Morgan Kelly Looks Ahead

The latest from Morgan Kelly is available here.

244 replies on “Morgan Kelly Looks Ahead”

You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.

Given Morgan Kelly’s prescience before the issue of the state bank guarantee, the day on which it took effect and the period in the interval, this article makes grim reading.

The Minister for Enterprise, Trade and Innovation, Batt O’Keeffe, is due in Galway soon after noon today to make an announcement about some jobs that will be created at a US market research firm.

Life continues as if the default spin and bluster is as handy a substitute as any for a credible jobs strategy.

As regards mortgages, the percentage of Irish homes owned outright is about 50%, which is high for Western Europe.

During the boom period renters were likely to be less well off than people with mortgages.

Any bailout of homeowners would have to be designed to minimise abuse.

IBEC’s Danny McCoy said last week that Irish households remain among the wealthiest in the European Union.

Given the grim outlook, it would surely pay to track down hidden overseas property assets from the total of about €60bn invested during the bubble years.

“You have read enough articles by economists by now to know that it is customary at this stage for me to propose, in 30 words or fewer, a simple policy that will solve all our problems. Unfortunately, this is where I have to hold up my hands and confess that I have no solutions, simple or otherwise.”

“From here on, for better or worse, we can only rely on the kindness of strangers.”

Whilst I have the utmost respect for Morgan Kelly, for both his diagnostic skills and his courage standing up when he did, I think he is utterly wrong in this regard.

There is a point to being educated. It’s to bloody think. To see not just the woods from the trees but the soil and the climate. There’re always choices.

I’ll give you one: From Bernard Lietaer.

“Could you make this more concrete: What should happen next?

Bernard Lietaer: To prevent a trickle-down effect of bankrupcies and lay-offs, companies should organise a reciprocal credit system on the for them best level as soon as possible. The Swiss Wir is an example of a currency that is fit to meet company needs. The currency was founded in the thirties when companies had a hard time getting funds. One in five Swiss SME’s is a member of this. Those who sell something, earn a credit balance in Wir which is kept track of in the central unit in Bazel. With this credit balance, the seller in his turn can buy things in the Wir-network. Last year 1.7 billion Swiss francs have been converted to Wir like this. Macro-economic research shows that the volume in Wir automatically expands when bank credits are harder to get hold of. It also diminishes spontaneously when the activity in the ‘official’ economy grows. The Wir acts as a buffer in times of crisis.”

There’s more in the interview.

This really isn’t rocket science.

Devastating analysis – existential crisis with monday morning tea, cheese and crackers – and an existential crisis for every Irish citizen, wherever they are in the global audience.

Hope Morgan Kelly is less accurate on the political front, but I fear the far right fascist tendency is already tooling up – including some of the players who got us into this abyss.

Neat piece in the New york Times where our ‘Leadership’ is recognised – “In a report last week, the International Monetary Fund [argued] that the increasing debt ratios among advanced nations needed to be addressed. It highlighted the extent to which the debt ratios of all developed nations had exploded since the onset of the financial crisis. The leader is Ireland, whose debt level has almost doubled, to nearly 100 percent of G.D.P. ”

Patricia The Sovereign_in_exile is … settling in for a while … reading up on the Kantian tradition, a bit of macro, monetary, and fiscal, a dash of pragmatism, and the political economy of the 1930s.

Oh, dear! He waxes lyrical! Always a colossally bad sign.

He is perfectly correct and knows it and knows that his readers know it. It has taken these dupes years to understand. Now they do. Now he tells us what he has been saying all along but now they understand.

History tells us ……. He did not go there, because he concentrates upon the new power: the EZ. He does not denounce. He simply describes. He is probably very lonely right now. He is on the plateau and can see what is going to happen and describes some of it. The rest is too ugly to dwell upon and say to others. They will remember that he and others knew and told them what was coming. They will shun him. He is apart. No one likes a saint. Still less do they like a prophet. Few will seek him out.

I cherish him and so do others. He should rest assured that his counsel and personal qualities are highly valued.

Anyone, apart from the shills we so love and admire, disagree?

Liam H
Yes, I have raised internal currencies before, here.

The point is that Switzerland was sovereign. It is now surronded by the EU, soon to be the EZ. It is less sovereign, day by day.

Ireland is not sovereign, it is merely a 1% anomaly, a person drunk on cheap credit who must be chastised by drying out and a fine will have to be paid after a wigging from the judge! Very unpleasant for the inhabitants pretensions.

The article has logic and cohesion. It is stark.

Ireland will develop a counter culture against the EZ. This will be hush hush, entre-nous. It may take on maffiya type overtones but is inevitable. This is economic warfare. Roberto Calvi? This may go on for generations? Am I already a member? Does the Pope shit in the woods? Baltic Exchange?


With all due respect I think you’re missing the point of what I’ve written. What he’s describing isn’t national currency but essentially symmetrical counterparts to the prevailing currency system.

The prevailing system is centralized, these are decentralized.
The prevailing system is catholic, these may well be sector specific.
The prevailing system is predicated on positive interest. These best function with demurage.

i.e. as one system goes down, the other goes up, and visa versa, with the aim to maintain velocity or even boost it. It just depends on what system is designed for what purpose.

The WIR system for example does not operate as a competitor to the Swiss Franc, but as an adaptation designed to buttress the system.

My point is: Where are our wits? Where’s our courage? Despite everything I read, I tell you now, I recognize no sovereignty but our own. Time for us to grow a pair.

I’ll ignore his political predictions at the end as that is not his area of expertise.

I agree with everything else. Despite our trade surplus we still have a current account deficit for almost a decade. We could have simply written off some of the debt, but now its government debt.

What are the solutions. What if we tell the ECB where to go, they recklessly lent to a Fianna Fáil government? What would be the implications?

What if someone has a bit of money (say €10,000) in a bank or even a relatively well managed bank like TSB or a credit union. Is that at risk?

Could someone who knows the ins and outs of finance please tell me?

2 years and 2 months have been completely wasted. Lenihan is nothing but a smooth talking salesman selling crashed cars welded together.

I see from yesterday’s Sunday Tribune that Frau Merkel is looking into a controlled explosion on Irish, Portuguese and Greek debt to save the German taxpayer. So there will be haircuts on sovereign debt and consequent increases in yields to tip Cathleen ni H over the edge. And until recently haircuts on bank debt were unthinkable. This is a EZ nightmare.

The discussion over frontloading €6bn seems so innocent.

McWilliam’s prediction re: leaving EZ now seems mild compared to this scenario.

We are now reaping the rewards of a long period of dumbing down of civic life and the erosion of political integrity.
The vast majority of people I meet, at work and socially have no idea, nor wish to have, how truly precarious our position is.
The casual assumption is that we will be bailed out by the ECB and all will be grand. “Sure arent we a great little nation”

The usual Kelly bullshit. He is now clearly deranged. Other academic economists in Ireland should disassociate themselves from him asap, otherwise the public will believe unfairly that they are all mad.

Kelly is driven solely by all-consuming and mind-destroying hatred of Fianna Fail. Any serious economist, who gets to write articles at regular intervals for the main national newspaper, would study in detail and lay out in the article whatever economic data has been published since the last article and then calmly make some conclusion based on a rational, intelligent and comprehensive analysis of that data. Nothing like that ever appears in Kelly articles. Just hysterical screeching that the world is about to end, such as you might find among the inmates of a mental hospital, where I trust he will reside shortly. Among the data published since the last Kelly outburst in May, but which naturally he totally ignores:

(a) Exports growing six times as fast as predicted at the start of 2010 – looks like the economy is heading for a 10% increase in exports in 2010.

(b) Ditto with manufacturing output. Up around 20% since the trough in Q4 2009.

(c) Agriculture having its best year for decades, with output and the terms of trade way up.

(d) Number on live register down 12,000 in September and October.

(e) Number of redundancies falling sharply, down 40% in October over a year ago. In his last IT article in May, Kelly highlighed the fact that redundancies were still occurring at the rate of 5,500 a month, having been near 8,000 a month in early 2009. Its now down to 3,900 a month, which is actually not too far off its pre-recession level of about 2,000 to 2,500 a month.

(f) Number of job vacancies rising sharply, up 40% in September over a year ago.

(g) The recent CSO report showing the savings ratio of Irish households rising from 4.3% in 2008 to 12.9% in 2009, one of the highest savings ratios in the world. Irish households are not borrowing like mad to fend off disaster, as Kelly falsely claims in this article. Rather, they are saving like mad.

(h) The recent Dept of Environment report showing the number of empty houses in Ireland at but a small fraction of the 300,000 Kelly has repeatedly, but fraudently, claimed. I notice, no references whatever to the number of empty houses in Ireland in the latest Kelly article, although most of his previous ones were largely based on his estimates for the alleged number of such empties.

(i) The latest Dept of Environment and ESRI/TSB figures showing the fall in house prices moderating sharply, and showing no sign whatever that the total fall from peak to trough will be anything like the 80% Kelly has repeatedly predicted.

(j) The latest CSO/Daft figures showing that rents have almost stabilised so far in 2010.

(k) Tax revenue coming in well above target in August, September and October, clearly a result of the economic activity referrred to in (a) to (j).

I could go on and on. But, unlike this academic nutjob, I won’t.

@ seafoid

actually, German FM Schauble said that the restructuring rules would only apply to “new credit” and not existing debt, so an actual restucturing, rather than the enaction of a framework for the future, would appear to be the most likely scenario.

@ JtO

i can’t believe you didn’t mention Kelly’s previous forecast for 20% unemployment by the end of 2009…

Thanks, Eoin. It doesn’t really help , does it? Or is it all inevitable anyway? The last act of the Tiger was the bank guarantee. And how.

Great article.
However there is still scope for policies that will prove less onerous on the taxpayer and on the ratings. Yes, there is still a fairly substantial quantity of senior and sub bank debt that can be defaulted on. Of course it is dwindling as each month goes buy. But that is why we urgently need a new government that will take hard and painful decisions. They’ll still be less hard and less painful than staying on the present policy path.
As for the claim that bank default will hurt government bonds, I still don’t buy the argument. Indeed the opposite may occur, especially at these dizzy yields. Moreover I’ve heard a fair number of foreign government bond investors over the past few months say that they are stunned at the support the present Irish government shows for domestic banks and banks bonds.


The use of economic theories, and economists, can be judged by their predictions.

The accuracy of Morgan Kelly’s predictions have been far superior to the governments.

Rather than counter any of his arguments you have resorted to name calling. Export have increased, but as most of the profits go abroad we still have a current account deficit. As a nation we have not even begun to pay back the total debt (public and private sector). Even with the figures you presented Morgan Kelly’s arguments are still consistent.

@ Seafoid/all

“so an actual restucturing, rather than the enaction of a framework for the future, would appear to be the most likely scenario.”

should be the other way around – blame the wind and rain for keeping me up last night…


Kelly may have a point though.

As a public sector worker, I think it is only a matter of time beforethey come back to us for more pay cuts, which at this stage endangers/ends my ability to pay the mortgage.

The mortgage situation is the next stage in this thing, and its inevitability is founded in the cuts that Govt has to make.

Or maybe not…. tell me not….


Thank you thank you thank you thank you.

I don’t care if MK is probably right and you are probably wrong but I made the HUGE mistake of reading MK over my morning cuppa and have been dragging myself around on the verge of tears since. Now I can make it through the day willing myself to adopt a note of….Optimism!!! Perhaps the world will not end next year.


btw I think FG is right to oppose the budget. Either it’ll pass anyway in which case they avoided being co-opted into the mess by FF or it won’t in which case we get RID of this completely disatrous government and make the cuts in another 6 weeks anyway.

Morgan Kelly posits that taking ECB deposits to pay of bondholders and institutional depositors in September was when we finally ran out of options as a sovereign nation.

I don’t doubt that Mr. Kelly was right, but I would be grateful if somebody could explain it to me why we cannot default on the ECB (and the Central Bank of Ireland) in the same way we might have defaulted on the bondholders. Is it because the ECB is a central bank or is it because those deposits are guaranteed by the state by an instrument other than the bank guarantee scheme or the eligible liabilities guarantee scheme?

Morgan is completely correct, the scenario will play out like this. The next 6m we will see bluff after bluff of all our corrupt political class been called. The ego indulging and kings of spin the NTMA will be unale to access the capital markets next year and the EFSF, the only conditional support mechanism (the SMP is unconditional support ) will be deployed. Enter the IMF who will oversee cuts to all aspects of expenditure akin to Latvia. The fumblers in the greasy till will then say it didn’t happen on our watch!!!. With Public sector pay set to fall up to 40% along with social welfare, pensions et al, house prices will collapse further from here. We have no right to demand our current standard of living to be maintained from German tax, we were arrogant and not a particularly pleasant race at the height of the Celtic tiger, and its high time all of us sobered up, blamed ourselves and get on with gettng out of this, through hard work and humility…

Seriously, what’s wrong with all you guys? Whilst I don’t agree with JTO that the world is smelling of roses, and nor am I a fan of FF, I’ll give him a hand for spirit.

I’ll ask the question again. Where are your wits? What were you educated for? To roll around inside your boxes? Anger may not be a policy, but if you channel it you might find it of some use. Despair on the other hand is just pathetic.

I’ll let you all in on a little secret. The economy is not a chess board. It’s not zero sum. It has very specific problems which are far from insurmountable.

@ Sarah Carey

There is optimism and there is hubris.

Anger is not a policy, but neither is ‘confidence’. The government has ignored the fundamental imbalances in the economy.

The country can pull through this, but only if we properly diagnose the problems, as Morgan Kelly has been doing for several years now. Positive thinking is no substitute for logical thinking.

The good news is that he has given up on future silver bullets, probably disappointed at not being invited to the Silver Bullet Fest. Fascinating how his fellow travellers on this blog are wallowing in this latest outburst.

One aspect of his polemic is just plain wrong. He says that the Government had grounds for welching on the guarantee on the basis that the banks tricked them. The guarantee was on the liabilities not on the banks. The banks have never been guaranteed, we can walk from them in the morning. We have guaranteed depositors and bondholders that if we do ditch the banks we will look after them afterwards. In short there was no basis whatsoever for welching on the guarantee despite how knowledgably Morgan may quote from the Central Bank Act.

In any case, if we are facing bankruptcy we are better off owing to the ECB than to the bond markets. Maybe we will at some point have to admit to the ECB that we can’t pay back, that seems a much more controllable scenario than precipitating chaos in September by witholding that 55Bn.

To suggest that we missed this last Silver Bullet, that if we had witheld that 55Bn we would now be in clover is a nonsense and he surely knows that.

He also glibly dismisses the budget cuts as being trivial in the context of the bank bail out. Perhaps those reading the Irish Times quickly will be taken in by this but of course it is cuts per annum versus a one off bank bail out. The deficit is 19bn per annum; this is a much more serious issue than the bank crisis, which worst case is unlikley to top 40bn.

Bond. Eoin Bond

“i can’t believe you didn’t mention Kelly’s previous forecast for 20% unemployment by the end of 2009”

I can’t believe it’s not butter.

you read an article where the estate agent conflated the number of vacant houses with the number of houses deemed to be in ghosts estates, one of those deliberate mistakes,ie lies

the top and tail are a bit weird, did they give him a full page that’ll be the mistake

is it too much to ask for solutions from him?

@ steve white

Whats they point in him offering solutions? He has been ignored for years.

However I would be happy if someone could explain to me the implications of us defaulting on the ECB. Are ECB loans to the banks guaranteed by the government?

“Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK’s Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.”

Don’t see why that is not still an option.

So the crèche that is the ECB thakes a hit.

And the problem with that is?


Please forgive the Michael D. Higgins level of neck as I respond by quoting myself from May:

Conversely, if the government does go with the flow, pull on the blue jersey and again cover the bondholders with Exchequer money, there is no guarantee that our friends in Europe will repay our loyalty when the predictable fiscal crisis results, not even with the self-serving and equivocally helpful help they’re now giving to Greece. The recent noises from the German government about demanding orderly sovereign restructurings from now on sharpen this. Even if Merkel really has no such intention now, those words give us public cover for letting AIB restructure (especially at the expiry of the guarantee) while later they will give a German government cover if it does decide to let a sovereign fail. Also, the German public is apparently convinced the current emergency is basically a public debt crisis in the periphery. If the example of Ireland’s tiny public debt and current account surplus back in 2006 isn’t enough to dispel this appealing notion now, it’s unlikely they will rethink when we drag our public debt crisis over to them in 2012. If we explain that we ran up this debt as a favour to them, in the preservation of Deutsche and SocGén, they are likely to ask to see the receipt.

In exchange for bankrupting ourselves to help prop up the German financial sector, the German taxpayer will curse us in high moral indignation as we are dragged through EFSF and perhaps a restructuring later. German politicians will not be running to set them straight.


As far as the debt owed to the collective Eurosystem goes, the answer is that there would be an enormous bang. But that doesn’t necessarily mean that we shouldn’t do it. In fact I think that we should – as soon as the EFSF gavage is down our throat, at least. Among other things, the ECB richly deserves to be caught out for its recent behaviour.


“as soon as the EFSF gavage is down our throat, at least. Among other things, the ECB richly deserves to be caught out for its recent behaviour.”

The Euro is a failed currency peg.

Take the money then default.


“(j) The latest CSO/Daft figures showing that rents have almost stabilised so far in 2010.”

I think the next Daft/CSO report will show rents falling again. They did stabilize at around €800pm at the start of the year but yesterday IPW have the average rent at €740. A 7.5% drop with the pace of drops increasing.

We all seem to be forgetting that we are where we are both because of a deep-seated malaise in the body politic and economic and because of serious institutional design flaws in the EZ. In Sep. 2008 the Government had two real options: either call in the IMF or take emergency economic powers, try to do a deal with the bondholders (where they took severe haircuts) or, failing that, impose losses across the board very quickly and sell what remained to intenational banks that had maintained their solvency and liquidity following the Lehman bust – or were in a position to shore these up quickly.

The EU effectively vetoed both. On the first, while having the IMF involved in non-EZ EU members was tolerable, it most certainly wasn’t on for an EZ member. On the second, there was no way irish bank losses were going to be imposed on banks and pension funds in core EZ countries. And so we got the blanket guarantee with the ECB shoring up the liquidity of the Irish banking system. And we should also remember that Ireland comprises 1% of the EU economy and probably around 1.5% of the EZ economy.

As a result Ireland was left to take the heat, eventually, on bank losses and continuously on its fiscal deficit. Whether we’re in the EFSF or not, it’ll be three more years of hell until the political and institutional EU gets its act together to amend the TFEU and establish its European Monetary Fund that replicates the IMF in the EZ. But this is unlikely to afford much redemption as the ECB will want the money back that was used to roll-over the bank bondholders.

I agree with JtO that many good things were done over the last two decades and that parts of the economy are resilient, but, in general, much of the doemstic economy is being choked by cosy clubs and consumer rip-offs – and by the holding pattern on the banks and property market the EU has effectively imposed. Neither the current Government nor the likley alternative has the guts or gumption to get to grips with these problems. Only the IMF, I fear, was the tools and capability.

@ anonym

Would credit unions be safe if we tell the ECB where to go? They get their money locally based on customer deposits.

I don’t recall Morgan Kelly calling for the guarantee to be unilaterally revoked prior to the maturing of bonds in September. If he wrote something in July, Aug, Sept on the point then perhaps somebody would provide a link or a direction to same.

Insofar as the ECB has provided the cash for other europeans to be repaid, then hasn’t the EU as a whole taken on the burden of the losses in the frst instance? If that is the case then we need to see what terms, if any, were agreed between the Govt and the ECB/EU to secure such cash and to assess the Govt’s statutory authority in relation to same.

One of the big problems which formerly wealthy people experience when they go bust is an inability to grasp that the money is really gone. This was termed as being “in denial” when applied to the banks.

The Govt have proceeded on the basis that we cannot default on the guarantee because we would be defaulting on our own depositors and pension funds which would be counter productive. There are two ways of looking at this. The first is that the money is already gone and the state should not be protecting these people when it does not have the capacity to do so. The second is that whereas there will be little or no public wealth in the country in years to come, at least if we preserve some of the private wealth this will filter back into the economy.

It is apparent that the State does not have the capacity on its own to preserve this private wealth. The Irish private wealth has been preserved by tying ot to foreign private wealth and funding its redemption at the expense of the EU but underwritten by the Irish tax-payers.

If the cost of underwriting the EU assistance to foreign wealth far outweighs the private wealth which has been preserved then this course is not justified. This problem is exacerbated if the foreign wealth takes flight and the Irish wealth which has been preserved remains at risk. It is not clear that this has happened.

However, one has a deep foreboding that the people in the DoF doing the maths on behalf of the Irish tax-payer are no match for those in the ECB/IMF and EU Commission doing the maths for the international markets and EU tax-payers. I’m sure our guys don’t lack schooling in the ways of Machiavelli but it isn’t much use to us if they can’t add and subtract or they lack the cajones to act in defiance of their “partners”.

Previously, I felt our best bet was to engineer a solution with the assistance of the EU/ECB as their support would give us credibility in the markets. I now feel that there is a growing divergence of interests between Ireland and the EU. We may have kept our part of a bargain in stymieing contagion within EMU at a time of fragility but eaten bread is soon forgotten. Whatever advantage can be obtained needs to be settled now. Subordinating the EU deposits to other creditors might be one solutions?

I am not an economist but merely a director of a small architectural practice and I have been following the debate on these pages for over a year now trying to get a handle on what is really going on in the Irish Economy without the interference of the media filter- I find myself agreeing with JtO more and more often based on what I see on the ground and my personal experience of previous recessions here and abroad even though the construction industry is right on the pointy end of this recession. Why doesn’t the Irish Times/ RTE publish what he is saying? other bloggers might believe that he overly optimistic but it seems to me that his opinions, facts and figures are equally as valid as Morgan Kelly- I have had some recent bitter experience whereby one of projects was postponed due to concerns about Ireland Inc , rather than project itself which was up to very recently regarded as being very bankable- these guys just read the banner headline in the FT, which is now once again gifted a negative headline by MK, rather than looking at all of the other aspects of doing business in Ireland-MK’s bleak prognosis will certainly become true if we keep beating ourselves up like this because no one will do business with us and we ourselves will not spend in the economy and we desperately need to trade our way out of this hole- and don’t get me wrong , i’m not saying that he shouldn’t be saying it it just that i would like to see some of JtO’ and other economic voices grabbling the headlines in the mainstream media once in a while rather than the constant continuous righteous fusilades against the malfeasance of the banks and Government.

how about it. JtO?

There’s no point in saying how bad things are if you can’t do anything about it.
JTO’s analysis is, as usual, great but does not take into account the debt overhang from banks and mortgages.
I think partially blinded optimism is better than enlightened hopelesness, however.
Can I propose a different way of looking at this please?
Its time to negotiate the Euro bailout at 2.5% for 10 years.
Remember Europe fails alot – it’s foreign policy failed in the Balkans, it’s financial policy failed in setting up the Euro without ANY central regulation, and it will fail again in failing to support the periphery properly in a debt crisis. We do not want to be the next European disaster.
Time to ask not what we can do for Europe but what Europe will do for us.
If it can’t do anything…..aufwiedersehn to the Reich.


Please spread some of that sunshine the bond markets way. It seems as though the kids with the spreadsherts are betting the debt is too large.

Besides, has there ever been a property market that didnt decline during an IMF bailout. I suspect not but perhaps someone can tell me otherwise.

I for one still wouldnt rule out some properties settling at an 80% fall from peak. We’ve already seem a 50% fall from peak and we’ve yet to see the banks really pull back first time buyer mortgage lending, the introduction of property taxes, water taxes, the elimination of interest relief etc


“Insofar as the ECB has provided the cash for other europeans to be repaid, then hasn’t the EU as a whole taken on the burden of the losses in the frst instance?”

Eh. No.

They are the loan shark of last resort.

Do you know of any committment that the EU has given that the ECB does not want the money back?

@ zhou_enlai
You ask why Ireland cannot default on the ECB. Much as I would still favour default on bank senior debt, default on any paper largely held at the ECB is totally out of the question (unless Ireland left the eurozone and the EU too). That means losses for the European taxpayer, invoking the ire of every other eurozone government, while it undermines the ECB’s operations. No way. You’d default on Irish government bonds first before putting losses on the ECB.
Already you can read from 26 Oct 2008 “ECB Threatens to Withdraw Irish Bank Funds, Business Post Says ” { NSN K9CILN0D9L35 }

We have been assimilated.

Our only hope is if they add our biological and technological distinctiveness to their own – surely then it is only a matter of time before the Eorg implode.

Francach feargach

That means losses for the European taxpayer, invoking the ire of every other eurozone government, while it undermines the ECB’s operations.”

No it doesn’t.

The ECB/EU fully intend monetising these “bailouts”.

Just not yet.

We are being taken for thick Paddies.

Typical Fianna Fail propaganda JTO. Your party has destroyed this country, aiding and abetting Financial Terrorists. The likes of Kelly and McWilliams refuse to sing from the cosy cartel hymnsheet.

@SEan Kearns
The reason RTE etc dont give credence space or voice to JtO is because he is anonymous. He claims to be someone who works in the north in a GIS company. And he may well be. But he could also be on death row in arizona, or Vlad Putin or anyone else. Generally media prefer not to run with anon sources. Same for Eoin^2 . If they were to spend some time getting their real names and affiliations known as commentators, whether one agreed with them or not, then they would be able to step off the ditch and hurl with the rest of us.

MK places significant emphasis on what he perceives as an impending mortgage default meltdown.

I think most are probably agreed that another 20 – 25 billion losses from the banks would likely push us into sovereign default.

In those circumstances, it seems to me, that people who wish to disagree with MK ought to meet his arguments.

To what extent is the mortgage book at the big two a black hole? This seems to be linked to the question of to what extent have property prices stabilized or to what extent are we still in a downward spiral of falling values and increasingly restricted availability of mortgage credit.

MK was in large part correct the first time because he saw the effect that the collapsing property market would have on the banks and the wider economy where as those that disagreed with him couldn’t bring themselves to accept that the losses on bank balance sheets were so extensive.

Mk is saying the same thing again is happening again. There is a refusal to acknowledge the scale of losses on the mortgage book of the big two. To a significant extent it seems that he will be right in his general assertion that default is unavoidable if he is right about these losses.

Clearly improving economic conditions improve the quality of the big two’s mortgage books. The question may be whether or not any recovery would be too little too late to avoid crippling losses on these loans.

Those irresponsible, craven doommongers at the FT, you know, the ones with the agenda to paint ireland in the blackest light, have picked up on Morgan
Oh, and bond bids are c 7.94%. 8% is in sight..
But, its good to know that that plus the 8% fall in the ISEQ financial (mainly led by ILP down 16% and with aib now nearing 1/2 what the minister says they will pay in a rights issue) is wrong. Isnt that right Eoin^2 and JtO?

@ Brian Lucey

“If they were to spend some time getting their real names and affiliations known as commentators”


Btw, JtO actually told us his real name and the name of the company he works for, basically after some ridiculous badgering on here. But i know, details aren’t your forté…

Sean Kearns: “Why doesn’t the Irish Times/ RTE publish what he (JtO) is saying? other bloggers might believe that he overly optimistic but it seems to me that his opinions, facts and figures are equally as valid as Morgan Kelly.”

We know who Morgan Kelly is because he publishes his picture, tells us what he works at and even uses his real name.

JtO has none of the above qualities, therefore he would not and should not be allowed near even the letters page of a respectable newspaper (even one which prints Sarah Carey).

Who is JtO? No matter how witty, relevent or right he may be, his views are frankly pointless. This cowardly fiction of hiding behind some geeky pen-name just about passes muster when opining his views (if they are all his own), but should be unacceptable when he is laying abuse on Prof Kelly. Questioning the sanity of an opponent is questionably Breznevite in itself. Doing so behind a dumb pseudonym is being a bully and wimp at the same time.

How can anyone claim not to be aware of an impending mortgage implosion? This is the wonder of the problem. Unemployment being what it is, the situation can only worsen as more claimants exhaust their PRSI entitlements – and that stage must be very close if not passed for the bulk of claimants. How can any family of four service the average 250k mortgage around Dublin and its commuter belt out of welfare?

If the government had taken steps to create a serious mortgagee protection programme, its capacity to reduce salaries would have been improved but that would have required a lot of big thinking about social contracts etc. And politicians don’t do that. I am sure no scheme can be perfect but ‘automatic’ extensions, suspending life insurance requirements (try getting life insurance after 55), etc. If people can hang onto their homes, a great deal of flexibility can be arrived at in labour practices.

“The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.”

Well little to disagree with there.

And in NAMA and you have a completely corrupted property market.

kelly is probably right in his analysis. He is wrong not to present a solution.

1. Cover the bank losses €70 billion per MK, through a 20 year long term bond from the ECB at a low interst rate.
2. State to take share ownership of owner occupier properties in mortgage default. Possibly €30billion? Again put this into a long term ECB bond.
3. End result, Ireland has a €100 billion corruption debt at say 3% to be paid in perpetuity. This is in addition to “Real National debt”
4. Let say €4-€5 billion per year.
5. Just like land annuities or war reparations. This time caused by the inane corruption of Fianna Fail whose cheerleaders still benefit enormously from the debacle.
6. Sort out the budget defecit through severe graduated cuts in public service pay and pension starting at €40,000pa.

However, I hope Morgan Kelly is absolutely correct on the fate of the parties that have bunkrupt the country. I hope he is not correct in his forecast of fascism but who knows.

How much bank paper can be defaulted upon still ?
there is €21bn in fixed or floating issues in ELG paper. None of this can be defaulted upon. Plus I estimate an extra 4bn in CP and other paper (in current conditions such issuance is likely to be challenging). The €21bn includes some paper specifically tailored for ECB repo eg Nationwide €4bn 3% EMTN Note due 2011

Bloomberg indicates €30bn paper outstanding, of which some €12bn is in mortgage-related paper. . I estimate some 7bn is in ELG paper.
BoI –
Bloomberg indicates €28bn paper outstanding, of which some €8bn is in mortgage-related paper. I estimate some 5bn is in ELG paper

I wouldn’t have seen the covered bond paper as candidate for default till now. But even excluding that, there are quite still some bonds outstanding for BoI, AIB, etc that are candidates for restructuring.

Hello all,
A bedrock criteria of a citizen is do they accept responsibility for their actions in their society. Debating the future of a community is an action. Doing so from behind a pseudonym is refusing responsibility for one’s actions.
There can be no development of thought without action.
No matter how good it is, thoughtful analysis is still just thought.
This country has had a surplus of both analysis and non-accountability. It has its uses, but these are now far outweighed by the need for action and of taking responsibility for our actions.
I appreciate the analytic input of Eoin and Zhou and others. They bring a depth of knowledge, experience and rigour that is immensely valuable. But without a citizens acceptance of responsibility for their thoughts the bedrock foundation for change is not there.
Kelly, Whelan, Lucey, Hennigan, Donnelly, Carey, and many others do not hide.
As a simple example of everyone’s committment to do something, would you please post under your real names. You may know of other ways of accepting responsibility as a citizen. Do it.

Change cannot happen without citizens who take responsibility for their actions

@ Eureka
There’s no point in saying how bad things are if you can’t do anything about it.
Ignorance is bliss? We have zero chance of fixing our economy if we continue to ignore fundamental imbalances.

@Francach feargach
I’m beginning to think that welching on ECB isn’t a policy choice, that it is an inevitability, but I would be happy if you to explain your point. I don’t accept that we will ever leave the Euro. Kosovo use the Euro, and they aren’t even recognised by several Euro members.

@Francach feargach

That means losses for the European taxpayer

So the costs of the Irish bank bailout would be distributed in roughly equal proportion to the benefits? Where do I sign up?

It absolutely goes without saying that one does not stir up a crisis at the ECB lightly. However, in our present serious situation, we have to weigh up the realistic risk in taking on the ECB (Expel us from the Eurogroup? How? On what grounds? Expel us from the EU? How? On what grounds? Induce an Irish sovereign default? If Irish bank insolvencies are so damaging to the ECB, then what kind of response is causing a sovereign crisis? Is Trichet ready to execute a MAD strategy rather than deal with a tens-of-billions one-off?) against the risks in continuing to play nice. We are in a situation where the path of least resistance is not a safe option. Please forgive the woefully overheated analogy, but: when someone is pointing a gun at you, it is generally best to do what they say. When they start leading you towards a shallow grave, however, it is time to start seriously considering other options.

As an owner of a small manufacturing company which exports 70% of its sales I would like to agree with Sean Kearns and urge JTO to keep up the good work. I also think Eoin Bond’s one line comment on Kelly’s article was to the point. Kelly says that the crisis was worse than he feared and yet he feared 20% unemployment.

My feeling is that we have nothing to fear except fear itself. Economics is largely about confidence or to be more precise what decision makers think about the future.

For the first time in many years there are favourable economic conditions: more realistic wages and sterling no longer depreciating. After a horrendous few years I anticipate recruiting again next year.

I have had the feeling for some time that the negativity is largely political or psychological and nothing to do with economics. The “optimists” believe that we are capable of working our way out of this crisis as we have done before. The “pessimists” believe that the State has failed and independence was a mistake. Note Kelly’s remarks in his opening paragraph about the death of the Republic and our acrimonious divorce from Britain. What has that to do with economics?

Finally, I don’t expect JTO ever to be published in The Irish Times. His comments do not suit that newspaper’s agenda, but it doesn’t matter. I suspect most people who are interested in what is really going on in the economy have long ceased to take The Irish Times seriously.

@Brian Lucey,

I just loved the reference in your Bloomberg link to Timmy Dooley, a lawmaker. If only our TDs did make laws, rather than pass them under direction from the whips, we mightn’t be in the mess we’re in.

Kelly what the fuck did you just do!?!?! If this gets picked up by the AP feeds, we’re really sunk!! I might moan on in blog comments; but I don’t write an entire thanatopsis on the demise of the country for the monday morning edition of the Irish Times!

Dear God! Whatever melancholia Dan O’Brien caught on last weeks Vincent Browne show seems to have spread. Is this really regarded as responsible behavior on the part of Irish economists? You talk the economy up for ten years, mutter while it overheats, stutter as it collapses, provide no real solutions during the crisis, and then wail like a keener about its inevitable death before it even actually over.

This essay reads like the actions of a histrionic on a sinking ship. While others try to bail, he loudly declares all hope is lost, and proceeds to take an axe to the hull. Thanks mate; thanks for the productive appraisal of our situation. You know, if ever there was an apt time for Bertie’s suicide comment, it’s right now.

Bloody Economists!!!

“Finally, I don’t expect JTO ever to be published in The Irish Times. His comments do not suit that newspaper’s agenda, but it doesn’t matter.”
I dont expect them to be published because he wont tell us / them who he is. Simples.

Irish Fight to End Bond `Buyers Strike’ as EU Examines Budget

Look on the bright side. If there’s one thing our ruling types love it’s the idea of going out and selling Brand Ireland to a watching world. Well, your hour has come lads.

Just as a matter of interest, on what date did Morgan Kelly first publish his predictions of housing price collapse?

Alot of handbags being swung at JTO at the moment.
Where did the ball go..
Oh wait, Morgan K was taking the same type of tackle too…
Where did the ball go…

“The Govt have proceeded on the basis that we cannot default on the guarantee because we would be defaulting on our own depositors and pension funds which would be counter productive”

Apart from the inclusion of depositors – who to an adequate extent were covered by existing deposit insurance, I have to question the reference to Pension funds exposure to Bank Bonds.
Theye may have had a slight exposure but isn’t it a fact that most of the Irish Pension Funds were overly exposed to equities – especially banks because they had a policy of paying dividends – and thus were already well under water as stock markets were collapsing. The guarantee I suggest had little eggect on Irish Pension funds. If they had been they would not have lost so much.

On Morgan Kellys suggestion “Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act.”
This may or may not have been possible – I personally doubt it. The fact is that a clause like this should in any case have been included in the guarantee, and it’s omission is either criminally negligent on the part of those who drew it up, or it was deliberate. I believe it was deliberately drafted so that we could not escape. The constant repetiton of the mantra “unconditional and irrevocable” thoughout the text leaves no doubt about that.
Why? is an interesting question for which I have no answer.

Another hammer blow on the anvil of truth and common sense from Morgan Kelly. Reminds me of Cowen in the Dail, ” Deputy, I have not committed treason and I take grave offence at that…” Now why would anyone say that about our great leaders? Have they not delivered the country on a blood splattered plate with their Guarantee, their only game in town NAMA (not much about that lately) and insisting on honoring contracts based on lies which bankrupted the state.


How long more are you going to keep coming out with the gibberish? Facts and Figures? Who’s facts, who’s figures you use totally discredited sources. Do you not realise that every “fact and figure” has a vested interest behind it? Des O’Malley once said, “you can prove that the moon is made of cheese, if you really want to with statistics”. Maybe John you would like to join the Communist Party in China over there they have declared, we control statistics and “with statistics we can place the stars in the sky”. Too often that is what you try to do but you seem to be placing yours in a firmament where there is no gravity to hold them in place. At least you are a bit of light relief to Morgan Kelly. Oh! and btw Peter Matthews has been proved correct once again.

@ Bond. Eoin Bond

A question for you. Out of a hundred people you know do you not know at least 6 or 7 that are too ashamed, have their own money but no job or are just planning to get out and therefore not bothering to queue up? What is your number for the non statistically unemployed? The unemployment rate is a lot higher than 13.7% not to mention people on subsistence jobs and work experience jobs or Bill Cullen barrow boy jobs”. Lets not forget Cullen himself though “employed” would not be without the generosity of Lenihan and his scrappage transfers.

I recently, came accross a Chinese company “employing” 6 interpreters who do court work, and interviews at Garda stations paying students Sweet FA telling them they were getting valuable experience! Are these 6 employed?

Until we get to a stage where we buy a product or service, a pint or a professional and get the bill and say, “Jeasus, thats good value” we are not in the right place. For Irish people on the periphery of Europe to travel to Berlin and be shocked at the [low] prices of everything from food to accommodation is clearly an aberration.

If we accept that there is a good possibility next year of IMF/Stability fund or debt renegotiation we need to do things *now* so that we are in a position to be ultra competitive *after* that process happens. That means internal devaluation.

While we still have some sovereignty the government should force an internal devaluation by chopping all bills issued and paid by the state by 30%. ESB, down 30%, rates, down 30%, wages down 30%. Internal devaluation, do it now when we still can. It may increase the chance of default from 80% to 95% but the numbers look against us to start with so why not put us on a footing where we can grow strongly after the event?

No matter whether Prof Kelly is correct or not, he and the rest of us can have our says and not be worried about the PC Police. We are simply at the end of the beginning of a very unpleasant interlude. Please watch the spot price of crude. Even allowing for the FX value of USD, the price will slowly increase. We are heavily dependent for our economic wellbeing on the downstream products of crude – and so are other western developed economies. Price increase of crude will derail any expansion of aggregate economic activity.

The predicament lies with our cash flows. Paying down debt destroys money and is deflation, but we are also in a slow, unseen prices increase. I think it is known as ‘margin compression’. This takes months to show up in the official stats.

Reducing all or most social payment transfers lowers the incomes of those who already are pretty stretched. This is where you will see the political problems arise. Hungry, and soon to be homless persons, may just decide (like their counter parts in Derry of the 1960s, that stones in the air are more likely to get someone’s attention PDQ.

Brian P

Dear Hurlers on the Ditch,
What you say really matters to the players on the pitch and to the spectators in Europe.
it is a massive pity that those commentators who are positive about Ireland are not in a position to reveal themselves or their views in public-they may have their reasons including their conditions of employment and may not be as free and easy as academics to ventilate their views in the media.
however it is my observation that those who disagree with them and the hold the stage, seems to have a modicum of respect for their positive position, their research and opinion and I was hoping that this can be conveyed in some way in the form of some sort of balance
The debate in the media is distorted through a media filter that “soups it up” as Colm McCarthy recently stated, and this is having a depressing and panicking effect on us all which is making a bad situation much worse-
I understand what is to drown in debt, I am in the construction business after all and seen good businesses go down because of debt , but I also understand that you need to trade out of it and in any business you recognise the problem and you focus on your strenghts and you get on and deal with it. MK offers no solution, who will?

The national discourse is such that only ‘established’ names get to say their piece. This from both sides of the argument – “if only we could be a little more confident, sure we’d be grand” and “we’re all doomed”.

There is not much point in an anonymous commentator revealing themselves to be then airily dismissed as not having the qualifications to speak about such complex issues.

Words and ideas can and should speak for themselves. Whatever you think about some of JohntheO’s points and where (philosophically) he is speaking them from, some of them are accurate and should prompt further analysis by those who publicly claim themselves to be experts.

Anonymous commentators have been talking about the problems facing the economy and the bubble for some years while many soi disant experts were spoofing away with their heads in the sand and their hands in our pockets.

“we have nothing to fear except fear itself”
Well, that and taxes, poverty, inequality, lower standard of living, and a continuation of the last ten years of crony capitalism.

It’s time to start planning for a more favourable participation in the EFSF (or whatever amended form it may take). Currently the EFSF is all stick and no carrot. If we’re not allowed to default, we’ll end up paying billions to Germany and France to cover the cost of ‘their’ guarantee.

The stick should be as it is – handing over control of a lot of economic decisions and a high interest cost. On the former, it is necessary to keep control of our corporation tax policy; all other areas should be subject to outside control. On the latter, it is necessary to deter accessing the EFSF as a preferred option.

That said, the high interest doesn’t have to flow out of the facility. With my structured finance hat on, I would suggest that most of the interest should get trapped in a loss reserve subordinate to the EFSF bonds. I would also suggest that a QE-style operation by the ECB in buying a portion (mezzanine EFSF bonds) or all EFSF bonds.

In simple terms, my suggestion works as follows: Say Ireland has to tap the EFSF for 100bn at 5.5% for ten years. Assume the EFSF bonds pay 3% and the guarantors get 1%. I suggest the remaining 1.5% is used to fund a loss reserve. Over ten years, this would amount to 15% (or 15bn). This is the carrot – i.e. if the country gets their act together and avoids a default, they get to reduce their national debt by 15bn on exiting the EFSF. The introduction of a loss reverse does not adversely affect the guarantors because in the event of default, the losses would initially be absorbed by the reserve.

The numbers I use are purely for the purpose of example. ECB involvement could make things a lot cheaper. With the Americans engaging in QE2 and the possibility of the euro becoming too strong, some QE-style programme by the ECB is worth looking at.

@ John Martin

Economics is largely about confidence

No it is not.

Our economy is fundamentally unbalanced. No amount of positive thinking will change this.

We don’t have a confidence problem. We have a problem that, as a country, we owe more than we can pay. 2 years, 2 months later and people are still in denial?

And no, bond yields wont go up because of Morgan Kelly. They will go up because our minister for finance doesn’t understand why Morgan Kelly is right.

@Brian Lucey
From that Bloomberg piece
“Credit-default swaps linked to Irish debt rose as high as 587 basis points on Nov. 5, according to CMA prices. A basis point on a credit-default swap protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year. ”

How much CDS on Irish debt exist- does anybody have a figure? If the bondholders – who I guess should be the ones holding these – are covered adequately then why should they worry about default?
On the other hand if they (CDS values) exceed the debt value substantially, then someone has a vested interest in default?

6 months is a long time in the financial markets, everyone needs to take a deep breath, a step back, and try not to throw in the towel just yet. 18 months ago Ukraine CDS was at 5000bps and a default was a done deal, except for the fact that it never happened. Ditto Latvia at 1200bps and the impending devaluation/defaults which never occurred. Both of them are operating normally and funding themselves easy enough. The markets dont always get it right. What your seeing right now is a market that is completely devoid of confidence and is running for the door. We have to figure out what the market needs to restore that confidence.

Are we in a tight spot and is it horrific that we can be named in the same conversation as these countries? Absofrickinglutely. But is it all over yet? Not by a long shot.

People who are short Irish bonds either directly or via CDS will have been betting on the outcome we are currently observing. If we agree that current events have been caused by lots of things, including the Guarantee, NAMA-dithering, feckless policy-making in general, then those holding short Irish bond positions would have been cheering those policies to the rafters. And they would have jeered anyone who suggested a different policy option.

Could that cheering and jeering have made its way onto this blog?

@ Bond. Eoin Bond

You are right that we have time. But again that word ‘confidence’. I prefer the phrase ‘rational expectations’. We will never restore confidence unless we accept the fundamental imbalances in the economy. The most serious of these are due to turning private debt into public debt, and the resulting difficulties in restoring the current account to surplus.

Our current account deficit is about €4bn a year. If the bank bail-outs are €40bn, and the marginal interest rate is 7%, then thats €2.8bn a year going straight out of the country.

Do you really think “we need to figure out what markets want”? Surely the list of policies that will restore confidence are well known? If a tad unpalatable?

“Time” is the essential engine of the banking sector and all financial activities. If Time is frozen there is no need for finance. Without Time, banks cannot repay all deposits. If Time is ignored and all assets are to be valued at immediate sale price, none will have realistic value. As in NAMA and so also in residential mortgages.
Uniquely in the world, we Irish value our property and our banks without taking account of time. We ignore the fact that AIB’s impaired mortgages- the lowest ratio in the industry, btw – have typically 20 or 25 years to run, so the mortgagee has that long to pay off his debts and the bank finances him for that length of Time.
The “Mark-to-market” philosophy doesn’t work at the scale of national economy or whole banking sector or whole housing market. We are the only nation whose “economists” and academic financiers keep trying to make it work where it does not serve any useful objective. For traded securities–stocks and shares available for instant sale or purchase- it must be used but not for long term loans. What would happen, for example, if Royal Bank of Scotland- that bank that used to be regulated by Mr. Elderfield before we hired him- was to mark its assets to market? Contemplate it, while remembering that it chose £325 billion of its assets to be put into the UK Government Asset Insurance Scheme, under which her majesty will absorb 90% of any future devaluations of said property. That’s how they “save” a bank (and some others), while we throw our little banks out to inevitable foreign ownership and with them the prudential regulation of c. 100 bn. of Irish residents deposits !
Morgan Kelly’s main evidential basis for his estimate that AIB will cost us €34 bn. seems to be the fall in the value of housing and therefore the consequential risk to mortgages. He seems to estimate that the bank will lose c. €20 bn in the mortgage market, which would be approx. 100% of all their mortgages outstanding.
Of course he might be nearly right, if they were all to be marked to market, as if they were to be instantly repaid today. But just as we give borrowers a lot of Time to repay mortgages, why don’t we equally give banks Time to account for them and in due course record their level of profitability (or loss, as the case may be)? What’s the sense in accounting in such a manner that we wipe out the banks Now?
In any case, there will be new rules, as I explain in today

@ Sean Kearns: “MK offers no solution, who will?”

There’s nothing unique about our situation. Countries have faced systemic banking crisis, collapses, defaults, and yes national bankruptcies, many many times. The fact that we use the euro is in fact, almost an irrelevancy. The same would still have occurred under the punt. Iceland is the perfect example. A carry trade based on high interest rates brought a flood of money into their banks and hey presto, boom and the rest followed… In essence over the past thirty years since the collapse of Bretton Woods, the resilience of the monetary system has given way in favour of efficiency.

There’s a trade off between resilience and efficiency. Efficiency is the reason we joined the euro. Efficiency is the reason that consolidation usually occurs by having the larger banks swallow the smaller. And as efficiency increases the system gets ever more fragile. Where we are is the price. Were we will be in the future is now the question.

What we know is that our banks are bust and in essence, the credit distribution system is f$c%^d. The question I pose is how to deal with it.

One very simple solution is to have local chambers of commerce, or relevant sectoral bodies, or even just local business people sit down together and form an electronic means of exchange. It’s not rocket science. It’s credit. Company A sells to company B and receives credit that is registered on an exchange. Company A uses said credit to buy from Company C. Etc. Etc.

It could be easily expanded. Say if local authorities would accept rates payments with this credit, then they could use it to hire local companies to deliver on local infrastructure and maintenance and so drive investment. Keep them small, but make them common. Have a small, periodic and regular debasement of this credit, so that the inflation rate is fixed and known and the credit is used. Watch the velocity soar.

There is no reason why this can’t be done, other than it falls outside orthodoxy. But to be honest, orthodoxy is what got us into this mess in the first place. In fact it is done, just not here.

The technology is simple. A simple software program and well maintained database. The internet should make it a synch!

For companies that trade nationwide, they obviously won’t want to be using local currency. For this businesses could establish something along the lines of the WIR system in Switzerland, which I mentioned before. This system now encompasses between 20 and 25% of all businesses in Switzerland and is credited with providing the remarkable stability the swiss enjoy.

Hell, I don’t know or care what the EU rules say about it, but I don’t see why we couldn’t even have a dual currency system, so that we have both the Euro and the anti-euro. We make the anti-euro non convertible outside of the country, and use it to provide a cyclical counterbalance to the mood swings of the German people.

We could even go nuts and have all of these things, but I wouldn’t recommend that, because as I said it’s a trade off between efficiency and resilience, and the point is that one should not sacrifice the other. But what we lack now is resilience, and that’s what’s got people scared. Currencies operating in parallel can offer a tremendous stability to the system. It’s been proven many times. Not least in Worgl in Austria in 1934.

If we’re f$c%^d it’s because we have our heads up our own arses. We owe nobody anything and everything to ourselves. Credit is a fiction. The “markets” are a fiction. Why not make our own?

If anybodies interested:

I’d say that except for one point it appears that JtO and MK might not be that far apart & that point is that JtO has chosen not to include the cost of the banks in his outlook. MK has and that makes quite a big difference….

Anyone looking at Ireland should be looking at the whole picture & that includes the cost of the banks otherwise it is not credible (to me at least).

@ Simpleton

well i think the market agrees with basic policy reponse (cut the deficit), but they just dont believe we will actually do it. So thats the part that we have to convince them of.

@ Justin

fair point. I was just trying to point out that markets can often act quite irrationally and get things wrong, and things can turn around quicker than we would assume. But obviously you are right to highlight the IMF’s role in those situations.

@ Rory

confidence is rooted in economic fundamentals. In the same way that the markets were irrationally confident in Ireland a few years ago (2bps CDS anyone?!), they are now probably irrationally unconfident in us right now, imo. Trying to restore that, via the correct policy response, is the tricky bit. Maybe bringing in a new government immediately after the budget will clear some of the uncertainty away.

@ Robert Browne

“you can prove that the moon is made of cheese, if you really want to with statistics”

Plenty of supplies then, as long as theres stimulus funding for the Irish space programme to go and get it. Probably Joan Burton’s new bank will fund it.

@ Lots

JTO is a bit of a dissenter in this arena. Dissent can be stressfull and should be valued.

3 countries – Latvia, Ireland and Iceland.
2 cannot devalue because they are linked to the Euro or have the Euro. One can.
Latvia and Ireland have unemployment of 19% and 13.5% respectively.
Iceland has unemployment of 6% and none of the proximity to Europe the others enjoy.
You cannot get out of this mess without external devaluation.
That is the simple bottom line.
Now – you can retain the Euro and have a crappy little German outpost in the Atlantic as a country. And Bond will get paid in nice Euros.
The situation is untenable. The markets want us out. We need to get out. The Euro is dead. Let’s not die with it!

The 55bn repaid by the banks that is being referred to in the article, is it possible that the repayment might have been done with NAMA bonds that were supposed to generate liquidity in Ireland?

The central claim in MK’s piece appears to be around the level of losses at AIB and BoI. His claims are at odds with the official line which suggests that BoI is alright and that once AIB gets another €3.5bn from the NPRF and we convert the €3.5bn of preference shares to ordinary shares then AIB will be hunky dory as well.

Surely there is some way of getting traction in resolving these two opposing views. That would look like MK fully disclosing the detail of why he thinks the losses at AIB and BoI are higher than the official line and then DoF could do the same so that we can see where the differences in the two positions lies.

And until that happens shouldn’t we put the further “investment” in AIB on ice? And shouldn’t someone confiscate Brian Lenihan’s pen so he doesn’t sign any more (zero ex ante oversight) promissory notes until we have a better handle on the overall debt position (why give away another €5-10bn to Anglo and another €2.7bn to INBS if we’re going to have to default anyway).

“Are we in a tight spot and is it horrific that we can be named in the same conversation as these countries ?” (as Latvia) – NO

IRE is not even near that spot. Latvia has merely 40-50% debt/GDP, nothing like the private debt IRE has, nothing like the banking crisis IRE has, nothing like the budget deficit IRE has, huge growth potential, stable goverment having mandate to reduce the deficit even further etc. IRE would be really really lucky to be mentioned in the same sentence together with Latvia or even Ukraine

MK’s outline is a near worse case scenario but it should be taken as seriously as a more optimistic scenario.

We simply cannot reasonably forecast how the economies of the advanced countries will perform in the coming 18 months.

The UK is going to be iffy because of cutbacks and Obama or anyone else don’t know if the US will accelerate from its 2% annualised growth level.

The US added 151,000 in October – – the first since May but that is an estimate subject to revision.

US economists say that if the economy adds about 208,000 jobs per month (the average monthly rate for the best year of job creation in the 2000s) then it will take almost 12 years to return to the pre-recession level.

I wish I could have JTO’s optimism; I have neither a guaranteed income nor a safety net.

We should be cautious about expecting the export sector to be an engine of growth.

Exports in current price terms are up about 50% since 2000, but jobs in the export sector are back to 1998 levels.

Batt O’Keeffe went to Galway to announce 50 jobs today; the days of big FDI jobs announcements are over.

Where is the engine of growth?

Unless we have big new factory announcements and expansion of jobs, we are deluding ourselves into believing a rise in exports is going to solve our problems.

Ireland: Barometers of stress rise as reality and fantasy compete in economic discourse


“why give away another €5-10bn to Anglo and another €2.7bn to INBS if we’re going to have to default anyway” Why not? They are after all just promises. In fact the logic is the other way round. If you know you are going to default then promise till the cows come home.

MK certainly has the best “I told you so” credentials of them all. He was predicting a crash back in 2006 when Prof Lucey was confidently forecasting that the boom in housing prices would continue till 2010.

govt advisor on News at One reckons Irish Govt Bonds are a great buy. Now I know why we are truly sunk.


Good stuff!! Morgan Kelly has actually moved way beyond the “reckless banker/developer” theme into an outright assertion that this whole economy is an illusion. If someone is holding down a “good” job earning 100K a year with a low interest mortgage for 500K is a good bet even if the house is only worth 250K.


“Why not? They are after all just promises.” They’re promises until the €27bn depositors at Anglo decide to take their money back or the bondholders or inter bank borrowing has to be paid back – then it’s real and I would prefer there wasn’t any promise that was capable of being called in until there is a better handle on the level of debt in the banks.

I don’t know whether MK is right or wrong – does anyone. But NIB’s loss provisioning last week, BoI’s 85% losses at McDaid, the glaringly low level of repossessions (cf UK/US), the overwhelming trend for the official estimates to be inadequate and corroboration by others eg Peter Mathews/Constantin Gurdgiev at least makes me think the matter should be investigated. Indeed at this stage, I have become so cynical that I would have said the see-saw of credibility is weighed more towards MK than DoF. I would of course concede that DoF could be more accurate but the stakes are so high that there should at least be a reconciliation between the two positions.

@Sean Kearns

… but I also understand that you need to trade out of it and in any business you recognise the problem and you focus on your strenghts and you get on and deal with it.

Years ago, I had to sack myself for refusing to read the writing on the wall as losses mounted in a particular enterprise. Sometimes trading out of collapse is just not viable but that awareness does not come overnight. It was a valuable lesson. Management and directors (read the government) can be certain, but they can be wrong.

@Brian O’D

Good points all and one of the few posts here that actually analyse the article in question.

Morgan Kelly’s has made a huge leap from “AIB and BOI followed Anglo’s strategy” to “AIB and BOI must have as many as or even more dodgy developer loans than Anglo” and on to “there will be massive mortgage default and AIB and BOI will cost the taxpayer as much as Anglo” is all pretty fanciful and not backed up at all by any evidence.

The only thing that can be said for the article is that the guy has been accurate in the past, but as far as I can see it is mostly guesswork.

What are the opinions of MK’s colleagues? Karl W, Brian L and the others who have been similarily vocal in the past … agree or disagree with MK?

Have we breached 8% on ‘the markets’ yet?

I wonder if Mr Rehn will be reading the IT while he’s over today? MK’s article will no doubt annoy him.

Has the past two years just been an exercise in bailing out big Euro banks (the ‘Germans’) exposed to Irish debt?

I wonder what Mr Rehn will be telling the opposition leaders tomorrow when he meets them? If we don’t continue to toe the line we will be smashed? I bet he can be quite nasty when he gets heavy in private.

I was watching BLenihan talk to camera the other day. I swear he didn’t blink for several minutes (I mean physically blink). That’s not usually a good sign when trying to suss out whether someone is telling the truth or not. Odd that he’s not meeting Rehn until 6pm – after ‘the markets’ (well, the local ones anyway) have shut.

Think I will short the Euro.

@ Eoin Bond

Completely agree. 6 months is a long time. The probability of a US double dip was being touted as high as c. 30% by the likes of PIMCO less than two months ago. Now, albeit with the help of some Bernanke’s helicopter drops, the US economic outlook looks a lot more encouraging.

The Irish Government can only attempt to implement the most credible and least painful fiscal adjustment possible. There is little other choice. Any rebellion against senior bond holders or against the ECB is an exceptionally high risk strategy, with potentially horrendous social implications.

Over the coming months either global growth will bail us out or we will have to tap some restructured EFSF. It is in this area that those in power must perform. We have complied with all of the ECB’s requests for austerity measures, including timing and structure. We have treated all bondholders in a manner that has satisfied the ECB. We must not settle for anything less than a favourable bailout with appropriate terms & conditions.

In the meantime, a general election, a transparent 4 year budget plan and more micro government stimulus measures is all we can do.

“well i think the market agrees with basic policy reponse (cut the deficit), but they just dont believe we will actually do it. So thats the part that we have to convince them of.”

Not sure that is correct anymore.
I think the market believes we will be able to implement €6bn in cuts this year but the debt trajectory including total banking costs will be higher than the country can sustain in the short/medium term.

” If someone is holding down a “good” job earning 100K a year with a low interest mortgage for 500K is a good bet even if the house is only worth 250K”
Dont follow. Are you saying 100k earnings, 500k loan, 250k neg equity is good?

@Justin Collery

While we still have some sovereignty the government should force an internal devaluation by chopping all bills issued and paid by the state by 30%. ESB, down 30%, rates, down 30%, wages down 30%. Internal devaluation, do it now when we still can.

Good idea. But start at the top.

“Now, albeit with the help of some Bernanke’s helicopter drops, the US economic outlook looks a lot more encouraging”

The US economic outlook changes with the wind. The market got very excited over the republican win and 159,000 new jobs last month. The Republicans are only interested in tax cuts for the ultra rich and have no solutions to the structural problems holding back the US. And the country needs 300,000 new jobs a month to bring unemployment down.

Re Bond yields.

For those who believe that Ireland will not default, there must be an real killing to be made buying Irish bonds.
Maybe we should throw the NPRF kitty at the bonds.

@ Brian Lucey

Could you please explain to me to likely implications if the banks welch on the ECB?

bids at 7.982 acc to Reuters tradeweb
Well… that would be something they would only do in extremis. If youre 1000% snookered, whats to lose. Bear in mind however that the CB of I has 11b odd on the hook in Anglo under our old friend Mr MLRA.

To those people who think we can welch on the ECB. Think again.
The ECB is only institution now capable of standing between the Irish population and armageddon. We should all understand that.
Otherwise its “canned food and shotguns”.

@ Brian Lucey

Suppose we finally decide to cut our losses, and just let AIB and Anglo go bust. Would the Irish government be on the hook for what the ECB gave the banks?

@ BL

“Dont follow. Are you saying 100k earnings, 500k loan, 250k neg equity is good?” Not a ggod place to be, obviously. But a good bet to honour the mortgage. I was endorsing BOD’s excellent expose of MK’s “mark to market” meltdown.

@Rory O’Farrell
Economics is largely about confidence. That is one of the themes of Keynes’s General Theory of Employment, Interest and Money which was written in the depths of the 1930s Great Depression.

You are right about the problem of balances. That is not just an Irish problem, it is a problem (by definition) of the global economy. China and Germany have massive surpluses and the US has a massive deficit. But as JTO has pointed out this country has a remarkable ability to make the necessary adjustments. We are gradually moving into a balance of payments surplus. Our saving ratio has increased. The downside consequence of this is that consumption is anaemic but this will mean that when the recovery happens it will be sustainable.

@Brian O’Doherty
Very interesting post. I have three questions:

1) Do you think we were too transparent for our own good in our handling of the banking crisis when you look at how the Brits handled their banking crisis?

2) Given that NAMA, as far as I remember, bought the loans from the banks at just above market value and below Long Term Economic Value do you think there is a very strong probability that NAMA will make a profit?

3) Finally, your comment, if true, on Morgan Kelly’s calculations is pretty damning:

“Morgan Kelly’s main evidential basis for his estimate that AIB will cost us €34 bn. seems to be the fall in the value of housing and therefore the consequential risk to mortgages. He seems to estimate that the bank will lose c. €20 bn in the mortgage market, which would be approx. 100% of all their mortgages outstanding.”

Is this Kelly’s “Deposit Selling Moment”?

@ Seafoid

Like the wind is a bit overstated.

The US ISM manufacturing index rebounded to a five-month high of 56.9 in October from 54.4 in September. This is consistent with GDP growth of over 4%. Granted it is still below April’s peak of 60.4, but the danger that the US is heading back into a recession has receded significantly. The detail showed that the new orders, production and employment indices all improved. The increase in the latter, from 56.5 to 57.7, is consistent with manufacturing payrolls rising by around 30,000 per month.

@ Joseph Ryan

Don’t forget the shotgun shells. They’ll be used as currency.

But seriously, this is my understanding. The banks are private entities. They owe money to the ECB. The Irish government does not directly owe money to the ECB. So if we just say by to AIB and Anglo and give them to the ECB then we would only be on the hook for the €100k per depositor. That plus write off the €11bn MLRA.

I don’t think this is too bad if the credit unions, Permanent TSB and BOI are still open. Its bad, and (15th January will be 28 Months Later), but not quite tinned food and shot gun time.

I do believe that the national economy is close to insolvent (which wouldn’t have been a problem if the bank bondholders had been burned), but does this mean the government is too?

I assume I am missing something here, but someone please explain what?


The Guarantee is governed by domestic law. If you look back to the presentation at IIEA on sovereign default you will see that limited unilateral default was posited as a possible last ditch solution to Iceland’s and Greece’s problems. I do not know how the presence of ECB deposits affects the legal position.


Thanks for the link. I am still a bit at sea on the point but I will re-read the linked post when I get the chance.

@Conor O’Brien

It is not an option for me with my job (which I expect is the case for most people). Luckily, there is no shortage of opinionated unqualified commentators in Ireland at the moment!


hmmm… you could be on to something there about the CDS traders…
It is a great relief to have a mysterious amorphous evil entity to blame for our woes. Next stop, weed out the sympathisers and collaborators hiding behind “free speech”. Why has nobody ever thought of this before???


I find your analysis is often one-dimensional. In the above example surely the only fixed number is the 500k . The 100k ‘good job’ could easily become a 70k ‘good job’ in the current climate. If it is a variable mortgage then a rise in interest rates will add to the burden, and maybe 250k is not the trough of the house price in this case. Add all this up and even if the mortgage is paid you don’t have much disgressionary income to support the buying of luxury Irish goods and hence the economy.

@Michael Hennigan

I wish I could have JTO’s optimism; I have neither a guaranteed income nor a safety net.

No one has that. The public sector think they do.

On a practical point, many retailers do more than 50% of their annual business in December. This is a bad time for a crisis of confidence.

I think the Government need to consider calling a general election immediately. I think the FG & Labour should signal that they will pass the budget if this is done.

I am all for FF doing the right thing by the country and taking on the heavy lifting as unpopular as it might be. However, if the Govt itself is a problem, which it may now be in the minds of consumers and the international markets, then FF should clear that obstacle.

NCB Stockbrokers has a positive view of an EFSF bailout:

Economist Brian Devine said today:

If there is not a dramatic change in sentiment we actually believe that it would be a positive for both the Irish economy and the bond market were Ireland to ask for the EFSF. Plans would be laid down in black and white and worries about interest costs would subside as they would be largely known.

People and corporations like to make decisions in a stable world. Crucially it would enable the country to focus on correcting the deficit, regaining competitiveness and promoting its virtues – highly educated, English speaking, productive work force with world-class companies and a pro-business environment.

Key of course in this view is that the 12.5% corporation tax rate would not be lost. The EFSF is there to help a country in “difficulty” not cause it further problems.

My view is that significant beneficial reform is only likely with IMF intervention.

Hamlet said: Something is rotten in the State of Denmark.

Should we aspire to have a state like modern Denmark?

When both the trade union congress and IBEC tacitly agree not to advocate change, there is something surely rotten at the core of the failed Irish system.

@ ED

its bizarre really – current US (fear of depression) and German (fear of inflation) economic policies are essentially being decided by what happened to them 70 or 80 years ago. While understanding ones history is immensely important, that doesn’t mean we are tied to it forever. We could probably say the same about our own fixations on both property ownership (British occupation/landlordship) and emmigration (the famine). I wonder what our current woes will impart on us going forward?


“Management and directors (read the government) can be certain, but they can be wrong.”
and so can academic economists, no matter how respected, which is why I believe that those of similar background who disagree with MK should speak out- The government and the central bank are not credible internationally for historical and green jerseys reasons so outside agencies will focus very strongly on what MK published in the IT because of his record, however many of his more pessimistic prognostications have been wrong also-there is no doubt , that after a property boom there will be many mortgage defaults- the question is how much , and how much can our impaired banking system stand- it is my own view that those who stay in employment will continue to service their mortgages , so the mortgage debt crisis is really an employment crisis- do other academic economists predict a another severe decline in employment?- MK beleives that the debt is insurmountable and paints a very bleak vista indeed based largely on conjecture- others disagree and point to our ability to trade.
there is two trains of thought emerging here on this blog- one that is focussed entirely on the level of debt to the exception of all else and the other focusses on the performance of the economy in terms of increasing trade and reducing costs and is ignoring the debt issue- the two strands are not mutually exclusive and they need to be combined into something that is neither hopelessly doom laden or naively optomistic- the reality is that the current situation is tough, but survivable and we do have the tools to deal with it
this is an important debate in which only (largely) one side is being heard in the media and this is making a difficult situation worse -The people who contribute to this excellent blog should get out there and start hurling!
that is my simple point.

@BL – “bids over 8% now….glad everything is ok. imagine what theyd be if things werent”

Can you please post the link to where you are seeing that (Reuters?)? Thanks.

@Michael Hennigan – “NCB Stockbrokers has a positive view of an EFSF bailout:”

Do you think we are being softened up ahead of Mr Rehn’s visit?


The animal spirits in the US have their tails up-this is a rollercoaster ride- second or third wave since the beginning of the year- stock market had a big rally until May I think then confidence evaporated- it is based on very shaky foundations this time- banks are still very vulnerable to people abandoning their mortgages, foreclosures still continuing at very high levels, many millions have run out of unemployment benefits. US consumption at 70% of GDP is way too high. Companies are not investing. They are hoarding and speculating. And the US is not creating enough jobs.
The only thing Bernanke can do is promise another $600bn for QE2. It won’t make any difference to the ordinary American.

“For the Fed, this is truly a watershed. For investors, there is money in bubbles, so it is best to go with the herd and buy anything that would benefit – gold, oil and emerging markets could all rise much more before the bubbles burst – and make sure to get out in time. This is an extremely dangerous way to try to make money. But then the Fed’s way of stimulating the economy, while possibly necessary, is also extremely dangerous. ”

@ John Martin

“1) Do you think we were too transparent for our own good in our handling of the banking crisis when you look at how the Brits handled their banking crisis? ”
I think that in hindsight the full State guarantee for all banks borrowings was over the top. But the money was running out of Anglo very fast and this panicked AIB/BOI, so I’d say we don’t know the full reasons for the governments decision yet.
As for other handling…NAMA…yes…I was a supporter at the time–see the amateur Flash movie I made about it on…its obviously out of date now..but I think it was originally a scheme to SUPPORT the banks and solve their liquidity problem and it turned out to be a scheme which is Wrecking them ! The height of naivete on the part of our officials in D of F and CB. No other country, to my knowledge, has forced their banks to mark such enormous loans to market. Americans buy their toxic debt at face value +. Brits give them cheap (4%) insurance to cap their losses for years. French/Germans arrange for us all–including Ireland- to bail out the banks’ customers via EU loans (Greece)…etc..And many other EU banks have more toxic stuff- and usually in forever irredeemable derivitaves- than the Irish do. A good NAMA became a BAD NAMA and must urgently be rewound.

“2) Given that NAMA, as far as I remember, bought the loans from the banks at just above market value and below Long Term Economic Value do you think there is a very strong probability that NAMA will make a profit? ”
NAMA will certainly not make a loss, because–as I explain in the movie (!)- if they sell on the property for less than they paid for it, they’ll tax the banks for the difference. And that’s after taking some billions for “expenses”, too. On the other hand if they make a profit–which they will only recognise after they cover their costs on the real toxic stuff in Anglo and INBS also- then they’ll give the banks (AIB/BOI) a tiny share and pocket the rest, which I find hugely immoral and a theft of innocent shareholders wealth.
But, anyway, I would unwind the BOI-AIB positions in NAMA now and return to them their lost profits, temporarily, and then make other arrangements for their liquidity. I also believe that the international money markets will consider this as some sort of “facing reality of our past mistakes” on the part of the government and will reduce our discount rate in response.

3/ Morgan Kelly’s calculations:

My figures are approximate, from memory. But he says AIB will cost us €34 bn., mostly from residential mortgages…I think they’re due to lose–or, more accurately, record a loss- of c. €12 bn on NAMA related assets, so that leaves €22 bn for MK’s mortgage losses, which, from memory, I seem to recall is approx 100% of all their outstanding mortgages…Impossible and hysterical!

@Sean K
” and so can academic economists, no matter how respected, which is why I believe that those of similar background who disagree with MK should speak out”
there are a couple of reasons why nobody speaks, if they dont
a) they all broadly agree with MK’s economics
b) they are scared to do so
c) they cant be bothered
d) dont feel that its their area of expertise.
Now, I suspect b is 1000% not the case. So some are c but much more may be a and d.
Its not quite the same but its like saying “why dont more geographers speak out about the alternatives to wagner’s theory on continental drift”….


ED, you write:

“The US ISM manufacturing index rebounded to a five-month high of 56.9 in October from 54.4 in September. This is consistent with GDP growth of over 4%. Granted it is still below April’s peak of 60.4, but the danger that the US is heading back into a recession has receded significantly. ” [emphasis mine]

ED, I beseech you, in the bowels of Christ, think it possible you may be mistaken — as everybody’s favourite Brit, Oliver Cromwell, once famously quipped.

Please read The Resurgence of Risk – A Primer on the Developing Credit Crunch.

The article is dated August 14, 2007.

@ Joseph

Do you think we are being softened up ahead of Mr Rehn’s visit?


The die was cast when it took a 2 year period of slow motion to put cost figures on the Anglo bailout and then only because the bond markets started to sell Irish bonds.

The current pattern is similar to earlier in the year when the focus was on Greece.

Now that the Government have ramped up the fiscal adjustment and the international media have been carrying negative stories for months, it looks as if it will be nigh impossible to lure the Jeannie back into the bottle.

Why would bond yields return to below 5% in early 2011? The news will still be iffy.

The fear of default has already been germinating for months and if the Cowen government tries to stagger on from week to week from January, what value will their assurances be?

A new government very soon, with an aura of credibility, is the only chance to prevent a return to foreign control in Merrion Street!

September 1913 — WB Yeats

What need you, being come to sense,
But fumble in a greasy till
And add the halfpence to the pence
And prayer to shivering prayer, until
You have dried the marrow from the bone;
For men were born to pray and save;
Romantic Ireland’s dead and gone,
It’s with O’Leary in the grave.

Yet they were of a different kind,
The names that stilled your childish play,
They have gone about the world like wind,
But little time had they to pray
For whom the hangman’s rope was spun,
And what, God help us, could they save?
Romantic Ireland’s dead and gone,
It’s with O’Leary in the grave.

Was it for this the wild geese spread
The grey wing upon every tide;
For this that all that blood was shed,
For this Edward Fitzgerald died,
And Robert Emmet and Wolfe Tone,
All that delirium of the brave?
Romantic Ireland’s dead and gone,
It’s with O’Leary in the grave.

@Michael Hennigan

I meant being softened up in terms of an actual rescue deal being announced while he (Rehn) is here i.e. tonight or tomorrow. Followed immediately of course by resignations, general election, etc. to keep the peoples’ minds on other things.

@a different brian

Think the 90 figure is gross – ie assumes loans worthless. Obviously that couldn’t happen, er……

If we have an immediate general election, FG and Labour will pass their own budget before the end of the year.

@Rory O’Farrell.
If the country gives the ECB the two fingers, the banks will run out of cash within minutes.
All depositors will seek to withdraw funds from the banks, particularly the large ones. People will queue up to empty ATM’s.

A guarantee is only as good as the resources and the goodwill of the person giving it.
Ireland gave the banks a guarantee with loads of goodwill but no resources.
The €100,000 deposit guarantee is the same. Loads of goodwill, the cash would be gone ever before the Paddy in the street hears the news.
After that, you are on your own. Hence “canned food and shotguns”.

We will have to work with the ECB as the Big Bertha gun in the background. Even if we pull out of the Euro, the ECB will have to manage our exit.

@ Bazza

You say “The only thing that can be said for the article is that the guy has been accurate in the past, but as far as I can see it is mostly guesswork.”

So. our politicians have adopted a scientific approach consulted with lots of experts?

@a different brian
The S&P figures include NAMA making some mark-to-market losses on the time horizon of the review, 5 years I think it is from memory.

2 years on from the guarantee the risk of a bank run is still there in background.
I’m sure Mr Rehn had no idea he would become a proconsul when he was back in Finland a few years ago.

By the way where is Suds these days ?

@Michael Hennigan:
I suggest that paying too much attention to nutters like Edward Fitzgerald, Robert Emmet and Wolfe Tone has been half the problem with Ireland. It’s all very well for Willie Yeats to complain about fumbling in greasy tills, but if our lords and masters had paid a bit more attention to the correct adding of the halfpence to the pence, we might not be where we are today. If we must summon up the shades of dead Irish heroes, give me Robert Kane or Horace Plunkett or Charles Wye Williams or Thomas McLaughlin or any other of those who gave some thought to how the inhabitants of this soggy island might make a living.



“On a practical point, many retailers do more than 50% of their annual business in December. This is a bad time for a crisis of confidence.”

Opened a shop (concession) 4 weeks ago and employed my first ever employee. No sign of life in the shop just yet but we’re hoping!
The problem is not just Morgan Kelly, the government decided 4(?) weeks ago to tell us the end is nigh and we’re going to have the mother of all budgets but we’re not going to tell you what might be in it. Even people who never discussed economics before are now discussing economics. Uncertainty breeds fear and fear paralyses. We need to see this 4 year plan pronto. If it’s good it will bring some confidence, if it is smoke and mirrors then presumably the bond market will quickly give their reaction.

@ Stuart

Another metric that may be interesting is creche places.
We are probably going to half week rather than full week soon for the young one.
Talking to other parents this morning outside the creche, the sentiment was the same.

New here, so please excuse my question which may already have been answered.

Has anyone attempted to produce some kind of spreadsheet/document/model that outlines the current situation? Between NAMA, residential mortgages, the deficit, the banks, promissory notes, etc, it’s not exactly trivial for the lay person to establish to connect the dots, and establish where exactly this country is at.

If someone gives me the information, I am interested in putting together some kind of interactive visualization that will make the reality of our situation truly accessible to all. In particular, I would like to see a model of where the Coalition government sees us, as opposed to a Morgan Kelly-type scenario.

r.molloy AT gmail d0t com if anyone wishes to send me the relevant information.

I see it’s being reported that German exports keep jumping more than exected.

At what point will the Germans (and others) need the ECB to start raising interest rates again? Q1 or 2 in 2011? That’s only going to add fuel to the fire of MK’s predictions. Mortgage holders in Ireland need rate rises like they need a hole in the head at the moment. They are already getting them without the ECB changing anything.

More taxes, spending cuts, pay cuts, job losses, emigration, interest rate rises and prices not really coming down at all regardless of who says they are (other than the value of your house). That should really solve all our problems.


2 years on from the guarantee the risk of a bank run is still there in background.

Bit of leap in anxiety here. Doubt it. Run to where? EU will not let a bank run upend the euro. Irish deposit guarantee strongest in EU (yes, we can debate what ‘strongest’ means but take it at face value.

What I (selfishly) am more concerned about at the moment is how availing of the Stabilization Fund will impact on Irish equities.

Probably the best outcome of the Rehn-fall would be a joint announcement tomorrow that the government has accepted an invitation to draw on the support offered by the Stability Fund and welcomes the Commissioner’s assistance, blah, blah… and then Cowen gets in his car, does to the Park and calls an election.

EFSF is inevitable with yields at 8%. I asked on this blog at the end of September would 5.5% be too much. Didn’t stir any replies. Another two months wasted footling around by the government.

Possibly working out how to make a killing on Irish bonds.
Don’t be surprised if good old Goldmans is on both sides of the equation just now.

I went around the canteen at work today and lent everybody in the room 100 Euro at 5% interest.
Some of them didn’t want to take it but they had to cos the price of the buns went up once people were willing to pay more for them.
If they can’t pay me back I don’t care because iwill make them forego education, health and any chance of prosperity to pay me back.
I am Deutschebank. Not my fault if I lend everybody too much money – is it!

@The Alchemist

‘Bit of leap in anxiety here. Doubt it. Run to where? EU will not let a bank run upend the euro. Irish deposit guarantee strongest in EU (yes, we can debate what ’strongest’ means but take it at face value.’

Agree with the first bit.

I think you’ll find that the EC is currently working on a standard for Bank deposit insurance at 1.5% of deposits. Ireland is currently at 0.2%, US at 1.25%.

Even at face value, what do you mean by ‘strongest’?

When will the penny drop. Our country was flooded with cheap credit from Euro bond dealers.
How stupid was it to introduce a single currency into an unregulated environment and have it overseen by a central bank whose only concern was keeping down German inflation.
The ECB failed to control inflation in the periphery with catastrophic consequences.
It suited them because the flood of liquidity to peripheral markets suited the spendthrift Germans.
We are victims of Euro rubbish. Europe must bear some of the burden.

@Brian Lucey

9 posts in and nothing from the Black Knight of The North….is this a record? JtO, where are you when we need you….

JTO again:

You are obsessed with the fact that I come from The North. You never mention where other posters come from, although many have identified themselves as coming from England, U. states, Canada, Australia, New Zealand, Germany, France and so on. Only the Black North gets singled out by you. I think a session with a good psychiatrist would identify it as a subconscious reaction to Kerry’s Croke Park thrashings by Northern teams in 2002, 2003, 2005, 2008 and 2010. However, I take your constant
references to my coming from The North as a compliment. I am proud to hail from there, principally because of the huge contribution over the centuries that volunteers from that part of the country have made to the establishment of the Republic of Ireland (32 counties, of course), while, for most of that time, the highest ambition of Trinity College academics, and the rest of the Dublin 4 set, was to get an invitation to the Viceroy’s New Year Ball.

More pertinently to this thread, I have never objected to anyone analysing the available data and coming to a different conclusion to me. It is their complete lack of analysis of such data that I object to. In Ireland, as in every developed country, scores of statistics are published every month in relation to the economy, covering such items as merchandise and services exports, manufacturing output and turnover, agricultural output, prices and terms of trade, tourist numbers, employment, live register, job redundancies, job vacancies, new car sales, retail sales, ppsn numbers, population growth, inflation, comparative price levels, house prices, rents, tax revenue, government expenditure, budget deficit, balance-of-payments, household savings ratio, and so on, and so on. The big difference between Ireland and other countries is that, in other countries, skilled economists analyse this continuous flow of data in a rational, intelligent and comprehensive way. In Ireland they don’t. They all but ignore it. In today’s Irish Times, Morgan Kelly has launched a diatribe on the Irish economy, based on pessimistic assumption piled on top of pessimistic assumption, with virtually no reference whatever to any of the 200 or so statistics relating to the Irish economy that have been published since his last such diatribe in May.

Morgan Kelly is fast becoming the Conor Cruise O’Brien of economics. O’Brien, another Dublin 4 academic (needless to say), was so consumed with hatred of Fianna Fail that he spent the last two decades of his life trying to wreck the Peace Process. When John Hume and Gerry Adams launched the Peace Process in the early 1990s, and when their efforts were supported by Albert Reynolds, O’Brien could see nothing good coming from it at all. When the IRA ended hostilities in July 1994, O’Brien, with the support of a large chunk of the Dublin 4 media/academia set, went ballistic, and you couldn’t move for the next few years with his predictions of armageddon resulting from that ceasefire, even writing an article in the (London) Times the day after the IRA ceasefire, predicting that within a year there would be a Civil War across the island, 10,000 dead, and a military coup in the Republic. I am not saying that Morgan Kelly has similar views on the Peace Process (I simpy don’t know), but, in relation his economic forecasts, he clearly comes from the same Dublin 4 stable as O’Brien, contributing nothing to any debate but manic pessimism, hysteria, and a hatred of Fianna Fail so all-consuming that it has rendered him incapable of rational analysis.

The approach that I try to exhibit in my posts here is in the Northern Protestant scientific tradition. That is, I observe the flow of data and statistics, I try to form a comprehensive picture by assembling that data and statistics into some kind of pattern, and then I base my conclusions on that. My approach is totally the opposite to that exhibited by such as Robert Browne, who says: “Facts and Figures? Who’s facts, who’s figures you use totally discredited sources. Do you not realise that every “fact and figure” has a vested interest behind it?” In other words, Robert Browne has decided his conclusions in advance, and any fact or figure that contradicts them must have some vested interest out to get him behind it. Never mind that most of the facts and figures relating to the Irish economy come from the CSO, an organisation of high competence and impeccable integrity. My approach is typical of the Northern mindset, where facts and figures come first, and conclusions follow. Without wishing to be offensive, Robert Browne’s approach is too prevalent in the Southern mindset, where conclusions come first, and any facts and figures that don’t support them must be fake.

As I said, I have no objection to anyone analysing the available data in a rational, intelligent and comprehensive way and coming to a different conclusion to me. Debate is good. Disagreement is good. But, let them actually do some rational, intelligent and comprehensive analysis and then show us, based on that analysis, exactly how they came to their conclusions. At the moment, this is not happening. Either they simply ignore the wealth of data that is published on the economy each month, as in the case of Morgan Kelly, or they try to claim that the data is phoney and the product of vested interests, as in the case of Robert Browne. While thest two are clearly hopeless cases, why don’t some of the other economists in Ireland try doing what I just suggested and let’s see what they have to say? How about them doing some rational, intelligent and comprehensive analysis of all the economic data published in Ireland since, say, 1st September and tell us whether or not they think that data supports Morgan Kelly’s prognostications. Rational, intelligent and comprehensive analysis of the most recent economic data is what, after all, taxpayers pay them to do. If they can’t do it, they should go and work in a pizza restaurant and save taxpayers lots of money. In order to assist them, I have compiled a list of almost all the economic statistics published in Ireland since that date. So, let’s be hearing from them. Not just wild predictions, but analyses that at least make an effort to fit in with the economic data and statistics as currently known.


01 Sep 2010: seasonally-adjusted live register in Aug UP 2,500 on Jul
01 Sep 2010: volume of retail sales in Jul DOWN 0.2% on Aug 2009
02 Sep 2010: number of redundancies in Aug DOWN 24.9% on Aug 2009
02 Sep 2010: number of foreign national-PPSNs in Aug UP 13.4% on Aug 2009
02 Sep 2010: tax revenue in Aug 106m (6.0%) ABOVE target (profile)
06 Sep 2010: number of job vacancies in Jul UP 52.4% on Jul 2009
10 Sep 2010: volume of manufacturing output in Jul UP 13.5% on Jul 2009
10 Sep 2010: value of manufacturing turnover in Jul UP 14.6% on Jul 2009
13 Sep 2010: number of new car sales in Aug UP 119.2% on Aug 2009
23 Sep 2010: volume of services exports in Q2 UP 10.7% on Q2 2009
24 Sep 2010: value of merchandise exports in Jul UP 12.6% on Jul 2009
29 Sep 2010: milk output in Aug UP 11.5% on Aug 2009
29 Sep 2010: agricultural output prices in Jul UP 10.9% on Jul 2009
29 Sep 2010: agricultural input prices in Jul DOWN 1.4% on Jul 2009
29 Sep 2010: agricultural terms of trade in Jul UP 12.5% on Jul 2009
29 Sep 2010: seasonally-adjusted live register in Sep DOWN 5,400 on Aug
01 Oct 2010: volume of retail sales in Aug UP 1.1% on Aug 2009
04 Oct 2010: tax revenue in Sep UP 11.4% on Sep 2009
04 Oct 2010: tax revenue in 183m (5.6%) ABOVE target (profile)
04 Oct 2010: number of redundancies in Sep DOWN 29.6% on Sep 2009
04 Oct 2010: number of foreign national-PPSNs in Sep UP 14.2% on Sep 2009
06 Oct 2010: number of job vacancies in Aug UP 46.1% on Jul 2009
11 Oct 2010: volume of manufacturing output in Aug UP 10.4% on Aug 2009
11 Oct 2010: value of manufacturing turnover in Aug UP 17.9% on Aug 2009
12 Oct 2010: number of new car sales in Sep UP 106.1% on Sep 2009
21 Oct 2010: value of merchandise exports in Aug UP 13.0% on Aug 2009
21 Oct 2010: DoE report finds far fewer ’empties’ in Ireland than claimed by NIRSA
26 Oct 2010: agricultural output prices in Aug UP 17.8% on Aug 2009
26 Oct 2010: agricultural input prices in Aug DOWN 1.1% on Aug 2009
26 Oct 2010: agricultural terms of trade in Aug UP 19.1% on Aug 2009
28 Oct 2010: savings ratio increases from 3.9% in 2008 to 12.3% in 2009
28 Oct 2010: number of job vacancies in Sep UP 40.1% on Sep 2009
29 Oct 2010: volume of retail sales in Sep DOWN 0.3% on Sep 2009
29 Oct 2010: milk output in Sep UP 18.0% on Sep 2009
02 Nov 2010: tax revenue in Oct UP 5.8% on Oct 2009
02 Nov 2010: tax revenue in Oct 285m (11.3%) ABOVE target (profile)
03 Nov 2010: seasonally-adjusted live register in Oct DOWN 6,600 on Sep
03 Nov 2010: number of redundancies in Oct DOWN 40.4% on Oct 2009
04 Nov 2010: number of new house completions in Q3 UP 5.3% on Q2
04 Nov 2010: number of foreign national-PPSNs in Oct DOWN 6.1% on Sep 2009
08 Nov 2010: number of new car sales in Oct UP 134.5% on Oct 2009

For what it is worth, my analysis of these statistics is as follows:

(a) There has been a large increase in competitiveness in the Irish economy, resulting from much lower inflation in Ireland than in other EU countries since 2007.

(b) Although in many ways painful, this lower inflation and increase in competitiveness is resulting in the internationally-trading and exporting sectors of the economy performing much better in 2010 than any economist predicted this time last year.

(c) Even without the additional benefit of an upsurge in domestic demand, this much better performance by the internationally-trading and exporting sectors has been sufficient to stabilise the labour market and stabilise tax revenues and the budget deficit. Possibly even better than ‘stabilising’ in the most recent few months. In August, September and October, possibly even bring the first actual improvements in the labour market, tax revenues and budget deficit since 2007.

(d) Disappointingly, this much better performance by the internationally trading and exporting sectors has not yet produced an upsurge in domestic demand, apart from for new car sales. However it has stabilised domestic demand and things like retail sales have been flat since the end of 2009, rather than falling as they were up to the end 2009. The stabilisation of domestic demand has also led to a significant moderation in the rate at which house prices and rents have been falling, although these have yet to show any signs of rebounding up.

(e) While we are not seeing any current upsurge in domestic demand, we are seeing a very large increase in the household savings ratio, which clearly has the potential to bring about an upsurge in domestic demand in the not-too-distant future, once confidence returns.

(f) The combination of a flat (not falling as in 2009, but not rising either) domestic-demand-based sector, combined with a rapidly-growing internationally-trading and exporting sector should be enough to produce quite respectable GDP growth this year and next, with a good prospect that this will accelerate as competitiveness continues to improve and the savings ratio eventually comes down as confidence improves.

These are my conclusions, based on my analysis of the above long list of economic statistics published since 1st September. I have never claimed to be infallible. If others analyse the same economic statistics and come to different conclustions, so be it. It is a free country. But let them at least do some analysis of the above data before deciding their conclusions. And not just ignore the most recent economic data, as Morgan Kelly does, or infantilely claim that all the above economic statistcs are the result of vested interests faking the data, as Robert Browne does.

@ All

My turn for a silver bullet. Why doesn’t the Government issue a new form of “Super Senior Bond” which would state that in the event of default it would be the last to be ditched. (Companies can’t do this because it is against the law, but governments?)

SSBs would trade at about 4%, I would guess (still 200% too high according to Morgan but 50% of current yields). Ironically the yield on the “subbie” bonds would also fall as they would see more prospect of the government being able to refinance them with SSBs.

Yes this is wealth transfer scheme set up by the CBs to benefit their client banks.
First increase the monetory aggregates way above the sustainable level – this increases the price of property to almost hyperinflationary levels as the middle class seeks credit and to some extent wages to buy these units.

Then stop credit growth and watch the value of these assets decline – expect the proles to make sacrifices in public services , pay etc to keep paying interest on vehicles that were apparently risk capital.

Watch society begin to collapse as you continue to take interest income leaving nothing for the development of sustainable capital growth or indeed rudimentary consumption.
Listening to RTE interviewing people on the street – people with guilt complexes regarding the decadence of the last 20 years appear to accept sacrifices for economic well being.
Little do they know that their sacrifices will be accepted by grateful holders of debt that should have been blown up 2 years ago so that they can sustain their consumption.
So sad to see a broken propagandised people.


If MK has no more solutions for us then the only purpose for this diatribe is self publicity, no attempt here to correct our foolish ways, we are all doomed just as he predicted. Great fodder for FT bloggers but reading their undisguised schadenfreude and their emphasis on the professor’s academic standing, makes me believe the piece is irresponsible and, yes, unpatriotic.


Re: your last post….
I wish I could read it, but sorry, I dont have time, I have to work for a living.


“@Brian Lucey
I think a session with a good psychiatrist would identify it as a subconscious reaction to Kerry’s Croke Park thrashings by Northern teams in 2002, 2003, 2005, 2008 and 2010.”

That loud pink shirt he is has on as his media pic, screams…
The Liberace of Irish economics…
Tis time for the sackcloth shirt!

The prediction regarding the far right – not one I share – was not the only insertion of politics into Kelly’s analysis: the ECB may yet make an example of Ireland but it is far from certain; it has much to lose from a default. So it is at least an open question as to how our present situation will be resolved. To properly refute Kelly’s principal argument, however, someone must make the case that we can resolve our finances without “the kindness of strangers”.

Kelly’s analysis of the opposition is unconvincing. Although it doesn’t matter so much what the opposition did in the past as what they will do next but Labour’s Ruari Quinn introduced the low Corporation tax and the economy was in great shape in 1997. However, disillusion with the next government may set in when it is overwhelmed by inherited problems as it has with Obama. That will certainly create more space for populists than heretofore.

@Brian L

I very much agree with your response to @Sean K above.


The crux of Kelly’s argument, it seems to me, is that we can’t afford to pay our debts, regardless of what happens with our economic growth (within a likely range of scenarios). So, while it’s not all bad news, any short-term good news is overwhelmed by our debt.

That said, here is an impressively optimistic IBEC video that might cheer some people up that haven’t seen it already (“Ireland by the numbers”):


Personal attacks on MK don’t hide the fact that he saw this crisis coming and made efforts to publicise it, depspite being told to off himself by our esteemed ex-Taoiseach.

He has not made any personal attacks on you and his record deserves at least some respect. The fact that we’re not (all) rioting in the streets and unemployment didn’t hit 20% doesn’t take away from what he initially said.

Also, it is obvious that if his predictions re the banks are correct then all the nice CSO statistics in the world don’t matter because we will be bankrupt. Recession we can handle, another €30bn for the banks we can’t. Simple as.

Maybe you should address that before you start insulting him (not that I condone any of the attacks against you either, people should stick to the topic).


You provide a working example of how we got into this mess. You react with 100% emotion to MKs remarks because you don’t like what he says. You also object to his having no solution. I hope you never get a terminal disease but, if you do, reflect on whether or not you would like to be told, even if there is no cure.
You may not like what he said but that doesn’t make him wrong. It just makes you one of the Green-shirt wearing ignore-it-and-it-will-go-away brigade. Pathetic.

As a concerned civilian, I visit this site to try to understand the predicament the country finds itself in.

MK’s article is an important contribution, and so is the reaction of the likes of JtO.

But what is neither important nor welcome is the amount of fulmination and personal vitriol that is sullying threads like this.

So I would very much like it if people just cut it out and concentrated in searching for the truth.


Even at face value, what do you mean by ’strongest’?

Imprecision by me. I should have used ‘broadest’.

@ Keith
We share a similar view on all of this. Does it seem like we are the only ones?
I’m proud of what my country has tried to achieve. Tried to get free education and free health for its people. Noble aspirations that are under appreciated.
History does repeat. In the 1930s the German state partnered with big business to harness slave labour to generate wealth.
Now the German state colluding with it’s finance houses to subjugate nations to generate wealth in the form of interest repayments.
It’s not that the Germans are bad people – it’s just that their CV doesn’t exactly inspire confidence for any small, vulnerable nations or ethnic groups.
Watch as they build a ghetto out of budget targets and high interest rates. I’m sure Olly Rehn brought a nice big hammer.
Let’s just leave this mess.

So Morgan Kelly’s last silver bullet that we ignored was to convert €75bn of bank debt to bank shares. Would solve our banking crisis at a stroke, nearly as good as selling deposits.

He downplays our exchequer deficit of 19bn PER ANNUM. But what would have happened if the government had done that solo run against EU direction. We would lose all support of the ECB and we could wave good buy to any international funding for the foreseeable future. MK is a public servant. The inevitability of his suggestion would be that he would receive half his salary in promissory notes.

@Robert Browne

I make absolutely no claim about the accuracy or otherwise of government estimates and I certainly wouldn’t try to defend them. That doesn’t mean that MK is right either.

morgan k – self publicity? im sure im not the only one that scours the papers and the blogs almost daily for some mk input. he should have a weekly column


You do some great analysis of the domestic economic stats but in all your posts you are ignoring the costs and potential costs of the banking bailout.

The principal point MK is making is that the declared cost so far for the banking bailout is understated and it these additional costs that are dragging down us towards an IMF/EU bailout.

Just to note that IPW are showing rents falling again. Down to €740 now from €800 at the start of the year, 7.5% down is along from stabilizing. And almost 3% of that fall has been in the last month alone.

For a discipline that (in part) prides itself on the modeling of rational human behaviour, there appears to be a shed load of ego, emotion, abuse and analysis-as-wish-fulfillment going on here. However…

At least one part of Morgan Kelly’s article struck a chord. If I read it correctly, he is arguing that shame and cultural conditioning leads Irish mortgage holders to hang on to their homes longer than is usually the case (his example; Florida). How do you folks model that in terms of utility function? Was Morgan implying some kind of ‘tipping point’ and how (if at all) might that be measured and factored into models? I’m just curious.

@Sarah Carey – “Could someone tell me what this Irish Times agenda is so I can start conforming to it?”

You don’t know that you aren’t…. if you get my drift.

I have no idea what they are talking about either. You get such a variety of opinion in the IT.

Even if Morgan Kelly eventually is out on some of his predictions he has done the State some service. The banks have by no means turned the corner. The time available is running short. He gets to focus minds. Surely this is a national emergency. Where is the war footing? Opening a Tesco somewhere ?

And don’t hysterical markets do a fine line in self fulfilling prophecies ?


“In Ireland, as in every developed country, scores of statistics are published every month in relation to the economy, covering such items as merchandise and services exports, manufacturing output ……………………………… household savings ratio, and so on, and so on. The big difference between Ireland and other countries is that, in other countries, skilled economists analyse this continuous flow of data in a rational, intelligent and comprehensive way. In Ireland they don’t.

There is always data analysis, even in Ireland, but since it is mostly noisey and historic, many of those who have tried to use it wrt the financial markets for any length of time tend to refer to it as a means of determining whether the models they employ predictively, have been working. I got very wary of loadsadata-type arguments a long time ago.

Detail is great, and anyone who wants a career as a politician needs to really like impressing an audience with detailed facts and figures to back-up this view, or that view. It is though, no substitute for getting the big picture, broadly, right – and one can get lost in it.

There was a time, not so long ago, when those with a very negative view about the Irish economy would occasionally get ambushed true believers in a way that suggested it was literally not permitted to hold that view unless you could prove it to be correct in detail. That was a big part of the problem.

@The Alchemist – “Probably the best outcome of the Rehn-fall would be a joint announcement tomorrow that the government has accepted an invitation to draw on the support offered by the Stability Fund and welcomes the Commissioner’s assistance, blah, blah… and then Cowen gets in his car, does to the Park and calls an election.”

A plausible scenario I reckon. Just waiting for the press conference this evening.

Here’s one comment on your analysis of (one of) the CSO figures..i.e the tripling in househo;d savings..

(e) While we are not seeing any current upsurge in domestic demand, we are seeing a very large increase in the household savings ratio, which clearly has the potential to bring about an upsurge in domestic demand in the not-too-distant future, once confidence returns.

It’s not my comment – I just lifted it from an IT article – but it seems a bit more realistic:

“Historically, savings typically rise in such circumstances as households seek to pay down debt to improve balance sheet positions.”
Paying off debt is a bit different from consumer spending I would say.

As for that battery of CSO stats I don’t see the relevance of any of them to MKs arguments about the banking sector. CSO are of no help in that case unless they have accurate figures about the banks loans.

I agree with you you about conor Cruise O Brit BTW. I read his States of Ireland and was more than a bit surprised at the unquestioning adulation accorded him “post mortem”. The most striking thing I can remember about that book was his apparent assertion that the Britis were not sufficienlty Macchiavellian in the plantation of Ulster – leaving too many of the dispossessed around to stor trouble later.

‘Given Morgan Kelly’s prescience before the issue of the state bank guarantee, the day on which it took effect and the period in the interval, this article makes grim reading.’

‘The accuracy of Morgan Kelly’s predictions have been far superior to the governments’

If we’re going to judge the value of predictions on the basis of accurate predictions from the past, perhaps someone should try and revive Paul The Octopus while there’s still time.

Surely there must be someone out there who is suitably qualified to write in the IT and to counter the MK doom and gloom scenario. The problem with MK and David McWilliams is that their constant negativity is like a self-fulfilling prophesy which is being picked up by the international media and which continues to feed the upswing in the bond yields and the current hostility of the bond markets. Apart from Brian Lenihan, the only other people I have heard trying to counter the negativity are John Bruton, former Taoiseach and Alan Dukes former leader of FG. Surely there must be others, suitably qualified, who stand out from the “celebrity ecomomist herd” and who are willing to give a positive message to the watching world instead of this constant virulent negativity. The FG/Labour opposition are not giving any leadership in this area and are obsessed with political pointscoring to the detriment of the country’s best interests.
I realise we may be staring into the abyss, but we should be trying to encourage national optimism, pride and social cohesion instead of constantly chipping away at these values.
It is time for real leaders to stand up and be counted.

Maybe there is nobody who is as you say and who believes your scenario? It’s not a conspiracy, no more than the lack of astronomers railing aginst Copernicus.

@ Michael O’Donnell

John McHale has been consistently a more optimistic, though still realistic, antidote to the uber-bearish story painted by the likes of Morgan Kelly. He has a thread on here explaining why he thinks Kelly is wrong about the inevitability of our default. Its not as headline grabbing as Kelly’s piece, but it’s equally as deserving of a read.

The problem isn’t with the David McWilliams’ or the Morgan Kellys of this world.

It’s the Berties and the Brians who benchmark and agree with money they don’t have.

It’s the Seánnies and the Fingers with their gobshite business practices.

It’s the Nearys and the Hurleys with their “Hear no evil. See no evil. Speak no evil.” abilities.

It’s the senior civil “servants” and their competence.

It’s the media and their advertorials.

It’s the Dunners, the Quinnys, the Quinlans, the Carrolls, the Kellys and their “entrepreneurial” ways.

Sweet Jesus! We got a long enough list to work through before we get to the economists


If you are saying there is no hope, then we may as well take the tablets now and switch out the lights.

@Eoin Bond,

Just in time, a note of optimism; I’ll have a look at JMcH’s piece. Many thanks.

It seems to me that Morgan Kelly may have set the outer limits of how bad things will get and that is helpful in its way, but it is not inevitable. I’m sure all of us want the best for this country, and all of us agree that the political system is in radical need of reform. May I suggest that one way to achieve this is to join a political party and try to put forward the ideas we want to see implemented to reform our economy and political system. Of course, there are many other ways to improve Ireland other than joining a political party but with respect for politicians at such a low ebb it surely needs an injection of new blood. Engage with the system in order to change it. That’s my two cents.

Brian Woods II

“Brian Woods II Says:

November 8th, 2010 at 5:37 pm
@ All

My turn for a silver bullet. Why doesn’t the Government issue a new form of “Super Senior Bond” which would state that in the event of default it would be the last to be ditched. (Companies can’t do this because it is against the law, but governments?)”

What an outstanding idea.

How marvellous that you came up with.

Can you think of any problems?

Philip II

“JTO seems to be unwilling to address the banking issue, from what I can see”

Make you apologies now.

The man declares himself an optimist.

How could you possible expect an optimist to address “the banking issue”?

Liam H
I do not disagree with you. Your point is a good one. The trouble is as you correctly say: government.

There is no evidence of a desire for sovereignty on the part of any political party. They wish to avoid the unpleasant, as you know. Changing anything in a kleptocracy, costs too much for those in the system. You seem to agree.

The Swiss are sovereign. But less so every day. They have chemical and bio weapons at mountain passes and bridges into their country. Every man, not woman to my knowledge, but I welcome correction, has an automatic rifle. Testicular fortitude is useless if there is a blockade. They will surrender without a shot, then there will be a revolution. Guerilla warfare follows. They too have a history with an Imperial neighbour: Austria. That is sovereignty. Shannon allows rendition meaning passive acceptance of war crimes. Try that in Switzerland?

I am making your exact point: The Irish are lickspittle running dog lackies. I hope I spelt lackies wrongly. Cowardice should never be studied too well. Kelly makes the point much more subtly in his article.

We agree?

Again, coverage of Prof Kelly

Callers for exposure
Anonymous comment is the only way we can get some to support the opposing case to drastic action. We do need to expose the arguments on all sides as this is very important and very complicated.

JtO is trying to help in his own way. It is useful to the likes of Sarah Carey, but for realists who do consider the worst of the down side scenarios it can be hard not to dismiss the paper thin argumants harshly. There are a lot of damaged people out there. They are faithful to those who lead. They can be called sheep but 95% of our society are like them. They propose courses of action but as they have no basis for any suggestion, it does not need to be addressed by those who do actually play a part in policy formation who read these pages. They have a right to express an opinion and we have a duty to listen. But this is not a democracy. That exists in the voting world that has brought about this mess.

This is policy formation input. We know that somethings sound good and others make good sense, but are not likely to be adopted.

I contribute to give ffedback to policy and also to allow those who are beginning to get over their shcok the chance to save capital.

This mess is all about capital. S/He who has the gold makes the rules. In a kleptocracy, even more than a democracy. Saving capital!!!!

Sell housing and rent in the mean time. This is clear and has been for over a decade. Game the system and hold housing until the top is near if you wish. That has passed and it will not come back. Prof Kelly and many others with little vested interest, say that the bottom is a long way off. This is good news for those who are aware! But “positive or magic” thinking will not save your capital.

YOUR capital! One good play is to put some into US property, now or later. Ireland is not going to change direction towards what anyone consaiders to be the true path any time soon.

You! Save your capital!

Justin Collery Says:
November 8th, 2010 at 12:10 pm

Yes that is a solution. But is it likely? Many of us argued to let the banks fail, as it was obvious years ago, that they were insolvent, not illiquid. Then land prices could collapse. Speed would have helped this process and it would have required none of the political argy bargy that we now face about where to cut!!!!!

This would have been automatic, if only the GFF had listened? CPI would fall and wages could then be agreed to fall as well, in due course.

But this is a kleptocracy. They took the “easier” course!

The price corruption brings is quite high, don’t you see?

AMcGrath Says:
November 8th, 2010 at 12:37 pm

So you agree that it is an economic war? And that derivatives might be useful to Ireland?

As for asking for figures on derivatives, I fear you are naif? This is a massive matter, involving trillions of euro and dollars.

The things I have been saying for years have all come to pass and the only one that has not relates to the next collapse in global confidence. It is taking far too long which portends worse trouble. And opportunity, hence my point about derivatives.

I will reiterate, for the stupid, who insist on showing their level of intelligence by commenting here: driving down our prospects of repayment will mean we can settle our debt for less on the market. Pretending we can repay will mean higher interest costs and more debt!

It also drives down the euro which helps JtO and his exports. For the moment. This is a foolish policy, long term.

@ Michael O’Donnell

We have had Brian Lenihan a barrister making catastrophic decisions regarding NAMA and the blanket guarantee. You might wish for better spinners but the bond markets verdict is in. At the beginning of September when bond yields edged through 6% we were told this was a psychological level and then 7% now 8%. Mr. Rehn can talk about a four year plan calming bond markets but if there is a general election in the morning do you really think that bond markets will becalmed by the mediocrity waiting in the wings? Parties that actually wanted to outdo FF in the last election? Eamon Gilmoe would neither support Croke Park or not support it but would implement it? Did he not realise that Croke Park was a watershed a game changer a moment of realization that Ireland was not going to deal with its problems.

You talk about someone with “suitable” qualifications going to bat in the IT. What precisely are Brian Lenihan’s financial qualifications? Yet another 50,000 people will leave Ireland next year over the governments economic policies. The reason we “are where we are” is because he surrounded himself with “yes” men. I heard him being interviewed a while back and he was speaking of the secretary general of the DoF in reverential terms, he was in awe of the gentleman. Complete departmental capture as Michael Sommers has pointed out.

Worse, he goes on to tell bond markets that Irelands banks would not default because “Ireland is an Island”. If he had said, they would not default because the ECB acting as a lender of last resort would not tolerate it, I could have believed him, but no, it had to be “Ireland is an island”. Bizarre! The only sympathy I have for him is regarding his health. The man is not well and is completely worn down and “something is rotten in the state of Denmark” when he is allowed to suffer in public like this. The rest of us looking on aghast are told by a pack of cowards that this is patriotism. I disagree, it is a tired and jaded government hiding behind a very sick man. Don’t forget that some of us have no qualms about contacting ratings agencies and the EU commission to calibrate what was going on in our uber rotten state. If our own government use guillotines, emigration, inter generational robbery not to mention refusing to hold democratic elections then the bond market had to be brought into play.

Those who are genuinely optimistic or in doubt as to what is happening should recap and try to read more on what “money” is.

It can be created at the stroke of a pen. As is the case in the USA and the ECB despite denials to the contrary, when they accept poor collateral that is worhtless.

But the money still depends upon ssomeone wanting it. If they do not borrow it into reality, then it has no economic effect. People are now refusing to borrow more.

It is as simple as that. Repayments are out weighing new borrowings and all economies are contracting where this occurs. Consumption drops and unemployment especially in the finance areas, falls. Tax revenues fall. Values of high amount assets drop very quickly. This continues.

Until what happens, people? I know, but do you? Clearly, governments do not know or do not want to take the necessary steps!

Answers, please!!

Liaer article

I completely agree with the article! It is history that such matters were used eg in Australia in the thirties, Snowy Mountain. But it requires confidence. In a kleptocracy, where gaming is the system of values, who wants to start another Ponzi scheme, without government guarantees? Who will risk their capital first?

I have already writtten on this. In an economic war, do you think this is likely not to be sabotaged? Ireland was a stuffed goose since 2000. Who did the stuffing?

@ Michael O’Donnell

I realise we may be staring into the abyss, but we should be trying to encourage national optimism, pride and social cohesion instead of constantly chipping away at these values.

Commissioner Rehn said last night that “it’s always essential that the product is right and then you can do good marketing”.

One of the problems is that most of those with a grip on the public megaphone avoid saying anything on the essential reforms that are necessary to put the economy on a sustainable path but may hurt themselves through loss of privileges or alienate a particular vested interest.

ICTU and IBEC are in the same boat in this regard.

In the IT today, Fintan O’Toole cites investment in innovation and education as examples where Finland has profited from. But the only reference to accountability and reform is putting bankers on trial.

We can get better education by freeing up more money! As for innovation, most of the existing funds are flowing down a sink-hole.

In grim times even the optimists struggle amidst the wreckage of the Celtic Tiger years. However at some point fear will be conquered and where Ireland will end up on the spectrum from greatness to perdition remains in the hands of the Irish people:

@ Brian Lucey

But Copernicus was actually wrong 🙂

He put the sun at the centre of the universe, which it isn’t.

Actually, topologically in an infinitly expanding universe, which my pointy headed friends in physics say is the present best guess, tis so in the center….so there. 🙂

“Rory O’Farrell Says:

November 9th, 2010 at 6:05 am
@ Brian Lucey

But Copernicus was actually wrong

He put the sun at the centre of the universe, which it isn’t ”

How apposite … even a Lucey analogy of certitude is error strewn!

@ Pad Donnelly re Liaer article

It’s a long article, I’ll read the rest this evening, however it is interesting to see the calls for alternative currencies (both national and reserve) at this time of crisis. One of the basic problems is that currencies are relative to each other. It would be nice to have a ‘middle man’ of stable known value. Currencies can then appreciate and depreciate relative to this stable value.

My idea is to create 1bn BoJ (Bank of Justo) IOU’s, and declare that I will never create another one. I then distribute these to the central banks of the world in proportion to their National Productivity + Currency Reserves – National Debt. Each day the central banks set a conversion rate and international trade is conducted through BoJ IOU’s. If you want to devalue, just devalue against the BoJ IOU’s. As an aside this would create a framework for a country like Ireland could leave a currency union like the Euro and protect some of the wealth in the country

/Justo’s mad idea for the day

Someone made the point (but so far up I can’t find it again) that struck me on reading the article too.

Kelly acknowledges that Irish people don’t default both for cultural reasons and of course because our mortgages are recourse so there’s no point.

At the risk of daring to disagree with him (because who would dare since he’s been so right to date) I think he might be overstating a future of mass default.

Also, I take his point on how the under-borrowed would take exception to contributing to help the over-borrowed but again, this is not America. Our country is much more socially cohesive (in general – of course there is an underclass – no pedants please). But put it like this: I personally know a few people in real trouble. While in principal I might object to bailing out (indirectly) their bad decisions it would be very hard for me to voice that objection when its the difference between them sinking or swimming. Since we’re such a small country I think its likely such opposition would be muted by situations like this. I think the social/political aspect of his argument is a bit shakier than his economics.

and btw, ahem, could we have a bit less of the “likes of Sarah Carey” please. I’ve been saying in the aforementioned agenda ridden Irish Times for 18 months that the Germans, of which MK speaks, were coming.

@ Philip II

You are right. As everything is relative the sun has as much right to be in the centre of the universe as anywhere else (even me!!!). But Copernicus put the stars revolving around the sun, which they don’t. This is what I meant by centre, but you are correct. He also had circular orbits, it was Kepler introduced ellipses.

That the Copernican system superseded the Ptolemy system (and itself superseded by Kepler’s laws) was purely due to their superior predictions.

As Morgan Kelly has given superior predictions to most other economists, I think we should listen to him. 🙂

While MK has been prescient in a lot of what he has said he has also got a number of his apocalyptic projections wrong (the unemployment rate being the glaring example). That is fine – his hit rate is still better than the vast majority’s.

But all I have seen on this long thread is one guy use real figures, which show some grounds for optimism and then a bunch of people launching sneering knee high tackles (and missing, by the way). JtO might have gone a bit ad hominem too (I don’t blame him given that at least two academic contributors to this site now seem incapable of posting anything without taking a side swipe at him), but at least he backs his optimism up with real data.

Incidentally when a pop article by a scientist, even a dismal scientist, ends with the level of groundless conjecture that Kelly’s does it ceases to be of any real value to the debate beyond being grist to the mill for internet-crank sheep


at least two academic contributors to this site now seem incapable of posting anything without taking a side swipe at him

JTO again:

Very good post, dealga. Don’t worry about the academic side swipes on my account. I certainly don’t. Anyone who lived in Belfast in 1972 and was the target of loyalist petrol bombs can more than handle a few derogatory comments from middle-class Dublin 4 academics. A source of hilarity really.

@ Sarah Carey

Our country is much more socially cohesive (in general – of course there is an underclass – no pedants please)

This might be the case in the comforts of Dublin 4 but take a quick stroll through how 80 percent of people live in a variety of inner city estates & working class suburbs and you will soon change your mind. This is the silent majority.

The assumption of ‘cohesion’ in Irish society is a reflection on the cosy elite that dominates Irish politics, media and academia.


I really don’t think 80% of people live in inner city estates.

And the people that do live in inner city estates are surely in local authority housing?

The people in negative equity are the people who live where I live – places like Enfield – and Ashbourne and Mullingar where they bought houses in nice middle class estates. The mams and dads I talk to every day and will hang onto those houses for dear life.

Silent majority how are ya.

@ Michael O’Donnell

Are you seriously suggesting that ‘spin’ will promote confidence in a bankrupt country-brilliant.

@ All

to be honest folks, i’m really not happy the output on here – the IT article has 192 comments vs 209 on here. Back in the summer we’d have smashed them 2:1. We can’t have the likes of Sarah Carey and her coterie of D4-based econo-journalists having bragging rights over the .IE massive…

Isn’t Ringsend in Dublin 4, and Irishtown? Are they part of the D4 coterie or is there another dividing line somewhere? Is it Ballsbridge, Donnybrook and Sandymount only? Should we include some other parts of Dublin in a spiritual D4 alignment? Howth? Dalkey? Clontarf? Much of the commentary on here belongs on, let alone the Irish Times discussion page

There are very few addressing the substance of what MK said about the bad debts. JtO, the much maligned JtO, was one of the few bringing facts to the table – although I think his facts and MK’s argument are largely independent of each other.

Isn’t the key question the level of bad debt that the banks are likely to face on their mortgage books? Has anyone any thoughts on how to create some crude estimates, or can they refer to existing estimates? MK isn’t going to be right or wrong on the basis of anything except numbers, and much though I hope he’s wrong (him too, probably) the only way to debate the point is to put up some numbers. As someone with no numbers on this I may be being cheeky here, but still. MK’s argument doesn’t rest on politics or values or anything except numbers.

Hugh – the banks know full & well the extent of their bad debts. Problem is the definition (well debated) of “performing loans” – a form of denial that masked the debacle that was developer loans. The banks must be made come clean.. but then they wont because if they do the balance sheets will have no clothes, so they’ll keep in denial… and the circus moves on… If you ask me, the best estimate is to double the estimates the banks give us, and that’s a good start….

@Rory O’Farrell
“…it was Kepler introduced ellipses.”
That must have been a great relief to the planetary system – struggling to maintain their pre-Keplerian circular orbits (smiley here but I don’t know how to add them). Btw I think it was just the planetary system, rather than the Universe..

@Pat Donnelly
I always read your posts but I have to confess that that Nietzschean style leaves me struggling at times. Maybe you should spell out exactly how you propose to use CDS to get us out of our dilemna.

Apart from the shorting issue – I was really wondering aloud – is it normal that bondholders ould also take the precaution of covering a default – in which case the problem is not the bondholders – but rather the triggering of a much larger loss to the issuers of CDS – similar to what happened in the US when AIG had to be bailed out with a resultant transfer of $12 bn to GS.

The proposal by Bernard Lietaer is fascinating and sounds like it should be the basis of a thread of it’s own

Still no clearer after 200+ comments on whether MKs assumptions of future banking liabilities or GNP growth are correct.

Lots of people happy to critisise JtO the man, but little critisism of his figures. This seems to be the form. Fair enough, he doesnt claim to be a expert in banking but economic growth is key to MKs argument about default. If MKs got this wrong it weakens his case substantially. JtO is the only one attempting to provide clarity on this point.

@hugh – I recently wrote on mortgage arrears recently with some rough sums based on CB arrears data.

“Collectively owing €6.9bn, the average distressed mortgage is €189,000 including arrears of €16,000. As property values have declined by at least 40%, should these homeowners sell up and move on, they would still owe upwards of €70,000 before costs. To put this another way if US style “short selling” were allowed here -where you can sell your home for what you can get and the bank writes of the balance owing- Irish banks would face losses close to €3.3bn on the €6.9bn of distressed mortgages reported on last week.

Typically as households experience a sudden drop in income they burn up savings first and only then go into arrears. And as paying mortgages is prioritised, it’s highly likely that people in trouble with their mortgage are also in serious trouble with other personal loans. Amounting to over €30bn, the Central Bank does not publish arrears data on these other loans. As credit unions which account for about €6.5bn were reporting arrears of 13% earlier this year, it’s likely that banks are experiencing similar personal loan deterioration.

Central Bank data also excludes one important sub-sector – the ubiquitous “buy to let” mortgage used by our amateur landlord class. Between 2005 and 2008 over 88,000 of these loans totalling almost €25bn were issued. How many are in distress is unknown but with the total amount owing declining, it seems that investors are either paying off their loans from savings or being forced to sell at fire sale prices.

Small business debt is also unreported on. No one knows how badly these loans have deteriorated but it’s been said that over a third are experiencing difficulties. As most small business loans are personally guaranteed they immediately mutate to personal debt once they are called in by the banks.”

MK’s figures allow for loan losses on mortgage debt but it seems he’s not allowed for consumer and sme debt.

@ Sarah Carey

I don’t ever recall there being a debate about why your neighbours and everyone else were driven out to Enfield and Mullingar. It’s not as if land was ever anything other than fluirseach around Dublin. How many crony developers controlled the land bank? At most 10 . And it was drip fed onto the market to maintain criminal land prices. Which is why today Dublin extends for 50 miles in all directions. With the lowest population density of any european capital, I imagine.

That debate was tried and rapidly squished. One of my lame (and late) contributions to the debate still seems pertinent, if depressing.

@bill hobbs
As I read it, MK is basically suggesting ~€70 billion of losses almost entirely on developer related loans – without even counting mortgages in his number. He does say that this second mortgage related wave is what’ll make the pretense end but I don’t read him as including it in the 70. Looking at your numbers, would it be excessive to wonder whether the mortgage losses – including buy to let – will ultimately be more like 10-15 billion, and that that’s on top?

[I crudely take 3.3 and make it ~5-7, and take an allowance for 5-7 on the buy to let book as well. Crude, I know.]


+ 1
Exactly, this was my original point (before where I lived psychologically or otherwise became an issue).

I think we should get down to the nitty gritty of MK’s figures. The 200,000 NE cases are a start. For default you require both NE AND long term unemployment. We just don’t have the data on this.

@hugh Can’t say as the data is far too sparse. MK does allow for mortgage losses on his excel workings – link is above in one of KWhelan’s posts. My sums were run on loans reported on by the CB as being in arrears – these are indicative of potential loss experience on a troubled book of €6.9bn. We do not as yet have any handle on how these break down ie size of loans by buckets, age etc. Nor do we have any idea of an unreported category – those loans that have been modified – storing up problems for the future. Crudely the worst case loss on a distressed mortgage at 40% reduction from peak to trough in house values and allowing for costs would be e47% which is close to MK’s 50% recovery estimate. Of course if house prices decline below 40% this loss rate increases.

@Bill Hobbs – “MK’s figures allow for loan losses on mortgage debt but it seems he’s not allowed for consumer and sme debt.”

What you describe sounds like a crash just waiting to happen. One assumes the situation is deteriorating as we speak, rather than improving, as peoples’ savings get used up on a daily basis. When is this likely to become more exposed/hit us? Next year?

@bill hobbs
My apologies. I had missed the link to the previous MK spreadsheet.

So MK is now going with his “realistic scenario” and calculating taxpayer losses on that basis. If you’re working with reported data, which comes with all the reporting requirements and probably doesn’t include forward looking estimates, I think I’d be inclined to go with MK’s €8 billion as the more likely final outcome instead of the calculated €3.3. Either way, to quote Lenny Henry, it seems like strapping a spear to the tip of a cruise missile – since we’ll still be looking at many many tens of billions either way.


Lots of people happy to critisise JtO the man, but little critisism of his figures. This seems to be the form.


I think we should get down to the nitty gritty of MK’s figures.

JTO again:

This is exactly my point. I have no objection whatever to criticism of my figures. And I have no objection whatever to people analysing the available economic data, analysing it in a rational, comprehensive and intelligent way, and coming to a different conclusion to me. But, for heaven’s sake, let them do some such analysis, not just totally ignore the economic data, which is the case at present.

Clearly, the key to it all is economic growth in Ireland, not over the next six months, but over the next decade or so. What is that likely to be? Clearly, as none of us is a prophet, none of us know for sure. But, one clue, not an infallible one, but a good one, is past economic growth, exclusive of any bubble element. But, whereas in other countries, economists could agree on that, since all it requires is analysis of past figures, in Ireland they can’t even manage that.

Morgan Kelly says repeatedly that all the economic growth in Ireland since 1997 was a housing/credit bubble, pure and simple (that was what he was quoted as saying in the thread opened by Gregory Connor a few weeks ago), and that, taking away the bubble, there has been virtually no economic growth since 1997. Hence he concludes that there will be no economic growth in the next decade. I say that this he is exaggerating wildly, motivated by his hatred of Fianna Fail, and that only a small part of the economic growth since 1997 was bubble. While the bubble added to the underlying economic growth, the underlying growth was still there, at a very high rate compared with other OECD countries.

In that same thread I posted figures showing that in 2010, when virtually no new houses are being built, when house prices have collapsed, and when you are more likely to find Holy Water in one of Rev Paisley’s Churches than to find a bank that will give you credit, real GDP is still about 70 per cent higher than in 1997, by far the largest increase in real GDP in that time in the OECD. In that same thread, I challenged Morgan Kelly, or one of his disciples on this site, to explain that, to explain how, if what he says about all the growth since 1997 being bubble is correct, then how come in 2010, when the bubble has long popped, that real GDP is still about 70 per cent higher than in 1997. Naturally, no response. There never is.

However, I never claim to be infallible. Not only that, I am a nobody. There is no reason whatever why anybody should pay the slightest attention to my opinion. So, to resolve the matter of how much of the economic growth since 1997 was bubble, how about getting some top rank economists/analysts/statisticians from abroad to look in minute detail at Ireland’s economic growth figures since 1997, and then dilivering a report telling us exactly how much of the growth since 1997 was real, and therefore a good chance of being repeated in the next decade, and how much was bubble.


I do love your optimism (even if it is a little overdone at times) and it most certainly is a fantastic trait. My question is however (or rather questions are)
(i) Do you think Ireland will not default?
(ii) If No then what are your predictions for the coming years?
(iii) If yes, then what will have been the biggest single contributor – Bank debt or budget deficit

I seem to remember MK tearing stripes out of Brendan Keenan on the box years ago when all the insiders were indicating that the banking crisis was not real – MK was right and he was looking into the future based on what he knew (not what was published). I have also seen some people (Eoin) crap on because official statistics did not show 20% unemployment whenever MK predicted it would be there. I would argue that the real unemployment rate was 20% regardless of the official statistics – I know because I was one of them although not on any register but stuck in a fas centre along with thousands of others – neatly off the register but nonetheless unemployed.

@John the Optimist
Figures are fine and dandy in themselves but are just numbers in the economic ether unless you can contextualise them.
Ireland is neither a normal society or economy – most of us here can agree that we are the most extreme example of a globalised / banking small country.
The free movement of goods but even more importantly capital is now proven to be unsustainable even by the false consumption metrics of the CBs.
Titanic malinvestment cannot be tolerated in a energy poor environment -the waste is simply unsustainable although you constantly quote growth as the only indicator of progress – I am afraid both PMs and Bonds without CB subsidy beg to differ.
How can you argue for more of the same – this grotesque Andorra by the sea ain’t sustainable – the larger countries need their capital back yet our industrial policey is entirely dependent on foregin credit while our domestic banks supplied the domestic credit to soak up these temporary surpluses until the recent collapse.
Building a society or economy is much more then about exports or consumption – it is about long term wealth creation.

Maoist dogma about increasing export targets to infinity will just not work as it is merely exporting wealth to earn a daily bread while the wheat field go untended.
We need a plan to get off this train before it becomes a even bigger wreck.

@ Hugh Sheehy

Very good letter. I still think it is a very pertinent issue. There was so much misallocation of capital during the boom . And now there is very little.

More important economic data out this morning for our economists to ignore, and for Robert Browne to claim is faked by vested interests. Manufacturing output up 12.2% in September compared with September 2009. Some depression! On average, in the first 9 months of 2010, manufacturing output is 9% higher than the 2009 average. We are clearly heading for a full year increase in manufacturing output of around 9%-10% in 2010 over 2009, one of the highest in the OECD and the highest in Ireland since the late 90s. In September, the wizards in the Central bank predicted a 2.6% increase. I posted here at the time that this was one of the worst forecasts I’d ever seen, and that the dimmest student in any of this site’s academic economists’ classes could make a better prediction from the data avaialble at the time. I was heavily reprimanded for my rudeness towards the Central Bank wizards. But, from today’s figures, I was clearly correct.

Before our viagra-obsessed economists attribute the rise to the effect of the little bue pills, I suggest that they study the full set of figures published today. Here they are:

change in manufacturing output in September 2010 over September 2009:

all manufacturing: +12.2%

of which:

modern sector: +13.5%
traditional sector: +6.6%

of which, by 28 sectors (in descending order of performance):

[01] dairy products: +32.6%
[02] coke and petroleum products: +27.7%
[03] other electronic and optical products: +26.8%
[04] other manufacturing: +22.7%
[05] transport equipment: +22.5%
[06] electronic components and boards: +19.9%
[07] chemicals products: +19.6%
[08] wearing apparel: +15.3%
[09] beverages: +14.9%
[10] pharmceutical products: +14.7%
[11] fabricated metal products: +13.9%
[12] other foods: +12.4%
[13] machinery and equipment: +10.5%
[14] basic metals: +8.7%
[15] electricity, gas: +6.8%
[16] bakery products: +2.8%
[17] rubber and plastic products: -1.0%
[18] grain products: -1.2%
[19] textiles: -1.9%
[20] printing: -5.9%
[21] paper products: -5.9%
[22] wood products: -7.4%
[23] meat and meat products: -8.3%
[24] leather products: -10.7%
[25] other non-metallic mineral products: -14.7%
[26] electrical equipment: -19.3%
[27] computers and peripheral equipment: -23.4%
[28] Repair of machinery and equipment: -27.0%

So, 16 of 28 sectors showing y-o-y increases, of which 13 showing double-digit increases. Clearly, the 12.2% rise in manufacturing output between September 2009 and September 2010 has nothing to do with viagra.


I can not answer your question because I do not know. It is a political matter, not an economic one. The campaign to default is politically-inspired, not an economic necessity. Those advocating default do so because they hope that, in that way, a line will have been drawn under FF (and to a lesser extent FG) government, and that the system will then be cleansed and lead to government by parties more to their liking. They don’t even deny this any more.

All I will say is that there is no economic necessity whatever for even considering this option. Ireland’s public debt is around the EU average. It is far less than in the 1980s. Debt interest repayments as a percentage of GDP is barely half that of the early 1990s, when default was never an option. The economy is 3 to 4 times as large as it was back then. The productive sectors are growing strongly, as the figures I gave above show. In these circumstances, there is no economic necessity whatever for even considering default. It would be morally reprehensible to do so. But, you couldn’t rule it out if a new government (more radical than just your normal FG alternative government) came to power and decided to do so as a way of drawing a line under all previous governments. You might as well ask if JTO will default on his debts. All I will say is that there is no economic necessity whatever why I should. My mortgage is a small proportion of my income, my income is rising, and I can easily afford to pay it. But, you couldn’t rule out my writing a lettter to Ulster Bank in the morning, telling them I was defaulting on my mortgage, and then clearing off to spend the rest of my days sipping wine in the Algarve. If I did so, it wouldn’t be because of economic necessity, but because I was a cad. It would be the same with Ireland if it defaulted.

@ Noel

apologies if i was “crapping” on. I must’ve missed MK stating that it was his own streetwise style of adjusted unemployment he was talking about. Do i need to adjust any of the rest of his figures into some unknowable personal logic of his or are the rest ‘real’ stats and facts? Do i have to do this for all economists or is MK the only all-knowing one?

@John the optimist

So monetory inflation is flowing into diary products rather then housing.
The goverment may need to reactivate the butter voucher scheme to feed the populace

@What Goes Up….. I agree with your list of the people who have caused the present economic mess and I would love to see most if not all of them doing some jail time. These are the people who have pushed our country to the edge of the economic precipice.
However, I think Ireland Inc now faces some other, more insidious, enemies in the form of speculators and others who are betting that Ireland will default on its sovereign debt or who have a financial (or political) vested interest in destabilising not just Ireland but the entire EU and its currency. Such enemies are queing up behind the rating agencies and the bond and currency markets and, using their financial muscle, are desperately trying to push Ireland Inc over the precipice. They must be delighted that they have such able cheerleaders in Ireland as MK, DMcW and their disciples who seem to think that this is all some L&H-type debate or an XFactor contest to see which of the celebrity economists guess the future most accurately.

@Robert Browne…
“Don’t forget that some of us have no qualms about contacting ratings agencies and the EU commission to calibrate what was going on in our uber rotten state..If our own government use guillotines, emigration, inter generational robbery not to mention refusing to hold democratic elections then the bond market had to be brought into play.”

Robert, well done, your contacting rating agencies may well have contributed to pushing the country into an EU/IMF bailout with the consequent reputational damage for a generation which that entails.


most of your figures are comparing yoy back to 2009, a year in which the irish economy shrank more than any other economy in the western world, so it’s hard to break out the champagne just because some sectors have improved from that base. it’s like saying to a patient with a terminal illness that his acne is clearing up. the illness is the ever expanding bank bailout and the budget deficit that is pretty much the same now as it was 2 years ago, when our current govt began their “ahead of the curve austerity drive”. those are the reasons we can no longer borrow and those are the problems that need to be sorted. saying baking products grew by 2.9% yoy since 2009 is not even relevant. the enormous level of public debt we have built up in the space of 2 short years and our inability now to even borrow more just to finance this debt and run our country, thats the problem. tackle that.

If mortgage holders are to be helped then it should go through a charity because that is what it is.

Set up a charity for ‘Distressed mortgage holders’, maybe it’ll get approved as a charity and then the state would assist as the charity would have some tax-advantages.

Then we would see how many people would be willing to help as the funding from the state would be totally dependent on how much individuals would be willing to donate. Whether or not it would make a difference if the lions part of this charity would be funded by the people arguing for the state to step in instead of themselves is anyones guess.

If helping out distressed mortgage holders is a good thing, then the individuals asking for it to be done should lead by example and start donating their own money.

@ Eoin Bond

“I must’ve missed MK stating that it was his own streetwise style of adjusted unemployment he was talking about. Do i need to adjust any of the rest of his figures into some unknowable personal logic of his or are the rest ‘real’ stats and facts? Do i have to do this for all economists or is MK the only all-knowing one?”

MK has been consistently correct when most other commentators were shouting him down. MK predicted 20% unemployment. The real unemployment has gone to something close to 20% but official figures show 13.4%. This hardly destroys his credibility in the context of him being right about everything else. What other economic commentator has been more on the money in their forecasts than Morgan Kelly? Methinks you should stop nit-picking and start listeing.

@ John

destroy his reputation? Eh, please re-read my critiques – i simply noted he was not infallible, and gave an example of this. Your response to this is either (a) to use your own stastics or (b) to claim i’m nitpicking over a 7% differential in his unemployment forecast. Glad you’re so flippant with facts and figures, but i’m less so…

@Eoin, John

Let’s not get too wild over a definition. If I look at the ILO then the Sept rate was 14.2%, which is (IIRC) a little higher than Eurostat. If you want to know what number of people who until recently resided in Ireland and who would like to work in Ireland but can’t find work then it would not be unreasonable to add some measure of emigration, for people who have given up looking and some measure for people on short term training courses. If you want to know the direct fiscal cost then the Department can tell you.

The numbers don’t have to agree directly and I don’t expect MK to be an expert on the definitions. Even the Irish treatment of Single Parent’s allowances may mean that our unemployment rate has been permanently understated.

Meantime, let’s follow the money.

@ Hugh

you dont expect MK to be expert on the unemployment definitions? Should a Professor of Economics, teaching financial economics, statistics for economists and macroeconomics not in fact be one of the pre-eminent experts on labour market definitions?

The last census was years ago, there have been (are) turbulent economic times. Since then, people have left and people have arrived to Ireland. Some might have both arrived and left. Predicting unemployment rate in these conditions is a guessing game.

Personally I’ve never been too keen on the unemployment rate, number in employment is a better indicator. What influences income tax receipts and VAT receipts more, number in employment or unemployment rate?

I wish to put myself forward as the first adherent of our new right wing regime.

I would like to salute our new overlord – whoever he might be – (roy keane?)

Down with people who form a minority of which I am not a part!


The question of a default is only a political one when one has the means to pay but chooses not to. It fast becomes an economic one when no-one will lend any more money – a day fast approaching I am guessing!

If the Irish Economy is so exuberant then why do we need to borrow so much money? Yes we are only at the average (EU) but look how we quick we got there and who got us there – it’s not as if this money is being borrowed for investment that will give a return

@ Jesper – I think you are right. I have heard it being bandied about by BL that there are 1.9m people working in this Country at the moment. Now if they ca only tell us how many were working in 2008 then we would have some inkling of the real picture

@ Eoin

Apologies for using the term “crapping”

@ Michael O’Donnell

Have you noticed it is getting worse by the day. Withholding passwords to encrypted files is a blatant act of obstruction of justice. What’s in those files? Who wants their contents kept secret? There have been attempts to delete files and depending on the level of computer expertise employed some of these files may have had their contents overwritten. I am sure our US colleagues can help in breaking these codes and/or unencrypting these files. These multi processor, fault tolerant, systems which constantly spool information to remote storage devices would require serious, intentional, expert actions to remove all traces of data. It is unlikely that senior staff will have had the expertise to bye pass these systems. Systems programmers with intimate knowledge of the platforms being used would have had to have been involved. In any event remote server back ups that Anglo’s systems used will have a wealth of information.

I want these guys hauled before our courts and ordered to immediately surrender these codes, failing that, they should be immediately sent to Mountjoy until they have purged their contempt. The lawlessness that has descended on Ireland is beyond description. There are now numerous issues concerning breaches of fiduciary responsibilities as well as malfeasance by officialdom. There is going to be a raft of cases against auditors, solicitors, regulators bankers and banks not to mention those asleep at the DoF while the maelstrom was taking shape. Under the old crony system that operated with impunity none of the above mentioned would have anything to fear but the rules of the game are changing slowly but surely. Morgan Kelly has predicted that the two civil war parties will not survive the next five years. I agree.

As a citizen I take grave exception to being told that NAMA is a proportionate response by the Irish government to the crisis that faced Ireland. Proportionality in Irish law is based on what the “ordinary person” considers to be “proportionate”. Not what Paddy McKillen’s lawyers consider “proportionate” or not what three high court judges consider to be “proportionate”. The same principal applies to complex planning laws, again it is what the ordinary person understands by reading words, sentences and paragraphs stitched together by legal draftsmen. How can a NAMA process that excludes the “ordinary” person be considered “proportionate” by the same constituency of individuals.

This NAMA legislation along with the blanket guarantee given in Sept ’08 when Lehihan tried unsuccessfully to put the losses onto the Irish tax payer is at the core of our sovereign insolvency. As for my own actions, I am not that foolish to think that anything I say or do would effect Irelands spreads but thanks for the compliment.

@ Eoin Bond

You hardly need to point out that MK in not infallible. No one is saying he is. He has been more accurate than anyone else and he has been brave enough to come out and say what he thinks will happen.

30 Troika rules for the Irish – (IMF, ECB and EU)

1. Pay back the fecin money ye borrowed.
2. Stop borrowing to pay Irish hospital porters the same as Finnish junior consultant doctors
3. Achmed all wives who want to throw out perfectly good kitchens. see
4. Achmed all wives who change bathroom suites because the color no longer matches the curtains.
5. No more New York shopping trips on borrowed hard earned German money. Are ye fecin daft.
6. Incentivise maintaining old cars instead of taxing them off the road for some CO2 emissions garbage. ye don’t have a car industry stupid!
7. Sheltered sectors such as solicitors, doctors and pharmacists to be brought into the real world. Adjust their false sense of value.
8. Increase the state pension age to 66 years in 2014, 67 in 2021 and 68 in 2028. Ye’ll have to break yer balls to pay it back!
9. Tax rates to go up to normal European Levels .. 45% in Germany
10. fec the pension tax relief and pension related deductions.
11. Increase Excise and other tax .. fags and booze
12. Introduce a Site Valuation Tax to fund local services .. county council planners mileage and subsistence claims etc.
13. More capital gains tax and acquisitions tax. No negative capital gains tax refunds of course!
14. Increase the carbon tax .. force the Irish to buy new German cars … i wonder why?
15. Reduce existing public service pensions on a progressive basis … holy shit!
16. reform of work practices as agreed in the Croke Park Agreement.
17. New public service entrants will also see a 10% pay reduction. shouldn’t that read WONT see.
18. Cut the dole through enhanced control measures, structural reform measures, a fall in the live register and if necessary, further dole cuts.
19. indexation of public sector pensions to consumer prices. lets get rational here lads!
20. public service pensions will be based on career average earnings. Last minute promotions to bump pensions will no longer work.
21. New entrants’ retirement age will also be linked to the state pension retirement age.
22. A new Fiscal Responsibility Law will be introduced and errant ministers will be put to the debt with a new smart economy guillotine.
23. Reduce national minimum wage by €1.00 per hour to foster job creation. The feccers increased it back up .. are they daft?
24. a more effective monitoring of jobseekers’ activities with regular evidence-based reports;
25. Review of the personal debt regime:
Introduce the US legislation to balance the interests of both creditors and debtors. Only charge on loans will be the assets.
Borrowers will not have to carry negative equity or debt to the grave … proper US democracy will apply in Europe. Banks wont have it all their own way anymore! The wunch of bankers must share the risk in future and fail if they get it wrong again.

26. Eliminate the cap on the size of retail premises. smacks of vested interest groups at work … I wonder who? …fec that.
27. Outlaw upward only rent reviews. who writes this shite … the protected professions no doubt! Explain ethics to the Irish.
28. Taxpayers to bailout the banks but allocate bank shares to all citizens as compensation.
29. Cop yer selves on for fec sake …ye must produce wealth before ye can spend it… borrowing is not creating wealth!
(Did yer universities educate ye anybit atall on economics …. bring their salaries into line with the rest of us in Europe. that ill theech ’em what added value and wealth creation means!). Outsource 3rd level to Germany.

30. Move from a “belief” culture to a “rational/logical culture”.
Stop believing in fairies, goblins, virgin maries, Berti won on the horses, Banshees, angel guardians, tooth fairies, the rhythm method, moving statues etc and get real. Hopefully this will stop the Irish believing solicitors, estate agents, bankers, politicians, spinners, the media and all who promote themselves as experts and leaders and help them make rational objective judgements for themselves.

If all this fails the Irish should “Declare Dependance”, i suggest on Canada, they seem to know how to run a country.
Greenland did it in 1947.
A temporary Irish currency “The Eiro” can be introduced to allow the Irish economy to be devalued to its real worth.

Nostril Meldrew O’Toole
1993 Honda Driver.

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