Last week provided a very interesting picture about what is actually happening, not just to the Irish economy, but to the broader European economy, and how the various policy responses over the past few years are affecting us all. The picture is not a particularly pretty one because it shows that money is available to big, government-backed companies and enterprises, but not to small, job-creating entities.
The upshot of this Great Recession will be the hollowing-out of the productive marrow of the economy while, at the same time, large, lugubrious entities will probably survive because they have access to
precious credit.
The story of Ireland is the tale of two sectors. If you are big and have a stream of income – like a big power company with regular payments which can be used as collateral for a new loan, or a bank with paying customers, or even a state with taxpayers – you will get cash.
If you are small with a good business model but facing stiff competition and precious few assets to mortgage, you can forget about it.
So the good news is that there is plenty of money around; the bad news is it is going to the wrong people – or, at least, not going to the right people.
In the last couple of weeks, the Irish state, as well as a few big semi-state companies and a barely breathing bank such as Bank of Ireland – with a mortgage book in tatters – showed that they could borrow money at reasonable rates. The reason is that they all have a stream of income which can be re-mortgaged.
Take the likes of Bord Gáis and ESB, the big, top-heavy industrial conglomerates. They can borrow because they are not far off being monopolies. They can raise their prices and investors know that people will pay, not least because people don’t tend to default on their gas and electricity bills, because they will be cut off.
In addition, in some cases there must be a privatisation play going on, where the lenders are fairly confident that the long-term future for these companies is that they will be flogged in the great
fire-sale that always follows a state revenue collapse. The borrowing today may well be to finance the front-loaded cost-cutting and redundancies which will happen ahead of privatisation.
Certainly, large redundancies in the big banks will demand a huge amount of cash straight away, and maybe the same is in store for the utilities. Just bear this in mind as we move into 2013.
In contrast to the abundance of cash in the conglomerates, out in the real economy, small business is starved of cash. This is a huge problem because it means that there are two realities in Ireland. In
the small company sector, there is an ongoing credit crunch but, in the big conglomerates, there is an abundance of credit.
In terms of recovery, this is not a pretty picture because we know that in the past few years all over the world, small, young companies with payrolls of under 20 are the very companies that are creating
wealth and employment, while large companies have been employment-destroyers.
Contrast the ease with which big conglomerates raised huge amounts of money on the markets last week with the difficulty faced by small businesses to get tiny loans. Survey data indicates that Irish SMEs have the second-lowest approval level for loans in the eurozone behind Greece. One quarter of loan and overdraft applications for small businesses are rejected.
Central Bank figures show that lending to small and medium enterprises fell by €390 million to €26.6 billion in the second quarter of 2012, representing a 4.6 per cent fall from June 2011 in lending to
non-financial, non-property SMEs.
Looking at retail sales, we see a small annual rise in the third quarter of this year over the same period last year. But this comes after falls in the first two quarters of the year, and the fact that
retail sales have fallen continuously in every quarter since 2010.
A good barometer of general lending and purchasing is car sales. In the last month, two major car dealerships went into receivership.
And while September reveals a small rise, car sales fell by 5.7 per cent in August 2012 and by 3.2 per cent in July. Overall, in the first seven months of 2012, new car sales were down 12 per cent on last
year.
We can see a dichotomy emerging. There is money if you are big, and no credit if you are small. And we know that small companies are today’s job creators. So the job creators are being starved of the essential lubricant of commerce, while the job destroyers (the big companies laying off people) are fully funded, maybe for the explicit purpose of destroying jobs.
Now, we have to ask: if the big utilities are getting money at decent rates, where is it coming from?
The answer to this is the ECB, and its massive cash for trash scheme, known as ‘LTRO’. A year ago, Mario Draghi was ordained head of the ECB. He immediately set about pumping one trillion euro of cash into Europe’s banks. He accepted ‘trashy’ collateral from the banks and, in return, gave them real cash, so that they could lend to governments or any other reasonably safe investment.
So we had the spectacle of bust banks lending to bust governments – and we called it a success. Now that government bond yields have fallen dramatically as a result of this deluge of cheap cash, the banks that have all this cash are looking for other homes for it.
After all, one trillion euro is a lot of money. If you were to spend €1 million euro a day, it would take you 2,740 years to spend one trillion. So there is a lot of cash to go around. But the banks don’t want to lend to anything as risky as a small business. They prefer governments and large, semi-state businesses, which have a captive, uncompetitive market.
This is why the large conglomerates are getting money.
The disingenuous reason articulated by those who might like to spin the story is that the access to funds by ‘official’ Ireland is indicative of the economy turning the corner, or something like that. This is rubbish. It is indicative of another misallocation of capital, like the misallocation of capital to the property market in the boom.
More worryingly, it reveals that one part of the economy (the protected, monopolistic part) has ample funds, while the other side (the productive, competitive part) has none.
This development reveals why recessions driven by a credit boom and bust are so debilitating. In the upswing, too much credit goes to the wrong places, and in the downturn, not enough credit goes to the right places.
My question: Is some of that low interest money (LTRO) going to banks to let them survive the low interest trackers they gave out?. If it is the tracker holders can breath easy and their only fear is deflation or a return to the punt and punt interest rates.
The loan approval figures are false. The Banks get around this by offering heavily conditioned loans where the client cannot meet the conditions but it is an approval or approve a smaller amount than the customer requests . I heard one recently where the small business asked for 50k and was approved 5 k. That technically is an approval. David At some stage can you do an article on the plight of the self employed whose businesses have failed. They are being treated like pariahs by the State. Some of the stories I have heard are shocking. Some of these… Read more »
What I find distressing is the recent news report on RTE re 6 stalled schools projects as the builders have ceased to trade. This has has a knock on effect on the subcontractors and suppliers. So these projects have had a negative impact on job creation and have in fact caused job losses.
WTF DMW Conspiracy ??
“So the job creators are being starved of the essential lubricant of commerce, while the job destroyers (the big companies laying off people) are fully funded, maybe for the explicit purpose of destroying jobs.”
subscribe.
David you remark on the two tier Ireland and no money for small new and existing company’s ,be they sole traders of limited company’s . The truth is that the last and present government have made such a cows arse of this country that the few who do spend don’t come any where near whats needed to insure the survival of the above self employed. The bigger picture is the existing self employed are destroyed before you even start on the new self employed. Who wants to be self employed most that do are reduced like me to a one… Read more »
As you know I like to slag off the conspiracy theories and point out the gross competencies of Big Organisation to organise the proverbial a pi$$up in a brewery. But after reading this article, a few lights start to come on. All the big organizations referenced have 4 things in common 1) Utility (Banks are really utilities if they work right) 2) Monopoly (High cost of market entry and hi/ major life impact to end user) 3) Low elasticity to demand – meaning you can charge what you like and they pay 4) Most worry – will be subject in… Read more »
Interesting Article. I’m glad to see some perspective being put on the fact that Governments can borrow at low rates of interest. I do have an issue with the description of the ‘Trash for Cash’ scheme though. What actually happens is the ECB, via the national central banks, creates reserve-account-money for the commercial banks. We cannot ignore the fact that every Euro of reserve-account-money has a matching debt to the national central banks. Inverting your description – if the commercial banks repaid a million a day it would take them 2,740 years to repay this LTRO money. Once the banks’… Read more »
Before my comment I’d like to congratulate the organisers of Saturday’s anti-austerity protest for their carnival set-pieces which alleviated the dreary weather. They showed that an anti-austerity protest does not have to be a necessarily grim affair and it left a positive impression in many people’s minds whose Saturday’s protest was their first. ..Governments have evolved into what can only be described as commercial conglomerates. The concept of governance and the pricipal purpose of government to uphold democracy have long been abandoned. It’s a business, nothing more. And that our taxes go fund a congomerate business which also borrows on… Read more »
I think I will probably shock a lot of your followers as I will suggest something that will be anathema to them. We have aform of poor peoples bank at present, the credit unions. I believe that we shoild aim to develop a co-operative commercial bank through the credit union movement. This bank could concentrate on providinf loans sme and ordinary members wishing to set up a small business, especially community co-operatives. In your other article today David you discuss the diaspra, I would envisage small community co-ops seeking members of the diaspro who have connections with the area within… Read more »
Hi, The article basically states the obvious and can be summarised in the following few sentences: “Since the banking industry orchestrated crash where self-serving managers in the financial industry were paid enormous sums of money for NOT doing their jobs properly in fact doing the complete opposite (assessing risk and placing capital) we now have dejavu where the same mind-set predominates and the various financial institution are still paying enormous sums of money to similarly minded individuals for NOT doing their jobs properly (assessing risk and placing capital)” Hmmm…………. And knowledgeable commentators like you still drawing salaries for creatively writing… Read more »
Boomerang Theory
Home Security is the missing link for the few that can convince the bank to lend eventually . This leads to Debth by a thousand fleas .
From a banks perspective, having to deal with minute, high-risk, trivial and bothersome transactions is more painful( although lucrative) than watching paint dry. Thats why we will never be welcome to accept a loan based on fairness or merit, Big Business have lobbyists to do their legwork. The rule of law offers protection where justice rules honestly, when we depend on political justice… it is the rule and might of the lobbyist that moulds our paradigms of fairness and chains our politicians who yearn to retain office in order to create just rewards for the powerful. We do not live… Read more »
The obvious point is that the Irish Banks are not lending to anyone even Crporates. The corporates do not deal with them even for deposits because of their sub standard credit grades. The Copoates and Utilities are borrwing from overseas Banks. The point here is that domestic small business does not have a choice but to use our pillar banks and they are still in a mess, not fit for purpose and in no position to bank the highest risk sector in a bad economy.
What options are out there for our Government to get their mits on cash? What about the big accounts on deposits by some of the multinationals sure a bond agreement with these could be reached to release liquidity into the jobs sector?
Good article. Hope you enjoyed the LUFC links. There is no doubt that this is a two tier economy – the link below hints that FG are a nasty piece of work who would love another go at low earmers and the unemployed rather than the wealthy. It appears that Ireland is a very divided nation (between old and young and rich and poor) and that Labour is keeping the blueshirts in check. We have not witnessed state violence against the populace, yet, but I think it’s only a matter of time before the mask slips There are plenty of… Read more »
Alternative funding
Top 40 Platforms for Crowdfunding Social Change | Â REconomyhttp://www.reconomyproject.org/?p=4207
Emergence of monopolies is a standard feature of a recession or ‘Great Recession’. The article is an important one as it highlights once again how the game is being played out in the ‘real economy’ to the benefit of the massively connected and to the detriment of the general population. Banks it would seem can get away with just about anything, appalling lending and pay practices in boom, appalling claw back policies and pay practices in bust. The extent to which they call the shots is actually quite remarkable but when you have winners you also have losers and these… Read more »
There is an alternative to the two tiered system throughout Ireland and it is Direct Democracy Ireland
http://www.directdemocracyireland.ie
Read the website and if you believe as I do that this is an extremely viable alternative come along to a meeting in the Red Cow Morans Hotel at the Red Cow Roundabout on the M50 Dublin this Thursday Nov 29th at 8pm and get involved, stand up! the time is NOW!
Had a quick scan through the article as you do sometimes on Mondays. The one thing that stood out was the ESB and Bord Gais being able to raise money because they can fleece everyone for their electricity. This occured to me recently as I wondered why Rabitte our hero from labour wont do the job he was elected to do. All labour voters use electricity but this does not seem to matter to Pat. So we pay the highest ESB rates in Europe.
David one of the most powerful articles I’ve ever read from you. Your argument which I completely share, is so dramatic and demoralising, that one feels completely powerless. If this is going to lay the foundations for the Societies of future generations, not only I feel sad for us but even more for them. . History has vindicated Jesus who turned the tables of the money changers, so unless we are ready as a Civil Society to respond to this threat, with an effective way of reverting the actual situation, we have no hope of a dignified existence for ourselves,… Read more »
Excellent article. The assessment is correct. But it is not just an Irish issue. It exists in many other Western countries as well.
fascism – the eu is in control and it’s a fascist takeover
new world order incorporated
kick them all out now….. your children depend on it
If you want to get a feeling for the way this is going to play out just read up on the collapse of the Soviet Bloc.The insiders plundered all the natural resources of the Bloc while the boss man had his head stuck into a bottle of vodka. Boris Yeltsin v Brian Cowen. When the new gang emerged they made sure their mates had lined their pockets, viz a vis Roman Abramovich et el.We only have to look around to see our own shining lights emerge with bulging pockets full of cash. And speaking of bulging pockets full of cash.The… Read more »
Again no one mentions the root of the problem in Ireland and around the world. The central banking system. Embellished by the fractional reserve banking system Endorsed by government. All money is issued as a debt. Created out of the ether by the central bank and loaned to both the commercial banks and the government at interest. The commercial banks can lend out 10, 20, or 30 times that amount by also producing the money out of the ether and then loaned to a borrower who is corporate or private. It is to be noted that this radically expands the… Read more »
The British hand shows itself-billion bill threat as efforts to solve bank bailouts intensify THE State could face compensation claims from out-of-pocket bondholders following reports that former subordinated bondholders in Bank of Ireland and Allied Irish Banks are seeking compensation for being forced to take massive losses on bonds they held. A group of Bank of Ireland bondholders is now in discussions with the bank. “A standstill agreement has been reached between Bank of Ireland and the bondholders to allow them to talk and reach a settlement. This agreement is indefinite,” Reuters news wire said, quoting a legal source. A… Read more »
http://taleoftwotreaties.tumblr.com/pringleargument
Judgement on challenge tomorrow at 8:30am Irish time
Little or no media coverage? Only Thomas Pringle; Tale of Two Treaties and NAMA Wine Lake.
http://www.youtube.com/watch?v=hSb7mlz7Hag
Hello, David, from Mt. Horeb, Wisconsin, USA. It is time to rejoin you. Your two-tier Ireland article applies also to the Heartland of the USA, the Midwest. As you may know, in the 1920’s Ireland looked to Wisconsin for models – for example, the Shannon hydroelectric infrastructure follows the model of our hydroelectric dams on the Wisconsin River here. In short, Wisconsin shares the same characteristics as Ireland, which is one reason why I have felt very much at home there. We are rural; Ireland is rural. Both of us have industrial hubs,which get in the way of new start-ups… Read more »
Saw a marvellous article this morning on BBC website… “The Centre for the Study of Existential Risk (CSER) will study dangers posed by biotechnology, artificial life, nanotechnology and climate change.” It goes on… “that as robots and computers become smarter than humans, we could find ourselves at the mercy of “machines that are not malicious, but machines whose interests don’t include us” The last sentence says it all “machines that are not malicious, but machines whose interests don’t include us” Substitute Bureaucracy/ Monopoly/ Banks/ Vested Interests/ you name it for “machines” It’s all about being center stage. And if you… Read more »
http://awakenlongford.wordpress.com/2012/11/27/direct-democracy-ireland-open-invitation/
Interesting one from the Guardian (yet again)!! “In their new book, Economists and the Powerful, Norbert Häring and Niall Douglas trace how the most powerful of all the social sciences became a doctrine for helping the rich — with the aid of huge sums from business. You may be familiar with a version of this critique, thanks to the film Inside Job, which described how some of the best-known economists practising today are in the pay of Wall Street. But the history unearthed by Häring and Douglas is far more disturbing — because they argue that vested interests have slanted… Read more »
Trying to learn how to walk like heroes we thought we had to be
And after all this time to find we’re just like all the rest
Stranded in the park and forced to confess
To hiding on the backstreets, hiding on the backstreets
Further to an earlier post I made, I would like to draw your attention to a map drawn up with agreement of world authorities carving up the planet beneath the sea.You can read up on the particulars yourself but suffice to say that the one resource that we could have exploited with advances in modern exploration and drilling techniques has, to my knowledge, already been flogged off. The whole subject of underwater exploration is fascinating and again with a little googling you can learn how the big players like Rio Tinto are working their magic around the world buying up… Read more »
We are moving toward a Europe with a Northern strategic frontier, and a Marshall Plan for the Med. Ireland will link into the Eurasian Landbridge :
Proposed ‘Tuskar’ Sub Sea Tunnel across the UK and via the Channel Tunnel to the Continental High Speed Rail Network
Greece’s international lenders agreed on a package of measures to reduce Greek debt by €40 billion, cutting it to 124 per cent of gross domestic product by 2020. In their effort to settle on a common European approach over the weekend, the ministers discussed allowing individual euro zone countries to adopt separate tailor-made measures to ease the burden on Greece without actually accepting losses. Plans to ease burden do not apply to Ireland Any arrangements to ease the burden of Greek national debt will not be applicable to Ireland, Minister for Finance Michael Noonan has said. So now a Two-Tier… Read more »
Surprise appointment at BoE Mark Carney, governor of the Canadian central bank has been named as the new governor of the Bank of England by Chancellor George Osborne, to serve a fixed term of five years and will hold new regulatory powers over banks. He was a surprise choice for the head of the UK’s central bank and had previously ruled himself out. The post is seen as one of the most important positions in the stewardship of the UK economy. Current BoE governor Sir Mervyn King who steps down from the post next June warned the risk posed by… Read more »
Bizarrely, the British government has declared itself strongly in favour of much closer euro area economic and fiscal union as necessary to avert a further worsening of Britain’s economic crisis. But such integration, Cameron will insist, cannot apply to Britain.
There is much brave talk in London about the UK being free to pursue its “global trading mission”. But since Britain exports more to Ireland than it does to China, big business in the UK is increasingly alarmed by the direction of government policy on Europe.
Off topic. You run a country into the ground you are given a large pension before you are 60. You lose your business in the country that has being driven onto the rocks and you face jail bankruptcy or like today suicide. It has to stop.
I pointed out two “relevant” travesties in Ireland of the 21st century in my previous posts.Hardly a comment on either.No, keep ploughing back in history quoting economic scripture.Next thing you know someone will pop up and say the dinosaurs are to blame for the mess we are in.
Lads and ladies I’ll leave you to it to see who can out-bullshit the other.In the meantime we are going down quicker than a lead baloon.
“It can be seen what a chasm separates ordinary workers from their leadership when the General President of the biggest union labels as ‘fascist’ working people and pensioners seething with anger at his failure and that of the rest of the official trade union leadership to mount any credible resistance to the disastrous austerity agenda.
http://joehiggins.ie/2012/11/letter-to-newspaper-editors-re-jack-o-connor-and-national-pre-budget-demonstration/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+joehiggins-eu+%28Joe+Higgins+TD%29
>3 million unemployed… in France! According to Eurostat here: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=teilm020&tableSelection=1&plugin=1 France has surpassed the thee million mark for the first time in 16 years. In a recent Web interview by Union Solidarity International with Yanis Varoufakis, he also used the term treason as I did above in the context of the ESM. http://usilive.org/yanis-varoufakis-political-paralysis-and-the-eurozone-crisis/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+USiPodcast+%28USi+»+Podcast%29 It remains to be seen for how long the pact of the political class and bankers, using the controlled media, against the people of our nations will be enough to maintain status quo. Today the Bundestag is asked to fast track the protracted Greek default, the 44… Read more »
Report from Phoenix Capital Research November 28, 2012 The EU Just Lost Another Prop As Greece continues to distract the markets, France, the other primary prop for the EU besides Germany, is now experiencing an economic contraction on par with that of 2008-2009. Indeed, France’s September’s auto sales numbers were worse than those of September 2008 (the month Lehman collapsed). The country’s PMI reading is back to April 2009 levels. Even the French Central Bank, which would hold off as long as possible before unveiling bad news, has announced the country will re-enter recession before year-end. Over the past few… Read more »
According to your own statement a while ago David you said you would close the blog if racist overtones continued or were used.
Just substitute the word British for Jewish and you would have closed this blog months ago.
Best
Tony
http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html?KEYWORDS=CHRIS+COX+AND+BILL+ARCHER
In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn’t be nearly enough to fund the over $8 trillion per year in the growth of U.S. liabilities. Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers
http://goldswitzerland.com/what-catalyst-will-trigger-golds-parabolic-rise/
Nothing a government or individual can do will stop the black swan event that will create the collapse of the financial system.
All an individual can do it to protect themselves and their families. The best way to do that is to own gold.
Quotes of the Day
Those of you who are FOOLISHLY in GLD and SLV will cash out with a large pile of devalued dollars and no one in their right mind will sell you their gold or silver for them. The move out of dollars will be like people fleeing a burning theatre. Only a few will get out. There will be no supply, no sellers, just a gazillion panicked buyers with a fistful of dollars that will not buy them gold or silver.
-David Schectman, Miles Franklin
The Gold Bull continues unbounded with the Zero Percent Interest Policy (ZIRP) as its primary cylinder, while the artificial 0% distorts all financial markets, assets, and value. The Gold Bull will continue until the USGovt debt default, and USDollar retirement.
-Jim Willie
The cost to make a 1-cent US penny is now 4.8 cents and the cost to make a 5-cent US nickel is now 16.2 cents. How embarrassing, even adding to the USGovt deficit.
-Jim Willie
See above the results of inflation. The minor coins will go out of circulation. it will not be long before the minimum note issued will be $10
2012 Performance YTD
Dow
5.4%
Gold
11.5%
Silver
22.9%
TSX-V
-18.8%
HUI
-9.8%
XAU
-5.8%
Readers are well aware that PHYSICAL gold and silver are the system’s BEST assets. Sadly, most people are scared from them by MONEY PRINTING, MARKET MANIPULATION, and PROPAGANDA…