January 4, 2016

Why our economy will be robust in 2016

Posted in Sunday Business Post · 71 comments ·

Over the past few weeks, some readers of this column have been a bit perplexed by my confidence about the economy and why I believe that the basis for this recovery is stronger than at any stage since the mid-1990s, when Ireland truly was experiencing something of a miracle.

Let us examine, ahead of work tomorrow, why there are reasons for guarded optimism. I am not going to cover every single factor that impacts on the Irish economy as that would be way beyond any article; instead I am going to focus on two critical aspects that affect the trajectory of the economy.

The first aspect is what is going on in the United States and the second, less important, observation is what is likely to happen in our local economy.

This article will not be without its own paradoxes. How can we be optimistic about Ireland – one of the world’s most open economies – when world growth is slowing down?

Surely if world trade is slowing, countries that do most trade should slow quickest? I will answer this conundrum in a moment by explaining that these two things can be true at the same time.

Initially, however, let’s examine where the US, the single most important country for us, is in its economic cycle. The US is seven years into an economic cycle that began with near bankruptcy after the collapse of Lehman.

After seven years of zero interest rates, the US has fixed its balance sheet. Given that it experienced a “balance sheet” recession, this outcome is a roaring success. This was exactly what the Fed set out to do in 2008/9.

The rise in rates, two weeks ago, is a valedictory moment. Mission accomplished. Unemployment is down, the budget deficit is down, house prices and asset prices are up and corporate indebtedness is down.

Unfortunately, the only factor that has been absent in this recovery is large-scale corporate investment from large US companies. This is the American paradox.

But the paradox will shift this year and Ireland will be a prime beneficiary.

The seven-year cyclical recovery process in the US will continue for some time. A growing US is always good for Ireland irrespective of what is happening in the rest of the world.

But there is something else going on which plays in our favour. Let me explain that “something else” by leaving the US economic cycle and examining the structure of the US economy. If we tease out the odd structure of the US, it will allow us to understand (a) why the US is different to the rest of the developed world, (b) why Ireland can do well in 2016 and (c) why Ireland can do well even if the rest of the world slows.

The key to all this is exports. Big economies that are dependent on exports produced by domestic companies are in for a fright in 2016.

Consider the structure of the three big economies outside the US: China, Japan and Germany.

Japan used to be a major exporter and exports are now about 18 per cent of GDP. Germany is the world’s fourth largest economy and it exports just under 50 per cent of its GDP.

China, the world’s second biggest economy, exports 26 per cent of its GDP. All these are very vulnerable to the fall in world trade that is happening.

Now think about the contrasting position of the US. It is the producer of nearly a quarter of the world’s GDP yet its export rate is only 13.5 percent of GDP, of which about 40 per cent goes to Canada and Mexico.

What differentiates the United States from the rest of the world is both relatively high domestic consumption and relatively limited exposure to foreign problems.

What is remarkable about the global system is that the United States, which should have a very high dependence on exports given its size, has a very limited one. America is exceptional and isolated.

And as problems rise in the rest of the world in 2016, this isolation will benefit the United States.

These problems could be European such as another refugee crisis when the weather improves in the spring, another EMU implosion, Brexit, Catalonia leaving Spain or France electing the National Front. Or they could stem from Asia, with the implosion of the Chinese banking system or tensions with Japan.

And, of course, we have emerging markets problems everywhere you look, while the Middle East is experiencing capital flight for obvious reasons. All this means more capital flows into the isolated US, driving up the dollar. But if there will be problems in the global economy and if big exporters like Germany are set to suffer, why won’t little exporters like Ireland suffer too?

Here is the answer to the American paradox and to some extent the Irish paradox. As the dollar rises, corporate America will look to invest. But where can it invest?

Corporate America has to invest in cheaper offshore locations to avail of the stronger dollar. Where might these locations be? Well, obviously Ireland is one.

In time, accumulated profits need to be invested. Boardroom America can’t keep buying back its own shares or playing other financial tricks, particularly as share prices are now very high.

It will have to return to the old way of doing things, and this means old-fashioned investment in productive capacity.

As a result, I believe that Ireland will see a significant increase in productive investment from multinationals. This will propel the exporting side of the economy.

On the local side, the recent stalling in house prices is a good thing as it reduces any “overheating” problems and it helps to break the link between banks, house prices, credit and personal debt.

Savings that were hoarded in the crisis are being drawn down slowly and this is underpinning retail sales.

As this process seeps into the economy, unemployment will fall further.

Ultimately the local economy is moving in the right direction.

It doesn’t need any more stimulus, but tax cutting on an already overtaxed workforce is a political certainty, so we have to factor it in. This implies domestic demand will remain strong.

Taken together with the paradox of US investment here in Ireland, it is difficult to see the economy being nothing but more robust in 2016.

  1. michaelcoughlan

    Top of the morning to ya David.


  2. michaelcoughlan


    The article makes no mention of how the massive amount of debt now on the fed balance sheet will be deleveraged and if Interest rates will rise as a result.

    Re us exports; does the provision of military services to the 130 plus countries the us army is station In get added to the gdp tally as surely the us is invoicing the local govts for services rendered?

    I thought with euro zone interest rates at minus levels that people would borrow in euro to invest in us assets but I could be wrong?

    As for local house prices stalling being good it is a catastrophy because prices are locked in BELOW the cost of production meaning a stall in supply and upward pressure on rents etc and means my career in this area will not now recover.

    Best regards to all for the new year.


    • michaelcoughlan

      I meant to add that I agree with the major premise of the article though that Ireland will have a good year


    • CitizenWhy

      Two points: … 1. The Fed really cannot have debt, that is, it simply produces more money. That is is its primary function. Higher interest rates simply mean that it will produce less money, just as it extremely low interest rates have meant it has been producing an unusually high amount of money over the past few years. It’s the federal government itself that has all the debt, but the cause of that debt – annual budget deficits – is steadily going down (unless a Republican gets elected President; deficits – and therefore debt – goes way up under Republicans, their talk of fiscal responsibility a joke among those who know the facts). … 2. Government debt, if reasonable, is not really a problem. In fact recessions have always followed a balanced budget or worse, a surplus, an excess of revenue over spending. The chief cause of US budget deficits is military spending. But even that excess is workable as long as there are no foreign wars.

      • michaelcoughlan


        I meant to use the word liabilities instead of debt.


        • CitizenWhy

          In technical terms, savagepeter is referring to two types of dollars: the international settlements” dollar and the “petrodollar.” Both give the United States, that is, its corporations, economic hegemony over the world. Settlements is simply a deliberately obfuscaing term for debts, in this case what one country owes to its international creditors – governments, banks and corporation. those debts must be paid in US dollars. There was a lot of talk about repleacing the monopoly of the dollar with a basket of currencies = especially rubles and Chinese yuan. But that talk collapsed with the wobblying of those economies. The US system run by the Federal reserve is much more savvy about how to serve capitalist interests an create currency trustworthiness than the system in Russia or Chine, whose central banks are infantile (by capitalist standards), overly influenced by political dictates aimed at protecting corrupt state owned banks and corporations or corrupt banks and corporations that serve Tsar Putin !. The US system is shamelessly dedicated to maximizing shareholder value (big deal word for profits) not matter who else (the poor, workers) get harmed in the process. For big investors this says “trust the dollar” not the others.That’s why the US Fed bailed out a number of foreign banks as well US banks – to keep the international financial system afloat and in a state of repair. The European central bank is stuck with an austerity fixation. They half listened to Tim Geithner when he propounded teh Geithner Doctraine, which has two parts: 1. Bail out the b anks and put their interests first no matter who else gets hurt, and 2. Print money to stimulate your economies or your economies will shrink the way the Russian economy shrank before the collapse of the Soviet Union (and the shrinking economy was the main cause of that collapse). When the US Congress refsued more stmulus – despite teh agreemnt that more was needed by economists on all sides of the conservative-liberal spectrum, the US federal Reserve could step in with “quantitative easing,” that is, printing money. This led to some corporations surviving, all bansk surviving, and to a big increase in investment portfolio values. This last was extrmely inportant politically. The “base” of teh American workers – those able to invest, and those with rtirement portfolios in the form of investment portfolios, had seen theihe value of their portfolios drop significantly in 2008. By propping up investment portfolios the Fed won back the confidence in the “American system” of America’s upper middle class and upper working class (the only people besides the rich who really count in US politics). This propping up of portfolios is afar more important in the US than Europe since the US lacks the social democratic distributions of Europe.This al;so led to more jobs. it did not solve the gaping problems of the US system, namely the exporting of jobs and the evasion of trillions of dollars of taxes by US corporations. But again, the US political system does not care about the harm to workers and the poor. It just knows that it must keep the confidence of the upper middle class and the upper working class by taking good care of them. by the way, the US, as the currency of international settlements, controls the World bank and the IMF. Both institutions lend big money to dopey foreign regimes to build costly and unneeded infrastructure which bring in no revenue to the borrowing governments. Those governments must then limp along financially as they squeeze their people dry to pay off their international debts (in dollars). in reality those debts can never be repaid, leaving the dopey countries in political servitude to the World Bank and the IMF (that is, the USA). the US conducts financial proxy wars (IMF, World Bank) as well as military proxy wars.

          the petrodollar means that oil purchases must be made in dollars. Much blah blah about ending this, but again, what other currency can be trusted by world capitalists?

        • michaelcoughlan

          hi citzenwhy,

          I am not exactly sure what point you are making but;

          “the way the Russian economy shrank before the collapse of the Soviet Union (and the shrinking economy was the main cause of that collapse)

          says a lot about how you view the world because the shrinking russian economy was a symptom not the cause of the collapse of the soviet union.

          Just so you know I don’t believe the US is a capitalist economy I believe it is a fascist one. I am not a socialist either.


    • DJR

      Have to disagree completely with this – “prices are locked in BELOW the cost of production”.

      How come houses can be built throughout the continent, up North and in rural Ireland at below this cost?
      It is not a cost of production issue, but a dysfunctional market that is the result of decades of skulduggery involving politicians, developers and the banks.
      Many of the developers who gambled crazy amounts on sites during the boom are hoping to drive prices high enough to make a profit on their investment (and Michael Noonan & the banks are in full agreement with them). They have been paid €200k a year since the crash by NAMA, who said their expertise was needed! So the developers who contributed the crash in the first place are now getting paid by the state to do nothing and squeeze the market until they can rip off a new generation.
      Their investment (& the banks/NAMAs) in their sites is a sunk cost and needs to be written off – a proper tax on vacant sites would soon clear them off the field. Then proper long term planning should be put in place to cater for housing needs, which are relatively predictable if the boom/busts construction mania is avoided from now on.
      Housing is by far the biggest component of any household’s expenditure, yet the government is happy to leave it in the hands of banks & developers despite their track record. Thank god for the central bank, which is single-handedly working to drive down the “cost of production” by limiting how much debt the banks can foist on to people.

      As Colm McCarthy wrote over the weekend, instead of a political party offering genuine reform on this (or any other area of long term importance) we will instead get promises of tax cuts and pension rises in the bidding war for the fool’s vote.

      • michaelcoughlan

        ‘How can houses be built elsewhere below this cost’ is a self contradicting statement let me to explain;

        The cost of production is the cost of production. The market price is what is set below the cost of priduction for all of the reasons you say except the central bank which is making the problem worse.

        The way to bring down price is to increase supply.


        • DJR

          But you are talking about increasing the supply of housing at prices ABOVE their present level. How can selling houses at above your “cost of production” bring down prices if they are currently below it? And who is setting that “cost” – the CIF?
          Houses can be built significantly below that “market” price, but the vested interests are opposed so that they can cover bad investments. Not sure why you agree with them. As long as there is a dysfunctional market in the supply of land, and the “cost of production” includes this, the market will not function.

          Re the central bank being the problem – do you agree with the suggestions that insurers should enter the market to allow people borrow in excess of 3.5 times their income?

          • michaelcoughlan

            Thanks for your response.

            McWilliams offered guidance on price setting etc previously;

            Mortgages for a house should be limited to a max of the average price of the area its being sold in over say a 20 year period minus a 10% deposit say for a first time buyer. This will limit price and limit price for the underlying land.

            If someone had the cash the go higher

          • michaelcoughlan

            then they do so at their own n risk.

            A price rise in the short term will stimulate supply leading to price moderation in the medium to longer term.

        • ps200306

          Michael you we right we need more supply. But then you immediately shoot yourself in the foot by proposing price fixing et al. Providing financial incentives to developers or buyers will do absolutely nothing to fix the supply problem. It’s really simple. The government must zone appropriate serviced lands for development, must reduce the ridiculous amount of levies it claws in from development, and must tax undeveloped land out of existence. Only then, when government involvement is at an appropriate level and constant government interference is seen to become a thing of the past, will our first rational housing market ensue.

          • michaelcoughlan


            I didn’t propose price fixing only the amount that can be lent. If the max mortgage allowable

          • michaelcoughlan

            is 360k but a punter wants to pay cash 1m then good luck to them.


          • ps200306

            But your projection of what will happen makes no sense: “prices will go up before going down”. Wrong, prices will reach a new equilibrium which — by your reckoning — must be higher than today’s price. The long and short of it is this: if the cost of building houses is higher than what is considered a safe multiple of income in the rest of the developed world, then something is fundamentally knackered about our housing market. Either developers’ profit expectations are too high, or they are knobbled by a continued overhang of debt, or the government or other player (e.g. the banks) are artificially inflating things. It turns out that probably every one of those is true. The rational solutions are obvious, as I said: ensure supply of land, make the government butt out in terms of both tax and incentives, except to disincentivise land hoarding by taxing undeveloped land. The problem, and the reason none of this will happen, is that it doesn’t suit any of the vested interests: government, banks, developers, or (importantly) the people lucky enough to already own a house who want to see prices soar at the expense of those who have to rent.

          • michaelcoughlan


            Re prices have to rise I mean academically as it stands. The other aspect is costs would have to go down. I agree mostly with you.

            Development land will have to come on stream at lower prices and apt blocks will have to get higher in height for supply to increase.

            The problem is the euro is getting weaker which is what will drive the expotts side but people who live here will see their purchssing power reduced.

            What you will see is govt intervention to fix rents and prices paralysis in developments and an exodous of talent to be replacd by you Ger and cheaper foreign born labour.

        • Sideshow Bob

          “The way to bring down price is to increase supply.´´

          I am not sure where you were living between 1990-2006 but I don´t think it was in Ireland.

          Housing completions in Ireland in the early nineties sat at about 20k per year until 1994 when they started to take off with first a 25% jump in production and then with a solid 11 annual increase ranging from 6-19% but averaging a little over 12%. They only started to dip in 2007 with a 16% drop but that year housing completions stood at almost 80k units.

          Throughout the 12 years the average( median ) increase in new build house prices was about 12.5% and there was no decrease at any point. About 700k units were built in total, a 50% addition to the existing housing stock, and at no point did this result in ANY DECREASE in new house prices. The opposite in fact occurred – prices soared.

          I suggest, respectfully, that you review the mantra, quoted above.

          • michaelcoughlan

            Thanks for this very important point.

            Prices have in fact collapsed. I sold a 1 bed in west dublin in november 2015 for 11k less than I bought it for in 2000.

            House prices rose in the period you mention because of runaway credit expansion and not by normal demand and supply considerations. Remember it was reckless banking which caused all the trouble and completely distorted the market.

            best regards,


          • Sideshow Bob

            A couple of things there Michael,

            I made a point of talking about new residential units (officially recorded as `new house prices´ by the CSO) and not 2nd hand units. New units prices would reflect to some degree land production costs from a time period immediately before being sold along with profits for the builder/developer. I did not involve prices for 2nd hand units as the price someone is willing to pay for those relates to their perceived value only and there is no way to tell what age a property is or where there is an attempt to recoup earlier building costs or what those where. So, good anecdote apart, your story about the apartment price isn´t applicable to an argument about current production costs in any way as far as I can see.

            Prices, I take from your replying comment, are not then just about supply, but also about credit, and probably you would agree, about `market sentiment´ or the prevalent `safe as houses´ Irish mentality. And from 2007-12, yes, prices did collapse but averaging it out it was 5.5% year on year drop as opposed to the 32% year on year drop in dwelling production that occurred. Since then production has mainly leveled out at 8-10k units p/a and we recently had a spike in prices due to scarcity.

            My feeling, looking at the numbers, is that prices attainable for profitably building `houses´(or residential units) stabilized a while back and the cost of production isn´t really an issue as there is a reasonable expectation of what the end sale price will be; i.e. it is predictable 1-2 years in advance of completion, so a budget can be set at design/tender with a good expectation of being able to hold to it and achieve a profit with eventual sales. In other words, the market has stabilized.

            I am curious to know what issues really are out there, and assuming there are a few, to what extent each one is to blame.

          • michaelcoughlan

            Hi again.

            The average drop in prices for houses across the state is over 60% peak to bust. Apartments even higher. My apt was valued at 315k at the peak sold for 137k.

            2nd hand properties have a value in them related to the land they sit on so it can’t be discounted. In fact if the land they are on rises in value they may be acquired for developing higher value buildings and demolished. This happened in the former commercial unit areas where warehouses were demolished for apts and hotels etc.

            Some really rich developers may be buying some former sites from nama for cents on the euro and may be able to produce units at a profit in certain areas at current prices but that’s false economy.

            You won’t acquired new land and build new units on them for years to come at a profit at current prices. No chance.



        • McGoo

          The cost of production is land + materials + labor + profit. All of these are flexible, but by far the most flexible, and also also the biggest single cost in the average house, is the cost of land. So, the key to building and selling houses, at a profit, despite the central bank restrictions, is to pay less for land. DJRc comment is correct. The central bank are the only institution doing the right thing, trying to make houses affordable for future generations. Unfortunately, with Honahan gone, I expect his replacements to crumble under government pressure and ease or abandon the restrictions.

          • michaelcoughlan

            I disagree.

            Mcwilliams observations are superior in my view than the CB’s. Your point makes no reference to the purchasing capacity of the punter nor the reducing value of the euro.

            The CB policy in my view (especially the 20% deposit requirement for the next house needed as your family grows) is in fact designed to curtail the size of the Irish family to a max 2 kids so that the second parent continues to work preserving the line of taxable income available from the second parent to the gov to transfer to international banks.

            This wouldn’t happen if the family grew to 3 kids or more with one parent staying at home to mind the kids because of prohibitive childcare costs.



  3. Great Article David . I was delighted after reading it . I hope it is true and that what happens does happen. It was a fantastic positive adrenal for the start of the year and lifted my spirits and I am sure many other readers had more hope too. It was a prediction of now to happen which is more difficult than what will happen in the future.I am reminded of the lion roaring in the jungle and all the other animals congregate to listen attentively .A true Leo in spirit .There was no knock on in this article it is a Try.

  4. CitizenWhy

    Yes, the US and the US dollar, despite dysfunctional politics and a dodgy banking system, remains and will always remain the only true safe haven for the non-US wealthy. The ridiculous cost of condos and rents in Hew York City is a direct reflection of the foreign need to own a US domicile.The Arabs may prefer London but they do not spend time there in the properties they own. No one really wants them in New York.Cameron kisses their arses to keep them. But the US will not. The US does not want the Russians either, though London welcomes them. We have enough problems with Russian gangsters to put up with any more. And US police will do something about the white slavery problem, run by Russians and other eastern Europeans, that the UK utterly tolerates.

    Why is the US the safe haven for wealth. David names the reason: the domestic strength of the US economy. Today the reliability of a currency today is based on: … An established rule of law that protects property consistently (protection of property being the fundamental value of liberal/bourgeois democracy)… A strong domestic market/GDP.

    And if the ever embraces certain aspects of Social Democracy its domestic market will be even stronger. But the answer is lot more welfare (though welfare is necessary). It is higher wages and job growth. Remember, FDR believed that welfare would rob people of their pride and dignity. That’s why he tied government assistance to jobs, jobs that produced great improvements in the infrastructure of the US. Government spending led to job building, including, in NYC, street sweepers walking the streets and sweeping up trash twice a day (in smart, crisp dignified uniforms) and mailmen coming to your door twice a day.

    • CitizenWhy

      P.S. New York City has finished last year with a billion dollar surplus due to all the foreign spending going on in the city,especially in real estate.

    • ross81

      If only they’d apply that rule of law to their Middle Eastern policy.

      • CitizenWhy

        The US has never applied the rule of law to its imperialist actions, including its domestic ones against blacks and native Americans. It is not unusual, and in line with our evolutionary biological drives, for groups to love their own and protect them and treat them well while hating aliens and mistreating them.

  5. Antaine

    Subscribe :-)

  6. savagepeter

    “What is remarkable about the global system is that the United States, which should have a very high dependence on exports given its size, has a very limited one. America is exceptional and isolated.”

    What are you talking about??? DO you actually understand economics?

    By being a large net Importer America gets the world to work as slaves and earn dollars which are held at an account the federal reserve
    They get stuff in return for computer generated numbers in a database(or dollars). The GOAL is to IMPORT. You consume what you produce yourself plus what other nations send you in exchange for dollars which are printed(or entered on a database which you own). That’s what is called having real terms of trade. The world gives you stuff while you give them dollars.

    They would have to be idiots to attempt to become net exporters.

    • michaelcoughlan

      The net export I’d say is in military services to other countries to protect the assets of us companies or indeed add to them

      • savagepeter

        America does not net Export. It net Imports. It net imports by the largest amount in the World.


        • michaelcoughlan

          I get the point you make. My response was tongue in cheek re invoicing for military services which I am sure it does with the revenue going home to the military industrial complex in the us.

          • savagepeter

            I doubt there’s an invoice sent and a payment returned for us Army activities(though maybe there is)! They get paid in kind with cheaper oil, minerals and the use of the dollar in oil trading.

            I imagine the private contractor security firms in the post invasion countries directly recoup money though.

            Also the American private sector benefits by taking all the military technology re-jigging it and selling it to us as a means to watch cats videos 24-7.

            It’s a wonderful public-private enterprise!

          • michaelcoughlan


            The Irish Naval service makes a profit, The Irish police force makes a profit, The irish Army breaks even.

            Money is recovered through invoicing for large sporting events, the UN, training of other peoples forces, fines etc.

            The US army will be paid in each country it is in from the tax receipts from the taxpayers who would pay these costs to their own army if the US one wasnt there.


          • savagepeter

            I’m genuinely curious, which countries pay for US army presence with tax receipts?

            And have you links to articles on the subject? I don’t see the logic of it.

          • michaelcoughlan

            Here is a link to another article about an alleged row over how the Iraq occupation would be paid for;


          • michaelcoughlan

            I asked mcwilliams if he knew if the provision of over seas military services as in the case of south korea for example turned up on gdp figures because warfare is the largest public works Keynesian govt spend there is.


          • savagepeter

            Thanks for the links, I couldn;t find any.

            I wrote a long long post (longer than this one!) but I’m gonna refrain from publishing. I still can only see this as a means of extracting resources.

            The only way I see it as a tax is that these payments are all made in dollars and it acts like tax on vassal states to preserve dollar hegemony. Similar to how the petro dollar works.

            These vassal states need to earn dollars to pay these bills preserving it’s dominant status.

            If they don’t earn dollars they need to buy them off someone who did…so either way America gets stuff.

            I don’t see it as a means to recoup military spending. Why issue all the dollars to go to war only to get them all back again?

            Anyway I’ll stop here. It’s a debate for the pub.

          • michaelcoughlan

            Hi savage peter.

            Your last post is bang on the money.

            The US needs perpetual war to confiscate everyone elses resources to maintain the balance sheets of its own companies and its state balance sheet because they have been running at a national deficit for ever. Total debt is too big to be paid off from legitimate commercial activity.

            Spain had to do the same thing after the bust following the credit expansion when lending all the stolen south american gold when the consquistedores came home.

            Mcwilliams told us about this in a previous article a couple of years ago now I think.

  7. cooldude

    I disagree with the content and the conclusions of the article in particular with the idea that the Fed has somehow turned the economy around and everything is now rosy in the US.

    Nothing could be further from the reality. What the Fed has done is created artificial asset bubbles in both real estate and certain stocks through their easy money and both of these bubbles are about to blow. In fact if you leave out the FANG stocks ( Facebook, Apple, Netflix & Google) the bubble is already starting to burst as seen in transport, industrial and even bio-tech. The idea that an economy can be rescued by a bunch of vastly over priced social net working companies is ludicrous and will be shown clearly as such very shortly. This facade is about to blow and we will see the third asset bubble burst in the last 16 years and each of them caused directly by the Fed.

    Here is an article which is actually in touch with reality in the US and not some rose tinted version. The fact is the labour participation rate has fallen for every single year of this so called recovery and the only jobs being created and part time low wage ones. Time to look at reality


    • CitizenWhy

      You make very valid points. But the US has stabilized around the exclusion of large numbers from its economy. It still takes very good care of a large number, with more now than in the past in the the ranks of the upper middle class. Plutocracies (the US), with a measure of democracy for the economically secure, can be very stable. The US has already militarized its police to add intimidation to its stabilizing arsenal. As for exclusion from the economy certain immigrant groups – many Hispanics, for instance – are quite skilled at managing their poverty through collective sharing of resources.

  8. Pat Flannery

    Question: “Germany is the world’s fourth largest economy and it exports just under 50 per cent of its GDP” and is therefore vulnerable to a drop in worldwide demand. That is like saying that California exports 50% of its GDP and is therefore vulnerable to worldwide demand when most of its exports go to other United States. Is not most of Germany’s exports going to other European States? This is just more of David’s German-bashing and trashing of the Euro. California and Germany are alike in other ways too which is why I love them both.

    • CitizenWhy

      Somewhere in the last two years China became the biggest importer of German goods. Given China’s problem what David says is quite likely.

      • savagepeter

        Given that Germany wants all of Europe to run surpluses and the coming China slow down. Where will Germany export to then? The MOON?

        • Pat Flannery

          savagepeter: Maybe the reason Germany lists as the biggest net exporter country and America as the biggest net importer country is because America off-shores much of its exports while Germany mainly exports from Germany. For example you won’t see Apple’s exports show up on American trade figures, nor Google nor any of the other “Irish” exports. Basing predictions on international trade figures is bad economics. https://en.wikipedia.org/wiki/List_of_countries_by_net_exports

  9. redriversix

    Hello,good evening..Happy new year

    Hope all is wonderful..?

    Nice positive article David…

    What about all the debt ? debt based economies ? “Our State pension funds short 120 billion euros..?

    Is their not still too much debt…We still do not manufacture anything..Are we not a service economy and a tax haven for Global Corporations ?

    Or is the debt a fiction like Q.E to infinity or will it bite us on the ass eventually ?…or will that be the new cycle of boom and bust..not property speculation ..but bonds and debts..what would happen if interest rates rose 2 % ?

    Where is the parachute ?

    We still have problems…maybe i should ignore the printing presses..?

    Please advise

    Thank you


    Cant get my head round the debt ours or anyone elses

    • michaelcoughlan

      Thank god you are back and happy new year rr6.

      The debt problem will be solved in my view as follows;

      The world’s cb’s will take physical cash and coins out of circulation and forc everyone

      • michaelcoughlan

        down the digital route then WHAM. The depositors will then be given worthless shares in worthless banks in lieu probably in conjunction with a nasty spell of hyperinflation.

        Guess what Barry? the regional hospital in limerick is telling people who want to see a doctor to fuck off to shannon doc instead.

        Madder than bonbon!


        • savagepeter

          Most money is electronic already. How do you think for example that China earns dollars? They have an electronic account at the federal reserve.

          China sends them some iphones and the US updates their account with tap of a few buttons. I suppose they could sail a big boat of federal reserve notes over but noone would want that.

          Government debt is not really something a government with a sovereign currency like the US needs to worry about, unless they elected Robert Mugabe next year.

          Goverment debt essentially forms the monetary base for the private sector. A debt/debit for the government is a credit to the private sector + foreign sector (e.g. china, japan…)

          You can check Wynne Godley’s sectoral balances approach.

          And note that all money(base and broad) is double entry accounting. You just have to know whose debit is whose credit.

          • CitizenWhy

            The US Fed also bailed out a number of European banks. When you have the power to create currency, and that currency is trusted because of your domestic market size and your political stability (1,e. paralysis against corporate interests), why not?

  10. mike flannelly

    Developers did not value the debt on Land Banks.That was intelligent professional bankers.
    The KEY BANKING question is- What METHOD did Intelligent professional bankERS use for valuing the debt on land banks that was written down by 90%.

    Grossly overvalued debt is the “Quality Assurance Failure” of our domestic economy that is to this day being ignored by economists, central bankers and politicians.

    David talks about the 1990′s. In the 1990′s a house was 3.5 to 4 times ONE annual wage. There was a “Real Value Debt” balance between wages and debt.
    Bankers, developers, tradesmen and the land owner made money and ALL were respected. The average age of the first time buyer was 28 ( today its 36) and people in their 50′s towards the end of their mortgages were able to service private pensions.

    A site cost for a semi should be no more than a sixth of the selling price. Thats 40,000 for the 240,000 semi outside Dublin or 50,000 for the 300,000 semi on the outskirts of Dublin.
    Outside Dublin you have to service, build and make a profit on a semi with a 200,000 euro budget. 400,000 a pair. Some builders think that this is possible and some dont.

    Michael Mc Grath tells us that Michael Noonan and Nama are refusing to sell houses to Irish people but are fireselling to foreign investment funds for less than build costs during a housing crisis.

    Our 2016 patriots(Irish economists, politicians and journalists) are just on another planet.
    God bless them.

    • ps200306

      mike flannelly, good analysis. However, our politicians are not on another planet, they are merely following the inexorable logic that began in September 2008. On that date, by guaranteeing the banks, we collectively decided that all the overvalued property would henceforth be worth whatever we said it should be. The crazy concept of “long term economic value” was born. This allowed us to defer the day of reckoning for many years. By selling off chunks of the banks and the property portfolios on which their loans are secured, we are busy recouping the investment we made in them. We are getting our money back as long as we never, ever, do anything to make the notional “value” of property go down. The turmoil that renters and struggling households find themselves in is a direct consequence of that daft decision in 2008. Everything in between has been a smokescreen to prevent people connecting the dots. Your government is committed to maintaining house prices at crucifyingly onerous levels — Baldy Noonan has said as much in several unguarded moments. We must screw the poor and the young in order to maintain the status quo for the old and rich (and I say that as a member of the latter camp).

    • michaelcoughlan

      I agree with this.

      Almost all outlier towns and villages are selling apts for 40 to 50k and small town houses for 80 to 100k

  11. StephenKenny

    There seems to be two parts to this argument: Firstly that the US $ is the major reserve currency, so people will accept it in exchange for goods, and secondly that US corporations will stop their various “financial engineering” antics and start to invest in productive industries.

    The US $ has been the major reserve currency since Sterling collapsed – soon after WW2 – so I’m not sure why this is should have more of an effect this year than over the last 8 (or 40).

    US corporations have been borrowing, at almost no cost, the money that they’ve been using in their share buy backs etc. Pretty much all of it has been borrowed. Buybacks are immediately beneficial, in terms of share value, whereas trying to invest in new capital stock, products, etc, is very far from immediately beneficial – assuming it ever is. It works, so why stop? Interest rates up 0.25% is hardly a reason, with stock prices doing so much more than that.

    Money is cheaper than anything else, so, it doesn’t make any sense to take all the risks involved in designing, producing, marketing, selling, supporting, etc a good or a service. Just borrow a container ship full of money, and buy one of the Too Big To Fail asset classes – stocks or property. And do nothing except wait.

  12. corkie

    So if we ignore the gazillion dollar derivatives bubble and the ponzi national debts that are floating around everything in the garden is rosy.
    Not the usual insiteful analysis we have come to expect from you David.

  13. StephenKenny

    An interesting interview with Richard Fisher, the ex Head of the Dallas Federal Reserve: https://www.youtube.com/watch?v=7nuzT3rchPU&feature=player_embedded

    A couple of interesting quotes: ‘The Federal Reserve front loaded an enormous rally’, and ‘by March 2009, we (the Fed) had already bought a trillion dollars in securities’, but there is much more that’s very interesting.

  14. mike flannelly

    House prices for average houses or first time buyer houses should never have anything to do with bankERS or politicians. Prices should always be connected to customer affordability/their wage packet.

    A 1990′s style calculation of 4 × todays average wage mortgage of(4 × 35000e)140,000e @ 7% (mid 90′s rate)for 20 yrs = 1,085e mth.

    A 2016 calculation of 6 × todays average wage mortgage 210,000e @ 4.5% for 25 yrs = 1,167e mth.

    Although there is not much between the repayments, todays 36 year old first time buyers will complete their mortgage at the age of 61. In the 90′s it was 53.
    This has a huge impact on retirement poverty.

    We really need the 20 yr @ 2.75% fixed rate mortgage products that Germany and France have to help in some way rectify this. 210,000e fixed for 20yrs @ 2.75% = 1139e mth.

    Retirement poverty is another multiplier cost for the state attached to our failed 2003 to 2009 bankERS (same 2016 bankERS).
    There are mental health costs associated with repossessions and forced firesales also. These are a 2016 bankERS induced cost on the state.

    There will always be a link between banks and personal debt but the only link to average house prices should be the customer wage packet.

  15. Sideshow Bob

    To all the commentators on here:

    I have read many thought provoking and interesting points made by many commentators, from many points of view, on this complicated topic over the last few days on this comment thread! And all in the spirit of an honest, respectful thorough debate. Well done and long may it continue!

    • michaelcoughlan

      Yes thank god. We lobbied McWilliams to maintain the robust and respectful nature of the debate and so far so good.

  16. Worst start to the year in over 80 years portends the collapse of the US economy and the rest of the world with it.
    All physical activity economically speaking is slowed rapidly.
    At some point soon the world will divest themselves of US dollars just as Russia, China and soon saudi Saudi

    • Arabian is about to.
      The us will no longer be able to make toilet paper currency and exchange it for real goods.
      They will have to manufacture there own goods and then inflation will hit as well as a depression.
      Solid hard assets are the only thing to own today with as little debt as possible.

    • michaelcoughlan

      Hi Tony,

      Happy new year.

      “Worst start to the year in over 80 years portends the collapse of the US economy and the rest of the world with it.
      All physical activity economically speaking is slowed rapidly.”

      Show a link to a chart etc.



      • Hi Michael.
        I am reduced to smart phone as computer stopped work.
        Meant to say worst start re the worlds’ stock markets.
        Just ask for charts.
        Also canabuck is reduced to less than 70 cents so for a place to invest the yanks can use Canada easier than Ireland!!!!!

        • michaelcoughlan

          ok. China plunged again. I have come full circle on the whole “collapse” idea. Certainly the old hierarchy debt based system will get trounced but it will make way for the new bitcoin, bitgold, newer sustainable economic systems and superior goods and services than went before.



You must log in to post a comment.
× Hide comments