Greece has defaulted again, and the financial markets have shrugged their shoulders. The euro remained unchanged versus the dollar. The Greek stock market even rallied. What does this tell us? It tells us that, as this column has argued again and again, the markets have no memory. Because it improves the overall position of a country, a debt restructuring will be welcomed since it adheres to the golden rule: a broken balance sheet is made better by less debt not more debt.
The media is reporting this as a “deal” in Greece. It is not, it is yet another default from a country where the economy is destroyed and needs to be nursed back to health rather than punished.
The big news for Greece and for us is that the troika has accepted that the country must be healthy in order to pay debt. This logic applies to Ireland too. Before we focus on the implications of the latest Greek default for us, let’s look at the broader picture. And before you think that I am advocating we follow the Greek route, I am not, I am simply pointing out the reality of the global economy and the realpolitik at the centre of Europe.
Effectively, the troika and the Europa group of Greece’s creditors have “agreed” (rather they have had their hands forced) to restructure their bailout loans. Interest rates will be lowered and even deferred to give Greece breathing room.
The crux of the agreement is that Greece’s debt-to-GDP ratio should reach 175pc in 2016 and 124pc in 2020. So 120pc has become the new sustainability.
It has also calculated that this is how capitalism works. In a crisis, the debtor and the creditor suffer, they both lose out and that’s how the system works. It is called co-responsibility.
The eurozone’s economy is in tatters, carrying too much debt, unable to grow. Italian consumer confidence has fallen to a record low this month. It is now at the lowest level since the series began in 1996. The only countries that seem to be keeping their necks above water in Europe are Bulgaria, Romania and Poland. This is hardly a reassuring picture, is it?
As the great deleveraging continues and unpayable debts can’t be paid, it would be surprising if Athens is the only government to choose to face down its creditors.
This all brings us here to Ireland as we continue to squeeze the economy dry, foisting austerity upon austerity and the local economy falters. Next week will be more of the same. We have been at this for five years now and there is no sign of recovery. It is increasingly clear that the Irish domestic economy will not recover as long as the crushing debt burden on the country’s young workers is not lifted.
And as we all buy and sell to each other in the local economy, your spending is actually my income and my spe- nding is your income. And if we all stop spending at the same time and the Government exacerbates this by slashing spending simultaneously, who is spending? And if no one is spending, who is earning? And if no one is earning, who can possibly be saving without earning?
So you see that what sounds good for the individual, such as “I am saving”, is only good for me if others continue to spend; if we all save at the same time, there is no income.
Now as these macro-economic targets that the Government and the troika set themselves are always debt expressed as a percentage of income, if our income is falling because no one is spending, then debt expressed as a percentage of income will be rising, not falling.
This is why there has to be a debt deal for these hundreds of thousands of mortgages underwater. We already have 128,000 mortgages in arrears. This figure is rising consistently. There are 400,000 tracker mortgages which will only get more expensive as interest rates eventually rise over the course of the mortgage. These people will face default when this moment arrives and our banks will be bust again.
Now is the opportunity, when the EU is doing deals all over the place, to propose a big bank solution for Ireland’s mortgage debt. Such a deal would aid the Irish recovery, the EU would have the victory it so craves and ordinary Irish people would have the debt relief they so desperately need.
This would allow the economy to breathe again and it could be made the centrepiece of Ireland’s EU Presidency in the next six months. The EU President sets the EU agenda for the period when it has this role. Let’s not miss this chance.
Otherwise Ireland will become known as the country that never misses an opportunity to miss an opportunity. The Greek deal is an opportunity; let’s not throw it away.
David McWilliams’ new book ‘The Good Room‘ is out now from all bookshops.
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A ‘solution’ gradually emerges, that was always going to be the case, but first as much damage as possible had to be done to the social contract, elite power depends on keeping the masses impoverished and on the brink of survival, this has been achieved in spades. Germany has emerged top dog, the periphery and increasingly what was the old core (i.e. France, Spain and Italy) is in serious trouble. The irony of ironies is economists (not McWilliams) who were champions of the boom are now talking about the disabled, the poor and the impact of the budget on the… Read more »
There should be a ‘debt for equity swap’ union formed and all the mortgage holders in trouble should be in it. They could urge the banks and government to make this happen not just for their good but for the good of the Irish economy as a whole.
Our leaders do not have the will, to make the right choices for the people so we need to let the people make the right choices themselves,come along tonight to the RED COW MORANS HOTEL at 8pm and take the first steps.
http://awakenlongford.wordpress.com/2012/11/27/direct-democracy-ireland-open-invitation/
I get a bit annoyed that economists such as DmcW, Morgan Kelly etc don’t form and lead a public protest group that concerned citizens can support.
The situation is too serious for economists to simply espouse ‘See I was right and wait another year and I will be even more right’ neatly followed by a promo to buy their ‘good room’
I agree, wholeheartedly, with everything you’ve stated to date, David, but there’s one fatal flaw and that fatal flaw is continually being perpetuated by the clowns who are running the country, namely the government. They keep on extolling the old mantra time after time by stating that ‘negotiations are ongoing with our partners in Europe and with the troika and any unilateral decision we might take might jeopardise the supply of money that we receive from Europe for the day-to-day running of the country’. In other words ‘they haven’t got a pair of balls between them!’ They won’t listen to… Read more »
Something has got to be done about the household debt mountain, because at the moment it’s like trying to move the Himalayas with a few shovels and spades. Back-breaking work, and utterly futile at the same time. But everyone has to be reasonable. For example, suppose households that owe €400,000 on a house worth €200,000 on the market today. Would such a couple be prepared to give the house back to the bank, in exchange for a simple foreclosure with no recourse, where they lose the house but also all of that awful, awful debt burden? The bank would or… Read more »
Hi,
I hope a deal is done David. I think it will be in fact. The politicians have just got to be allowed to run their course. Then when reality sets in substantive negotiations will begin.
I have learned a lot from all the commentators on the site in that regard and thanks to you all.
Michael.
David, Look it,… the economy is divided between two economies. The insider economy and the outsider economy. The insider economy holds the liquidity levers and pull them up n down depending on what way the insider insiders decide based on all manner of stuff! So, the subject matter the article covers makes sense only if one approaches the theme of the article from the stand point that the economy is NOT a fair functional ecosystem of allocation BUT is a centralized crony run from the back cigar rooms of old boy networks RIGGED set up. Now I am pretty sure… Read more »
Isn’t it horribly ironic that the proposal mooted in some comments would see the Banks who were one of the major players in the economic crash and whose actions have cost people their businesses and jobs and so their ability to repay their mortgages should now not only get bailed out to the tune of 70 billion but now rewarded by being made the biggest landlords and property owners in the State.
Knocking down new housing estates in the midlands while at the same time, asking ordinary Germans earning less than eight euros per hour to bail us out is a big ask.
Greece is a different kettle of fish, unlike us, it doesn’t have to export as tourism is their main activity.
Of course we could always return to the Dev ‘s ideal Ireland and forget about the outside world.
Four million people who only buy and sell to each other wouldn’t support much of a lifestyle.
Just going to fly a kite for the moment.Popular pastime in this country. If we follow the logic of our developer comrades surely we could pop over to the courts in the UK hand in our paperwork declare ourselves bankrupt and could just sit it out for a year and we are home and dry.It won’t take much to convince any court of our circumstances as our predicament is well publicised.We have one year of misery (instead of the thirty we are looking at) and we are back up and running clear of all debt. I know, a simplistic view,… Read more »
Why not simply stop all house re-possessions until the fiscal situation improves? After all, the banks can’t sell the properties ‘cos no one is buying. So what is the point of repossessing. Two. What happened when countries couldn’t pay their debts last time? Well, other countries actually just wrote them off. Why can’t that happen now? Didn’t cause any ructions then – actually it was praised as being a ‘mature’ attitude. So why not now? Only, the condition should be, don’t come back to borrow again, ‘cos you can’t. None of us are dealing in what can be seen as… Read more »
I am getting thoroughly tired of all the bullshit offered as solutions. too busy looking at the trees to see the forest. I repeat. The debt starts with the central banking system imposed on us. NOTHING is going to help until this is faced. The central banks must be closed down. PERIOD no ifs, ands and buts. All currency currently in existance, issued by the central banks needs to be voided. (Ireland has no national currency so the EURO will do instead). Treasury replaces all voided currency one for one with debt free treasury notes. All interest is eliminated by… Read more »
The Greek “deal” is phony and plans do not apply to Ireland, explicitly said by Noonan and the rest this week. Plans to ease Greek Debt burden do not apply to Ireland Details of Phony Greek Debt Deal No write-off’s before 2016, the IMF will not release any money until the Eurogroup implements a scheme which is supposed to reduce Greece debt from 190% of GDP to 124% by 2020 and 110% by 2022. Any scheme that attempts this will kill the economy. So in effect the write-offs can happen with a dead state. Do not forget the true nature… Read more »
Tony Blair Declares “It’s About Power” – British Empire Must ‘Leverage’ Its Global Power Through the EU
I am re-posting the the attachment from Cooldude. It is a must read. It ends with the paragraph below. As I said problem solved.
http://www.ukcolumn.org/article/bankers-bradburys-carnage-and-slaughter-western-front
“Banks, money and finance must exist to serve humanity, not the other way round. Our enslavement by unlawful debt can be ended overnight with one signature by the Chancellor of the Exchequer. It really is that simple!”
People are spending. They are just spending less than before, which is a good thing. A return to the excessive throwaway spending of yesteryear is not sustainable or desirable. Instead of focusing on how much people are buying, the article should instead focus on how much Irish people are producing and making that people around the world want to buy.
Regarding “Debt for Equity” – don’t forget the elite of the elite want to own your houses. Is this playing into their hands? The Big Banks are all being bailed out (which is the name of the game, read “The Creature from Jekyll Island, A second look at the Federal Reserve” by G. Edward Griffin), which is really their debts being forgiven, paid for by us, – the tax payers. Rather than hand-over some ownership of your house to the banks, isn’t a better plan, to have “debt forgiveness” for – we the people? After all the banks debts are… Read more »
Nursing Greece back to health will require a lot more than playing with their debt. They have run into a developmental wall. Similar to Ireland, they are infected with a dependency culture of handouts which is not backed up with solid wealth creation. Frankly banks or tinkering with the monetary structure of the nation will do nothing. To be sure, banks and financial rigging to offset losses merely reinforces the sad fact that sooner or later money goes back to its ultomate owners. It is grim for those caught in it. So how do we get to validly “own” money?… Read more »
Does anyone really think, that anything of a transcendental nature is going to take place, with the Government we have in charge, during the Irish Presidency of the EU, ? . I don’t think so. The Irish Presidency and the Gathering, are going to be another very well choreographed, and very costly PR exercise; and its results blown out of proportion to satisfy the ego of some, and the infantile mentality of others. . Greece is going nowhere, even if all those billions are thrown out of the window. Its people will still suffer all the horrible consequences, of this… Read more »
The kenny government and the policies they are Following are way of the mark compared with Greece we are weak and limp along in the hope of what we can leech of the back of someone else,why why why? To the gambler and the alcoholic who in a sence where given more and more drink or money so they could self destruct who’s to blame or should the blame be shared . With that in mind the pain we are going through is not shared and I ask myself who’s to blame for this the government are ,they have to… Read more »
The key point is in the fourth last paragraph. ´´400,000 tracker mortgages which will only get more expensive as interest rates eventually rise´´. In construction the greatest number of bankruptcies don´t occur in the collapse but in the rising economy which follows when contractors who price work at recession prices find themselves carrying it out for higher costs as their workforce and subcontractors start to find better rates elsewhere in a rising economy. So far interest only tracker mortgages, some as low as 1,25% have kept a lot of peoples heads above water in this country. Just like the contractors,… Read more »
Don’t be silly David, during our 6 months of the presidency the rest of the EU and the world will be shown only into “the good room”!!!
David: You seem to have abandoned your call for a debt-for-equity swap. I certainly hope so. You say here: “This is why there has to be a debt deal for these hundreds of thousands of mortgages underwater.” I notice that you called it a “debt deal” but refrained from calling it a “debt-for-equity” deal. Your previous suggestion was a clever but futile way of avoiding the “co-responsibility” you claim to advocate. Taking part-ownership of a person’s house is hardly “co-responsibility”, it is in fact a “taking”. I hope you have seen the futility of your previous suggestion and have now… Read more »
As I mentioned many times before, a full 100% debt wipeout 100% forgiveness (were it offered) will only be a temporary solution. The root cause will come back to bring it back to where it was before in double quick time. A debt for equity swap or any rescheduling is just more of the same but with long term strings attached to 3rd parties who have no real interest in your welfare. In this, all you do is size your debt servicing machine to a percentage of your economy. It is an inevitable consequence that if the root cause of… Read more »
The OECD had a handle on the problem last january. “Thorough Structural Reform” in a nutshell. http://www.oecd.org/finance/publicdebtmanagement/49481502.pdf Has anything changed since, it seems to me that delusion is the key to the crisis and its continuance. Future Growth – Delusional Debt Sustainability – Delusional. Reduce Unemployment – Delusional. ZIPR is sustainable – Delusional. Bankers are moral ethical and responsible – Delusional. Societal Breakdown is a scare story – Delusional. Going back to the markets is aspirational and benefical – Delusional. We are served well by politicans who understand the real economic scenario. – Delusional. All the above are achievable –… Read more »
Notes on the BIS The The BIS is central bank to all major central banks in the world It is privately owned by central banks themselves, most of whom are also private. It was founded under questionable circumstances by questionable people It is accountable to no one, especially government bodies It operates in complete secrecy and is inviolable Movement of money is obscured and hidden when routed through the BIS The BIS is targeting regional currency blocks and ultimately, a global currency It has been hugely successful at building the New International Economic Order, along with its attendant initiatives on… Read more »
The Central Bank in Ireland is supposed to handle monetary policy but also handles regulatory requirement. A: it can’t administer monetary policy because of the EURO and is reduced to acting as a printer of currency B: I is also the regulator of financial matters which places it in a clear conflict of interest. it has been delinquent in its operation. C: It is overstaffed and overpaid being one of the most expensive opwerations in a ny government in the world. The epitome of waster. This seriously reinforces my claim to close the central bank, and fire the perticipants who… Read more »
According to the media this week nothing happened and all is warm and cotton wooly in old Ireland. As in The Quiet Man everything is turning out mighty grand in time for xmas in this extremely holy fairy land where we don’t have childline and battered woman being turned into the streets in their thousands I will watch the quiet man this year to remind myself of the art of absurdity Ryan someone addressed the nation that the Toy Show is a very important ingredient in the national psyche. I think he must be a master of black comedy or… Read more »
David, The main reason why there’s less money during a recession is that when people repay their loans to banks the money no longer exists. The bank lowers the borrower’s current account and lowers the borrower’d debt to them. No-one else’s current account goes up and the money just does not exist anymore. I agree that as well as this people saving rather than spending can make it seem like there’s less money during as recession but it’s of far less significance. It’s explained in detail in our document ‘How Banks Create and Destroy Money’ which can be downloaded from… Read more »
I cannot over-emphasis my disdain for STUPID, IGNORANT and LAZY people but unfortunately we are surrounded by them. They are legion.
Nice podcast – what about John Gray for Kilkenomics David?
http://www.bbc.co.uk/programmes/b013r2ld
”Otherwise Ireland will become known as the country that never misses an opportunity to miss an opportunity.” This Government has continually failed to grasp the opportunities to negotiate for the Country. Whether it’s due to lack of balls or the Good Room syndrome; it all amounts to incompetence on a grand scale. Life does not present infinite amounts of opportunity in some cases, and failing to avail of the leverage Ireland has when dealing with the issues at hand has been appalling. We could do worse than cue in a few of the Japanese housewives : ”Mrs Watanabes” to deal… Read more »
Checking through my dispatches here in the Antipodes and it turns out we have opened a “soup kitchen” in Athlone.
Turned a corner, greeen shoots……..indeed…
Does any man dream that a Gael can fear?
Of a thousand deeds let him learn but one!
The Shannon swept onwards broad and clear,
Between the leaguers and broad Athlone.
Hey David, howz it hangin? this ‘BrummieBoy’ has been a bit busy with Olympics and stuff, but with Xmas coming, it’s time to get back on track with all my mt8s over the water. So, where are we in the “we are where we are” board-game? Oh, yes, same place we’ve been for a good few years. Going round in circles. I like it when David reduces complexity to something digestible: “your spending is actually my income and my spe- nding is your income. And if we all stop spending at the same time and the Government exacerbates this by… Read more »
http://www.youtube.com/watch?v=ftCRR8QPvTU&feature=player_embedded
Fiscal cliff and gold etc
http://www.youtube.com/watch?v=81U07CqFPYs&feature=player_embedded
JJust looked at the global food economy –Punk economics. Very good David- brilliant in fact.
http://www.zerohedge.com/contributed/2012-11-30/swaps-banks-and-litigation-arbitrage See the attached link re. CNBC news. 30th. November 2012 On the 14th.November, Direct Democracy Ireland was launched at Buswells Hotel, where they disclosed and discussed the Federal Reserve financing of the ECB. This got no coverage in the Irish Media, yet two weeks later CNBC make the same ‘breaking news’ statement and they get global coverage. It is important for Ireland to understand the reason the Federal Reserve are bailing out the ECB. The money laundering goes like this, Federal Reserve to ECB, ECB to banks, banks to governments == then government pass the bill to the people.… Read more »
How to tell the banks where to go —Mrs Brown.
http://www.youtube.com/watch?v=JddNDtC-Yrs
http://www.thedailybell.com/28386/Ron-Holland-Fiscal-Cliff-Austerity-Just-Another-Meme-Designed-to-Steal-What-is-Yours
http://www.thedailybell.com/28393/Lew-Rockwell-Machiavelli-and-State-Power
http://www.independent.ie/opinion/analysis/the-selfish-poor-are-ruining-this-country-3311991.html
I watched ‘The Company of Men’ last night. Decent movie. Anyone seen it?
President Michael D. Higgins gave a speech at Manchester University regarding his perception of an ‘intellectual crisis’ in Irish life, last week. There was a very revealing attack in the Daily Mail penned by Dr Mark Dooley, “an Irish philosopher, author and broadcaster” defending Hayek and Popper, both lecturers at the London School of Economics. Hayek as all know here by now, is the Austrian School’s luminary, and Popper the Open Society idol, both in fact Mont Pelerin Society founding members. George Soros is a Popper disciple. This is where the entire “exceeding his powers” talk is coming from –… Read more »
Was listening to Pat Rabitte on the RTE Saturday morning show. He was being quizzed about the fairness etc of the coming taxes and cuts. He shrugged it off by telling us we need to recognise we live in a global market economy. George Lee and a few others were in the interview. Funny how no one pulled him up and corrected him to say – Eh, no Pat, we the people are in the market economy. You sir, are not. What made it so “funny” was he usual menacing manner in highlighting how “elements” of the media were making… Read more »
Speaking about march of events, have a look at Mr Linden’s latest musing.
http://www.eugenelinden.com/news7871.html
Now, even if you do not go along with the climate change thing, his observations point to mounting unstable equilibrium – which can be equally applied to the economy. When dealing with the global nature of the economy and our highly interconnected nature the ultra poor response times of goivernance to the ultra fast propagation of stimuli (in other words, your leaders will not see the consequences of their actions coming to do anything about it), we are in for a few more surprises.
STOP PRESS: Mr. bonbon and Tony Brogan agree on something. They are both climate change deniers. ‘Burn and be damned’ they say in unison!