Did you know that our country’s housing wealth has shrunk at a rate of €142.8m per day since the peak of the boom in 2007? This is a catastrophic figure because housing wealth was one of the key drivers of spending, and domestic spending is what kept the dole queues so low in the boom years.
Without this housing “feel-good factor” we will continue to spend less. And the housing situation is getting more alarming. In January 2007, the total value of all our houses and apartments was €550.64bn and today that figure is €411.69bn. According to the latest report from daft.ie, rents are collapsing back to 1999 levels. Many people believed that, even in the worst case scenario, the housing market would bottom at 2003/4 levels. This now looks optimistic.
The more rents fall, the more house prices fall too and this is because the rents are a leading indicator of what is happening to real housing demand. There is such an overhang of houses in the system and such a lack of demand that house prices will continue to tumble.
The problem is that it is getting worse by the day. Not only is the housing market not stabilising, it is getting weaker. This fundamental weakness in our balance sheet is one of the main reasons that we have to be cautious about the positive spin we are hearing this week from some stockbrokers and the spectacularly useless forecasts from the Department of Finance.
Like almost every economic problem of the past two years, all roads lead to the banks. In a situation where house prices are falling, the banks will not lend because the banks’ balance sheets are mortgaged to the very houses and properties that are now falling in value. As this process leads to defaults, the bad debts of the banks will rise, reducing their capital base and causing money to leave the banks. With investors unwilling to plug the gap until the full extent of the bad loans becomes apparent, the forced nationalisation of one of the big banks is clearly a distinct possibility.
Yesterday, we heard that the serial delinquent Irish Life and Permanent — an outfit whose loan to deposit ratio reached a ludicrous 260pc — is now trying to gain deposits again. But if it gets its deposits up, then to get the loans to deposit ratio down it has to lend less. Here again is evidence that credit in the economy is drying up.
Shrinking housing wealth brings into focus what is happening around the country and explains why hundreds of thousands of us have stopped spending and borrowing. Why would you borrow when prices are falling by 6pc and the banks are charging 5.5pc at least in interest? This is a real interest rate of 11.5pc. What company or individual, when faced with falling incomes, will contemplate borrowing at these rates? More crucially, when faced with real rates of interest of this magnitude, banks will not lend to businesses because these levels of interest rates increase the risk of bankruptcy.
This is the monetary environment we are faced with. In economics this situation is called a liquidity trap. It describes a situation where the banks are unwilling to lend to risky businesses, so business gets starved of cash and people are unwilling to borrow because they are crippled by the servicing costs of debts they took out in the boom.
This credit crunch is felt most drastically in much higher unemployment than is necessary. Unemployment, for anyone who has experienced it in a family, is a most destructive force. The shock is not only financial, but the psychological and emotional cost as well as the stress associated with unemployment is enormous. If you want to see this, ask your local doctor; doctors are seeing people presenting to them who never visited a surgery before.
The only way out of this liquidity trap and the rise in unemployment — according to mainstream economics — is now to bypass the banks. If the banks are not lending the money which the European Central Bank is giving them, then bypass the existing ones. This means one of two things. Either the State sets up a new bank, deals with the creditors of the old banks and gives these creditors some equity in the new bank; only a new bank will start to lend again and this is how our system works.
Or, more radically, the State could follow the moves of every country that has found itself in this dilemma in the past — it could print its own money free of any constraints to get things moving again.
This idea of pumping new money into the system seems radical until you examine history and see that extraordinary times demand extraordinary responses. This is how the US, for example, got out of the Great Depression following the collapse of the economy and the banking system in 1931.
On April 18, 1932, within weeks of coming into power Franklin D Roosevelt, ignoring the advice of his economic advisers, took the US off the gold standard and allowed the Federal Reserve to print as much of these “new dollars” as was necessary to get the economy going. The effect was almost miraculous. The financial markets jumped 15pc on the announcement and in a matter of months the US economy rebounded, with industrial production rebounding.
We need the same sort of political courage now to do something radical because if we leave the economy to its own devices and continue to cut spending when the people are petrified and the present banking system is in tatters, the wealth of the country will just keep on shrinking.
1) are they allowed?
2) Would the major players not simply respond with “grand, that’s the pinch removed, we’ll soak that cash up” resulting in stagflation.
Yo Yo Jobs : ‘ T ‘ is for thank you ….so thank you mr. minister for my job back and being busy again . ‘ T ‘ is the first letter on all euro notes printed by DOF D4 and they are plentiful again …in Eire .So thank you mr minister I love working again its so different mr minister and my wife also says thank too .Thank you mr minister thank you very much thank you very very much …oh thank you mr minister all my kids have full breakfasts every morning now …oh mr minister thank you… Read more »
In an earlier recorded time the real printers of our currency were the irish monks .They printed Gold and plenty of it .Then one day foreigners arrived known as Vikings and took all that Gold including some monks and nuns.Many of those Viking’s names were called’ Brian’. When in captivity these monks did not rebel instead decided to learn the Viking tongue and to print it with the christian messages of their holy ways .They noticed in this foreign tongue a strong guttaral sound at the begining and end of many words and so they decided ‘to coin it ‘… Read more »
There is perhaps a hybrid solution. Firstly with NAMA the tax payers have an asset class (discounted loan book) with at least 47 billion (give or take a few billion) Next the government has issued bonds in exchange for them at a discounted rate of 1%. In effect there is no lien on those assets as the State has guaranteed the value of the bonds issued and there is no recourse to the underlying assets. Finally NAMA is in effect the equivalent of the US Fannie Mae/Freddie Mac underwriter of the assets acquired. There is nothing to stop NAMA issuing… Read more »
No need to create a State bank, we already practically have 3-4 of them, just finish the job and nationalise AIB, Bank of Ireland and along with Anglo (which should be wound up and consigned to the financial dustbin of history), take direct State control of the banks and manage the money coming from the ECB and elsewhere, you can’t expect Banksters to develop a conscience and ‘do the right thing’. They now represent a threat to the solvency and security of the State with their inaction and unwillingness to lend so we can get things moving again. End this… Read more »
The point is that we cannot (or probably should not) do anything with the other bank and let them play out their long term game. Creditors have to be dealt with, even if it is through insolvency, so taking in and absorbing all the problems of the Semi-State Banks as they currently are right now would give rise to competition laws within the EU. Secondly why nationalise them to spend time and effort on trying to sort out the mess. They got themselves into the mess and the State have agreed to assist. The problems they have to solve themselves.… Read more »
While I appreciate the monetary stimulus that is needed, David, let’s not allow a wall of money to cover up the underlying problems. – Such as corruption, rent-seeking, reducing people to mere cogs in the profit making machine, rampant gombeenism etc… As we’ve seen, the wall of money obscures these social and political factors that comprise the real world, and the essences of our productiveness etc, that underlie all of the financial engineering and monetary shenanigans… Now, that the receding of the wall of money has brought these social and political factors to the surface once again, let’s NOT miss… Read more »
The state has already adopted a fudge method of printing money to solve the crisis….massive borrowing. Let’s face it we are a society that as Baron Kinsealy once commented “are living beyond our means”. (and he certainly was the best expert on that subject at the time). When the financial crisis hit, we changed from being an economy with unsustainable borrowing in the private sector, to an economy that propped up by unsustainable living in the public sector. Ireland continued to be addicted to money, just in a different form of the drug. It is the lifestyle that is the… Read more »
David – Permo is not in NAMA.This is possibly because the timeline for the incurrence of bad debts for Permo is different. In the US there is an institutional entity called the “Savings & Loan”. These are, as far as I am aware the US equivalent of our “building society”. They specialise in residential mortgages. Permo is a primarily reflection of the residential mortgage market. (As is the EBS). It does not get a sudden thumping like Anglo or BoI or AIB. It is more like a slow accumulation of problems. But in trying to say that all is well… Read more »
There is no way out of this Black Hole.
The Germans will never agree to “Weimar” the Euro.
I have heard talk of them (along with one or two other strong nations) abandoning the Euroship totally though, and going back to Deutschmarks..
Did anybody notice the obvious solution to the proposed hairshirt budget in Ireland has never even been mentioned once by anybody except by a radical, lefty, Irish Times, jogger journalist.?
http://www.youtube.com/watch?v=1zPT9IplkHE
I’m going to do an MK1 and say sorry I havent read the comments… not because Im busy though…just couldnt be arsed :) Anyways only skimmed the article and I presume David means jack in the Euro and print like bejasus… Or else rob the Euro master plates from the ECB… Bring the workers party into power I’m all for paying the public servants in trinkets, so go for it….. but it probably would be best to do it before borrowing tens of billions of EUROS and giving them to the banks… Anyways I’ve an idea for how to bring… Read more »
Herein Lies D CODE :
‘ T’ = the first letter on all Irish Printed Euro Notes ;
‘ Th’ = is the Viking guttural sound that the Irish Monks heard ;
‘ þ ‘ = is the holy scripture word devised by Irish Monks for the ‘Th ‘ above ;
‘Th ‘ = are also the same letters introduced by Irish Monks in Ampleforth to the guttural sound introduced into english language as used today .
T = Th = þ
where T is the cashflow .
Yes David, what we need is that the shins are kicked out from under. Then and only then will there be something real. All that is happening at the moment is a stumbling teeter which is neither standing nor on the ground.
David – DAmn good article. You are RIGHT. Return to the state jurisdiction over our monetary powers and governance and lets bring to book the banks for transgressing the legalities on the banking licenses and i say the time is NOW. The banks have us all living under an economic dictatorship in the form of a cultist like rule over our meeja, political life, business life and day to day life. Bringing us all into deeper and deeper tyranny with NAMA and then the TRIPLE LOCK and then what??? We can print our own money and close the banks and… Read more »
Have any of you read Anthony Sweeney’s2 Banana Republic”?.His analysis is similar to David’s and predicts a fifties style meltdown.All thanks to the idiocy of joining the euro.At least MGQ is a happy woman this morning.How do you sit in the court of auditios, if you haven’t studied business?.Did Pat Neary have any academic qualifications?.A shambles!.
This article must be one of the scariest DMcW creations yet. I think we can say ladies and gents that the country is well and truly stuffed except our eminences in the banking and PS sector have not copped it yet. You can forget about competence coming into the system any time soon if the latest little fracas on the AIB pay for the head man is anything to go by. Closed shop/ Group Think – they are all suffocating in each others bodily odors. The guys pay should be capped at 120K – not 500K!!! In fact, zero because,… Read more »
Posters –
POWER ELITE DELUSIONS.
RISK, MONOPOLY and CHESS.
IF I CANT HAVE IT NOBODY CAN.
PEOPLE ARE PLAY THINGS IS THE GAME.
More than 49 million Americans–or one in seven–struggled to find enough to eat last year, according to a report from the US Department of Agriculture released Monday. That’s the highest total since the federal government began keeping track of food insecurity. http://www.democracynow.org/2009/11/17/raj_patel_on_americans_growing_hunger The world as we know it is crumbling, power shift east, interesting times! I wonder when the Chinese start intervening in countries will they use ‘depleted uranium shells’, ‘smart bombs’, ‘bunker busters’, ‘daisy cutters’, ‘hell fire missiles’, ‘apache helicopters, ‘drones’, solider robots http://news.bbc.co.uk/2/hi/technology/6700691.stm You really have to wonder about humans with the finanical meltdown, world conflict and environmental… Read more »
We do have to get back to basics to find our new direction and our new journey .What we have learned in the world of education is no longer food for the soul or the mind .We need to create our own economics , our own scarce resources , our own values and our own respect to others .We must learn to Empower Ourselves first and last and then move on from there .Until that is done we are going nowhere .What went round comes round .What happened in the past repeats again.Either we learn in Captivity or by free… Read more »
Hi David, We dont have the tool available to us of printing money. Its not in our sole remit so forget about it. However, the ECB is effectively doing that to some extent with some quantitative easing and increasing its credit lines. But thats across all the euro-land area, so it doesnt give an ireland-only advantage which is what you are hoping for. Additionally, many other central banks have done likewise so its a case of who is “printing” the money the fastest. I did read some of the other comments and I think that both options should be selected,… Read more »
David , while I have agreed with you over the years on what was happening when the main stream media was still hyping up the ‘economy’ . Things are different now. Rents are only falling on vacant units , not on existing premises or houses as landlords are still putting the squeeze on. We Cannot Print Money , wake up David we are part of a European Currency . 1900 copies of your latest book sold just shows really how much influence you now have on modern pop culture. And FARMLEIGH …..where is that Business Plan ? We are in… Read more »
For a different view –
Gerald Celente
http://www.youtube.com/watch?v=JhaEc_4zuFI&feature=channel
Trends Research Institute
http://www.trendsresearch.com/
Printing money….the only available option for a society that cannot earn enough money from honest hard work…..to pay for all of it’s unrestrained excesses of consumption I see that there are 25000 Irish fans chasing French fans with money to get into a stadium and support and Irish team….that are already beaten. The French fans who will sell them their tickets are being labelled unpatriotic by the Irish media. I suppose labelling them as intelligent or good capitalists would be impossible. Anyway, Harney’s Atlas probably has Ireland located closer to Boston than Bordeaux :))) The Irish fans would be far… Read more »
We will be sending our politicians back to Paris to beg for French support for the ECB bainling us out, after buying tickets from their fans at outrageuous prices, and vommitting on their streets. Loaded with contradictions and hypocrisy, there are Irish people in Paris looking down their noses at the French. In life we do not get everything that we ask for. But we should expect to get the results that our behaviour and thinking deserves. Few in Ireland seem to grasp that.
subscribe.
The Big Question….Why do AIB feel it is desperately necessary to appoint an insider to run AIB ???
http://www.independent.ie/opinion/analysis/lenihan-and-aib-have-really-played-a-blinder-on-this-one-1946418.html
Answer – because they need a “safe pair of hands” to maintain the pretence.
David you said { We need the same sort of political courage now to do something radical… }
We need a level of intelligence in the political establishment also, which is severely lacking. Should we be surprised when the largest party in the Dail is what you termed the Family Firm :)))
Though I am disappointed in George Lee. He has gone strangely silent.
Exerpts from interesting article – “Our greatest primary task is to put people to work.” Franklin D. Roosevelt, Inaugural Address, March 4, 1933 “Unemployment (US) has reached a 26-year high of 10.2 percent, but the “real” rate of joblessness (underemployment) is now hovering at 17.5 percent. These are Depression-era numbers. So, while $11.4 trillion has been used to prop up the financial system, a paltry $250 billion has gone to creating jobs. No wonder unemployment has zoomed to 17.5 percent. Originally, Obama assured the public that the $787 billion stimulus package (aka–The American Recovery and Reinvestment Act) would create 3.5… Read more »
Many of the contributions here have an air of unreality about them. The economy’s indigenous sector is insignificant compared with the mainly US-owned one. The relevant constituency on exiting the euro is Intel, Microsoft etc. They supported joining the euro system and the important ones are global companies. The world’s second reserve currency is not an inconsequential issue to them. As for Ireland’s only transnational company, CRH, which is 90% owned by non-Irish shareholders, is the likes of a company like that going to continue be resident in Ireland after a massive devaluation? There are no simple panaceas including devaluation.… Read more »
Deco, yourself and Kynos on the daily Irish Times poll in the comment section at least give me some hope that there are a few persons with enough wit and perspective to make sense. Unfortunately, the cultural capture by the RTE timeserving tycoons, and most of the print media stooges who wouldn’t be able to upset an apple cart in an avalanche for fear of offending their paymaster, has left this country bereft of a language or critique capable of achieving a consensus for political reform and progression away from clientilist tribalism. Already, there is a proposal for Donegal to… Read more »
I am, like many other people in this country, not an expert on the mechanics of economies. Would somebody please take the time to explain how this newly printed money would be distributed? Would it be through capitalisation of the banks? O would there just be a general give-away some bright sunny morning outside the government buildings? I would also like to thank anybody now who replies to this.
@ nando09
Maybe a type of SSIA without the need for savings!
At some stage inflation and interest rates would rise.
The current Bank of Iceland rate is 13% compared with the ECB’s 1%.
Castles were built with walls not with fields or gardens .They acted as a protection not only from the weather but from their enemies .Some printed their own currencies with a head on it .
Today we may be revisiting the old network of Provincial Economics into second division ‘carrot proof’ and a ‘Pale first division’ ‘carrot proof’.
Nothing has changed in a long time.
David, I think now’s the time to start discussing what happens when we default on our national debt. What will happen, will the IMF have to deal with the ECB instead of the irish government. Will the government then be presented with instructions of what to do and have to meekly comply as they are no longer in charge of the country anymore?
Is that not the true price for being in the euro?
Wouldn’t this be a better alternative to quantiative easing?
http://www.irishexaminer.com/ireland/town-to-print-currency-in-shop-local-drive-105821.html
Another cracker of an audience on Frontline the other night — including the 24-year old “businessman” with 700k in unserviceable mortgages. Twenty years ago the average twenty-four year old dreamed of owning his/her first CAR, not a property portfolio that was supposed to look after his/her pension! When are we going to “get” that under any conceivable scenario we are all going to be a lot poorer for a long time, because of the stupid things WE collectively did. Getting private debt under control means belt-tightening and an unfortunate but inevitable deflationary spiral for some time to come. Printing money… Read more »
George Lee said that the IMF cannot be called into a small regional country in a larger currency union.
The Irish problem (and more besides) is Berlin´s
Do you think the army would support a coup détat.?
Or is their leadership stuffed with Fianna Fail crony generals and “insiders” too.?
Hope you don’t mind a little history lesson, but this idea that Roosevelt’s turning on the printing presses at the Fed was the beginning of the end of the Great Depression is a myth. The contrarian (Austrian) view that I share is that Roosevelt’s intervention – just like Hoover’s before him (who it is claimed did nothing to prevent the economic downturn after October 1929) – turned what would have been a very serious business cycle recession into the Great Depression. First, at the end of November 1929 Hoover twisted the arms of leading US industrialists and business leaders to… Read more »
Thats some arm twisting hoover was doing, are you sure it wasn/t the other way around!
Folks, I am remiss in that I concede that I have not read all the (so many) posts since this morning. (I will, I promise). However, I think that the experience that I had this evening does not require knowledge of your posts (though that is an unattested-assumption), rather, I expect, that it is sufficiently unusual that It may be “New” to you; so, here it is: I met a great friend of mine this evening and he is a friend that disagrees with me, most of the tim, yet we are still friends and value one-another. He is a… Read more »
David, What do you think of Peter Schiff’s views on Austrian economics? More to the point, what are your views on it? Printing more money is a great short term solution we don’t have the luxury of doing as we are in the Euro. What we need to do is cut our losses, get back the punt and devalue our currency. We have to become a cheap place for businesses once again. We need the punt to eventually be backed by gold and silver. Doing these things will be painful in the short-term, but we can always lend more money.… Read more »
I will never eat another croissant as long as I live.
Since we have a lot of American posts here , take a look at this clip , by an English man
http://www.youtube.com/watch?v=kFi1KlUh5PI&NR=1
and Bill Cullen can fuck of with his Car deal for 250 of those French Cars.
Our FAI was robbed of Millions ,and what about the kicking RTE have taken ?.
Shocking and by Henry , of all French Men
So we have a few “Austrian” flag wavers still left among us now that the bubble has burst, telling us it’s the Yanks fault for breaking the Gold Standard and all that good stuff. Well it makes a change from the local Gombeen’s telling us it was the Lehman Brothers even though I think the original Brothers died years ago. The “insiders” were all Austrian during the boom, telling us about their individual right to pursue their own personal profit, how private property rights were sacred, how we needed little or no Government interference much less any type of collective… Read more »
Sorry, David, you were not clear in your article. Do you mean operate a dual currency, similar to the UK’s shortlived proposal to operate the euro on its territory alongside sterling, like what is happening in practice in some parts of Northern Ireland now? Or withdraw from EMU? Would it be easy to operate a dual currency? Would the Eurozone agree to this structural mechanism not just for us but other countries which also find themselves now or in the future in similar predicaments? It would be a kind of “overflow pipe” to operate alongside the main currency, a temporary… Read more »
http://www.independent.ie/national-news/directors-who-oversaw-systems-nearcollapse-are-still-in-place-1947879.html
We are still not seeing any form of accoutnability at the top on the banks. The same networks are still in charge. And these banks control the companies on the ISEQ. And the control the credit of the entire economy.
A lot of power and influence in the hands of a few. A few who have a track record in irresponsible behaviour, recklessness, wastage, etcc…
Monk’s Minds : I have a feeling that some of those monks in Viking times were watching the soccer match last night.with france and exclaimed in their ancient gutturals their refrains of an ancient time and rewriting the following : ‘ T’ = the first letter on all Irish Printed Euro Notes ( Soccer Win for Ireland ) ; ‘ Th’ = is the Viking guttural sound that the Irish Monks heard ( Thierry Henry ) ; ‘ þ ‘ = is the holy scripture word devised by Irish Monks for the ‘Th ‘ above ( Fair Play ) ;… Read more »
FYI
http://www.dailymail.co.uk/news/article-1229070/Sharks-British-coast-Oil-tankers-refuse-unload-prices-rise–keeping-fuel-costs-soaring.html
Amazing.!
First the Property Bubble, in Ireland manipulated by a small group of developers who own(in partnership with NAMA) almost all the land availible for building near our capital city.
Then the world wide Toxic Bond Bubble.
Finally the creation of an Oil Bubble
by manipulating the market supply.!