Seamus Coffey on the Savings Rate

One of the point that has been made repeatedly about the Irish economy over the past year or so is that weak domestic demand is connected with a high savings rate. (Admittedly, the actual national income data on personal savings rates are only available with a long lag but the slow pace of consumption spending is consistent with this story). Many, including now Minister Noonan, put this increase in the savings rate down to discretionary precautionary savings and believe that once people relax about their future, domestic demand will take off again.

I’ve always been pretty skeptical of this argument. My take on spending patterns has been that the increase in the savings rate may be more connected to people who had previously been able to live beyond their means having to pay back debt because of the change in financial market conditions, while others who have always saved continue to do so.

The implications of this story for the future evolution of the savings rate are quite different. There is little reason to think those who have been saving all along (e.g. for retirement) will reduce their propensity to do so. Indeed, if they were reliant on their funds invested in Irish property or in Irish pension funds now subject to the new levy, then the opposite would be the case. And those who are apparently saving because they are re-paying debt are, in practice, feeling as if every euro they earn is earmarked for either debt repayment or managing to keep going. These people are also unlikely to suddenly start spending if the economy stabilises.

Anyway, I’ve meant to make that point on this blog loads of times but didn’t. Then Seamus Coffey wrote this excellent post and, in comment speak, I want to say “What he said.”

New Data on Loans and Deposits

The Central Bank has continued its excellent work in making more statistical data available with two new releases “Trends in Business Credit and Deposits” and “Trends in Personal Credit and Deposits“. I don’t have time to get into a detailed discussion of these releases but, on a quick look, there appears to be lots of new and interesting information in these releases.

Steinbrück: Admit Greece will need restructuring

Given the recent discussions of  the views of Professor H-W Sinn on this site it seems only right to point out that there are also other opinions in Germany. A number of current and former German politicians (Helmut Schmidt, Joschka Fischer) have been critical of the leadership provided by key politicians. Now the former finance minister Peer Steinbrück (still an active opposition politician) has found some clear words: “Greek default is inevitable – lets call a debtors conference.”

United Left Alliance convention

My invitation to the above event at the week-end being unaccountably delayed, it’s interesting to see the Irish Times relaying the views of colleague Professor Terrence McDonough (IT do note correct spelling please.) here.

In summary:

“He said the country should default on its debt, leave the euro, build a single public bank, provide a jobs guarantee for all workers and nationalise the Corrib gas field.”