Paul Krugman on Ireland’s failure

Apologies for the belated response to Paul Krugman’s post on Ireland (linked to here by Stephen last week).   Paul focuses on Ireland’s poor post-crisis growth performance, noting that real GDP is still well below its peak at the end of the property/credit bubble.   There is no disagreement that the growth performance – and especially the performance domestic demand – has been weak.   This reflects a combination of harsh austerity measures, distressed balance sheets and the weak performance of Ireland’s trading partners. 

This graph extends the real GDP series further back in time.   In judging the continuing shortfall from the peak in 2008, we should not forget the unsustainability of the bubble-driven growth that took place from 2002 onwards.   It is also worth noting that the recent flatness of the GDP graph hides a marked slowdown in net export growth (mainly due to the weak performance of the UK and euro zone economies) combined with tentative signs of a stabilisation in domestic demand (see here). 

But any assessment of Ireland’s progress is incomplete without also looking at this picture.  From early 2010 to mid 2011 Ireland steadily lost its capacity to borrow from financial markets.   It is noteworthy that creditworthiness continued to erode in the months after entering into the Troika programme.   This reflected bad news on fundamentals – notably the size of banking-related losses – but also bad signals about the emerging nature of the euro zone’s lender of last resort in terms of the potential for forced debt restructurings and the seniority of official creditors.   The interaction of better news on the a LOLR (most recently the announcement of the ECB’s OMT programme) and the demonstration that Ireland could meet conditions for official assistance has led to a dramatic fall in borrowing costs.  

Given where we were in mid 2011 – particularly the danger of a default that would have added another vicious twist to the adverse feedback loops that laid the economy low – I can’t see how a fair assessment can leave the creditworthiness developments out.

70 replies on “Paul Krugman on Ireland’s failure”

People lending to an entity does not mean that the entity is really worthy of that credit.
In a financial system that has proven itself to be as capable of good judgement as a randy 19 year old on cocaine lending indicates little more than a search for a quick profit

In comments on an earlier post that tracked the post-2008 collapse of Ireland’s living standards relative to the EU average, several commentators made the point that the pre-2008 surge in Ireland’s living standards was exaggerated by the inclusion in GDP of output measured at inflated prices. Unsold new houses were valued at bubble prices, for example. Krugman’s graph accepts the pre-crash estimates of Ireland’s growth at face value. His assessment of how we have done since 2008 is biased by this flawed interpretation of the record.

The lowered funding costs was /is largely due to proxy Troika support, and the markets search for yield….not based on Ireland’s fundamentals. Ireland’s standalone “creditworthiness” has clearly deteriorated . Again, your definition of creditworthiness is not a definition familiar to a banker or the financial markets.

Given where we were in mid 2011 – particularly the danger of a default that would have added another vicious twist to the adverse feedback loops that laid the economy low –

A vicious twist like what? Force bailouts of insolvent banks? Loss of sovereignty? Irish bond junk status? Rampant unpunished financial corruption and fraud? The return of industrial unrest? Massive youth unemployment? The shut-down of a bank for 4-6 weeks? The return of Great Famine emigration levels?

A rationalisation of the distribution of wealth in the country? Well, thank goodness we avoided all that.

A vicious twist like what?

Like not being able to borrow on international markets at the rates that we did, and having to balance the budget immediately.

I guess that one man’s policy success is another’s policy catastrophe. I’m with Dermot Desmond on the imperative to default/restructure/inflate away our sovereign debts.

It would have been more honest to have do it before now, and it might have stopped us from sacrificing the future of our young to prop up asset values and insider incomes. But if we can believe the forecasts the big bogeyman of a sudden stop in funding will evaporate next year as we hit a positive primary balance. A big spike in funding costs could give us the impetus and geopolitical cover we need to respond rationally to this shift in objective conditions.

There is no disagreement that the growth performance – and especially the performance domestic demand – has been weak. This reflects a combination of harsh austerity measures, distressed balance sheets and the weak performance of Ireland’s trading partners.

While there is no disagreement that there is weak growth I wouldn’t necessarily put this down to a combination of austerity, distressed balance sheets and weak export opportunities. Indeed all of these factors can be explained more fundamentally by analysing the debt-based system we have.

For money comes from bank loans, is created with an even higher debt and is canceled out of existence through loan repayments.

Under this system, austerity is occasionally needed because central banks don’t have the ability to create money for their governments. The balance sheets of banks are distressed because it’s not possible for all loans to be repaid to them. The balance sheets of businesses are distressed for the same reason. Our main trading partners are experiencing difficulties because they too create every pound with a matching debt.

I’m always curious as to how the debt-based system is supposed to run smoothly? How can we possibly ever have balance sheets that never become distressed?

So the average annual increase in GDP over the period of the graph was about 3.8%

I don’t get what the point of this post is?

Under Trichet, the ECB abdicated all responsibility as Lender of Last Resort, which led to the ridiculous spreads between Ireland/Spain/Italy and the UK, despite similar fundamentals.

Under Draghi, the OMT reinstated the ECB as a LOLR and yields fell. All this had little to do with fiscal consolidation or the repair of banking systems because progress has been very limited and even counterproductive.

So we managed to avoid default despite the best efforts of Trichet and Merkozy – so what?

I think the point Krugman has made over and over is that without fiscal or monetary expansion at an EZ level, delivering nominal GDP growth across the EZ, then any recovering is going to be an illusion. Given our experience thus far, it is hard to argue with that.

that Real GDP graph… there seems to be pretty much the same trend from 97 to peak. Most would split the period into two – one ‘real’ growth the other ‘bubble’. But your contention seems to be that all of this was unreal. A simple trend analysis of 97 to 2001 and 2002-2007 in fact suggests higher trend growth in the earlier period. So unless we want to reset the clock to the early 90s im not sure what that point is – yes we are unwinding some bubble growth but how much was bubble and how much real?
On creditworthiness – with a deficit still barely if that under control, with emigration eroding the longterm demographic balance and associated pension and welfare and dependency rates, with exports (bar the frothy taxy sexy entrepot insy outsy stuff) just marking time, with SFA done on most hard competition issues, with our Debt/GxP ratios marching to a hellenic drum, you think that our creditworthiness is better than it was before? Interest rates are inversely related to price of bonds. With an effective unlimited demand in place of course prices have risen/yields fallen. That was the point of Sgr Draghi’s operations. Liquidity is not solvency.

Apologies for this but could I interject to request a thread on the changes in Prize Bonds? The explanations in the MSM amount to ” the banks asked the NTMA to reduce the prizes because they were competing too well against the low interest rates?” A more in-depth analysis would be much appreciated by this prize bond owning culchie. IT WAS ALL I HAD LEFT.

sorry for butting in.

Which economy is better equipped to cope with a sudden external shock, ROI or NI?

One question that has perplexed me for some time is the fact that salaries are proportionally higher in ROI than NI (when accounting for cost of living differentials). Does anyone know why this is?

The North has better infrastructure, better educated workforce, is part of the UK, a thriving capital city that is safe (try spending a day in Belfast city centre v. Dublin and see the difference) and seems to also suddenly have become fashionable for the first time in its history. So why oh why is disposable income higher in Eire?

A true economists response would be hugely appreciated on this one.

@Seamus Coffey:
Full-time male employment increased by 150,000 between 2003 and 2007. How many of these were engaged in building houses that now lie vacant?

Paul Krugman is correct on the non-sustainable recovery.

1. Absent the contribution of tax-related fake services exports which were responsible for the net exports total in 2012, a GDP contraction would have been reported.

2. In addition to Seamus Coffey’s male full-time employment graph, total full-time employment today is 40,000 below the level in late 2000; the total workforce has grown by 360,000 and in late 2000, unemployment was 69,000 compared with 292,000 today – – the latter is an understatement because of various public schemes and in April the IMF estimated the broad rate of unemployment at 23% compared with a then official level of over 14%; net annual emigration is at over 30,000.

3. Further to Brian Lucey’s comment on the past decade, FDI peaked in 2000. There was ZERO net growth in jobs in the exporting sectors in 2001-2007.

4. Drugs/medical devices accounted for 65% of total goods exports up to 2011. There was a dip in 2012. While there was a surge in these exports from 2008 to 2011, employment hardly moved from the low 40,000s level of 2004.

Again, here there is a tax related aspect, where there were likely
some imports with little processing done in Ireland.

5. IDA Ireland’s foreign-owned client firms added 6,300 net jobs in 2012 and also last year, the agency resorted to window dressing its data by ceasing to separately provide full-time employment figures. Now its published figures include short-term contract workers and part timers with full-time staff.

Services admin staff in FDI firms generally require fluency in foreign-languages from Spanish and French across the continent to Russian.

So a lot of the new hires have to be from overseas.

6. The FDI links with the domestic economy where two-thirds of private sector workers are in non-exporting firms, are weak – in particular in services (the real level).

There is no obvious jobs engine and when the exporting sectors added ZERO jobs during an international credit boom, why would a stagnant Europe trigger an Irish jobs boom now?

7. Mario Draghi’s ‘whatever it takes’ commitment to the euro, coupled with the international search for yield, has brought bond yields down in peripheral countries.

8. The Irish economy has stabilised at rock bottom and Franklin Templeton, the US fund manager, got a lot of attention when it bought Irish bonds. Since then, there has been a move into riskier assets by other funds because without these in a portfolio, returns would look weak.

9. The high-blown rhetoric of a year ago from ministers on returning to markets has been more restrained as the date draws closer as they likely know that the penny may drop internationally that the touted services exports miracle is in fact illusory. In a few years if OECD measures result in the likes of Google reporting its sales where they arise, the optics will look a lot more clouded.

10. John FitzGerald’s recent research showed the exaggeration of GNP and balance of payment surpluses, resulting from the rise in the shifting of headquarters of large foreign companies to Ireland. This may also have implications for the GDP data – in particular capital formation (investment).

In terms of GNP, the key metric in terms of raising taxes and meeting interest payments, we are rapidly heading towards 180% which is DOUBLE the ‘vexed 90%’ (Rogoff and Reinhart) which has claimed much attention recently.

Ireland has not received a writedown of ‘one red or blue cent’ on the ODIOUS financial system debt of 50-65% GNP – merely a little kick down the road for the next admin to handle and a genreation of emigrants and left behind ill-educated underclass.

Ergo: dump odious debt or most of us are done.

That’s not going to happen. The time for that was in the first hundred days of this administration, when they were picking the colour of the state car, what kind of carpet, and being housetrained by the. Mandarinate. Now? Ain’t gonna happen except in time value of can kick terms. We are bound upon a wheel of fire…


.. need to find a ‘spoke’ in the wheel. I’m on this blog from Day-1 becase of ‘odious financial system debt’ … the PN deal left me close to despair! Voices, however few, must continue to shout ….

“Andrew Cochrane Says:

One question that has perplexed me for some time is the fact that salaries are proportionally higher in ROI than NI (when accounting for cost of living differentials). Does anyone know why this is?

A true economists response would be hugely appreciated on this one.”

This is a very interesting question that has many facets. The standard explanation for the Irish bubble and subsequent crash includes the introduction of the Euro, a failed regulatory system, corrupt bankers, useless politicians, group think, we all know the litany. But why did Northern Ireland have a a very similar experience, yet it was a different country, not in the Euro, different politicians and regulators etc.? Bertie Aherne was not running things in NI and Patrick Neary was not the financial regulator.

Was the whole thing the madness of the property bubble that infected the economies on both sides of the Irish border?

There has got to be an interesting economic paper here for some creative economist.


Can you expand on your first point? As you know, what matters for GDP is the growth in net exports not exports. Politicans may trumpet striking figures for exports or industrial production, but that is not what economists look at (except possibly as a high frequency indicator where data on net exports is only available with a lag). The recent corporate tax furore has underlined how reported service exports are being offset by imports in the form of royalty payments. You appear to be arguing that this offset is being undermeasured in the national accounts. Can you provide more detail on the basis for this conclusion?

Here is (part of) my response to a paper given by John Kay at the Irving Fisher Committee conference in mid-2011:

‘National accounts aggregates can be heavily distorted by the accounting treatment of industries which do not complete sales within a short time-span. GDP is a value-added concept and includes corporate profits. If these are imaginary, as was clearly the case with Irish bank profits, GDP is overstated as John Kay points out. But the same problem arises with the construction industry, whose ‘output’ is valued by producers in advance of final sale and settlement. Had the construction industry been producing unsale-able ice-cream instead of unsale-able houses, the Irish GDP figures from about 2003 onwards would have been far lower if construction output had been valued at the prices which eventually materialised. The figures would have been lower again if the ‘output’ of the banking industry had been adjusted with realistic provisioning.

While it would be absurd to expect that national accounts statisticians could have foreseen the write-downs which eventually emerged, and while it is right to acknowledge that standard methodologies were followed, it would be an interesting and salutary exercise to re-state the Irish national accounts for the last decade using realisable measures for the output of the banking and construction industries.’

@ All

FYI (note link to IMF paper).

The explanation for the chain of events is not hard to find. Merkel insisted on the involvement of the IMF, despite objections from Trichet, (i) because the implications for the euro were too big for Germany to manage politically and (ii) the reputation of the IMF.

The IMF agreed because the US and its European members, who dominate decision-making (the US having a veto), wished it to happen. The only politician from a developed country that registered an objection, as far as I can recall, was the Canadian finance minister who said the Europeans had enough money to sort out their own problems. They did and they still do!

The revelations of the report could IMHO be rather damaging for Merkel as it seems to establish beyond doubt that the Greek bail-out was made needlessly more expensive by her approach. This has been a steady point of criticism from her former SPD foreign minister in the grand coalition, Steinmeier.

@ Geronimo

I was talking to an estate owner in Co Down recently and he explained how the price of his 300 acre gaff near the Mournes rose as the madness in Dublin intensified. The highest price he heard was around 9 million but you could probably buy it now for 25% of that. If he were selling.

I remember going over to NI in 2003 and comparing the prices between Leitrim and Fermanagh. There was an amount of catch up after that. Norn Irn provided a lot of builders and carpenters for the boom and had a house price bubble. The search for yield goes everywhere.

Joe Kernan, the Armagh gaelic football manager, was an estate agent in Crossmaglen and he went bellyup as many GAA stalwart estate agents did on the other side of the border when TSHTF.

@colm mccarthy

“… it would be an interesting and salutary exercise to re-state the Irish national accounts for the last decade using realisable measures for the output of the banking and construction industries.”


@ John McHale


The Stability Programme Update 2013, published on Apr 30 noted:

“services exports performed strongly in 2012 – growing by 8.9% – led by increased exports of business and IT services. This gave rise to two interesting developments: firstly, the value of services exports exceeded that for goods exports for the first time and secondly, services exports exceeded services imports, thereby reversing the traditional deficit on services trade.Looking ahead, some of these service sectors appear relatively insulated from global demand conditions, and Ireland continues to attract FDI in these sectors.”

In 2012, net merchandise exports value (with an offset for imports) was slightly negative.

The surplus in services in 2012 was likely a timing issue as companies such as Google and Microsoft usually offset the revenues booked from other countries with offsetting charges in their accounts.

The services net exports in 2012 was €4.8bn; changes in Computer services, Business services and Royalties/Licences, gives a surplus of €3.2bn.

The remaining €1,6bn was in finance, insurance and transport.

As regards forecasting, one year isn’t enough to have confidence on whether services will have a positive contribution to GDP.

In 2011, Microsoft’s main Irish company reported a rise in revenues of €2.1bn and charges of €2.6bn while its global net income ratio was unchanged from 2010.


The debate about the numbers reminds me of a song

Is this the real life?
Is this just fantasy?
Caught in a property meltdown
No escape from reality

@ Sarah Carey
I brought up the NTMA thing on another thread but it got little response. They seem to have achieved their objective…bury the bad news on a bank holiday weekend.
But where is the Competition Authority?

@Brian Lucey
“liquidity is not solvency”

The IMF are complaining that Greece are still feeding them dodgy numbers…the latest in January last. One wonders how much everyone is fudging the numbers…we need a new measurement as per BL…GxP

Thanks Michael. This is helpful. I certainly take the point about timing issues and the need for caution in looking at the annual figures. But is it fair to say that the basis for the strong claim of “fake” service-sector (net) exports is then simply the relatively strong performance in 2012?

On a related note, given that the incentives to recognise value added in Ireland seems to be very different between goods and services, do you see a possibility that the contribution of services net exports to GDP might be downward rather than upward biased? (I am focusing here more on the levels rather the year-to-year changes.) For goods, it seems the incentive is to use transfer pricing to exaggerate value added in Ireland (hence the need to focus on GNP rather than GDP). But for internationally traded sevices, MNE tax-driven strategies seem to push towards not recognising profit in Ireland, since the alternative is something close to zero tax rather than the 35 percent US rate. In other words, is the incentive is to exaggerate costs via royalties/licenses, potentially imparting a downward bias to measured Irish GDP?

Thanks Seamus. I assume the last observation is for Q4 2012. What conclusion do you draw in relation to the timing concern raised by Michael? It would be interesting to see a graph of service sector exports on the same chart.

EU do not agree with the IMF
“11.28 Brussels has been unapologetic in the wake of the IMF report admitting that the troika put the interests of the euro ahead of those of Greece when negotiating its first bail-out, saying it “fundamentally disagrees” with the findings of the report.
European Commission spokesman Simon O’Connor told reporters the IMF was “plainly wrong and unfounded” in saying Brussels did not do enough to encourage growth in Greece.”

It wasn’t only in Greece that the interests of the Euro were placed ahead of the national interest.

Interesting that the post mortem is taking place while the patient is still gravely ill.

@ John McHale

Google pays very little corporate tax in Ireland as it whittles down its reported net income to a very low level. So there is little value added compared with manufacturing and the linkages of services with the local economy are likely to be a lot less than in manufacturing.

Chris Horn, Iona Technologies co-founder has an op-ed in the Irish Times today and cites Israel’s inward FDI which has been largely focused on engineering and R&D sectors, rather than sales and customer support that are common in Ireland.

It’s too late to change the FDI mix and the Irish indigenous sector has been performing poorly for decades.

With most Oireachtas members either not interested or out of their depth on economic issues and a small traditional media that policy makers need only pay attention to, the empty policy cupboard beyond when the deficit will reach 3%, is striking.

At least €40bn of the total of €90bn invoiced in 2012 could be considered fake and apart from GDP, it helps to mask the real problems.

These are two examples of official economy with the truth in respect of the services surge:

Minister Noonan said at a Bloomberg event in London last February:

“The services sector is playing an increasingly significant role in export growth, having grown by 9.4% over the first three quarters in 2012, and now exceed the level of goods exports by just over a billion euro. This owes much to the significant price and cost adjustments that have taken place in recent years.”

The Medium-Term Fiscal Statement Nov 2012, Page 6 said:

“Support for overall activity is coming from the exporting sectors, with services exports becoming an increasingly important engine of growth in recent quarters. This, in no small part, reflects the improvements in price and cost competitiveness that have been evident since the onset of the crisis.”


We seem to be talking across each other a bit. You seem to focus at lot on misleading claims on gross service exports. Athough politicans and other officials may highlight such numbers when they flatter (though I think less than you suggest), any serious analysis focuses on the net numbers. Your Google example highlights the efforts to keep net income as low as possible for tax purposes. My point in my previous response is that the existence of such aggresive tax strategy using royalties/licenses could suggest that value added is higher than the net export numbers suggest — the usual transfer pricing concern in reverse. This is, of course, supposition on my part. But I am still trying to understand the basis of your claim about net services exports. Your response above about timing is certainly an important factor to consider, but you often seem to revert to claims about “fake” gross exports — a point I don’t think anyone disputes. I think more light will be shed if we focus squarely on possible bias in the net numbers.

It is not only a case of changing the FDI mix. There is an opportunity to get other parts of companies with bases here than their sales and marketing divisions.

@ Sarah Carey

The average value of prize bonds outstanding in 2011 was €1.39bn and the NTMA paid out €42m in prizes on those bonds, equating to a payout of 3.0% on the money invested. So if you owned all the prize bonds, you’d get a 3% return or put another way, your expected on €100 invested is your original €100 plus your fair share of the prizes or €3. Obviously this is distorted by the size/randomness of the big prizes so you will probably do better or worse, but the more bonds you buy the closer you’ll get to a 3% average annual return.

That 3% return, on an investment that you can redeem at any time and is backed by the Irish government, was looking pretty good compared to the 2-2.5% return on offer by the banks, but it’s even better when you factor in a DIRT tax rate of 36%. Prize bonds are tax free so that 3% would have been comparable to a 4.7% interest rate on an account where you have to pay DIRT.

So while there are risks to prize bonds (upside and downside), the expected or average return for an investor was 2x what was available from the banks.

Low/sub-inflationary interest rates paid on savings accounts are one of the levers that the banks are using to fleece their customers so image their dismay when they lowered rates so far that they couldn’t even compete with prize bonds! Obviously at that stage the preferred route for the banks was to lobby the government and have the competition hamstrung so they can gouge their customers further, rather than address their bloated cost structures (which is much more difficult than a couple of phone calls and maybe a power point presentation to the NTMA).

Thanks Peter, I was scanning the revenue website and picked up on the maximum rate of 36% (for deposits when the interest is calculated on less than an annual basis) rather than the 33% headline. The headline comparison rate should thus be 4.5% rather than 4.7%.

@ John McHale


In 2012, together with a small positive for capital formation, net services exports were responsible for growth.

Computer services (CS) which account for 40% of services exports jumped 15% in 2012 following a 14% rise in 2011; Business services (BS) accounting for 28% of services exports rose 11% in 2012 following no rise in 2011.

We know from accounts that are available that revenue per employee in Ireland is very high in big US services affiliates.

S&P 500 companies generated an average of $420,000 in revenue for every employee on their US payrolls in 2011.

Microsoft had a global revenue per employee of $777,140 in fiscal 2011 and $27m in Ireland; Google had a global revenue per employee in 2010 of $1.33m and $8.52m in Ireland.

There cannot be a direct correlation between the royalties/license charges and rising CS and BS as part of this relates to payments by manufacturing firms.

Business charges and royalties are used to get tax free transfers. Intel for example is a branch of a Cayman Island company where there is no corporate tax.

Foreign firms are responsible for about 90% of the headline exports and many of them would make intercompany charges that would be based on need rather than a fixed formula.

At times of low growth, particular factors can have an impact: leasing companies and Ryanair buying and selling aircraft; CRH’s investments and so on.

It’s worse than I thought – 36% if interest is paid more frequently than annually!

We really are a mess. New jobs announcement today -contingent on selling state assets.
Are we facing a “anybody who opposes the sale of Coillte is against jobs” moment? Will we pitch the principled against the desperate?
And what happens when the Tarmac is laid – any new jobs, what growth from a piece of road?
Our country is a great country being very badly lead into the clutches of greedy b*****ds

@ John McHale

With respect, you say:

“There is no disagreement that the growth performance – and especially the performance domestic demand – has been weak. This reflects a combination of harsh austerity measures, distressed balance sheets and the weak performance of Ireland’s trading partners.”

If that is self evident, why did the fiscal council in October 2011 remark:

“There is a growing consensus that GDP will grow by approximately 3 per cent per annum in both 2014 and 2015.”


“The similarities in the forecasts across the SPU (Stability Programme Update), the EC and the IMF (as outlined in Table 2.2), suggest that no radical alteration is required to forecasts for 2013 to 2015, for the purposes of framing Budget 2012”

without adding words to effect of; this is complete nonsense without significant changes in policy or architecture of the EZ? Shouldn’t budget for 2012 have been framed with the expectation of less than 1% growth for 2013 – ’15?

Shouldn’t budget for 2012 have been framed with the expectation of less than 1% growth for 2013 – ‘15?

That would have meant salary and pension cuts for the people doing the framing.

@ Fiat
Don’t think it does deserve a thread. IMF is the financial equivalent of Chris Browne and we’re Rihanna. Sorry doesn’t cut it when they just keep doing it

It should be possible to cut through most of the difficulties with measuring genuine net output from FDI by recognising that most of the genuine value added is reflected in labour costs and net taxes paid. Stats on the former are published by Forfas, and it shouldn’t be beyond the capability of the Fiscal Council to source data on the latter from the Revenue Commissioners and local authorities.

Substitute the results into CSO National Accounts data for the main FDI sectors, with an allowance for Irish-owned industry, and you should get a good measure of something comparable to GDP of other countries

Parallel PB thread…

@Edward V2.0

Thank you 🙂 of course, that’s exactly why I have my savings in Prize Bonds, because technically its better than getting SFA from the banks AND! I might win a million! But now my chances, already meager, have been halved ( or perhaps the statisticians will correct me on that).

So now the question is: why would the NTMA roll over to the banks’ request?

Or is that a stupid question?


“For money comes from bank loans, is created with an even higher debt and is canceled out of existence through loan repayments.

Under this system, austerity is occasionally needed because central banks don’t have the ability to create money for their governments. The balance sheets of banks are distressed because it’s not possible for all loans to be repaid to them. The balance sheets of businesses are distressed for the same reason. Our main trading partners are experiencing difficulties because they too create every pound with a matching debt.

I’m always curious as to how the debt-based system is supposed to run smoothly? How can we possibly ever have balance sheets that never become distressed?”

You confusion is shared by the vast majority of economists.

Firstly, loan repayments do not cancel debt. Not in a fractional reserve system which is entirely ponzi in structure and intent. There is only one commodity that expunges debt, namely gold.

Secondly, central banks are able to create new money from thin air; whatever amount is called for. This is their raison d’etre. The fact that the central bank is someone else’s either the ECB or the Fed only exposes our vulnerability to a credit squeeze. But more important is the fact that the CB rampant money printing has not achieved its desired end. namely economic recovery. We are talking about Krugman here in this thread after all. He is the most insistent advocate of Government stimulus. Yet wherever such stimulus has been introduced the only thing that has expanded is the stock market. Another obvious bubble. How can one major corporation after another report reduced sales etc and yet we have a climbing NYSE index?

Thirdly, firms are both credit crushed as well as demand smashed. Take credit from the economy and all the inherently insolvent banks cannot loan out funds. This is the credit squeeze. Yet demand will not be restored by money printing as most of this money is taken first by those closest to the printing press, the banks and brokers and is used to speculate on indices. The ordinary firm or individual never sees the money. Ordinary people and firms are forced to economize, to tighten their belts. Hence real demand contracts.

Our main trading partners are also part of the Ponzi. Germany even, will soon see a crash in employment. Watch out then.

The “debt based system” as you correctly call it is a spontaneously expanding behemoth that was never designed in the first place and like a rapidly advancing cancer needs to be excised immediately in order to give the patient a chance of life.

Again the only tried and tested means of restoring the economies of the West is a return to the gold standard. A bi-metallic system with silver as the change giver (but not linked to the gold price) together with what A. Fakete advocates with regard to the Real Bills doctrine are the solution.

What happens to the Socialist system then? Hopefully it dies a death.


As we approach a debt/GNP of 180% one begins to appreciate the symmetrical beauty of DOUBLE 90 (rogoff & reinhart) and TREBLE 60 (angela’s .. er .. figure) with the Irish citizenry morphing supinely into, and becoming, the dartboard.

Question: who is throwing the darts?


‘Notable Failures’: IMF Admits Major Mistakes on Greek Bailout

The International Monetary Fund acknowledges that it made “notable failures” on the first rescue package for Greece, setting overly optimistic expectations for the country’s economy and underestimating the effects of the austerity measures it imposed. As such, the fund said in an unusually frank report released on Wednesday, it lowered its own standards on debt sustainability, setting lending levels too high for Greece while not pushing hard enough on Greek debt restructuring.

[…] The IMF report also criticizes the cooperation of the other two Troika members, the European Commission and the ECB, citing problems with coordination and benchmarking.

@ Sarah
They don’t have a choice.
Democracy is dead. Long live bankocracy – government of the people by schoolteachers (with despot tendencies) for the banks (or something like that…)

Nice to see Enda meeting the other plebs of the Eurozone – the new arrivals.

We are pathetic

@ Dearg Doom

It is not only a case of changing the FDI mix. There is an opportunity to get other parts of companies with bases here than their sales and marketing divisions.

I’m sure IDA Ireland is trying – it has plenty inducements – but the trend for US MNCs is to focus significant R&D functions in emerging countries to be close to growth markets.

The US National Science Board has said that about 56% of the world’s engineering degrees awarded in 2008 were in Asia – and only 4% in the US. In addition, a large portion of engineering students in the US are foreigners – almost 60% of US doctoral degrees go to foreigners, mostly from East Asia or India.

China has about 340,000 foreign students studying abroad at present.

Lots of emerging challenges but little attention to them in Ireland – and limited information available on what’s going on in the enterprise area.

At a higher level, disasters share certain similarities.

“Stearns does not take the easy line that neocolonial interference brought the catastrophe about. Again and again, he returns to the absence of credible authority”

Same for the EZ, really.
Why is there still no bank resolution setup?
Why was there nothing when the TSHTF in 2008?
Regulatory capture goes very deep

@ Sarah Carey

Yes, the aim is to half your chances of getting a million, but the aim relies on estimates of how many bonds will stay. In theory, if everybody except you cashed in their PBs because of this reduced offer, then the NTMA might not have time to avoid you being certain to scoop the next million!


Fair points. I would note that the most recent SPU has central real GDP growth forecasets of 2.2 percent for 2014 and 2.8 percent for 2015 — not that different from what was forecast back in 2011. You are right that the pattern of downward revisions should give pause, but even in the aftermath of a financial crisis there are forces leading to a resumption of decent growth that accumulate over time: gradual improvements in competitiveness, gradual repair of balance sheets, a backlog of postponed durable consumption and investment decisions, and reductions in precautionary saving as the threat of diaster recedes. On the other hand, past experience with fiancial crises does caution that growth can be weak for an extended period. The current central forecasts look reasonable overall, but your much lower growth scenario certainly can’t be rule out. One thing that the fiscal council has tried to emphasise is the significant uncertainty surrounding growth projections and the need to plan accordingly. At one level this is just a statement of the blindingly obvious. But there has been a tendency in Irish forecasting to focus excessively on the central forecasts.


There were many skilled NI people working in construction in the ROI as well as with Irish contractors overseas. I expect that the loss to NI manufacturing was less than in the ROI hence wages across the board were lower in NI leading into the bust.

The bright side for NI is that it is now very competitive compared to the ROI. Deciding whether to invest in NI or ROI is now not a difficult decision and in NI’s favour. The depreciation of the British pound also works out well for NI.

Sometimes all the stars align in one’s favour and NI is now a beneficiary of fortunate circumstances. The professional silos in the ROI provides NI with opportunities to dislodge jobs from Dublin to Belfast.

NI may be more competitive but it will always be ‘special’. B Specials. I would take the puck fair over the apprentice boys every time. And all the political dysfunction painted onto the walls – it’s not economic best practice. Those painters should be working constructively.

@Mickey Hickey

Jazus – world leader … and Angela wants all of it back! Her latent strategy – to reverse all deutsche capital flows, however dodgy the original.

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