Stiglitz and Cragg on Ireland

Stiglitz and Cragg advocate an alternative approach in this Irish Times article.

213 replies on “Stiglitz and Cragg on Ireland”

Not so alternative. Restructure the debt (polite word for default), make the bank bondholders take pain, move on. Why, what a pity nobody here ever thought of that.
Cue the trollhorde to ridicule, poopoo, snee and jeer, all anonymously of course.

Well written and well explained set of reasons why the bank bailout is wrong. We can put this burden on ordinary citizens that had no hand act or part in such an terrible decision. In capitalism private debt dies not become state owned, banks can fail.

May I be the first troll here? Or does one have to be anonymous?

In principle and in theory the noble Nobel Laureate is right – not sure what role the Brattle Group chappie is playing in this, but the practicality is that we have now lost our sovereignty in these matters. We are at the mercy of strangers. And even if we can’t see much mercy being extended, I remain convinced that even less would be extended in any other scenario.

But the noble Nobel Laureate is a little behind the curve in his quaint American belief that the democratic process governs financial capitalism and that financial capitalists are prepared to take their lumps like all good firms and citizens operating when things go a little pear-shaped. It is amazing that those who oppose the Neocon hegemony so vigorously, such as the noble Nobel Laureate and his fellow Laureate in the NYT, fail to see the extent of its hegemony and the extent to which it has simply re-written the rules. In a sense it’s like the shift from Newtonian mechanics to quantum mechanics.

Markets in all classes of assets, goods, services and commodities are being subverted by a huge layer of financial or paper trading. For example, nobody believes any more that the price of crude oil is being driven by fundamentals. The price is being determined primarily in the paper market.

Financial capitalists rule supreme and the US Feds QE has simply given them more money to play with as the glut of liquidity coming from German and East Asian surpluses begins to shrink. The EU may be squeezing Ireland unjustly and unfairly, but it is doing so out of fear of the forces of financial capitalism and because its politicians convinced their voters that these financial capitalists were really very nice people and now dread asking their voters for the pound of flesh these ‘nice people’ want.

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.

Sounds like Sinn Fein talk to me?

Who is this Stiglitz anyhow? I’ll stick with Garret

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.

Re “We know policies of austerity will lead to lower output and lower tax revenues, and if there is any improvement in the deficit, it will be smaller than expected. What matters for debt sustainability is the ratio of debt to gross domestic product (GDP); the higher the ratio the more unsustainable the economic trajectory.”:

We know that FF policies of borrowing with abandon have led to higher GDP, higher tax revenues, three in a row election (almost) wins, national bankruptcy, part of the electorate blaming other nationalities for not anticipating our social destructiveness (in the service of FF), expecting those neighbours to pay the debt and to the voters there switching from incumbent middle of the road parties to more rightwing parties …

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

@ Cragg & Stiglitz

Agree. As does Daniel Gros, Paul Krugman, Brian Lucey, Kevin O’Rourke, George Soros, Blind Biddy, Jim Power, James Connolly, Axel Weber, Jurgen Habermas, Joschka Fischer, The EuroIntelligence Group, The Economist, Ivan the Terrible Yates, The Financial Times, Henrik Enderlein, Die Welt, the Duc de Tetuan, Liberation, Mary Murphy, The O’Neill, The O’Donnell, Handelsblatt, Joe & Joan Citizen_serfs, The Rajah from Tipperary, the Limerick Commune, The Skibbereen Eagle, ……….. hey, its a big rugby day …. … couple of million others ……… many more million ordinary European citizen-serfs ……….. &

Patricia the Irish Sovereign_in_Exile.

EU Policy is deeply flawed, and placing entire European Project in serious danger. German, French, Irish, Dutch, Finnish, and Austrian ideologues need to be taken on, defeated, and policy reversed … for once, let Irish pragmatists lead with emerging allies in Germany, France, The Netherlands, Finland, Austria and other European nations ……… we can learn something from what remains extant in both American & European Pragmatism – and use it.

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.

John C
“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’”
Feel free to point this out… (do please note the footnotes under the gross salary tables)…dont also forget to convert to some sort of “equivalent living cost”

@ 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.

@ Brian Lucey

apologies for not trolling, you must be devastated.

@John Crowley

if there was such a referendum then the taxpayers in Germany + etc would quickly learn what it feels like to be paying of debt incurred by a dysfunctional banking system. The German banks are far from squeaky clean themselves.


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.

I’ve blathered on about the other pillar often enough so didn’t want to repeat myself, but since you bring up the point.

The ongoing fake austerity (or hysterity as Ciaran O’Hagan calls it) is another scandal. We’re putting a heavy weight around any economically productive parts of the economy, both now and for decades. It’s daft, and probably pointless too.


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.

@John Crowley

If we default then the deficit balancing problem is solved too in one go 😀

There is a method to my maddness! I do not buy the whole SF argument that we can default AND increase/maintain public spending, that is just daft.

The way I see it, defaulting would solve the banking issue AND make it an absolute certainty that the deficit is balanced overnight. a win win for the economy and the country, a loss for the protected public and welfare (yes that now includes the banks in our perverted version of socialism) sectors.


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

Eoin is right – the two mechanisms are required. We will need to default and in tandem with that there will need to be a reduction in public sector pay and social welfare payments.
But – default is essential if austerity is to work.
If the bond markets are going to cut us off from funding completely post default then the logical thing to do is to default completely (i.e.100% haircut) – on the basis that we might as well be hung for a sheep as a lamb

@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”

Unfortunately, despite my admiration for Mr. Stiglitz, I find much to disagree with in the article:
“For many years, Ireland’s growth was based on fundamentals: investing in education and infrastructure to make the country an attractive place for investment and a gateway to Europe for companies from the US and Asia.”
‘Fundamentals’ are part of our problem. Perma-growth is un-natural. Particularly when it is based solely on catch-up. There comes a point when investment is not going to provide a return. When was that point reached in Ireland? I reckon 2002ish when ‘incentives’ to investment corrupted the process and began to spin the bubble (both inappropriate monetary policy and fiscal incentives). When we began to import large numbers of construction workers, you could be pretty sure investment was doomed.

Which leads to the point Peter Kinane made about GDP. Chasing GDP growth at the expense of sustainability and genuine productivity (key elements of competitiveness) has been a disaster. Aside from the bubble element, it encouraged mad ideas like borrowing to fund the NPRF (hey, debt:GDP is stable or falling, marvellous!).

“those fundamentals that created the Celtic Tiger are still there, but the real resources, the most important of which are its people, are increasingly sitting idle.”
The key to me is that we have misallocated human capital. The levels of construction employment will not return, so all the way up from manual labourers to developers we have an excess of useless human capital. Retraining that human capital has to be a priority. How we do that is the question – adult education for all ages needs to be provided in a cheap, flexible, easy access manner. Current adult education models are focused on either literacy (important, but not going to change the world) or company-sponsored continuing education (not much use when you don’t have a company to pay the bills). Above all else, it needs to be lifetime available. So what if people flit from one subject to another? At each point some of them will hit on something that works for them and for the rest of the economy.

“Argentina, after its debt restructuring, grew at an average annual rate of more than 8 per cent for six consecutive years until the global economic crisis hit.”
This is just wishful thinking. Argentinians endured a huge drop in living standards as a result of the debt restructuring and the immediate budget balancing that was required. Then the economy grew from that trough until it hit the next wall. This is neither resilient nor sustainable. If anything, Argentina is a warning not an example.

“After restructuring, Ireland would attract new banks and new firms that would see these fundamental strengths.”
This I agree with, having argued that the banks need to be liquidated since, oh, some time in early October 2008. Unfortunately, there is no willingness to do this. I do not understand why, even if the bondholders are not haircut. With near unlimited cheap money from the ECB/ICB, it seems to me that total restructuring of the banks, not the piecemeal mess that is going on, is the sensible thing to do. Imposing losses on equity holders and subordinate debt in this scenario would surely be easier than the current process?

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.’


Of course, tho now we have higher income etc taxes.

It would make for an interesting article here someone can provide detailed breakdown of tax income 10 years ago and now.

Do we forget the last 10 years and move on, or do we waste another 10 years? that is the question.

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?


Maybe I exaggerated a little.

But what would thevreaction be if you announced public pay rates and pension/welfare etc were going to even 2004 levels immediately?

And would there be a backlash against Irish products internationally, or foreign investment here?

Would we have to go to 1999 levels? Or earlier. I dunno.

And what about people’s mortgages? Large-scale bankruptcies, further massive losses for banks. Impossible to see us remaining in the EMU, or maybe even the EU.

Standard of living falls substantially.

A couple of good articles at the link below. One is by Kevin O’Rourke, but I don’t think I’ve seen mention of it here. I do hope the move to Oxford doesn’t mean he will neglect his duty to this blog, or I may have to cancel my subscription!

@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.


Why is it that a dysfunctional political class in bed with those who have a vested interest are to dictate the decisions that cost not only us but our children and their children? A political class that is unwilling to go to the people and call for a referendum on these matters is more than suspicious.

May be it is because over time the power of lobbies over the political class has become so strong that they can even write their own legislation, word by word! I am talking about Merkel’s Germany, energy regulation and the RWE in this example btw.

So, what is the level of political dysfunctionality that we are confronted with? I would assume it to be rather high, and as long as we do allow vested interest groups to manipulate and steer policy decisions to be undertaken, nothing will change.

The forces at play behind Ollie’s back are strong beyond the slightest shadow of a doubt, and the EU government, pardon, EU Commission follows special interests in the first place.

May be it is note worthy to point out that they are not an elected government, but make decisions on our behalf? Probably not.


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

Is it just me or has Brian Lucey foregone an opportunity for another moral rant…trolling indeed…elitism from a mercenary…now thats a tale that resonates with our collective predicament

The sliglitz whoever article is ridiculous in its simplification of the issues, public spending must be cut to reduce the ballooning deficit, the comparison in salaries from prof Lucey’s link above is scandalous, never mind our rates being brought down to the French or german equivalents, they should be reduced significantly below these reflecting the poor service offered to the country across every discipline

If you want to be wealthy become a sales man ie take a risk – no risk no premium….

@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?

Default would likely be a popular panacea but beyond the well-heeled who wouldn’t be seriously impacted by it, does it merit to wonder what would be the downsides for the sitting ducks in the private sector?

As for Stiglitz, he seems to be another celebrity economist making money from flogging books and media appearances. It’s a guess as to what he truelly believes.

Prof. Kenneth Rogoff, co-author of ‘This Time is Different’ wrote in 2002: ”
Joe, as an academic, you are a towering genius. Like your fellow Nobel Prize winner, John Nash, you have a ‘beautiful mind.’ As a policymaker, however, you were just a bit less impressive.”


Jim Lacey disqualified as company director

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 …. ?

Haven’t we heard all this before? The Argentina reference is just lazy.

In 2002, after Argentina defaulted on its debt, unemployment reached 25% and the peso had depreciated 70%, after being devalued and floated. It was that devaluation and soaring commodity prices that gave them that boom.

We have the euro, are they suggesting we leave the euro, if so, how will we unbake that cake?

The wasted human capital they talk off, are builders, that unfortunately will have to re-train, or leave, cos the building boom ‘HAS gone away you know’.

Our last government guaranteed all the bank debt, in our names, this government is playing the let’s hope the EU/IMF take pity on us down the road game, because they don’t have the stomach for unilateral action.

The real questions are, if we are to off load some of this debt, how will we do it? i.e. Who will lend to us after we do it? Who will our allies be in doing it? What are the down sides to doing it?

We have work that has to be done regardless. If any country could get away with Austerity to balance a budget it’s Ireland, with our ‘small open economy’. We have to balance the books, we can balance the books, let’s balance the books.

While we’re at it let’s try an build a proper sustainable vision for the future of the Irish economy, not a ‘smart (ass) economy’. As JTO will tell you Agribusiness is a good place to start.

@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 …

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 …

“elitism from a mercenary”
Is that me (i really hope not…) or Stiglitz (not slig..)?

@ 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 H
What is wrong with a man, with the top accolades of his career and having reached and conquered all pinnacles, in his 60’s , cashing in ? I would, in a heartbeat as would you. I suspect that Dr’s R&R are not casting the cash for “this time its different” to the four winds. Nor should they.
What, exactly, about JS, Irks you? I think you run a fantastic site, but jeepers man, you come off as rather a crusty – whom exactly do you think is doing a good job? I genuinely dont get what your on about re JS.

@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.’


@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 ….

@Brian Lucey says

”..What is wrong with a man, with the top accolades of his career and having reached and conquered all pinnacles, in his 60’s , cashing in ? I would, in a heartbeat as would you….”

But you already did cash in your credibility as an economist and as a commentator in the Irish media when as a taxpayer funded academic in Trinity college you published a report in 2006 as below and were presumably paid for it .
Your conclusions then were perfectly aligned with the stated policies of FF ,the property developers and the banks.

‘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.’

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’.


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

Saw on Rte that Germany is insisting on Corporate tax gestures.
Obviously Europe does not matter to them.
It should no longer matter to us.
This is it guys…..time to deal exclusively with the IMF and say goodbye to incompetent and arrogant Europeans.
Aufwiedersehn Pets

Gavin says,

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, . . .

Very enjoyable, an excellent read, thanks. BOH.

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.

@ Gavin

That’s the native genius for turning everything into a yarn. All we have to figure out now is how to package and market it 🙂

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

@Brian Lucey
Enjoyed that! Very apt.
I presume it represents the diverging roads of Gavins post!

‘There has to be a better answer – and there is: international loan loss recognition combined with pro-Irish growth policies will be better for all in the long run’

Isn’t that rationale flawed ? The recogntion of Irish bankbondholder losses would (it is feared) trigger contagion and credit aversion in the core. This process would in turn derail the EZ recovery and so neutralise any growth effect of the Irish restructuring. Damned if you do and damned if you don’t.

@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

@ Brian

To be brief I was refering to you not stiglitz, credibility requires a degree of consistency, you dismiss ‘trolls’ as those who offer critic under a pseudonym, this seems to sit comfortably with the work done for a mortgage company described by Sean above. You also believe current academic salaries are defendable – in my book an idicator of elitism – hence my remrk

The reason I visit and contribute to this blog is to learn but also perhaps in someway to mould the opinions of those with greater influence than I. I believe that any credibility in your approach is undermined by blindspots such as projecting almost imperial impatience with the progress of reform (which I agree with) while have a few unaddressed skeletons in the closet – why in 2006 did the mortgage market seem imperveous to reality – you need to explain this – perhaps you were afflicted by the zeitgeist?

A second blindspot is the public service pay and the benefit you personally receive from professing. Ireland is broke, you know this, how can you credibly drive solutions (which is the role of the intelligencia) while ignoring the immediate need to slash public spending resulting in the reduction of all public service pay to managable levels (at least a 50% cut).

Turkeys wont vote for Christmas, Christmas is coming, eventually. We will have to make do with lesser fowl as clearly we cant afford an overpriced and over rated Turkey dinner


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.

@Gavin Kostick

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.

Very good Mr Kostick – have you considered writing as a career?

@ 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.

You know why the Irish politicians (see Lowry for example) are so pitiful? Because the stakes are so small.

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.

One small point on the pitifulness of Ireland’s dodgy politicians.

I completely agree about their pitifulness. The sums of money they gain are comparatively pathetic. For instance, one Spanish major a few years ago got as much cash in about three years as Charlie did in his whole career. The Malaga property scams were worth several billion euro. Ray Burke was a tyro, a failure, a comparative loser.

However, and this is my point, I am not delighted that Irish politicians are cheap, that they sell favours for prices that are highly competitive on an international basis.

They’re selling the Irish state’s and citizens’ rights. Those things are not supposed to be for sale, at all.

@ 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.

@ Brian Lucey

OK, I take your point on JS.

As for the general issue, I recall last year you asking proponents of exiting the euro to make their case including addressing the obvious downsides, but nobody took you up on it.

The drumbeat for default is loud and Aengus Fanning invokes Siegfried Sassoon in the Sindo today at the head of a platoon of commentators (with the exception of Colm McCarthy), marching in step.

Amidst the Babel-like cacophony, I haven’t come across any detailed scenario as to how a unilateral default would work without some calamitous consequences.

This argument shouldn’t be confused with what could end up as an orderly default in some years.

American commentators ignore our membership of a currency union; the example of Argentina is not an inspiring one and at home, the siren voices are likely to be the ones least affected by the likely fallout.

@ David Blake

It appears the Iceland vote is about 58% for the No camp.

It would be naive however, to assume the British and Dutch will move on and allow Iceland to return to financial markets.

As for Argentina, a meeting was held in Paris last Wednesday on the estimated $9bn (including interest and penalties) defaulted debt owed to Germany, Italy, Japan, the US and the Netherlands.

Argentina had an inflation rate of 41% in 2002 and it’s estimated the true rate last year was in teh range 25-30%.

Argentina is seeking to return to international financial markets.


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

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.


I don’t see how you can regard a 50% cut in the pay of all public sector workers as just. It’s not even legal. We have a minimum wage in this country, you know.

More generally, I’m bemused by the people who in one breath talk about how the public sector are protected from the adverse impact of the crash and how they need pay cuts and then go on to advocate cuts in social welfare – in other words more pain for the people who have already suffered the most. Frankly I find it sickening.


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

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

@ Eoin Bond

That €70bn for the banks is being flushed down the toilet, in terms of the effect on the Irish economy. The €80bn goes to keep the State functioning, a goodly chunk goes by one remove to IBEC, ISME members, and the wages portion goes into the pockets of nurses, teachers etc. who will be spending it. Not comparable at all.

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…..

Corporate Governance of State Boards – Oirish Style

Mr [Mick Mor_yaEyeTeeth] Lowry last night said he filled three positions during the lifetime of the Government, all with people from Tipperary. … Mary Hanafin, then Social and Family Affairs Minister, [& Blind Biddy’s nemesis shhh] said she put Michael Healy-Rae on the CIB board on the orders of Mr Cowen, but was unaware if it was part of a deal. … Jackie Healy-Rae, who is considering a run for the Presidency, last night said he couldn’t remember the contents of the deal. “I really don’t know at this stage,” he said. “I don’t, I swear to God. Between what I looked for and what I got, that’s where I’d be getting confused.”

U know, if anyone tried to get this stuff published in any Governance Journal, they’d be laughed all the way to the waste-basket – quiet! Notwithstanding the fact that it must be the strongest stat sig in governance research since Pluto first explored the insignificance of man!

Time for a stroll in our Garden of Eden!


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.

@ the Alchemist

As you know the public element of consultant pay still represents only a fraction of their total renumeration, many consultants have told me personally of annual earnings in the region €500K, this premium through private health insurance is paid by those with VHI through premiums etc, so a further drain on resources

Regardless of the suffering of having a mere €160 K public salary like all Irish public servants there is a premium paid for being ‘Oirish’ because like L’Oreal we believe we are worth it

On the point of not enough docs, lets think about the earnings of an NCHD in Ireland these can often be in excess of €100K in the case were overtime is included. These pay rates are not achievable in other European countries and I dont mean Romania

This is the spin the IMO have come up with but we have heard it all before from the chemists, dentists, taxi drivers bla bla. Lets deregulate the awarding of GMS lists to GP’s (put them out to tender), make a public only contract binding for consultants and let the recession take care of the private premium and we may end up with a better health service.


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

& 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?

clearly joe stiglitz is one of them celebrity economists old man fitzgerald warned us about.


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)


we have a rather simple problem now – we have too much debt. Running large deficits appears to have been a rather large factor in all this. So yeah, they actually are comparable issues.

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.

@Robert Browne Says:

..”@ 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…”

If you dont care what he said back then when he was a paid shill for the mortgage industry and got his forecast completely wrong why should you care what he says now.

His (lucey’s) solutions are based on what has already happened .It requires no more than common sense to understand what went wrong and solutions required.

My opinion is that Paul Sommerville and Gurdiev have the solutions nailed .
If Lucey’s opinion is consistent with their analysis thats fine but what I am saying is has a major credibility issue.
Better to listen to those who have credibilty rather than someone who has switched horses when they were exposed as being completely wrong .

In his (Lucey’s) reply to me above he did nt answer directly what I wrote but used a tactic of running interference …”Do read the actual report tho, not the report of the report. Or is it a report of a report of a report?”….

sounds like Don Rumsfeld and the known unknowns !.

Anyway I did read his report from stem to stern and it is an indictment on his capacity to analyse economics .The proof of that is he got it completely wrong.Remember this man holds a doctorate,lectures students and is persistently in the media.
Here is a direct quote from the closing lines of his report.

….”Overall therefore it is reasonable to assume that while slowing the Irish economy will continue to grow,
in a low interest rate environment, and with strong demographic underpinnings to ensure that the
housing market will continue to show strong justified growth…”


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.

@ all

‘Colm Mc Carthy is just wrong’ Richard Bruton on The World at One today regarding today’s article posted by D. O’Donnell.

Well I suppose that’s that then – it’s carry on regardless!

The FF and FG/Lab. policy merger complete.

Cahones (sic) nowhere to be found.

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..

@Rich did you read all of the link to the academic career site, or just pluck a couple of statistics to suit your agenda? There are significant differences in the structure of academic careers. There are 500 professors in the Republic of Ireland, perhaps a few less now as some of these have been lost as people retire. In Finland, a place with 20% greater population that this state, there are 2255 professors. There are many people in Ireland who are mere lecturers who would be professors elsewhere. Some at the top may get somewhat high salaries, but that does not mean that everyone in the system does. People routinely propose that salaries from Finland or France or wherever are introduced, without proposing or even examining the systems that go with these, as this does not suit their agenda.

@ Dearg Doom

you are right that it is not a simplistic argument and cannot be summed up in one near and tidy table. I think the problem is that Prof Lucey linked to the table/data in a seemingly “We’re not paid that much” argument, which doesn’t really add up when you see the figures. 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….

@ 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:)

@ Eureka

There is a database for different categories on

@ Kevin Walsh

Commercial litigation in Ireland carries a heavy burden of cost relative to other jurisdictions — an average of €53,800 (27%) on a €200,000 claim compared to €25,337 (13%) in the rest of Europe. Besides cost, the average Irish court case takes 515 days to resolve.

The NCC says the costs of waste water services increased by 18.8% in Ireland during 2009. The cost of legal services has declined very slowly, and in Q4 2009 they remained 18.4% above the average 2006 price – – at a time of deflation.

There a quite a few contributors here with better links and I was recenlty reading a link comapring Irish to European average civil service rates and the figs showed a figure of approx €660 pm in Europe vs over €900 a month in Ireland..perhaps someone might freshen my memory

Its a little non specific for this site but the point is simple – there is no arguing that mindset which allowed Irish rates of pay, services etc ie the closed economy to spike will change probably through coercement from Europe. This isn’t about fairness this is an insoluble fact we cant afford it no matter the inconvenience of this to those who have become used to the benefits

Also I might say, if these public servants and the service they provide was so deservedly well paid why do we perform so poorly on international metrics, top of the pay charts bottom of the performance charts – great if you are beneficiary most of us are not

@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.

The Stiglitz article seems a bit of a re-hash of arguments of principle that most agree with and some of us have attempted to push. It falls short in presenting no practical mechanism for a political move to do as suggested. Maybe he can’t because he isn’t sufficiently familiar with Irish politics and cannot see the corner Ireland’s politicians have painted themselves into.

The argument that Ireland would outperform post default Argentina (and presumably have no trouble borrowing in the bond market because of this) with its vast natural resources to export into the commodities super-cycle, seemed a bit wooly to say the least.

@Paul Hunt

wrt commodities and fundamentals and “nobody”, have you been following this ongoing saga?

@Michael H

Thanks for the link to Colm McC’s article. Both “agenda setting” and “cracking” as some around here used to describe them. It appears though the politicians do not agree that the counbtry needs to stand up for itself in negotiations with its “partners”.

Headline in Sindo business section-

“Noonan steers clear of Ireland with own money”

He seems to like German prospects!

@ Sean

Any possibility you can post one or two links for what you yourself were saying prior to the economic meltdown.

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.

Sean cant, I suspect. Hes anonymous. perhaps he is astroturf. Perhaps not.

@ 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?

@Brian Lucey
“let’s spend spend spend”

We are doing it as best we can.
According to Brenden Keenan today, current spending is up 6.5% in the first quarter this year compared to same period last year.

Austerity my A***

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

@Michael Hennigan

I’ve no doubt that there are massive inefficiencies in the way many things are done in this country, including the legal aid system, and that the State is far too ready to rush into litigation. However, coming up with reforms that actually achieve their intended goal is often difficult. Personally, I’m very sceptical of the policy initiatives that have been put forward in terms of reducing costs by the government recently (with the exception of the Fines Act 2010, which on paper looks like a good idea). Furthermore, any such initiatives are likely to have a greater impact on new solicitors and barristers than well-established people.

I can’t help but think that compared to the enormously difficult task of wholesale reform across a large number of sectors, both public and private, a super tax would be cheaper, easier and more effective.

@Ceteris Paribus

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


Thanks for the Alphaville link. I wasn’t aware of it. Some further unfortunate evidence that Prof. Krugman is losing the plot. And I think both he and Prof. Stiglitz are losing the plot by being cheerleaders for the know-nothing left. But the economics discipline in general has failed to get to grips with the extent to which financial capitalism has a grip on the global economy – and on the political process in the developed economies.

@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!

@ Ceteris paribus

What would the deficit have looked like if the spending cuts and tax increases hadn’t been imposed? That’s the comparison you should be making.

The fact that taxes have risen, public sector pay and social welfare rates have fallen, and total spending has still gone up, doesn’t mean either that the pay and welfare cuts didn’t happen, or, necessarily, that austerity is self-defeating. It’s quite possible that if the austerity measures hadn’t been imposed, the deficit would have been larger.

@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.

Along with the canard “reputational damage”, “cut us off from funding completely”….!! or hype of ‘confidence’ and ‘growth’ the present incumbents sing now in tune to the politics of fear of the previous incumbents:)

So if our books are finally balanced, if our banks are finally sorted out, if we have improved competitiveness, if we sort “the gap between Government spending and our tax take”, no one will lend to us because we burned vagrant bondholders who bet on Anglo and should have known better.

Don’t believe so, lies and gombeen propaganda!

Instead, our reputation would rise and be freed from the cesspit mess the current set of Gombeens are leading us into, which is a debt lending agency for ECB, the ECB Socialist Banking Republic of Ireland.

But even on a fine day like today, our seeds won’t grow because of our mess, they need good soil. Unfortunately, those operating the gears on the way up, are operating the same gears on the way down. The soil is fairly toxic.

But it won’t last long before this blows out into another big mess. The master plan we have then is for Irish politicos to all mumble and murmur together, ‘told you so, so how about a few more bob for the bowl’.

….More emigration of the smart, unable to find work here or unwilling to have their children pay for the mess of the Gombeens, should be an option well worth considering and preparing for…..

@ Michael Hennigan
Thanks for the links.
To a certain extent I agree with what you’re saying. And in another way it makes me sick.
I know you don’t live in Ireland but I do. I cannot say how much I value the work the teachers in the public school my children attend. I cannot tell you how much I value the education I received in my publicly funded primary and secondary school.
It galls me that people think that teachers should suffer for the mistakes of selfish incompetent bankers. They weren’t in search of the high life – they just wanted to do a job they liked and to earn a decent wage for it. And now you propose that they should take cuts for mistakes of the idiotic few. It’s disgusting.

@ 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.

@Colm Brazel – well said.

And very well done Iceland…no Gauleiter being sent there to repatriate what’s left of productive capacity.

Hope we’re watching with our heads deservedly bowed.


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.

The lesson I got out of that article was…..when you are in a hole stop digging.
incidentally, Was it Healy that was devoured by Soros?

@ 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.”

I agree with much of what Stiglitz argues here, but there is one crucial point that Stiglitz seems to completely ignore: Ireland has a primary deficit at the moment. This means that, ignoring debt servicing costs, the Irish government is still outspending its means. I wonder how Mr Stiglitz proposes the Irish government funds its basic services then?

Let’s say the Irish government decides to burn all the bondholders and restructure bank debt. Without the EU/ECB/IMF’s blessing to do this (which is unlikely to be forthcoming before 2013 at least), Ireland would have to do this unilaterally. It would undoubtedly lose access to its bailout at a time when it still needs to borrow money just to carry out fundamental public sector services. And Ireland certainly couldn’t turn to the markets for cash having just gone back on its word with the EU/ECB/IMF–who would take the risk?

Stiglitz is fundamentally right that Ireland needs to restructure its debt, but the initiative is not going to come from the EU/ECB/IMF (not before the ESM is implemented, at least). And if Ireland were do it unilaterally with a primary deficit, it would backfire spectacularly.

“Let’s say the Irish government decides to burn all the bondholders and restructure bank debt.”
Or, lets not. AFAIK nobody is saying that. Lets just say it hands the bondholders in the banks a bill. And continues paying its way on the truly sovereign debt, in fact accelerating the moves to a balance. Then what?

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.

@Brian Lucey
Come now. “Burning the bondholders” is shorthand for handing bondholders in the bank a bill. The cut that is required is large, 30% or more on unsecured, unguaranteed seniors (would you care to put a figure on it?). Megangreen doesn’t say anything about sovereign debt, but at the moment, the only sovereign debt funders we have are the EU/IMF.

Given that we have sovereign debt roll-overs to finance this year as well as into the future, in addition to the deficit, that’s a packet of funding to come up with at short notice. 10 bn in rollover in the next twelve months plus the deficit…

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.”

@John Crowley (April 9th 11.15)

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

Bail out Ireland? Deepthroat would say to follow the money.

General Comment:

I am not clear whether Stiglitz is proposing full sovereign default of just burning bank bondholders. If it is just bank holders, they are gone for the most part and have taken the loot with them. Too late now!

The priorities should now be a primary surplus, achieved by means of a radical restructuring of higher level public sector salaries, full abolition of all tax reliefs and higher taxes. This could be followed in three years time by ‘restructuring’ of all public debt.
Regrettably there appears little prospect of any radical public sector reform. Tax reliefs, in particular pension and property reliefs still cost billions and higher taxes, they are for the little people in the form of the USC.
Almost three years on from Sept 2008 several bank directors are still in the boardrooms of the banks that destroyed the country. And some of those directors are still on State boards drawing salaries.

Despite the election, one can only despair. The insiders have won. The rest of the country must be impoverished to keep them in luxury.
We are back to Ascendancy Ireland.

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.

There is a concept of right and wrong that, though boring, tends to be necessary.
It is simply wrong that a teacher should spend the rest of his/her life in fear of losing his/her home whilst bondholders laugh all the way to the bank!!
If defaulting allows a reduction in the debt burden of the Irish citizen then the scope for sustainable austerity is greatly increased.
There has to be some way of doing both in tandem.

@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.

Perhaps this is a bit naive but instead of using incendiary Language like “burning bondholders” could we have a discussion on restructuring which could avoid the necessity of immediate losses for holders of debt.
Surely it is within the competence of our economists to come up with a plan that could ensure immediate pressure being taken off IRe without bringing the whole house down.
If the negotiators for Iceland could secure a plan stretching out 30 years from 2016 in order to pay their debts (at 3.3%) perhaps we could consolidate and stretch out the repayment of our debts like Iceland.
Eventually, like reparations, some would be written off in the fullness of time.


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.

@ Kevin

Not to worry! I wasn’t so much posting against you as offering food for thought.

@ Ceteris, Eureka, etc.

Briefly. If:

(a) the aim is to avoid the social, political and moral disaster of a massive transfer of wealth from the public shere to pay off private losses, and:

(b) Even remaining unguaranteed debt (which won’t be enough anyway) is ruled untouchable by the ECB,

then I think those who think the best course is to go with the package need to show how this situation can be rectified.

Various estimates put the cost of the bank bailout from 75bn plus with some (possibly 20 – 25bn) coming back from an envisioned sell-off of the healthy banks. Of course, as well as the headline figure there’s the additional cost of the destruction wrought directly and indirectly by the bank’s reckless lending, fuelling of the bubble, etc.

The problem is that while the programme for government envisions some sort of extra bank tax, Jesper, I think, kindly pointed out that the MoU says nothing about this, and says merely that the banks will be sold off ASAP.

I freely admit to being out of my depth here, but perhaps a future step might be something on the lines of a popular campaign (‘Payback’), to support the government in investigating:

(a) Keeping the banks nationalised for sufficient years to pay the cash back with interest
(b) Putting a bank tax in place
(c) Working at European level to ensure the forces of finance are subordinated to the forces of the state, and this is expressed by money flowing from the former to the latter, not visa versa as is the case now.


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.


In and around Forkhill and Hackballscross local commodity dealers do indeed keep oil tankers in their gardens. But perhaps you mean the floating type of tanker?

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.

@dearg doom

If storing oil semi-permanently at sea were economically viable then purpose-built stores would surely be constructed. Oil tankers exist to move oil and not to lie stationary. According to Kemp, commodity traders would move preferentially into oil, but metals and so on are easier and cheaper to store and are actually irreplacable unlike oil.

@grumpy (& Paul Hunt)

““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.”

I’ve seen the photos of the lines of tankers sitting in the English channel, but they were a one-off phenomenon resulting from the great recession. They were never there prior to 2008. The global oil market has already rebounded, so it’s safe to say that surplus transport capacity no longer exists in anything like the same quantity.

“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.”

I’m sure this is correct, but the question is whether they cause the oil price to increase more than other commodities, as Kemp claimed, whether this price rise could possibly be sustained for more than a fleeting moment, and whether this increase would be sufficient to damage the economy. Not only has this not been established but no attempt has been made to establish it.

The original remarks by the IEA’s Eduardo Lopez referred to by Krugman made no reference to any of these effects. In fact Lopez referred specifically to the risk that QE2 might “inflate prices in nominal terms” (my emphasis) and that this could “bring about inflation and could derail the recovery”. I don’t see how Krugman can be blamed for not tackling an argument that never made by Lopez. His point about the statement Lopez actually did make is straightforward and unarguable, yet Paul Hunt takes it as “further unfortunate evidence that [he’s] losing the plot”.

@ 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.

It appears that Stiglitz is referring to both sovereign and bank restructuring.

In the US, the system developed by the FDIC for banks works well: close on a Friday evening and reopen on a Monday under the brand of a neighbouring bank.

The US has about 8,000 banks.

In Ireland, would it be worth the risk to let all the banks collapse for a potential benefit of less than the annual deficit?

On the deficit, the truth that has to be faced is that the expansion of services and surge in costs in the public and private sectors was built on phantom growth.

All the employment growth over a decade resulted from the bubble.
Employment in the tradeable goods and services sector is back to 1997 levels and behind the spin, the reality is that new FDI projects tend to be small in terms of job creation potential.

This is related to our past success in attracting most of the key US companies.

Our attraction is the European location but significant market growth is happening elsewhere.

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

The Stiglitz article seems about 3-4 months out of date. The bank bondholder burning game is over – well at least the game is in the last minute of injury time and the score is Bankers United 6, Team Ireland 0. A consolation goal (Anglo/INBS) is possible, but unlikely. The decision on March 31 not to hit bondholders of AIB or BoI marked the last significant act. Fans can blame UEFA for rigging the draw, the continental referee for some unfair decisions, or the home team manager for poor tactics and team selection, but the end result is the same and the fans will walk home humiliated. It is time to move onto the next competition – the Sovereign Debt Cup. Team lineups should be familiar but the stakes are higher.

@ 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.’

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


@ MM-ff: The FDIC Michael? I have it on good authority that they have virtually abandoned any attempt to rein in the problem of insolvent banks – ‘cept for the ‘little guys’, that is. Whose ACTUALLY in charge at FDIC?

Few of you have made some comments on the oil (spot) price. I wonder have you got a genuine grasp of our predicament here. Speculation is indeed a factor, and this may or may not be correctable. But its the other matter, the one that is insoluble: declining world production of crude and condensates.

We, the ‘oil guzzlers of the west’ are in for a very unpleasant shock in a few years time. In fact, here in Ireland we may never see ‘growth’ again; that is growth as we have known it. I know that the bailout business is a a big deal at the moment, but please pause for a few moments and try to consider the implications of reduced, and permanently reducing, energy resources.

Actually there is a good on-going example of the former: Japan. Its worth a real hard look. Japan is the ‘good news’. The Kindom of SA’s energy predicament (and all in east Med) is another matter entirely.

I am sure that the knowledge of the decline in liquid fossil fuel is well known, and understood where this matters. Taking appropriate action to mitigate this disaster is another issue entirely. Garnishing as much land assets and wealth as possible would be a good career move! Seems to be happening close by. Just re-adjust the entries on that spreadsheet. Only don’t try to build a nuke electric generating facility that way. You may end up with a pretty picture, but that’s all.


@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.

@Brian Woods

Can you provide any evidence for “declining production”?

This “oil prices can only ever go up” sounds awfully like “house prices can only ever go up” we all heard before.


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


That holds true regardless of monetary policy, however.

@ Brian Woods
I’m afraid you’re right about the oil prices. I’m not sure it will take a few years though. It could happen sooner than that.
The good thing about rising oil prices though is that it makes development of tidal and wind energy etc more economically viable. We do have plenty of resources in that regard. Just need to figure how to protect them


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.

my thoughts exactly ,
we need to control the crisis and put the country in exit mode because pretty soon we are going to run out of road with no contingency plan

@ 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.


“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.”

Other way round – supposedly. Futures were always presumed to be priced off spot with the curve influenced by interest rates and speculation about future demand/supply. In many markets (eg silver) it s accepted that the tail wags the dog because the futures are so liquid.

The reference to oil is significant because there are many oil traders who strenuously argue that the lack of significant and easy to quickly arrange storage (say restriction to Cushing) means the traders that take delivery (all futures contracts expire) set the price based on real supply and demand, that the futures have to drift towards as they become front month and shorter.

I and many others argue this is only partly true.

@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.

I can’t, unfortunately, find the article where it was expressed that Saudi oil for delivery is priced on a weighted average of futures prices. If this is not the case, then, yes, you are right, futures prices would at best act on expectations and allow for storage trades.

@ 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.


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?


Spot on.

A cost benefit option on nuclear v the ‘Spirit of Ireland’ project woud be a start.

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.

@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.

Easy on the nuclear lads. There be bad dragons there! Like how much energy, and for how long, is required to cool down those pesky fuel rods. Have to think about the half-lives of radioactive species as well.

Lets get our use down first. then decide what we need. Its that Base-load that is the problem!


@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

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 (-;


Unlike Lucinda, Leo Varadkar doin OK thus far ….

& good move on adverstising for appointments to state boards ……. & remembering Richard Bruton’s ‘election promise’ that members of ALL state boards be requested to resign within 6 months …..

@Brian Woods

half-life of present 20something generation falling by the week ……… as exponential, most will be gone to greener shores in no-time if present policy is not reversed – this is the real nuclear that we are being subjected to … and this price is too high; one can protect from an alpha particle with a sheet of paper, yet our policy elite appear to be incapable of fighting their way out of a brown paper bag …. [and we can always dumpt the spent rods in our big black hole ……….(-;]

This is interesting:
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.

@ Gavin
There are those, I’m sure who will say that it can’t be done. And they’re all alot more qualified than me.
Still I would love to see some serious analysis of if this could happen.

I think that it could. What would have happened, for example, if there was no EFSF? What would have happened if we were in this situation 10 years ago? It would have been an IMF only bailout.


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.

For those pursuing the oil price issue, this may be of interest:

I think my original point is still valid; GE in the US has provided the ‘masters of the universe’ with too much money with which to play. And some has leaked into the ‘paper’ commodities markets. Prof Krugman is behind the curve on this. And Prof. Stiglitz, as Bryan G has pointed out, is behind the curve one what’s required to resolve the current mess.

No question about either’s entitlement to the Nobel Prize – or about their contribution to economics – but the entire discipline is behind the curve on what’s needed. And the academics in hock to the Neocons will keep throwing a spanner in the works.

@Adrian Kelleher
“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.”
Well, grumpy is sure it doesn’t work that way anyway, but my point was that you don’t have to take delivery of oil to influence price. Storage is not necessarily an issue. Look at the volume of contracts that USO ETF holds. These get rolled forward at expiry date – the contracts are sold to people who want delivery. So liquidity is important because it creates an excess capital situation. Instead of that capital going into investment or loans or even being parked in deposit-like instruments, some of it is being punted on oil or copper or any other commodity you care to mention.

The interest rate is also important as the excess liquidity commodity trade depends on making more than the cost of capital. With interest rates very low, this is easy at the moment.

Even aside from standard monetary policy, there are some other commodity wrinkles. Copper contracts are a popular collateral in China it seems:


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,1518,756182,00.html

@ Ronan Burke

‘A UK Royal Academy of Engineering report in 2004 looked at electricity generation costs from new plants in the UK. In particular it aimed to develop “a robust approach to compare directly the costs of intermittent generation with more dependable sources of generation”. This meant adding the cost of standby capacity for wind, as well as carbon values up to £30 (€45.44) per tonne CO2 for coal and gas. Wind power was calculated to be more than twice as expensive as nuclear power. ‘

From your quoted source Ronan – or are you refering to construction costs?

I personally would not exclude any viable source of cheap sustainable power that would lessen our dependance on external supply conditions.

I, frankly, don’t see why the state is not persuing the above mentioned Spirit of Ireland wind project as a matter of national security ( and I don’t mean that facetiously).

What is your alternative Ronan?


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?”

@Ronan Burke

Agree that nuclear is not cheap – and that gas presently cheaper than nuclear in the US. But naive to think that Ireland could survive an ‘oil shock’ based on renewable …. Swedish model looks good to me … of course, we are broke at the mo …… and although we have ‘gas’ we don’t actually own it … not very good at tactical/strategic planning are we: inter-link to UK only positive …. and I’d hold on to that acre of bog if I were you the way things are going … and wouldn’t be selling of Coillte either …. landbank stays – but we could certainly do with more trees ……… Coillte-Grid beckons methinks …

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? 😉

@ DO’D. Silly me to confuse toxic radionuclides with … them betas and gammas! Still, Pu is toxic if injested. I hope the 20-something’s half-lives are self-limiting – else we may have a problem paying all those expected pension entitlements!

I have both a small forest (well, a modest-sized wooded area, AND a strip of bog), :-). Agree about the trees. But the dopey bozos in Kildare St want to drill a hole in the ground instead! Hope I have got this wrong!

I think that if those commenting on the economic (money) costs of alternative (to fossil fuels) energy generation were to think instead about the energy unit costs involved in generating energy units using so-called alternate sources, they might be a lot wiser – and quieter!


@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

“”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.

“Storing oil in tankers does make sense if the price difference between crude oil sold for immediate delivery and the price on oil futures for one-year forward is large. There is a condition called contango (no, it’s not a tropical disease) where the future prices for a commodity are higher than the current spot prices for the commodity. If the difference is large enough, it does make economic sense to hold off selling that commodity at current prices and store it, if possible, and instead sell it at some future date for a higher, more profitable price.

“We have recently had a large contango in the oil market. In January [2009 – AK], we saw an all-time high contango in oil – an incredible $23.70 a barrel.

“That was quite an incentive to just keep any oil you had and sell it at a later date, even after paying to have the oil stored in massive oil tankers. In April, there was a record amount of oil in floating storage – 100-120 million barrels! And a record number of supertankers being used for that purpose – 56.

“Paul Tossetti, Dallas-based director of oil markets at consultant PFC Energy, estimated that it costs 50 cents to 60 cents each month – $6-$7.20 per year – to store each barrel on a supertanker. So as long as the contango stayed above $7 per barrel, it made economic sense to just let the oil sit.

“But the market has changed recently…..In the past few months, the contango in the oil market fell to only between $4 and $6 per barrel, as US demand began to pick up. The incentive to store oil in supertankers was gone…..

“By the end of August, there were only 29 supertankers being used to store oil and there was only 50-60 million barrels of oil being kept off the market. And since then, the dwindling number of supertankers being used for floating storage has been confirmed by Frontline – the world’s largest operator of supertankers.

“Mark Jenkins, a shipping analyst at SSY in London, said that floating storage deals would drop further – back towards the historical level of 5-7 tankers next year – remarking “we do not anticipate a significant amount of floating storage as we move into 2010.”

“So it looks like the conditions that led to having all of that oil in floating storage is gone and that most of that oil that was at sea has now hit the market.

“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.

@ David O’Donnell
Great article. Looks like they’re beginning to turn on the cardinal.
I don’t think Kerber knows how much Irish support he has. We don’t want their poxy EFSF either.
It is against the interests of all European citizens – be they in Germany or Ireland.

@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:
“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.

.. yes but the Cardinal still has the cheque-book – and nominally independent and his exposure to PaddyLandBanks is massive …. but there does appear to be pressure building up from diverse wings of the political and financial spectrum …. basically, EZ strategy is flawed [black holes insist on being seen, and cannot be hidden].. but waiting for ‘stress’ on the French/Germans in June …….. expect that lots and lots of frenzied and furtive background activity goin on ……. and IMF ups its blood pressure a few notches …. this is a dynamic equation – it could go anywhere ……

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

@ Ronan Burke

The fundemental point with wind is that you have a variable infput with a fixed minimum output demand i.e. you need storage.

Which you don’t get with any of the current systems deployed (so far as I know).

@ Grumpy


@ 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.

@Adrian K

That note looks to have been written in mid 2009. It is correct that the WTI particularly was in “super-contango” late 2008 into 2009 as the result of some unwinding of effectively long positions by players who are customarily short, following the late 2008 bust. This is when speculation really started to get going and the futures didn’t follow the spot down all the way. Goldman and others were chartering supertankers as investors almost fell over themselves to get cheap oil exposure.

From my point of view it is this mechanism, to allow speculators to use this method to avoid having to find a downstream buyer for contracts to be delivered that is highly significant. It allows the contango to do its own thing if there is enough liquidity. The volume is less important than the effect on trading psychology. Falls in the spot price lead to a bigger contango because of two things. First, that they coincide with low tanker rates and second, the amount of carry-trade-type liquidity around. Have a look at the situation with copper that Hogan refers to.

The contango and the tanker storage has been back – Spring and Autumn 2010 – and will probably be again.

The opposite happens in spikes (like now)- the futures tend to move far less than spot if there is an assumption of there being a short term effect. This is best demonstrated with VIX futures.

Kemp has lots more stuff out since then – he’s at Reuters. He seems to be irritating you but I find him usefully provocative. That other Central Banks are concerned about QE along with some sections of the Fed – and large sections of the investing community – is probably more relevant.

Is “contango” really jargon, what is the alternative word?

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.

@ Ronan

I will do you the courtesy of some research Ronan, if your patience permits, having had personal experience of the electrical and environmental industries.

I am not an idealogue from any perspective.


@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. 😉

@ Ronan

Oki doki.

I don’t think wind falls down at all – I am all in favour of the Spirit of Ireland because it gives us independent freedom of capacity.

Storage of energy from NL to Norway, in extremis, is conditional. Reliance on an other ‘community’ – we have seen how accomodating communities can be (ECB,ESRF)!

As for the NIMBY set and An Bord P. As much credibility as a p*** into a force 10 northerly wearing grey trousers.


@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.

@Adrian Kelleher

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.

Of course, of course. Well done in attempting to fight it, you drew some blood but do not expect many of the advocates of our incredibly successful policies so far (only 200 billion you say – bargain!) to offer up comparative costings for other approaches.

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 ignoring arguments made in rebuttal gets nobody anywhere.

Please do not dismiss the Irish Economy as a looping illustration of J K Galbraith’s quote about the political right being “engaged in one of man’s oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.”, there is more going on here.

Some of the staunchest advocates of free market orthodoxy are taking baby steps towards the idea that the current flavour of international capitalism is so horribly flawed that it needs rapid, radical change and that the bailout plan represents lingering, radical same instead. People are open to new analyses and it’s a good time to be on the know nothing left.

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…

@Kevin Walshe

‘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.’

Or is the reason that there is a war in Libya right now, with Europeans bombing north africa, that there is Oil in Libya? Or that Nicky is down in the polls? Why is the narrative of democracy suited to ‘rebels in Libya’ but not, apparently, suited to ‘rebels’ in Bahrain?_or Pluto forbid, West May_OO? What was Iraq really all about? Saudis did 9/11, not the Iraqis. Not for a moment do I condone the use of armed force against civilians, but the global battle for energy resources is one dirty, and dangerous, game … I’d much prefer a civilized nuke reactor or two meself, and just in case, I’d rely on something a little more reliable and dependable than the gentle breeze to activate if subjected to yet more barbarians, of the free_dumb lovin alien variety, at the Hibernian gate. Jeez, we thought London in its imperial heyday was rough, Frankfurt is somewhat stiffer, and it’s time we copped ourselves on. But, like yourself, my understanding might be totally incorrect. Course, on the ol vichy_bank/sovereign front we retain the nuclear option …….. and past launch time imho. We will survive it and prosper – if we don’t launch, we stagnate for decade at least and may well go into a path-dependent slide to no-where ….

@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 … ?

@Adrian Kelleher
Oh for flips sake. You, by your first post, don’t understand the speculative element to oil prices:
“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?”

You then quote a piece from oilprice that talks about 100 mn barrels of oil being stored to benefit from contango, a term you were unaware of before this thread.

You don’t wanna look some stuff up before you parrot someone’s argument?

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.

I apologise about kicking off these slightly ill-tempered exchanges about oil prices and commodities, but I was trying to illustrate a more general point about these ‘saltwater’ Nobel Economics Laureates who trot out – or are trotted out – to advance or support policy prescriptions that are so divorced from reality as to be dangerous. As a rule I disapprove of playing the man rather than the ball, but were an acknowledged exponent of ice hockey to use these credentials (either deliberately or unwittingly) to bolster his views on hurling a whack of the caman around the shins would be in order. It’s the same difference here.


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.

Am I alone in being unable to read FT posts? Does their subscription policy kick in at this level?

@ 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”.

@Adrian K

“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. ”

Back in 2008 there was first a lot of speculative longs taken by speculators – commercials (largely producers) went shorter in the futures as usual. Then, the commercial players got freaked out and started reversing their shorts. This caused an unusual excess demand for futures. This was unwound very late in 2008 in spectacular fashion. If you want the data on this try the CFTC’s weekly Commitment of Traders (COT) reports.

Remember oil is sold via futures trading and as long as a buyer for delivery dare not wait until expiry, he is paying a premium that reflects inflation of the contango by paper investors.


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.

For clarity:

…some signal event (the Lehmans collapse in this case) would come to be associated with a disaster that was by that stage not only unavoidable but actually already underway.

“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.

Which traders are these?

The “buyers for delivery” you mentioned.

The US was in recession throughout 2008 when oil soared.

The US is not the world. The global expansion continued into mid 2008. In fact it was not known that the US had been in recession since Q1 until the revised figures were issued in Q3.

@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.

imho… interest rates should be high for some and low for others.
who “some” are and who “others” are is up to a market. a meta market.
fix ‘speculation’ capital cost vs investment capital cost.
follows minsky and all that preceded.

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