve respect because they are in some way “scientific”. We hold science in awe in a way that we once did with religion and both need to be viewed with a healthy degree of scepticism. Models including economic models are not reality and can’t be substituted for reality. I know I’m not a rocket scientist but even rocket scientists have a hard time accepting that they’re not rocket scientists when the evidence proves otherwise.

    “Experts” base their legitimacy on “scientific” rigor. Taleb is absolutely scathing of the “science” which underpins their claim to legitimacy.”Science” has a number of explanatory frameworks that are useful but only useful until something more useful comes along in light of revised evidence. Science has laid claim to an infallibility that was once the preserve of Religion. Science and Religion are not infallible. They are explanatory frameworks devised by mankind in an attempt to make sense of our world and mankind is very fallible. The unfortunate victims of the 9/11 attacks may have been expert at measuring risk to some degree in their chosen field of business studies. That expertise could not predict or measure that people with a particular religious viewpoint would choose to fly a plane through their office window. No expertise can because human behaviour is not always amenable to completely accurate “scientific” measurement. Human behaviour is essentially unpredictable and sometimes irrational and that’s why we’ll always live in interesting times. It may be prudent to make your investment decisions accordingly.

    • Deco

      I would add two other belief system that wants us to assume that it has infallibility.

      In fact it is pretending to as much infallibility as religion in the 1600s and Science in the 1900s.

      The centralized political entity.

      And currently in the West this entity are controlled by the hyper-wealthy. They sit at the top and corrupt the entire system turning their power into a mechanism to undermine any possible public interests that might apprehend what they are doing.

      We are at the point that unhealthy behaviours must be encouraged, so as to ensure the system does not rectify the corruption that is becoming it’s hallmarks.

      • Deco, the hyper wealthy as you call them are a function of a result of the central banking monopoly on Money. You are correct. The corrupt system leads to corrupt money that leads to all participants being corrupted.

        It is not just in the West but everywhere the central bank is in place. That is, the world in general.

        We have to simplify the proposed solution. That is to understand where the root problem is and to tear out that corrupted root and plant the world with honesty yet again.

        Destroy the central banking system, the corrupt root, and revert to sound money principals.

  19. Deco

    This is the story of a financial cancer organism that is inflicting misery on hundreds of millions, and which is clearly out of control.

    Time that people took democratic institutions of the grip of an mutated Madoff scheme pretending to be a bank, that has a track record of ruining ordinary people’s finances going back to 1929.

    Meet Vampire Squid.

    http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

    There is no morality in the pretensions of these gangsters. This is like Anglo running democracy. Like have the cokeheads from Seanie Fitz’s bank appointed to run a country.

    This entity will ruin America. In many ways it already has done so. It is a business that makes money by distorting and manipulating markets.

    As I said it is a cancer on the entire system.

    • True enough as it is a creation of the central bankers fiat money system.

      Tear out the cancerous root of central banking and the appendages like Goldman Sachs wither and die. GS advised Greece too. Greece is destroyed. Its salvation can not be through band aid changes. It must overthrow the oligarchy of central bank money and revert to sound money. It is the only way to regain national sovereignty and a democratic state.

    • GS is not out of control. It clearly exercises a malevolent policy, with malicious intent. They are evil.

  20. Deco

    This is the story of a financial cancer organism that is inflicting misery on hundreds of millions, and which is clearly out of control.

    Time that people took democratic institutions of the grip of an mutated Madoff scheme pretending to be a bank, that has a track record of ruining ordinary people’s finances going back to 1929.

    Meet Vampire Squid.

    http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

    There is no morality in the pretensions of these gangsters. This is like Anglo running democracy. Like have cokeheads from a dodgy D4 bank appointed to run a country.

    This entity will ruin America. In many ways it already has done so. It is a business that makes money by distorting and manipulating markets.

    GS is a cancer on humanity.

  21. ll the hype over a chines crash it is still up on the Shanghai market 48% over 12 months and 1.3% YTD

    http://www.bloomberg.com/quote/SHCOMP:IND

  22. https://www.youtube.com/watch?v=nAKX-Z9C4Tw

    I do not know if this will open for you.

    ” The New York Stock Exchange fell by one-thousand points at the opening bell on Monday and remains volatile. Pundits say this is caused by China’s stock market, which has been in shambles over the past few weeks. [In our view, it has little to do with China’s manipulated stock market and much to do with the US manipulated stock market.] CBS 2015 Aug 24 “

    • McCawber

      Is it probable that the $ is going to weaken as a result of China starting to sell off (Dump implies emotion to me) their $ holdings or is it just telling us how much bother the Chinese are in and are drawing down on their savings.
      The Chinese have to know if they sell off too quickly that there will be a run on the $ and they’ll feel the pain too.
      I can see how this could get very nasty for the $ if China sold off too quickly.
      So going step by step.
      It gets nasty for the $ what will the Fed (in the first instance) do both publicly and privately to damage limit.

      • It is a financial war.
        Correct — China could severely upset the US economy shedding treasuries.
        Seems like a bit of both re China. Needs liquidity and to be rid of worthless US script. The sell off of 100 billion went un-noticed by the world press because of reporting on stock turmoil.

        Remember China under reported its gold holdings last couple of months. Not an ounce leaves China. Reporting 1650 tonnes is a joke as China is the worlds largest gold producer at 450 tonnes a year and imports at least 2000 tonnes a year over the last 5 years and at least 1000 tonnes a year before that.

        That means a growth of at least 10,000 tonnes or even 20,000 tonnes over the last decade. Liquidity is not a problem when you can save in such a fashion.

        The Fed is already being forced into a painted corner and can only monetize debt and redeemed treasuries by printing more dollars to buy the existing ones.

        Look to see the Federal Reserve balance sheet show increasing amounts of liabilities. Inflation and probably hyper inflation is on the horizon. When confidence fails in support of the dollar then market interest rates will shoot higher and the correlated fall in the bond values happens quickly.

        The same with all other paper currencies.

        BTW I just discovered the local currency here.

        http://www.saltspringdollars.com/

  23. McCawber

    It has just occurred to me that Scotland has it’s own currency.
    Don’t know how it’s structured, backed or anything about it, but just vaguely remember it being raised as an issue during their referendum.
    Something to do with how much of the UK’s debt, Scotland would have to shoulder.
    Could be a good place to start a currency revolution (aka silver coins) because I think the independence issue is still very much alive.
    Maybe they’d be prepared to listen.
    Just thinking out aloud.

    • http://www.scotland.com/currency/

      Scottish currency is the UK pound Ponzi press perfidy.

      The debate as I understood it from afar is that if Scotland expected to take some UK assets such as North Sea oil then it could take its share of the national debt too.

      It would be easy to have Scotland start its own currency tied to nothing but itself. The propaganda that we must have a joined currency is pervasive, persuasive, and a prevarication.

      There only needs to be a commonly accepted money for final settlement between the parties. The Real Bills doctrine of 91 day self liquidating credit works for the most part between trading partners with imbalances settled in gold, a universally accepted money. World trade would flourish with no need of central bankers and or the elimination of national or regional currencies.

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