Stiglitz and Cragg on Ireland

…..as well as abandoning ‘austerity’ and promote growth through government investment.

If yoo want to know how the current policy ends, The Sopranos is a good guide

http://www.guardian.co.uk/commentisfree/2011/apr/07/portugal-bailout-european-commission?INTCMP=SRCH

Sure what woujld these boyo’s know? Let’s ask Garrett!!!!!!

I’d already commented on the Irish Times site. Still awaiting moderator approval. Excuse the non economic language…it’s for the Times. After all, dear old Fintan needs to be able to understand it so I’ve kept the language simple. 😉

________________
While economics are often about efficiency, this is primarily an issue of justice.

How can it be that despite constitutions and charters of human rights, residents of Ireland can all be forced to pay a bill that they did not incur?

Whatever about the boom warriors, people who didn’t buy houses, people who were in high school, people who arrived after the boom years, people who stood up and opposed the boom, people who had NOTHING to do with the banking debts are forced into something like slavery to pay taxes that will go straight to reimburse losing investors.

Both the Irish govt and European govts need to be careful what they insist on. Years of unjust taxation will not be forgotten or forgiven easily.

PH
no, you never troll. You state your views openly and honestly, kudos.

Have to love the details, what is needed is ‘pro-Irish growth policies’. Who’d have thought that was what is needed? 🙂

Not quite sure where the 8% interest rate came from. Quite a hefty risk-premium for country that didn’t default.

Irish bonds are currently traded at a discount? If they are it means that some investors have in practice already suffered a restructuring as they did not get the full expected contractual value when they traded out of their position. This partial restructuring/default looks likely to continue until 2013 when whoever holds the bonds at that time might be in a good or bad negotiating position. I suppose the strength of the position depends on whether or not Ireland needs external financing at that time and if the bondholders can block access to external financial markets until an acceptable negotiated restructuring is in place.

@Paul Hunt
Unfortunately you’re probably right. If these bondsters keep going Ireland will be the least of Europes worries.

I agree with ‘burning the bondholders’, but don’t think we can risk doing it yet, as we could have all our funding turned off which would rip asunder our society.

Also, the bank debt problem is a long term problem – a very serious one – but one which has not been the cause of the tax hikes and spending cuts to date. How many people in Ireland, or following this website, understand that? Certainly no-one in RTE seems to.

If the bank debt was assumed by the ECB tomorrow, would we be able to reverse one tax hike or spending cut? Or avoid the future ones? No. So far the austerity has been about the budget deficit. I think defaulting on the bond debt now would give us a balanced budget immediately, but our standard of living would collapse.

People talk about this in moral tones. Well the German and French people I speak to have a moral objection to their taxes funding our higher public sector wages. When we can show these people that for example, lecturers in Ireland earn the same as those in France and Germany, then we can talk more easily to them about ‘burning the bondholders’.

If referenda were held across Europe on whether to continue to bail out Ireland, I think people would vote against it.

@ all

Stiglitz and Cragg have two very different pillars to their proposal, remember, one which is generally “popular” with people on here (and on the street), ie burning bondholders, and one which is far more complicated and far more splitting the masses (both here and on the street) in terms of “popularity”, ie austerity. The banking crisis looks set to cost us 70bn over the 2008-2013 period. The budget deficit (ex banking costs) will cost us around 80bn over the same period. Until someone gets some good ideas (as Jesper notes) on how to solve the deficit problem (whether via growth or austerity), we’re still going to have a major problem on our hands, regardless of our approach to the banking sector and the EU/IMF deal. Stephen Collins in the IT today provides a useful argument on this.

http://www.irishtimes.com/newspaper/opinion/2011/0409/1224294304558.html

@ Brian Lucey

apologies for not trolling, you must be devastated.

Brian

Small consolation to EU taxpayers that wages are higher because of higher costs.

I agree with burden sharing, bond burning, whatever you call it. And for the same reasons as I would be in favor of bringing public sector pay rates, holidays and pensions, into line with the private sector. Fairness, equity.

But please point out the associated risks with default while our lenders don’t agree to it. And please let everyone know what tax hikes or spending cuts could be reversed or could have been avoided in the 2008-2011 period if the bank bailout had not happened.

Our nprf would be intact of course. We have not yet felt the cost of the bank bailout. It is a major problem for us, but we cannot ignore the more immediate ones.

Pongo

I agree. And French banks are worse.

That is not to say they wouldn’t take that option. They, correctly in my view, see the eu/IMF bailout as a funding vehicle for both our banks and our overpaid public sector. Remember the furore herevwhen their ambassador had the gall to highlight the issue years ago?

If it were just the banks, German attitudes might be different.

Pongo

Yes, we might get a balanced budget very quickly that way, but our standard of living would collapse and our society would be devastated.

@John Crowley

Last time our income was similar to our expenditure (and last years tax income) was 2004 or there abouts.

I dont remember 2004 being a particularly bad year do you? What about 2003? 2002? 1999? how far back do we have to go back to experience “collapse of society”

@pongo
In 2004 income was contributed to by stamp duty receipts. We should factor that out

@Brian Lucey

”..Cue the trollhorde ..”

Would you consider below from the IT of 2006 ‘Trolling’ or simply ‘good’ economic forecasting by a prominent Trinity college lecturer ?.

Irish Times
”Tue 06 Jun 2009
TCD professor admits being wrong about housing bubble
PROMINENT TCD academic and financial commentator Brian Lucey has accepted he wrongly forecast three years ago the Irish housing market would continue to grow at a “modest but still significant pace”.
,,

‘According to the IT of Feb 14 2006 a report by Dr. Brian Lucey,a lecturer in finance at Trinity College,Dublin says that mortgage lenders will be able to grow their business activity through high interest loans to people with poor credit records-known as sub prime mortgages-loans for investment properties,100% for first time buyers and equity release loans.’…
‘The report was commissioned by mortgaged servicing company,Homeloan management limited.’

‘Dr. Lucey said concerns there may be a housing bubble would prove unfounded and that there was little risk of a catastrophic fall in house prices.’

I think that for the next 10 years we should not borrow money to fund the state at all.
This would allow us to default but what kind of cuts in expenditure would you be talking about here does anybody know?

@ Philip Lane,

Thanks for the article link, I read it. Quite good. BOH.

@Bond E B

Croke Park is a chastity belt for the public service. Noli me tangere.

No serious reform of public sector expenditure will occur beyond a few symbolic gestures. The political complexion of the joint finance portfolio renders the necessary impossible.

Social welfare rates offer a discouragement for certain classes of claimant to work. There are too many public servants and too much inefficiency. How the deficit can be reduced without sizable staff reductions is beyond me. A predictable political knee-jerk response favouring ‘reviews’ has already kicked in – as if the country hadn’t enough of this kind of meta-analysis codology.

Still waiting for John McHale to pop up any minute now and denounce the Irish Times article.

@Eoin Bond
That article by Stephen Collins is sobering. I note his use of the word “delusional” a number of times in the piece. Stiglitz points out that there are high costs to postponing facing reality.
The “policy”we are getting is simply delusional. The Minister has deluded himself into believing that a “commitment” to ongoing liquidity by the ECB amounts to “medium term funding”. This was repeated again yesterday. Another delusional piece of thinking is that there is no hurry in recapitalizing the banks, as stated by the Minister yesterday. The new banking strategy appears to be equally delusional with one financial institution left swinging.
We are ignoring reality; restructuring is inevitable and as Stiglitz said postponing it has high costs. El-Eriane (Pimco)suggested yesterday that the next phase is likely a move to looking at solvency rather than liquidity and before 2013.
Are we incapable of accepting advice?

@all

Jim Lacey disqualified as company director

http://www.irishtimes.com/newspaper/finance/2011/0409/1224294305362.html

Anyone remember National Irish Bank? …. Back to Corporate Governance …. A mere 17 years later and a wee slap on the wrist (Rolex of course) …. ‘The judge agreed with the inspectors that, as chief executive, Mr Lacey had penultimate responsibility to ensure Deposit Interest Retention Tax (Dirt) was deducted and paid from all accounts subject to Dirt and had failed to discharge that responsibility.’
Since leaving NIB, he was appointed to various State boards, including the Dublin Docklands Development Authority, worked with the World Bank and was a director of two International Financial Service Centre companies.
Ah YES – the DDDA ……….. Moriarity and the DinnyO’B Press, mere 14 years ….. Mahon still in Play ……. Most directors & senior managers of Irish Banks, that have bankrupt the country and placed an immoral debt of ~€80,000 around neck of each citizen-serf, pre-crash still in position as I write ……… & professional class of lawyers, accountants, etc that facilitated it now coining it from dealing with its detritus …….
Great little country:
Upper_Echelon Continuity: Stat Sig******************
Zero Accountability: Stat Sig********************

They Screw serfs on the way up – and they screw serfs on the way down. Why does anybody expect them to change?

@Cragg & Stiglitz
It is not in the interests of Upper-Echelon Irish class to follow your advice, which benefits only dumb citizen-serf fools. One concludes …. ?

@david burke

Methinks McHale is wearing the green gansey in Philly at the mo …..

@Michael Hennigan

C’mon Michael – Governance is where it is at. Aim your fine-tuned spears at the local Praetorian Guard …. power, use of power, and abuse of power .. to find the source of both Irish and European inane policies follow the leads to who wields the power …… Money & Power ………….

btw Rogoff’s reference to Nash was way out of order and in very poor taste; then again economists are human …

@all
Blind Biddy lost on the National again – she hasn’t had a winner since Quare Times … ‘an dere quarer now’ says she – think I’ll let her loose on the Upper-Echelon Praetorian Guard with her bazooka ……. 7_of_Nine advises against it … sanity restored… back to the rugby: earlier one was a classic …

@ David O’Donnell

Why does the narrative have to be so selective?

We should ignore public staff who got payoffs of up to €600k for failure?

Another former public official Brian Cowen in his early 50s has a a super pension for life.

The serfs you refer to are surely not part of the 500,000 current and former public sector staff.

The country’s top trade unionist was on the board of the Central Bank for 15 years – – just in case you may think that’s a typo: 15 years!

There were sections of the private sector that colluded in the system of crony capitalism/socialism but we also don’t need more FÁS space cadet programs.

As for the hero Stiglitz, I did go to the ESRI Geary lecture in 2006; I don’t recall anything he said but I do recall that every few minutes, he did raise his then latest book to highlight whatever argument he was making on globalisation. I understand capitalism of course and the need to make a living.

@Michael Burke

‘It is actually banking that determines whether the country comes under attack from the concerted efforts of financial markets, ratings agencies, EU and European Central Bank.’

http://www.guardian.co.uk/commentisfree/2011/apr/07/portugal-bailout-european-commission?INTCMP=SRCH

Precisely.

@Michael Hennigan

The ‘narrative’ does not need to be selective – the NARRATIVE that serfs are currently subjected to – that socialization of all banking system debt is ONLY game in town – across Europe is the DOMINANT Narrative: ergo, one needs to bring real ‘living stories’ of real serfs to the fore to challenge this ‘narrative’ – and thus far most of us have failed to educate such serfs or raise awareness of how their futures have been mortgaged to enrich the failed gamblers [as noted by Michael Burke in his piece in the Guardian]. I have no arguments on the Golden Circle, Trade Union, IBEC, The Dail, Banks, Professions, low tax landed, etc ………… they have continuously set the agendas in thier own interests – way up, and now on way down ….

Okay, I’ll have a go at getting this straight.

The rackty, charabanc of Ireland is heading along a motorway, and sooner or later will have to make some direction decisons before it runs out of road.

All inisde agree that making decisons in a bockety, moving vehicle is tough, and many fear for the vehicle itself.

Inside it is crammed with front-seat and back-seat drivers, who make ocassional lurches for the wheel, gear stick, indicators, etc.

The back seat drivers can’t help but notice that now and again the actual drivers make sudden changes depending on what appears to be instructions on foreign radio stations, but as these cannot be heard properly, a frustrating amount of time is spent complaining and trying to get them to turn this up.

Also, they note that 90% of the shouting is coming from men (the same ratio of male-female professors). In spite of this, no one is as yet suggesting that if women are such good drivers they should take over the damn thing themselves.

The atmosphere is soured by the fact that some passengers in very fine suits have already been dropped off and seem to have vanished in much sleeker vehicles towards warmer climes, plus of those left in the coach, a number have made terrible map-reading decisions in the past, and whilst they now claim to have North and South properly sorted out, there remains a suspicion that the maps will be reversed again.

Now, some are pointing out that every time they have stopped for petrol, the price has gone up, and the amount Ireland has been allowed to fill up has decreased, and consequently all this question about direction is just yammer, and the coach will soon run out of puff anyway.

Others are pointing to

(a) The Revolutionary Road

This road has not been used for a good 90 years, and many dispute whther it is still there, and well, even if it were it would be a disastrour route to take.

There are though, now actual revolutionaries speaking out, holding up their mandates, and they annoy everyone else by pointing out that the choice is not really between the revolutionary road and the capitalist road, but the revolutionary road and the road to barabarism. Many people have a sneaky feeling this may be true, but are not sure which is preferable.

The proponenets of this road also point out that if Ireland goes down this road, then all other European coaches we can see out of the windows (the German one looks super-sleek, but what’s that steam under the bonnet, where are the Portugese?) will also have to mug the drivers, have the passengers take over, and ultimately all have to go down the same road. To many this seems simply unlikely.

Others point at:

(b) The Default Road

At the side of the motorway, very distinguished men waving books and prizes are signalling that the Irish coach should turn off this way.

They hold signs saying, “Argentina went here!”

Some passengers say, ‘that sounds great’, others say, ‘Jesus Christ have you tried Coach Argentina recently?!’ It is notable that the more the back-seat drivers clamour for this, the more unintelligable sounds come in from the radio, and the more the wheel twitches another way.

It twitches towards the:

(c) No Default Road

This is a lovely looking road, and the passengers look wistfully ahead at our fellow European charabancs rolling ahead (but what is that steam?) We can’t help noting this is a toll road though, and there is much dispute about whether we have the cash to through in at the toll basket (and the following ones). A whip round is being organised, but there is much rancour, as whilst there is general agreement that all must chip in, all argue that their cash is different, many deny that they have cash, and all cannot help remembering the men in suits who have long since gone, and drive everybody livid.

A more pertinent point is that as there is a series of tolls ahead and all their cash now is not enough to get through to the end, and so the coach should pull off now rather than bankrupt the passengers along the way. Others say that the European Coaches have agreed to takes small amounts from their passengers (whose money is also grumpily needed for their tolls), and chuck this money back out of the windows for Ireland.

All of the above is complicated that some of the drivers and back-seat drivers want the coach to go faster and get there quicker, and some say, that almost paradoxically going quicker, will use up all the petrol, and ultimately force the coach to go slower.

Glumly, the passengers cannot help also but notice that the rather attractive hitch-hikers they used to pick up have long gone, and the more youthful and vibrant passengers are transferring now to a coach marked ‘Australia’.

Phew.

Sean
Presume away. Do read the actual report tho, not the report of the report. Or is it a report of a report of a report? Anyhow… Meanwhile, back in 2011, the rest of us wonder : what on earth are the ECB at . Enjoy your sojourn in the mid noughties. Bring us back a stick of rock

Eureka: I can think of a corporate tax gesture..
http://2.bp.blogspot.com/_p0M9IDN4_TM/Sn_qJ_BN-tI/AAAAAAAAA8c/eplZd4Nff0s/s400/kes2.jpg

Gavin:
The charabanc in which Ireland is preceding down the motorway is, in fact, a snazzy German model (in Frankfurt gemacht!). Is anyone giving any thought to the possibility of trading this in for a Deanta in Eireann model more suited to our roads?
If there is no mechanism for exiting the euro then the Argentinian model a la Stiglitz is irrelevant.

Brian Lucey Says:

April 9th, 2011 at 6:23 pm
Eureka: I can think of a corporate tax gesture..

🙂

and to a few others aswell

@ All

Being a troll has nothing to do with the fact that one posts under a pseudonym. The attached link will be of assistance in identifying those that qualify for the description on this or any other blog.

http://en.wikipedia.org/wiki/Troll_(Internet)

One paradox of the No Default toll road is that if we go on it, we won’t be able to afford any more of them.

http://www.irishtimes.com/newspaper/ireland/2011/0402/1224293650000.html

@Paul Quigley
The real problem has been that in many countries the noble goals of improving the welfare of citizens have been hijacked by the psychopathic bond industry. Borrowing can never again be part of a sovereign’s finance plan.
If the government were to offer Angela a constitutional change to limit our borrowing instead of changing corporation tax it would serve both Germany’s interests and ours.
But I think that Europe might have to fall apart a little before it can reunite properly.
We will see what happens

@Rich

from where do you get your public pay must be reduced by more than 50%? As discussed earlier GNP is 2004 levels or more, why then should salaries of 2004 levels not be sustainable? As for academic salaries, the salaries of those that I educate have not been reduced 50% or even the 17% or so that I have been reduced, nor do they have any problem finding jobs, so I fail to see why exactly my contribution has devalued.

@ Sean

Most of us here don’t really care what Brian Lucey said way back then, what I do know is that he has been one of the few economists that have tried to talk common sense and extract us from the disaster. (academic salaries excepted) He has argued consistently against the grain of the default school of economics amply postulated by Brian Lehihan, in the Dail last wednesday, when he said that those that talk about “burning bondholders” his phrase, are guilty of “economic treason” and Mr. Lenihan should know as he holds an honorary doctorate in that subject. Why do I call them ” the default school of economics?”. Because that is where all strands of their economic policies, NAMA, blanket guarantees, bailouts, socialising losses, end.

The reality is, those who talk about not defaulting are the ones most responsible for the state having to default. They already have lost us our economic sovereignty but will not be content until they have completed the calamity. The extremists are inside the department of finance they have modulated all aspects of the crisis and they have made it a credo not to listen to Brian Lucey and his colleagues.

The saying used to be “what’s the difference between Ireland and Iceland? Six months and one letter.” I think that Iceland is again showing the way, this time in a good direction. If the referendum is confirmed as rejecting the Icesave deal it will be the first case of someone, somewhere standing up to the people who helped create the mess.

@ David Blake

As I understand it, the UK and Dutch governments decided unilaterally to make whole their national private depositors in Icelandic banks although their motivation was undoubtedly to protect their own banks. They now wish to be reimbursed by the Icelandic taxpayer. No wonder the answer is no! The dilemma for the Icelanders is that, as long as the matter remains unresolved, they will be excluded from the international financial system. That is the price of default.

What surprises me most is how little attention is paid by academic economists, Nobel prizewinners included, to what is happening in the real world and who, nevertheless, make dogmatic statements about the future course of events. They risk making themselves look very foolish.

There is some evidence that the overall strategy in relation to Ireland is beginning to work cf. link above to Irish Independent.

@all

Peter Mathews – The ‘Inconvenient Member’ for Dublin South!

http://www.independent.ie/opinion/analysis/the-prophet-who-is-not-recognised-by-his-party-2614960.html

One PD writes on ex-PD now a silenced FG TD in the Dinny O’B Press … the fairy tales for the masses continue. PaddyPower.kom quoting 3 to 1 on Peter conducting a mini-George Lee and crossing the floor of the Dail to team up with Honest Joe Higgins & Shane Ross. Sinn Fein has denied receiving any application form from Peter.

Blind Biddy has transferred her life savings offshore to the SaintlyColumbanus Bank – ‘Poor Peter’, says she!

The Dominant Narrative remains … er … Dominant.

@all

Wise to have the bowl of ruff stirr_about before reading Colm McCarthy on Sundays …

http://www.independent.ie/opinion/analysis/restoring-confidence-and-quickly-is-priority-2614964.html

Prelude to preparing for, and then manufacturing a timely and appropriate exit to, an inevitable vichy_bank/sovereign default, in best of a bad lot circumstances of our own choosing. As with others noted by McCarthy ‘There is no evidence [either] of any urgency whatsoever on this critical agenda item.’

@dearg doom; Kevin

I will refer back to the salaries outlined in Prof Lucey’s link above, from the European University Instsitute, starting monthly salary for a professor €9K in Ireland €3K in France, both gross figures; Max salary goes to €12K Ireland €6K in France.

I work in the pharmaceutical sector and I am aware of the fact that basic salaries under the new consultant contract will be €240K vs £90K in the UK

Then the government spends €55Bn with tax receipts/government income around €33Bn with a growing interest bill.

This is all crazy ignorant stuff – what do we expect to happen? a default where the deficit is left in tact? I believe the cut to public salaries/government spend will have to be reduced by more than 50%

A default will trigger the automatic deletion of the budget deficit a cut of many billions with the capacity for a budget surplus to pay back the written down debt. so I believe government income will fall to €27Bn on the back of the reduction in spending – reduction in taxes VAT etc. Of this €27bn I believe €5bn of this will be needed for interest repayments.

So I am being frivalously optimistic with a mere 50% cut

@Robert Browne – with that mind set a seat on the FF front bench beckons

Just listening to Alan Barrett a Prof from the ESRI on RTE 1, declaring that the Irish people are not to blame because the Elite told them all was well- Bertie Ahern, the Central Bank, he admitted the ESRI hadn’t a clue and now the people should be bailed out – with more ECB money I presume – so who is to take responsibility?

All public servants all well heeled over paid and over rated thats what makes me sick…..

@Rich

Hospital consultant salaries (full-time public) are capped at €160k at present. The new consultant contract was never honoured. Consultants argue that they have taken the biggest hit – from a promised 240K down to 160K. Fergal Bower covered some of this is a report during the week on DriveTime.

There will be a critical shortage of doctors in July in Irish hospitals due to changes in the conditions for recruiting junior doctors from overseas. The HSE has been trying to recruit doctors in Romania to plug the gap. Ireland is drifting towards a 3rd world health service.

@all

Book launch cancelled over Creighton’s ‘anti-Turkish and anti-gay’ comments.

http://www.thejournal.ie/book-launch-cancelled-over-creightons-anti-turkish-and-anti-gay-comments-118582-Apr2011/

& Sunday Times … Following last week’s abysmal VB showing, now Sunday Times, another First for NUIM, and taking on Turkey & Gays …. EU Diplomacy!!!! ‘Spose Lucinda ‘d fit in well with the True Finns, how make Genghis Khan look like a pussy-cat ……… but assisting Noonan & Gilmore????

@An Taoiseach

When’s da re-shuffle?

@Alchemist

Just for clarification which may be obvious but the UK figure I allude to above for consultant pay is a public only contract – no private work is allowed under this contract. The 160K Irish contract does include the option for private work and to my understanding the percent of private work is not regulated properly. Scenario used to be that consultants spent upto 50% of their time on private work despite being paid a public full time salary – only in Ireland (and the USA of course)

National Competitiveness Council: It says although public sector wages do not have a direct impact on the cost of doing business in Ireland, as a significant component of the cost of public and administered services they do have an indirect effect.

The starting salary for primary teachers in Ireland in 2010 is 15 per cent above the OECD-25 average, while the top salary scale for primary school teachers in Ireland is 33 per cent above the OECD average. In the health sector, Ireland had the highest average salary for medical specialists and fourth highest salary for nurses.

The OECD Health Data 2009 has consultant earnings at about $265,000.

The NCC says the 2010 salary level for Irish specialists takes account of the public sector pay cuts but does not reflect the impact of the public sector pension levies – – the latter of course is a small offset against total assumed funding costs.

@Rich

Hospital consultants are public servants who earn a lot of money, but that doesn’t mean that all public servants earn similar amounts. Plenty of public servants earn less than the average industrial wage.

@Michael Hennigan

Much if not all of the increase in the State’s legal bills is due to the increase in cases. While the number of criminal cases has fallen somewhat in number from its 2008 peak, civil cases are still on the rise, and that number isn’t going to fall in the foreseeable future. This is why the total bill went up in 2010 despite the fact that legal aid fees fell. The simple fact is that the demand for publicly provided services, whether directly provided or provided through private contractors, has increased in general during the recession. That’s why total spending hasn’t gone down despite cuts in pretty much every cost area. The big issue with austerity measures is that the consequent lower income in the economy itself creates costs for the State.

Just listened to Joan Burton on Marion say she lived in Africa in countries under managed default by the EMF, she gave impression this was an awful experience for these countries, not one we should contemplate. She went on to say negotiations with Europe will be intensive, protracted, and over a long period of time. Earlier she disagreed with austerity analysis of Joe Philip Lane link.

Overall, appears Burton is now tubed up to the long term hope her begging bowl for Ireland will be filled up by Europe, so both Europe and the financial, political class she represents get to continue feeding off taxpayer victims. Default might take her bowl away. Such scare stories are a coverup for the ongoing rape of Ireland by the financial class bleeding us dry and bringing us to inevitable meltdown..So Frankfurts way is LP way:)

Of course the difference between Ireland and those African countries Burton refers to is that with its mixture of trade, agri food, corporate footprint, tourism, indigenous industry, freedom to adjust downward our cost base, freedom to set a Puntnua exchange rate, we do have a compelling choice based on default, a path similar to Iceland, that will return our economy to growth and avoid its current trajectory to self destruction.

The path of default is mapped out by Stiglitz whose views I share.

The real tragedy for Ireland is that those who coined it on the way up have their suckers and tentacles tapped into the feeding bowl fed to this country on the way down.

The mantra of our erstwhile supporters of citizens against banks and bondholders Gombeen government settle into their seats for ‘long term’ negotiations, is that Europe must be persuaded the economic solution to our banking mess is neither in the economic interest of Europe, nor the economic interests of Ireland.

This mantra must be the hiatus of Gombeenism in our economic history and relationship with the EMU.

The projection of a base vantage point in any negotiation stance on our negotiating position on the banks should be imho the following: a) Germany doesn’t like the IFSC subsidiaries, the Depkas, the Hypo bank, the IFSC industry of porting profits into the Irish 12.5% corporate tax laundry using Dutch Sandwiches or similar vehicle, because this is messing with the German banking system and has already proved very costly to Germany, so movement on an Irish CT needs cleanup and overhaul…IFSC subsidiaries of German banks is part of the melting pot CT cleanup Europe wants to address; b) there should be openness to the assumption EMU/ECB
does not care a damn about saving this economy, other than that we should be seen to pay and squeal and suffer because of our errant ways over the past decade.

The evidence for B is not only there in Adam Smyth, ‘country can be conquered by debt’, but also in the evidence spun by eg John Perkins in ‘Confessions of an Economic Hitman’ where time after time across Africa, Asia and South America, there has been a pattern repeated of enormous development loans, sometimes default IMF led loans, handed to corrupt elites who’ve squandered the proceeds, led countries into penury leading to asset writedown and corporate takeover of a country’s resources sold for a song.

It seems to me judging from the trajectory of 5.8% bailout, protection of bondholders, there is at least prim facia evidence Ireland is being stripped and prepared for such asset takeovers. ‘Our European partners’ may be a figment of the imagination.

The question is will the destruction of the Irish economy provide rich pickings for ‘Our European partners’? Or indeed can asset takeovers improve Ireland’s long term economic well being, along with austerity and penal reparations, can the struggling financial elite who brought this country to its knees, succeed in holding onto these resources on the way down.

The chances are the current incumbent Gombeens will lose Irish sovereignty, gain a meltdown, lose more financial independence, lead an asset stripping orgy for foreign resources when Nama runs out of time and money and the rest of this country’s resources require selling off.

The irony is this may not be a bad thing for citizens of Ireland! Final point re Stiglitz, there is a vain presumption that Gombeens are not in charge of our future, but that we have people at the head of the calibre of Ólafur Ragnar Grímsson of Iceland or Carl Bildt of Sweden, we have ‘fumblers at the greasy till’ …Anyways, delighted to read the sensible article by Jo Stiglitz..

@Michael Hennigan
Do you have any links for the OECD data!

@ finfacts

Another tragedy of the Irish bubble was that investment in infrastructure and services across health and education went instead to salaries and wages pumped to pay for excessive property prices/mortgages….appalling impact of we still live with…..we have had bailouts directed at the banks, not at mortgage victims or those bankrupted by the banks eg George Lee excellent ‘The Business’ story from yesterday of an Irishman bankrupted on the loss of 120acres and a home 25 years ago. He applied for lifting of bankruptcy after 12 years to have it denied because of an extra €40 k legal costs incurred by the bank acting against him…he is currently entering into 25th year of bankruptcy, can’t buy a car without it being seized, can’t get a loan, lives in his partners house……And we are bailing out the banks with our grandchildren’s money…..don’t get me going:)

@Colm Brazel

May I humbly suggest a silent COUP! Sort it all out ….

@Colm Brazel
‘The evidence for B is not only there in Adam Smyth, ‘country can be conquered by debt’, but also in the evidence spun by eg John Perkins in ‘Confessions of an Economic Hitman’ where time after time across Africa, Asia and South America, there has been a pattern repeated of enormous development loans, sometimes default IMF led loans, handed to corrupt elites who’ve squandered the proceeds, led countries into penury leading to asset writedown and corporate takeover of a country’s resources sold for a song.’

Exactly right Colm – the first €5bn targets already lined up.

The ‘fun’ part for the buyers (as I assume you already know) is that the money never actually reaches Ireland, just jumps accounts in Frankfurt – nothing changes except ownership in Ireland.

It is heart breaking to see this happening and not a peep out of the Irish. If this Republic survives this …………..

God bless the Icelanders, they have kept their dignity and their assets – so far.

Headline in Sindo business section-

“Noonan steers clear of Ireland with own money”

He seems to like German prospects!

Eoin a Dha Ainim
” It’s even more difficult to accept his argument when he’s one of the chief cheerleaders in favour of default and (by virtue of his thumbs up to Stiglitz & Cragg) against austerity….”

Lets see now… what was that I wrote again (for about the nth time since november 2008 when I started arguing for tackling the deficit), oh here it is
“Freed from the burden of having to adjust our tax and spend not just for fiscal imbalances but also to pay the private debts of bankers, the State can much more quickly find itself moving towards long-term financial stability.

Very crudely, if one-third of the bailout is for the banks, then one-third of the adjustment per annum can be seen as going not towards reduction of our fiscal deficit but to paying off these private debts.

Using the same ratios to get our fiscal house in order will result in Ireland being able to return to the international capital markets with a cleaned up national balance sheet much sooner than is expected.” Irish Times Feb 1. But, hey, dont let what someone SAYS get in the way of what you ASSUME they said.

yes, mad stuff indeed. Lets spend spend spend…

As for default
Lets try this again. Ireland is not Anglo. or AIB. See, thats not so hard to comprehend is it?
Bye now I must go plant some cucumbers.

@ Brian Lucey

well are you for or against Stiglitz’s argument so? Stiglitz is FOR sovereign debt restructuring and AGAINST austerity measures. If you’re against his suggestions you have a very poor way of showing it. Or has your argument now devolved into “my enemy’s enemy is my friend” simplicity?

@Eoin Bond
As Bill Clinton would say – it’s the debt stupid.
We don’t do Austerity.

@Ceteris Paribus

We’ve had a ~2% increase in unemployment since then. Of course spending has gone up.

@Kevin Walsh

Sorry – I thought austerity meant you reduce the deficit. Ciaran O’Hagan confused me with his hysteria. So that is what we are doing!

@Kevin Walsh
“Plenty of public servants earn less than the average industrial wage.”
Err, plenty of private sector workers do too. Some of them also earn too much… still and all, you don’t often hear the CEO of a company hide behind his secretary’s salary…

WRT the increase in unemployment, the unemployment rate is not relevant to the cost of social welfare, it is the number on the live register. That is down from the peak of October last year.

@ Paul Hunt, Ceteris Paribus, Kevin Walsh and others

William Keegan’s view from the UK.

http://www.guardian.co.uk/business/2011/apr/10/were-not-deficit-deniers-we-just-want-to-stop-digging?INTCMP=SRCH

One of the ‘know nothing left’?

@ Michael Hennigan
Oops – that got sent before I meant it to be…
Didn’t mean to be so aggressive in it – just got a bit carried away.
It’s just that we have to be so careful in this debate not to let the private sector bankers who caused it off the hook completely.

@hoganmahew

The fact is that people use the salaries of people at the top of the civil service in order to attack the salaries of those at the bottom and in the middle. That’s what I was objecting to. I’m not defending the salaries of department heads, or of hospital consultants who are working privately in addition to their public job.

@Gavin Keegan

I’m not a proponent of austerity, and I certainly don’t agree with the criticisms of Krugman et al. I’ve seen on this blog, but I don’t think the case against deficit cutting measures is proven. The tax take as a proportion of Ireland’s GDP is so low that I think that even with a multiplier in the region of 2 (which I think is quite likely in the current circumstances), tax increases should still result in an increase in revenue. Moreover, there really is a structural deficit. If we hadn’t had the banking crisis, it would be quite possible to park this issue until after our economy was well into recovery, but we are where we are.

@Paul Hunt, Grumpy

If you read that alphaville piece carefully, you’ll find it’s a less than thorough critique of Krugman’s argument. The John Kemp blog post it’s based on is even more circumspect, pointing to uncertainty rather than error. That nominal inflation in oil prices is harmless in the context of general inflation that is after all one of the effects QE2 is specifically designed to achieve is pretty inarguable, and this is the point Krugman was making.

The ‘speculation is driving prices’ argument about oil was wheeled out before only recently: during the spring/summer of 2008. It has one serious flaw: where might those oil speculators store all those millions of barrels of oil? Kemp’s argument is more plausible when applied to metals rather than oil. If things like “[the] non-linear nature of commodity pricing relationships and the heightened potential for bubbles to form as a result of positive feedback loops and self-validating price movements” are to dictate policy then it’s safe to say no government will ever reach a decision on anything ever again.

If Stiglitz and Krugman are members of the ‘know-nothing left’ then it’s a club anyone should be proud to be a member of.

@ Ceteris

No, it was Lamont.

Interestingly, I was friendly with a man who was a London trader in the 80s/90s. I once asked him how Soros was able to break the Bank of England, expecting a complex answer.

What he actually said was: “Because George Soros has balls and Lamont doesn’t.”

@megangreene

Valid point – …. as I noted above, we first address deficit – THEN ‘manufacture’ an exit route to ‘restructuring’ before 2013 …..

http://www.irisheconomy.ie/index.php/2011/04/09/stiglitz-and-cragg-on-ireland/#comment-138739

Eoin Squared
You set up a false dichotomy. Very clever.
To parse : im for BOTH austerity (as we run a primary deficit and probably its too large) and for forcing the capital structure ex deposits of banks to absorb losses. there isnt an either or here. Do both. In re the bondholders we have pretty much unanimity from left to right to center of all (except those with some job related skin in the game and not all of those) that yes, we should force those losses. The same crew differ wildly on austerity. Frinstance, Con G and Joe H are at one on the bondholders…but differ 180degrees on austerity. You and I seem to agree on the (unfortunate) need for more austerity but are at odds on bondholders ITIR, altho to be fair I suspect if you were handed a plan you could agree with youd light the taper.
As for Prof S : one can read the article as suggesting default on the whole shebang, on some, or on the bank bonds. Its not a “Joe says default” simple statement.

re the claim that Cragg and Stiglitz ignore the fact that Ireland has a primary deficit at the moment, actually they write: “That there will have to be some cutbacks is inevitable, but it is not inevitable that they be of the current form or magnitude.”

Hogan
Yes, theres a chunk of money. But we have a choice : pay german banks first or not. . I also suspect its closer to 100% on teh un/un seniors. But, hey, thats capitalism. Theres a quote somewhere on this site from a man now elevated on the desirability of putting taxpayers before bondholders. I didnt bookmark it but feel free to find it.

@Adrian Kelleher

The Alphaville link goes back a while to the start of a discussion that is still ongoing, is interesting and is pertinent to commodity and general asset allocation.

The storage for crude is in supertankers and the cost of this and shape of the futures curve interlink as part of the way the tail wags the dog. The storage is important because spot can get recycled into a futures contract and the commercial spot purchaser can then not ignore the futures prices on the basis that he can rely on his judgement of spot supply and demand. The paper prices therefore influence his decision on what he has to bid.

The reason Krugman wade, somewhat clumsily, into this is because it is a consideration (or not!) of central bank policy. The ECB are with Kemp and the any more who have since followed up.

@Brian L
Suggest you might be doing the country a favour if you made these views on the combned austerity / bank writedowns debate a little clearer to your mass media audience, too many, understandably think it is a binary thing. Sooner or later that is where the debate is going to go. Might be an idea to get the econocurious sector of the public engaged sooner.

@ Ceteris Paribus
I think that’s a great idea

@Ceteris

Comes from “getting your fingers burned”. Has evolved into decent citizens forming angry mobs armed with flaming torches and pitch-forks to march on the castle because they are extras in a Polanski film.

Unhelpful imagery – consistent with much of the manipulative public discourse.

@Grumpy

According to Kemp “QE will favour most commodity investments in comparison with low-risk assets such as cash and bonds. But the differential impact across the sector suggests gains will be largest for relative-value strategies which overweight raw materials in shortest supply and underweight those with more comfortable supply-demand balances and inventories”. Quite true (but is it significant?) as far as it goes. Some raw materials are rather easier to accumulate than others, however, and oil is much more difficult than most. Do most commodity traders keep oil tankers lying around the back garden ready for opportunities for speculation to arise?

Kemp talks about “[the] non-linear nature of commodity pricing relationships and the heightened potential for bubbles to form as a result of positive feedback loops and self-validating price movements”. This sounds like a lot of reasons to worry, but it’s just a single effect phrased differently three times. The “non-linear nature of commodity pricing relationships” results, he claims, in “heightened potential for bubbles” that “result of positive feedback loops” such as “self-validating price movements”. Take out the ‘ands’ and you’re left with a single phenomenon: that markets may respond irrationally to increases in the money supply. As they might also, no doubt, to decreases in the money supply or to the money supply remaining stable. It is not rational for governments to attempt to anticipate irrational price movements in the global oil market.

Has any oil price bubble ever lasted more than a few months? (I’ve no idea, but I find oil price bubbles alot less imaginable than bubbles in platinum, say, or nickel; excellent substitutes exist for oil.)

Note that Kemp’s analysis is purely qualitative; no attempt is made (or is even possible as Kemp admits) to quantify the effect or even to establish whether it is significant or not. Remember for Kemp to be correct, the oil price would need to increase in real terms, not just nominally, and in fact it would need to increase relative to other commodities. Without any attempt to put numbers on it, or to cite historical examples where it actually occurred, it’s just a story.

Regarding central bank policy, I’ll see your ECB and raise you the Federal Reserve and Bank of England.

The Wall Street Journal publishes an article that from my perspective look like a familiar example how “it takes two to make a market”.

“Ireland may finally have reached a turning point in its debt crisis. The comprehensive bank restructuring plan, announced at the end of March, seems to have transformed sentiment both inside and outside the country. Its small but flexible economy is re balancing swiftly: With a new government, a stable banking system and buoyant exports, Ireland now looks to be over the worst and may yet come through the crisis without a default.”….

“And if Ireland does avoid a debt restructuring then its bonds offer value: 10-year yields have fallen from 10.24% before the bank announcements to 9.46%, a level that still reflects substantial credit risk. It will be tight—but Ireland looks to be over the worst.”

@Adrian K

“Do most commodity traders keep oil tankers lying around the back garden ready for opportunities for speculation to arise?”

Kind of, yes – at least the ones with the most cheap liquidity to play with. Goldman and co have been big into supertanker hire and all over the WTI contango.

If you are interested in this I wouldn’t concentrate just on Kemp – he is one columnist, but a particularly bright one. Lots of analysts from the Bank of Japan to the likes of Jim Rogers are coming out aligned with the idea that QEs – and in the past, loosewards Taylor rule deviations – bubblize commodities.

@ Adrian K

“I’m sure this is correct, but the question is whether they cause the oil price to increase more than other commodities”

Not for me t isn’t, – might interst others particularly I suppose. The tanker rates are always part of the calculation and if the contango is steep enough it is economic. The point is that futures prices do influence spot because of the availability of the storage mechanism. It allows the delivery trader to get psyched out and not “call” what he might analyse/assume to be a futures ramp.

I’m not Krugocentric on this.

denial is great thing ? the great swindle of our time but who wants to know

we can go on pretending everything is under control we can take on this private debt add it on to our national debt for what ? to keep the ATMs going who knows some day you may not get any cash out from these dreaded ATMs

jesus christ was right people are sheep

we have it in our means to keep going not making any fundamental changes to what we spend digging deeper and deeper into the mire at same tome blame everybody and not able to bring bondholders to book because we have not the will are the guts to do the right thing which is balance our deficit so that we can make independant actions

but hold on we have to keep the ATMs open at all costs we cant be down a couple of days ok maybe a week

maybe play hard ball and put the country first tackle all private debt like a liquidater instead of keep kicking this can down the road i think we need to prepare for the exit stategy from the euro
as our euro zone partners are blind to our faith and the ECB have not our interest in sorting out working solution to our huge problems

the great swindle time to stop digging

@ Hugh Sheehy
“How can it be that despite constitutions and charters of human rights, residents of Ireland can all be forced to pay a bill that they did not incur”

To paraphrase yourself ‘I’ll keep it simple so you’ll understand.’

We owe this bill because of Fianna Fail, Anglo Irish Bank, AIB etc., who jointly decided on a night in September 2008 that the Irish people should shoulder the burden of this debt, rather than allowing the bank bondholders to do so.

But of course it’s futile having this discussion anyway because as Morgan Kelly has already pointed out “the money is gone, so it’s all water under the bridge at this stage.”

Sorry for being a bit sharpish on Monday morning but that’s why we (the Irish taxpayers) owe these enormous bankers gambling debts.

I realise this contradicts the Chairman of the IFSC John Bruton’s view that ‘the Irish householders are, to a large extent, responsible for the current banking crisis.’

http://www.independent.ie/national-news/homeowners-to-blame-for-crisis-too-says-bruton-2615064.html

But then again John was never a man for very heavy lifting, was he?

.

@grumpy (& Adrian Kelleher)
“The point is that futures prices do influence spot because of the availability of the storage mechanism.”
Erm, I think you are both missing the point. Spot price is calculated by reference to futures prices. You don’t have to take delivery at any point to influence spot, you just have to hold futures contracts for not very large amounts.

@grumpy

So long as we’re agreed that Krugman’s critique of Lopez’ remarks was 100% sound…

@hoganmayhew

That holds true regardless of monetary policy, however.

@Eureka

Care to point to any evidence of declining world production?

What I can see is falling demand especially in US, EU and now Japan (something to do with earthquake disaster) while prices continue to go up. Which points to speculation gone out of control like it did in 2008.

Up until late last year I still naively entertained some hope that the banks would be able to return to the market and the State would be extricated from the worst of this situation. Others on this site were not so foolish.

However, at this stage I am completely disabused of any thought that the banks will ever return to the markets and default seems inevitable. The question is not if, or when, or even how much. For me the question is who? Do we default on the remaining commercial investors, or do we wait for the ECB to substitute their own capital into the banks first before proceeding to the default stage.

The ECB seems determined to make sure it is the only exposed party when default happens. That is the only explanation for their policies.

In particular, the plan to shrink the banks, apart from addressing yesterday’s problem, seems to be calculated to prevent the banks from ever repaying their debts.

Personally, I would like to see a fiscal correction in the middle of this year, bringing the budget forward by 6 months, bringing the State to self-sufficiency sooner, followed by a more independent policy on the banks. We will not have any say over this process until we are self-sufficient. It is obviously crucial that we regain some say over our affairs, because the outsiders seem determined to do anything at all to us to prevent any minor disruption to the system.

Even as I suggest such a course of action, I wonder if it is wise. It’s so dramatic, there must be massive problems with it. But I do know there are massive problems with the status quo too, so I feel compelled to find an exit strategy from all this.

@ clintideal

“but hold on we have to keep the ATMs open at all costs we cant be down a couple of days ok maybe a week”

The “we must keep the ATM’s open” meme is a distraction and a lie.

Only 3% (I think that’s right) of the money supply is currency (folding stuff).

Even at the height of the boom there was never enough cash on hand to halt a bank run.

Fine Gale / Labour have co-opted the Fianna Fail lie.

This has nothing to do with ATMs.

@Adrian Kelleher
You’re missing both liquidity (QE) and cost of carry in your analysis. Commodity contango is profitable because the cost of carry is very low.

@ Pongo and Eureka: Thanks both for your comments.

Pongo: This is a tricky one. Basically it has to to with the engineering problems of extracting oil (and gas). Also, there are absolutely no chemically equivalent substitutes for either if these substances on this planet. Like, none. Both are primary energy sources. Very nasty!

Next you have to consider the actual quality of what is coming out of ground. Crude may be ‘sweet’ or – just crude crude. We have used up most of former, so that leaves the latter. Guess which is more valuable (in cash terms)?

So its not a volume problem (yet), but it is an availability and quality problem. Overlying that problem is outright speculation. So while the whole thing is a sorry mess – you can distill out the interesting (in the Chinese sense) bits.

Best source of technical info is http://www.theOilDrum. There are others but this is by far the most accessible. Nate Hagens recently posted up a citation list of all major contributions going back to 2005? Look out for the Brown and Fulcher Export-land Model entries. Real scary stuff. The most recent is by Hagens, ‘What is “Our” Oil Doing in their Economy – Saudi Oil Consumption Trends’.

Hope this is of some use.

Eureka: I will withhold judgement on the ‘renewables’ bit. You do need an awful lot of fossil fuel to get those up to industrial level production – and some more to keep them maintained! Rock-and-hard-place?

Grumpy and hoganmahew seem to have a handle on the predicament.

BpW

On ‘spot’ oil – this island needs a nuclear power plant, or two. I was once anti- but now for a number of years, view this as economic necessity. A good few savvy engineers around ……….

Methinks we also need a serious re-think on national strategy re energy reserves on Irish continental shelf.

We therefore need to train more engineers and technologists and put them to work in ‘real’ as distinct from ‘ponzi-dodgy’ value creation – or exporting them to others to sustain the non-value creating upper-echelon segment that is essentially parasitic on the state.

Roubenni, Stiglitz, and Krugman are roight – time we copped ourselves on …. ‘real value’ has to be created – all we are doing at the mo is destroying our capability to begin to create it ……….. time for Minsky’s (b) as noted on previous thread: we bust; so go bust quick; begin recovery (and a ruthless spring clean out at the top) ………. will it happen? Did Marx’s Irish Pig Fly? Who continues to ‘gain’ from present abysmal lemming_esque policy?

@Ger
Spot on and what does Monday bring- the learned Governor telling us that no plan exists for medium term funding- contrast with what the MOF is saying.
absurd.

@Michael Hennigan

Very useful link. Worth noting that Sweden a few years ago reversed policy to stay with Nuclear – and to continue with investment in Renewables. Very clever and pragmatic strategy; Sweden could now withstand a major spot of oil shock. There are limits to renewables, and there are potentially significant technological spin-offs from developing expertise in nuclear – while we wait for engineers to be more highly thought of and respected than tribunal barristers, ponzi bankers, property developers (sic), quango board members, patronising pat meedja commentators, and other sundry ‘value takers’ as distinct from ‘value creators’ …

Ridiculous also at this stage that we do not have a Commercial National Fossil Fuel Development Company capable of cutting ‘real deals’ with others, to the benefit of Irish citizenry.

@Christine Lagarde

France’s last annual budget surplus was in 1974; National debt to GDP up from 22% in 1975 to 82% in 2010
Le Finfacts Team

http://www.finfacts.ie/irishfinancenews/article_1022049.shtml

p.s. Less o that winkin at Mick Noonan now!! – we still remember the dire outcomes of that little fling & flirtation with the gullible Brian – paying rather heavily for it ….. and I’d keep well away from Nicky’s feet …. only a matter of temps …. D S-K is waiting, and prepared, to step in! Why not do l’etat, and the rest of ‘Europe, some service – and go now.

btw based on those figs, looks like the French Bail-Out is imminent (-;

This is interesting:
http://www.rte.ie/news/2011/0411/imf-business.html
At last some leverage in discussions with Europe – who would have thunk!!
Europe’s response to our crisis has been a joke. They act more like the courtesans at Cardinal Trichetlou’s court than proper politicians.
Really is time to give some serious thought to going with the IMF alone and not drawing down the EFSF on the basis that it contravenes the Lisbon Treaty.

Sorry, I meant @ Eureka

@hoganmayhew

According to you “spot price is calculated by reference to futures prices. You don’t have to take delivery at any point to influence spot, you just have to hold futures contracts for not very large amounts.” I didn’t make any analysis — all I did was point out that the truth of this statement does not rest on the liquidity situation.

@Ordinary Man and sundry,
Nuclear comes in at anywhere between two and three times the price of wind.

http://en.wikipedia.org/wiki/Economics_of_new_nuclear_power_plants#Recent_construction_cost_estimates

Nuclear is only useful if you have no other resources, like France. We happily have an alternative. And that’s completely ignoring concerns about making half the island uninhabitable in the event of an accident.

@all

More on GREECE

‘Last week, during a meeting of the European Commission, European Monetary Affairs Commissioner Olli Rehn told his colleagues that they shouldn’t speak publicly about a Greek debt restructuring, but that a restructuring would have to be carried out in good time. If things really came to that, he said, it would be nothing less than an admission that the euro zone’s approach to fighting the crisis had failed, at least in the short term.’

If Greece ain’t going to make it to 2013 – will we? And IMF making more noise – So-called ‘bail-outs’ ain’t working and Portugal’s has not even been formulated yet ……….. situation remains dynamic

http://www.spiegel.de/international/europe/0,1518,756182,00.html

@DOD

Interesting that Spiegel article you linked, in particular-

“It will also be Germany’s highest court, the Karlsruhe-based Federal Constitutional Court. Markus Kerber, a constitutional lawyer and financial expert from Berlin, wants the court to issue a temporary injunction forbidding the government from agreeing to financially assist Portugal.

In a 37-page legal brief, Kerber say that if the court cannot bring itself to block the move, the danger will arise “that, after the Republic of Ireland has taken advantage of the ‘European Stability Mechanism’ and the Portuguese Republic has filed a request (for such aid), we can count on similar requests coming quickly from the Spanish, Belgian and even Italian governments.”

Last year, Kerber and roughly 50 supporters filed a constitutional complaint against the euro rescue fund. He fears that the ongoing proceedings in Karlsruhe will become pointless if one country after the other seeks help from the rescue fund. “What is the Federal Constitutional Court supposed to rule on,” Kerber asks, “if the majority of the money has already been paid out?”

What is going on on this thread with all this wind vs reactor stuff! Is Ireland moving to the nuclear option ‘cos the hot air one hasn’t worked so far? 😉

@Paul Hunt

We’ve got to rise above an ‘oi tink’ level of conversation if discussion is to be of any use. Repeating what you’ve said already while ingnoring arguments made in rebuttal gets nobody anywhere.

@hoganmayhew (+ grumpy & Paul Hunt)

I never claimed otherwise. I’ve never said the ‘contango’ argument was wrong, only that Lopez made no mention of it, explicitly referred to nominal price growth, that Krugman’s critique was therefore correct, and that nobody, including either Kemp, Murphy, Lopez or anybody here has attempted to put any numbers on the oil bubble theory whatsoever.

Here’s someone who does try to quantify the issue, Tony D’Altorio at oilprice.net:

“”First of all, why would anyone want to store oil in tankers and not sell it? After all, it costs money to charter those oil supertankers.

“For an investment standpoint, this should remove the cap that has been on oil prices for most of the year. The conspiracy believers had it exactly wrong – all of that oil floating at sea was actually holding back the price of oil as traders feared that large amount of oil would hit the market all at once.”

This is 100% the reverse of Kemp’s argument, only it’s more than a plausible narrative — it’s backed up with factual, quantitative data.

Now the IEA’s Oil Market Report of 11 Mar lists global demand at 89M bbl/day, so taking the larger of D’Altorio’s figures, 120M bbl, at most 32 hours worth of global demand was stored at sea at the trough of the global recession in early 2009. It should be noted that the global economy has faired rather better than the developed world in the interim and that demand has rebounded strongly, meaning that surplus transportation capacity is now much lower. Furthermore, the high contango/high at-sea storage conditions persisted in reality when global demand was lowest and surplus capacity at a maximum instead of when reflation was driving recovery — the opposite of Kemp’s claim and a factual occurance rather than theoretical argument.

Given that I had to go and find out what a cotango actually was, I’m a little annoyed to have gone into this in detail and to have found the reality to be 100% the opposite of everything that was claimed. This has been an a sadly all too common example of economics being employed not to investigate reality but to generate rationales for preferred policies and to dress them up in technical jargon in the process.

@Ordinary Man and sundry,
The various academies and think tanks can come out with as many reports as they like, I’m sure the Finns got a few before they started construction on their latest billions over budget and years behind schedule nuclear boondoggle. The actual construction costs are as reported. Maintenance for wind power runs at cheaper than an equivalent nuclear cost as well, according to the recent Eirgrid report.

As far as I’m aware from my contact with the SoI crew, they are facing an unreasonable level of beaurocracy in their efforts, as well as some doubt as to whether or not the reservoirs would offer a significant advantage over just building more interconnectors.

My alternative to nuclear is basically wind:
http://news.cnet.com/8301-11128_3-9888020-54.html
“There is enough onshore-accessible wind for about 100 percent of our electricity requirements,” he said. “In terms of our accessible resources, the biggest and most successful so far is wind.”
The reliablility issues are both a factor of more buildout of wind resources (the more you build the more reliable it gets) and either something like SoI or interconnectors which are being built anyway. Reference the European Supergrid project and DESERTEC for more details.

…

A bit more on topic, I’d like to see a reasonably reliable calculation of the impact of reducing state expenditure through wages and so on versus the multiplier effect of said wages, taking into account that the taxation levied to pay those wages represents leakage from the economy.

I wager the effects wouldn’t be nearly as severe as some might imagine, which gives us the double whammy of being able to cut loose any unneccesary millstones.

@Eureka
must say that i am very dissapointed with the IMF actions
in this euro zone crisis and they have been sidelined

irish goverments have sidelined themselves with crazy actions with the banks

it looks to me that the EU / ECB are making all the decisions
with the priorty on containment so far so good from their perspective
quiet happy to see structual default at a later date for the 3 little pig s

but just wait for weak numbers coming out of spain the markets are willing it to happen if Spain gets rocky Italy cant be far behind with no viable responce up to now we may be looking a much bigger lehmans moment

@ Ordinary Man

Dutch wind power is being stored in Norwegian pumped storage hydro facilities as we speak. The Chinese are rolling out both wind and PSH as fast as they can also. Then we get to on-grid storage and a variety of other techniques. Baseload is a tricky beast, as elusive as electrical spot pricing, however you may find this diverting for a moment or two:

The Myth of Baseload Power Generation:

Mark Diesendorf from Australia’s Institute of Environmental Studies has this to say: “Opponents of renewable energy, from the coal and nuclear industries and from NIMBY (Not In My Backyard) groups, are disseminating the fallacy that renewable energy cannot provide baseload power to substitute for coal-fired electricity. Even Government Ministers and some ABC journalists are propagating this conventional ‘wisdom’, although it is false. The political implications are that, if the fallacy becomes widely believed to be true, renewable energy would always have to remain a niche market, rather than achieve its true potential of becoming a set of mainstream energy supply technologies.

The refutation of the fallacy has the following key logical steps:

• With or without renewable energy, there is no such thing as a perfectly reliable power station or electricity generating system.

• Electricity grids are already designed to handle variability in both demand and supply. To do this, they have different types of power station (base-load, intermediate-load and peak-load) and reserve power stations.

• Some renewable electricity sources (e.g. bioenergy, solar thermal electricity and geothermal ) have identical variability to coal-fired power stations and so they are base-load. They can be integrated without any additional back-up, as can efficient energy use.

• Other renewable electricity sources (e.g. wind, solar without storage, and run-of-river hydro ) have different kinds of variability from coal-fired power stations and so have to be considered separately.

• Wind power provides a third source of variability to be integrated into a system that already has to balance a variable conventional supply against a variable demand.

• The variability of small amounts of wind power in a grid is indistinguishable from variations in demand. Therefore, existing peak-load plant and reserve plant can handle small amounts of wind power at negligible extra cost.

• For large amounts of wind power connected to the grid from several geographically dispersed wind farms, total wind power generally varies smoothly and therefore cannot be described accurately as ‘intermittent’. Thus, the variability of large-scale dispersed wind power is unlike that of a single wind turbine. Nevertheless, it may require some additional back-up.

• As the penetration of wind power increases substantially, so do the additional costs of reserve plant and fuel used for balancing wind power variations. However, when wind power supplies up to 20% of electricity generation, these additional costs are still relatively small.”

Mark Diesendorf’s paper discusses this in more detail.

It is interesting to note that The US Department of Energy also has an article refuting the myth of baseload power. Below is a short extract.

Photovoltaic (PV) technology can meet electricity demand on any scale. The solar energy resource in a 100-mile-square area of Nevada could supply the United States with all its electricity (about 800 gigawatts) using modestly efficient (10%) commercial PV modules. A more realistic scenario and stepping ove the myth of baseload involves distributing these same PV systems throughout the 50 states. Currently available sites—such as vacant land, parking lots, and rooftops—could be used. The land requirement to produce 800 gigawatts would average out to be about 17 x 17 miles per state. Alternatively, PV systems built in the “brownfields”—the estimated 5 million acres of abandoned industrial sites in our nation’s cities—could supply 90% of America’s current electricity.

These hypothetical cases emphasize that PV is not “area-impaired” in delivering electricity. The critical point is that PV does not have to compete with the myth of baseload power. Its strength is in providing electricity when and where energy is most limited and most expensive. It does not simply replace some fraction of generation. Rather, it displaces the right portion of the load, shaving peak demand during periods when energy is most constrained and expensive.

In the long run, the U.S. PV Industry Roadmap does expect PV to provide a “significant fraction of U.S. electricity needs.” This adds up to at least 15% of new added electricity capacity in 2020, and then 10 years later, at least 10% of the nation’s total electricity.

My quite possibly incorrect understanding is that an important part of the reason oil prices are so high right now is the war in Libya. While Libya doesn’t produce a large percentage of the world’s oil, it produces some of the world’s highest quality oil, significantly cheaper to refine than Saudi oil.

@Ordinary Man
I think this very interesting thread isn’t really the place for it, so rather than continue the derailment I might leave it at that. Two things to take away from it though, nuclear is waaay more expensive than wind, and wind doesn’t fall down as much as you might think as a baseload generator, especially when you have enough of it. 😉

@grumpy (+ Paul Hunt)

What irritated me was that brickbats were being thrown Krugman’s way so I decided to check up and read the alphaville piece. That left me none the wiser, so I read Kemp’s piece, then Krugmans, then some reports on Lopez’ initial remarks. Then I had to find out what a contango was and after a substantial amount of further investigation I was finally in a position to evaluate matters for myself… and discovered they were rather different from what was advertised.

Krugman’s criticism of Lopez’ remarks were sound. Lopez never mentioned carry trades or futures; these were introduced by Kemp. The situation Kemp has dreamt up has never occurred in history — in fact the opposite has occurred, with oil being hoarded only when a shortage of liquidity drove the price down rather than a surplus driving it up.

For an idea of scale, the US strategic petroleum reserve stands at 727M bbl — that’s more than 6 times D’Altorio’s maximum figure for global at-sea storage in Apr 2009, a figure only attainable during the depressed economy of the time which the BRICs have since livened up considerably. US presidents have ordered drawdowns to ensure continuity of supply in the past, other nations have comparable reserves, and speculators would be faced with that hanging over them.

Kemp’s analysis is just a story then — he’s pretty tentative in his use of language himself, in fact, though Murphy’s alphaville piece is not. So long as supporting evidence isn’t required, any number of similar stories can be concocted to prove anything under the sun, yet Paul Hunt was quick to seize on the story and denounce Stiglitz and Krugman as ‘losing the plot’ because the ‘know-nothing’ left doesn’t understand finance. That sort of behaviour is no more reasonable than that of the medieval clergy frightening the peasantry with latin incantations and covert knowledge. Economics is used this way all the time, and it’s pretty annoying to have to check everything personally in order to locate reliable information amid all the smoke and mirrors.

PS to comment above which is stuck in the moderation queue.

Kemp argues that speculators would move preferentially into oil when the maximum accumulated during the biggest run up in history was only 32 hours worth of global supply. By contrast, you could easily store an entire year’s global supply of nickel in a small field…

@Adrian Kelleher

One live link per post and u skip Q. Thought you’d have figured that one out by now ……… Patricia the Sovereign in Exile was wondering where you had gone to on walk-about … ?

Besides, the Saudi oil minister said in March:
“Regarding pricing, Minister Al-Naimi said recent crude oil prices are not supported by basic supply-demand balances and have more to do with financial speculation and unwarranted negative supply sentiment than industry fundamentals. In addition, he emphasized that at the present the market remains well-supplied.”

While there’s an element of “he would say that, wouldn’t he”, suppliers of oil are as non-plussed by the price their product is receiving as they were the last time the price ramped up.

@hoganmayhew

I heard a radio debate about oil prices back in 2008 and came away convinced that the spike was demand driven, not speculation driven. Renewing my acquaintance with the topic, I’m reassured in this belief. There is a simple and obvious physical constraint on the stock that can be run up — 32 hours supply at maximum in 2009 and much less would be possible now that spare transport capacity is much rarer.

The speculative run up described has never occurred in reality and obvious constraints limit the extent and duration of bubbles. Speculators’ costs are high as are the political risks. And Kemp claims speculators would move preferentially into oil.

It’s ironic you’d quote my professed ignorance against me. I’ve brought factual data to the exchange rather than speculation. Phony expertise is nothing to be proud of.

@ Cathal

In the interests of keeping the post going:

If you look really, really quickly at the article, then put the title and author into google, then you get it.

Remember: “Home taping is killing music”.

@grumpy

The oil market was extremely tight in mid-2008, though, with demand at record levels. The simple model of a commodity price shock, I suppose, is that boom-time demand drives up prices until more and more bits of the economy become uneconomical and gradually the expansion halts, but there’s more to the story than that.

Of course factories won’t be shut down immediately so long as hope of a fall in the oil price in the near future remains but also firms of all sorts have contractual obligations they simply can’t get out of, and this was a major feature in the spring-summer of 2008. For 18 months prior to Lehmans, the economic figures got worse and worse, but in spring 2008 the numbers were truly shocking everywhere yet most developed economies kept on expanding.

The oil traders weren’t the only ones with irrevocable commitments — their customers had commitments as well, and this forced them to continue trading (for a while) even though they were losing progressively larger sums of money. In fact the oil traders’ commitments were a consequence of those of their customers. In reality, the oil price closely tracked the trajectory of the global economy, not the speculators projections.

I had a conversation with a friend of mine in Aug 2008 and he pointed to the recent falls in the oil price as some good news. My response was that while it was good news in itself, it signified something very bad: it was the peal of doom for the world economy, the sign it was already in recession for the first time since WWII. Lehmans changed consumers’ moods, but it was only a landmark. It was imaginable that a trickle of bad news could have gradually brought the downturn about, however a more likely outcome was always that some signal event would come to be associated with a disaster that was by that stage not only unavoidable but actually already underway: the Lehmans collapse in this case.

Ultimately, the only way speculators can seriously move that market is if they’re willing to throw away enormous amounts of money — a fact your example of 2008 illustrates nicely. There’s no doubt speculators have some impact on the market — the question is how much and for how long. Storage capacity limits constrain them in both ways and noise from the political situation in places as varied as Venezuela and Iran often dominates their calculations.

The whole system is designed to move oil continuously. If storage were economical, blips like the Libyan civil war wouldn’t drive everything haywire but they do. The storage of contingency stocks is not viable so only governments do it, and for reasons that are not directly economical. Speculators can get lucky (Libya or Iran) or unlucky (an unexpected downturn or a warm winter), but the oil market is not controllable in the same way as those for other commodities. If at-sea storage were to reach the level of Apr ’09 once more with an extra 49-51 tankers being employed over for that purpose, the total value stored would be just $10.9 – $13.6Bn at today’s price (extrapolating from D’Altorio’s figures), even assuming every drop was top grade Brent crude. Whatever about the capacity of excess liquidity to influence the oil market, the ability of the oil market actually to absorb excess liquidity is very limited.

“In fact the oil traders’ commitments were a consequence of those of their customers.”

Which traders are these?

” In reality, the oil price closely tracked the trajectory of the global economy, not the speculators projections. ”

The US was in recession throughout 2008 when oil soared.

@grumpy @akelleher
superb exchange. worth the price of admission. 😉
‘real politic’ is real economics. the rest is ( or may as well be) silence. What now for food production / distribution?

@cathal tell your browser to tell the FT and the NYT (or anyone else) that its google, if you dont know how to do that… ask google to tell you how.