Central Bank: Explaining Irish Inflation during the Financial Crisis

technical paper here; letter here.

25 replies on “Central Bank: Explaining Irish Inflation during the Financial Crisis”

Inflation is a funny and not too simple concept………..

For example I regard wage deflation as a form of obvious inflation as the real cost of goods increase for a nurse whose pay is cut / taxed or is made unemployed.

The Philips curve is a Nonsense in the age of oil.

I assume the deflation that the paper talks about is asset prices.
Asset prices that was inflated by credit.

This is just another mechanism by the banks to squeeze labour value.
By attacking labour they believe perhaps quite rightly they can free up a surplus which they can waste on more bank credit money junk & extract more value from the general society.
This extraction they call “growth”

The only mechanism to increase real value in society is to deleverage the banks via the production of Greenbacks.

In the present situation the banks are contracting for sure – but they are also bringing the people down in the gutter with them.

The central bank is a agent for the credit banks & nothing more.

A real government should produce notes without consulting with these dark corrupted banking creatures.

Just to add most of the initial employment drops in Ireland were in the energy intensive areas of activity which were undergoing severe wage deflation in the 2000s
This had hidden the true non labour costs of their malinvestment.

This contraction then feed into the service industry.

When a commercial bank creates credit in the modern world it is in reality taking oil from the future in the hope of “growth”.

The money / credit figures increase in a national economy but at the cost of huge input costs
I.e. the money credit buys houses and cars which require enormous amounts of fuel to run and maintain.

Unleveraged money or pure fiat money will seek the least wasteful avenue of consumption.

Credit Banks serve no purpose in a energy starved world.

The negative national money figures in this economy over the past 4 years is a high crime.
All so that the banks can release their credit poison again.

Deflation can be explained pretty easily


The contraction of private sector credit poison ( now by nearly 100 Billion Euros)
Has not been replaced by national credit.

This means you get a huge wastage in the system

Trains go half empty , Murphys brewery has the same fixed running costs more or less but must cut production and or distribution ………..

I could go on lads……

Its simple stuff really.

Its the duty of a real state to maintain positive or at least neutral money supply.

We are a obvious extreme colony of the banking system.

A sad pathetic little place.

Europe is funny in a sick sort of way

Meanwhile in thanks they have cut our fishing quota……
Its not very nice to live in a Soviet

It gives you less resources to play with but states the euro provides low inflation…………..
The euro also requires interest on this smaller cake.

The spin is a rise in Prawn fishing at the expense of whitefish…………….but this destroys the seabed & juvenile fish in return for low amount of protein.

Listen to a European commission (Irish ?) official – in the first television sequence – she wants to protect our communities …………….(again with the sick humour)


Sweet Jesus
Why in Gods name did we join this evil Soviet ?

There is millions of these bankers and civil servants that we must feed in thanks for their expert guidance and Analysis.

If they gave their advice for free it would be nice , waste paper is still cheap these days.

How much must we pay Gestapo control next year again ?
Over 1 billion or something
1.3 billion ~ maybe

Think about this for a second chaps ……….I know it can be quite difficult sometimes.

You expect people to pay interest on a declining resource base…………….

Yet we still must listen to the price stability meme.


We have to accept the Little & Big Hobbits of England were correct.

This old UKIP video would have been scorned at by most in the 1990s


We should accept the lesser of two evils and make a pact with the UK hoping against hope that France will leave also so as to balance our relationship.

But we must leave anyway.

At least monetarist UK would give you back fishing rights to pay their debt.

Europe will take away your resources and even then expect you to pay up.

We have got to get out of this place.

We should tell the Scots…………

I can understand why many hate the RBS culture but what exactly did they think Europe is ?
The SNP has got that FF thing about them
Naive buffons.

I remember when the European political geography syllabus changed from trade between nation states to a “Europe of the regions”

It was a stinker

“If Britain must choose between Europe and the open sea, she must always choose the open sea.”

Just for those who forgot their Geography stuff

We are a island also.


I don’t understand
DOCM had the same ratio on some posts………..( besides I left my first two posts hang like pheasants )

Is it because I am from down south like.

The paper is a academic nonsense though
The Visceral nature of the pointless (for most) wage deflation during the euro years cannot be put into adequate words it seems.

Things must get very very bad when you accept London merchant bank interests have a point.
Do you agree ?

I seem to recall reading the city wanting to go easy on the highlanders after Culloden as that level of destruction destroyed their investments in the long run.

We have exchanged a economy open to the UK but closed elsewhere for a economy open to the 4 winds…….

We were at least integrated with the UK.
For us to “integrate” with Europe we must engage in a ongoing never ending state of deflation

Who now cannot say our rational domestic economy has been in a permanent state of decline since 1979.

This non optimum post 1979 arrangement was disguised by multinational operations (Corks Y1980 apple computers comes to mind as the rest of cities old industrial economy went down the river in the 80s)

When the job creating section of multinationals (computers and stuff) left the building in 2001 our overvalued currency was kept afloat by a monstrous credit inflation which was building since 1987.

These guys should get out more

Its the currency dummies.

@ Dork

In Ireland our politicians have also signed treaty after treaty stripping the country of any independence. The idea that Ireland will regain its economic independence if we are able to sell large quantities of government bonds (more debt to fund high salaries and welfare) at the end of 2013 is a disingenuous sham and even within its own sham terms of reference, depends entirely on the Germans deciding the ESM can be used retrospectively, the PN can be paid back over 40 years and that the entire banking system will be taken off the hands of the state for three times the entire market capitalisation of those institutions. All of which are murky, unclear can kicking exercises that will bring most of this lot into retirement.

Donal Donovan explores one or two themes in this regard in todays IT


I firmly believe, the reason our politicians have done as they have done, has nothing to do with what is right for this country, in fact they have betrayed the offices of state, but has everything to do with what is right for themselves in maximizing their own short term political power in office under a very flawed and weak constitution and a politically appointed so-called “Supreme Court”. The transient power of office has another consequence ‘the need to guarantee that unfunded pensions will continue to be paid for the next 20 to 25 years while they are alive. What better way to do that than hand the running of the entire country over to the Frankfurt. Their pensions will be paid for being good collaborators. For the rest, It will be austerity, balanced budgets, single this and that and rule by diktat from Frankfurt. Meanwhile, those that handed the country over will watch with detached interest the plight of a country they led into a gigantic political and economic cul de sac becoming a dreary protectorate on the western edge of Europe.

There is no fairness any more. Even old Brehon law had a sense of fairness in it.
This German occupation is breaking Ireland’s heart:
No debt forgiveness .= no Euro


From the IMF report
“The deleveraging of PCAR banks has progressed well in 2012, amounting to €13.8 billion by end September—bringing total deleveraging since December 2010 to €50 billion—although sales discounts have risen and deleveraging could become more challenging going forward.4 PCAR banks‘ borrowings from the Eurosystem continue to decline but remain large.”

People are complaining about austerity etc, but the real extraction is through the banks. €50 billion dumped at fire sale prices since they arrived, the losses dumped onto the Vichy Irish State.
The objective is to get the ‘Eurosystem’ money down to zero.
That is what the Germans, Dr Sinn etc want. The ECB is not a central bank, it is a debt collection agency, for euro creditor countries.

@ Robert Browne

The Donovan article states:
‘….in the mid-1980s, the large budget deficits and build-up in debt led to a major loss of domestic and external confidence, with recourse to the IMF only narrowly averted. This episode reinforces the key point that small, open economies are only free to follow expansionary financial policies for a sustained period if they do not endanger creditworthiness and retain support of international financial markets.

The current crisis manifests this. The massive borrowing of Irish banks to finance an unsustainable property bubble left Ireland exposed to sudden changes in the international financial environment. Arguably, the true loss of sovereignty occurred for Ireland not with the troika’s arrival but when reckless policies left Ireland so dangerously exposed’

The Noughties was not the Eighties. The primary driver of the current crisis was the massive expansion of private bank credit, and the subsequent mal-investment with accumulation of bad private sector debts. It is accepted that there was a gross failure to regulate the banking system, and the events could not have occurred absent that failure. Given that the consequences for sovereignty have been so serious, there can be no question of ‘moving on’.

A question arises then as to how the regulatory failure was permitted to occur, which individual and corporate interests were served by that arrangement, and to what degree the failure was planned. No one has been held accountable, in any meaningful way, to date.

It’s obvious that populist politics was served by a construction, consumption and stamp duty fed expansion of the social welfare system. It is further clear that the DoF, threw away all of its credibility in colluding with such a disastrously flawed economic development model. The credibility of our mainstream politicians, and our senior civil servants is unlikely to recover. Our leading lights are in brass-plated denial about the fact that we have a failed state. Hang together or hang separately seems to be the ethos.

For those with less of a vested interest in maintaining the status quo, the question then becomes, how did we come to this place ? The likes of Shane Ross and Matt Cooper have provided nice accounts of the ‘circles of friends’ which operate at the interface of our private and public decision making processes. Robert Hunt has often illustrated on this board and elsewhere the adverse consequences of such insider influence on the energy sector. Joe Lee (Ireland 1912-85) has long since described the historic national conflict between the performer principle and the possessor principle. He would not be surprised, I think, by the denouement.

Any analysis of our economic plight which purports to overlook the issue of state corruption must be categorised as insidious propaganda. As Dork never fails to point out, the notion that ‘governance’ is somehow better at European level, is ludicrous. There will be no rescue from that quarter.

@ Paul
Agree with almost all of that – but this was and is a global crisis.
Banks lent money that didn’t exist to people who couldn’t pay it back.

He had drink taken…………….

December oil market report


European Demand Hit the Buffers in 3Q12
Oil demand in OECD Europe plummeted by 895 kb/d (‐6.0% y‐o‐y) in 3Q12 to 13.8 mb/d, the steepest
quarterly average drop in nearly three years, or since the onset of the 2008‐2009 financial crisis. This steep
decline in demand came as near‐record retail product
prices coincided with recessionary economic conditions.
Remarkably, the previous north‐south European split,
which had seen demand growth in northern Europe
outperform that in the south, abated somewhat as
European oil product demand in general hit the rocks.
The sharpest 3Q12 declines were seen in Portugal
(‐12.8%), closely followed by Poland (‐10.6%), Italy
(‐8.9%), Ireland (down 8.8%), Greece (‐8.6%), Spain
(‐7.8%) and Germany (‐7.2%). Only the Czech Republic,
Denmark and Norway bucked the trend, rising by 2.7%,
1.0% and 0.9%, respectively.
As in 2009, when such a strong plunge was last seen, macroeconomic issues were likely a major factor
behind the contraction. The near three‐year record drop in oil demand coincided with the euro area’s return
to outright technical recession in 3Q12, as GDP fell by 0.1% quarter‐on‐quarter for a second consecutive
quarter, following contraction of  ‐0.2% in 2Q12. The economies of the Netherlands (‐1.1% q‐o‐q), Portugal
(‐0.8%), Cyprus (‐0.5%), Spain (‐0.3%) and Italy (‐0.2%) suffered the sharpest 3Q12 declines, with only
Finland (+0.3%), France (+0.2%) and Germany (+0.2%) enjoying modest advance.

You can see how Mario helped his brothers in France & Germany……..

Diesel prices in
Italy, for example, in 3Q12 were 17% up on the year
earlier, at a time of contracting economic momentum
(‐2.4% y‐o‐y, ‐0.2% q‐o‐q). Not surprisingly, Italian diesel
consumption declined by 10.8% in 3Q12 to 455 kb/d. In
contrast, the downside sentiment was less severe in
France, where diesel prices rose by a more benign 5.6%
thanks in part to a government tax cut of 6 euro‐cent per
litre in September, while the economy essentially flat‐
lined. Reported French kilometres travelled dipped 1.1% y‐o‐y in 3Q12, according to government statistics,

Dork – I am sure Tax is a factor.
But the lack of credit in Italy this past year is far more important.

You can clearly see Europe trying to burn oil in the most efficient means possible.
However this manic drive for efficiency has caused a catastrophic lack of redundancy to develop over time.

In a democracy power comes from the ballot box.
The greatest bank crash and property crash in the history of mankind started with one house—Leinster House.

Below is the link to the 1999 video of the Late Late Show in which David McWilliams tells the Irish public and all our politicians that there was a massive property bubble in Ireland;

Thomas Friedman in his ‘Send in the Clowns’ column in the NYT last Saturday wrote:

“WHEN thinking about the state of the Republican Party, I defer to a point that the Democratic consultant James Carville made the other day: ‘When I hear people talking about the troubled state of today’s Republican Party, it calls to mind something Lester Maddox said one time back when he was governor of Georgia. He said the problem with Georgia prisons was ‘the quality of the inmates.’ The problem with the Republican Party is the quality of the people who vote in their primaries and caucuses. Everybody says they need a better candidate, or they need a better message but — in my opinion — the Republicans have an inmate problem.’

Ireland also has an inmate problem and while a new party could emerge in response to the continued turbulence that Ireland will share with other advanced countries in coming years against a backdrop of economic stagnation, the situation would have to be dire to trigger significant change.

Last week the High Court awarded a former teacher the sum of €700,000 in damages for the egregious thrashing of his rights as a citizen by the HSE, a state agency. Is there even a mechanism for accountability in this system apart from the courts?

Most countries are organised hypocrisies and many are misgoverned in some way with corruption as a way of life. In the US most forms of political bribery have been legalised.

Senator Dick Durbin of Illinois said in a radio interview in Chicago in 2009: “Hard to believe in a time when we are facing a banking crisis, that many of the banks created, that the banks are still the most powerful lobby on Capitol Hill. They frankly own the place.”

Ireland still has sovereignty in maintaining different classes of citizenship.
Germany is not pushing for a dual labour market with different rights in respect of the same work. Then observe how helpless the political leaders claim to be when it would involve challenging fellow insiders.

The Public Accounts Committee said in a Jan 2011 report in respect of an error in a letter that the PAC “was exercised to learn that at the Moriarty Tribunal, an extra €1m has been paid to counsel because of an error in the Department of the Taoiseach, where counsel have been paid a per diem rate of €2,500 instead of €2,250 and where the matter was allowed continue without rectification.”

Strange indeed as dysfunction begets dysfunction.

In 1940, Deputy James Dillon said in the Dáil in reference to the three year sentence to an industrial school/children’s prison, that was given to a child who had stolen some grapes:  “Can you imagine the son or the daughter of a resident of Fitzwilliam Square being brought down to Morgan Place and sent from there to an industrial school because he stole 5/- (32 euro cent) worth of grapes?”

As for the sovereign lending to Ireland from late 2013 and the change from foreign public agents to mainly foreign private agents, this is akin to a bust company being promised new lending but without a plan for the future.

A first step in dealing with challenges ahead is to separate fact from fiction.

An academic economist wrote in an Irish newspaper article this year: “Ireland’s current account is back in the black, the unit cost of labour has fallen somewhat and Ireland is still one of the most productive countries in the world.’

Believe in that and believe that Santa Claus is preparing a journey from the North Pole!

Happy Christmas!

Extract from “The Big Lie” by Gene Kerrigan page 91

“And,as the waves of money retreated,they also left behind an enormous,ever-expanding shit-pile of debt. In theory, this shit-pile of debt was underwritten by enormous amounts of very valuable Irish property. It was soon clear,however,that this property was deliriously overvalued-by the people who made fortunes from assuring everyone these valuations were real”

te3st 2

How do I change my email and keep my Name? email address is being pulled by a philistine organisation …

@Dork from Cork

On the “sad pathetic little country” theme.

Your cure which as far as I can see is to align ourselves with GB (UK minus NI) to the exclusion of the EU is worse than the disease in my opinion.

The EU has many “pathetic little countries” each with a voice in the EU. All Ireland ever wanted has been granted and that is a level playing field. Our beloved and recently departed Gov’t knowingly and supported by the worst advice money could buy decided to set precedents for bank bailouts that disgusted the other PIIGS and near PIIGS as well as bringing the country to the edge of bankruptcy. We then replaced that Gov’t with its Siamese twin. What do we put that down to, Celtic Mythology, ignorance or plain common stupidity. Some people would say it is a religion based yen for punishment in this world in return for reward in the next. Could it be that we have graduated very few competent economists or is it that the few competent economists we did graduate did not have an “IN” with FF. The upper echelon of our banks being inbred to the point of uselessness is another theory worth pursuing.

Are our core beliefs and broader culture so divorced from reality that we will willing enter another half century of poverty willingly.

It is time we got off our arses and stopped blaming foreigners for our “Made in Ireland” or “Deanta in Eireann” predicament. The British left in 1922 it blows my mind to think that anyone in Ireland wants to reinstate that subservient relationship. I have nothing against the English as individuals they are fine people.

When you see your TDs’ tell them that we have a level playing field in the EU, that there are no excuses for our egregious performance. And lastly that they should get their incompetent asses back up to Dublin to work on solutions. We are sick of their vote currying, obsequious , self serving behaviour. Blaming all and sundry including past governments, every other country in the EU and EZ as well as the EC, ECB, and IMF is patently nonsensical. We made our own decisions, there was no gun pointed at Irish heads. If we continue on our present course we will finish up occupied by a country that needs good potato and cabbage growing land.

I am not absolving the past Gov’t of its many sins, I am saying that rehashing the obvious is not productive. I am assuming that they will not form a Gov’t in the next quarter century. I know that based on past performance they have a better than 50% chance of being part of a coalition after the next election. May Mary the Mother of God and glorious St. Paul the holiest one of them all save us from ourselves.

Finally. the Irish abroad have their heads screwed on right, is there something in the water in Ireland that is impeding performance.

I am no fan of English Manchester economics – I detest it.

But we seem incapable of doing a Iceland.

As I said before the best period for the Irish economy was when we got a bit of fiscal funds from Europe to buy us off and we staid in the UK monetary zone.
In the long run it was a disaster of course but that was the way of the world back then.

I would embrace a tea party greenback mentality if I could but I remember looking into a a 19th century black and white picture of Kenmare servants back some time ago.
It was a “shining” Jack Nick moment of time.


I remember a surreal moment in Waterville during the the early 2000s just as Bush did his thing before sep 2001.

A knowledgeable Vicker from upper state new York and his flawed son taken with the Bush thingy of purity.
The deep Skepticism of it all as fine youngish Kerry women in their 40s came back from a golf outing struck me.
It was a true transatlantic moment of deep doubt in the entire banking escapade.
It has always struck me.

There needs to be a rejection of bank credit money before we can get over this historical moment of entropy.

Proclaim that it is a false God and all that.

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