Honohan: “The intertwined recent experience of the Irish and UK economies” Post author By Philip Lane Post date February 22, 2010 You can read the latest speech from Governor Honohan here. Categories In Banking Crisis Tags Irish banking system 12 Comments on Honohan: “The intertwined recent experience of the Irish and UK economies” ← Spatial incidence of a carbon tax → New Yorker Profile of Paul Krugman 12 replies on “Honohan: “The intertwined recent experience of the Irish and UK economies”” Erudite. & context and audience noted. But where is Gov policy to up-value-chain rather than reduce nominal wage? Low-wage, low-skill = no future. There is a Senate vacancy at the mo – and a minister vacancy at the mo – and some vacuous ministers at the mo – just a thought. This comment: “In summary, in both countries, the collapse of the housing and credit booms has had a major impact on the public finances. For Ireland at least, the lesson has been that our taxation system needs to be on a firmer footing than in the past.” The lesson might have been learned, but how will the taxation system be changed to get on a firmer footing? Property tax? Higher income taxes? Isn’t time the governor removed the ban on shorting Irish banks. The governor is certainly paddling his own canoe despite that creating some political difficulties for the govt. Its a refreshing sight to see open discourse on ireland’s economic challenges as noted in the link which considers the political aspect of his speech. It’s disappointing that in discussing the many similarities, he glosses over why the UK chose asset insurance while the Republic chose asset purchase i.e. NAMA. I don‟t need to dwell today on the robust, measured and appropriate policy response in Ireland that has stemmed and begun to reverse this fiscal set-back. There is no need to dwell — largely because there has been none. I am confident that these [bank] measures will succeed both in confirming the solidity of the banks, and in further restoring confidence in the finances of the State, free as it will then be of any shadow of prospective commitments to the banks. Earth to Patrick? Even indebted households may, for the present, be better able to absorb nominal wage cuts to the extent that most floating mortgage rates are currently still lower than they were before the crisis. It‟s a different matter, of course, for the many affected by unemployment. Yes, lets cut wages. Us guys on close to half a million a year are ready to share the pain. We’ll take our 3% cut while the rest of you can take 14%. As an economist, Honohan would know that inflation fell because of falling interest rates and fuel prices. He would also have seen that the State continues to offset those falls with increases in health, education and its continued cosseting of certain professional sectors. Poor old Patrick has gone native. And yet JPM some of the things he said were truly amazing. He effectively pointed at the Govt. and said there are the people whose policies have created this situation, which situation by the way is not caused by external factors but internal mismanagement. This does not normally happen in Ireland. Its refreshing. Also I think that Honohan cant just come out and start shooting at everyone. He needs to be very careful in how he does it and seems to be progressing reasonably well. The alternative is to come straight out with comments and be easily thwarted by those in the respective offices who would like to see him silent. slowly slowly catchy monkey I agree with all the above! There are implications: the reliance on “foreign” (how does anyone know who actually sourced the funds?) borrowing by banks means land values have further to fall, as a result of this part of the bubble. Has anyone quantified (gosh, econometrics might be relevant!) all the borrowing that pumped up the land values in Ireland? We have to add on for continuing loss of econ activity, unemployment and loss of markets due to lesser demand. Govt cutbacks etc all should show up in lesser land values. England is one of the most crowded countries in Europe. Were Ireland cheaper to live in, buy land in etc., there might be a large influx from there …… Philip, thanks for linking to the speech. I always like to keep up with Pat Honohan’s comments etc. I read the last thing featured at IE, where Honohan spoke to the students. I can’t help feeling though, that whenever Pat Kenny holds a debate on The Frontline it serves to display a distinction between the new generation and the pass-ing generation. Where our political system might have been okay in the past, when it didn’t have a huge resource of highly trained young people, with no where to emigrate to – today’s political system needs to adopt to today’s transformed circumstances. Notwithstanding, Bill Cullen’s advice to all present at Pat Kenny’s show last night. Bill Cullen’s advice is exactly the kind of advice that some individuals might have welcomed – including myself, who regularly need to boot in the behind, to put theory into some kind of practice. I welcomed Cullen’s advice therefore, and advice like that has been very useful in my life, in the past. Having said that, it does smack of something that his generation would say. The current generation were told to go to university, stay in education until their mid twenties, and things would be better for them. But what is the reality facing them? I want to draw reference to something here – it relates to Bill Cullen’s point, about doing small, short term, efforts to gain work and experience (which I am a huge advocate of, btw, where you don’t have a family to support). In the Late Debate about Limerick regeneration, Stephen Kinsella economist raised the point of employment via construction, buying of bread rolls and the usual knock-on benefits to the Limerick region. But someone else, I think it was Timmy Dooley, FF, expressed the need for a better medium term plan for the region – quite apart from any short term, construction type of stimulus – we don’t want to fall into that trap again, as he said. To be honest, one has to question, how much a huge regeneration/construction stimulus for Limerick region would drag away human resources from any SME startups etc, that might prove more benefit to the region in the long term. There needs to be a balance, and in the second phase of the Celtic Tiger, we certainly didn’t find the balance. (See John Fitzgerald, ESRI, piece in the Sunday Tribune last year, Shock therapy needed sooner rather than later to spur recovery) The point I am really making, is that Bill Cullen’s excellent appeal for common sense from young people on Pat Kenny’s The Front Line does conflict and contradict in some ways, Timmy Dooley’s call for a better medium term plan for struggling regions like Limerick. But I guess, life is all about contradictions, as are human beings. Late Debate 280110 29 January 2010 12:00 Rachael English and panel discuss the news issues of the day. Timmy Dooley TD FF, Michael Nooonan TD FG, Liam Croke personal finance adviser (all in Limerick studio) and Jim Power in Dublin discuss the implications of Permanent TSB’s mortgage interest rise. The two TDs and Stephen Kinsella economist UL (on phone) discuss the Mid West Task Force update. Simon Carswell Finance Correspondent Irish Times (on phone) gives an update on the world economic forum at Davos. http://www.rte.ie/radio1/podcast/podcast_thelatedebate.xml BOH. http://www.irishtimes.com/newspaper/frontpage/2010/0223/1224265037656.html http://www.examiner.ie/ireland/rogue-bankers-should-be-jailed-says-honohan-112896.html Q&A seems very interesting too! Why wasn’t there any of our contributors there to ask a pointed question? @Wow 1+ @All Inclined to indulge Honohan This is from the Irish Independent on Nov. 19, 2009: http://www.independent.ie/national-news/new-central-bank-chief-wants-salary-cap-lifted-1947871.html These wage cuts will slowly strangle the middle and lower classes in this country. It is fine for Honohan and others on 6 figures + multiple State pensions + State board stipends to make these calls. For everyone else, wage cuts spell serious trouble — unless the cuts are matched by debt reduction/forgiveness and reduced costs of living. We know inflation is on the way up again, and we know interest rates cannot stay low for ever. Comments are closed.