El-Erian on Ireland and Austerity

Well worth a read, both because of who is writing, but also because El-Erian makes the point rather well that austerity was presented as TOGIT rather than a coherent policy choice.

Comments

comments

Author: Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

67 thoughts on “El-Erian on Ireland and Austerity”

  1. “On my current visit, most of the Irish citizens with whom I have spoken say that the country had no alternative but to follow the path of austerity….
    despite enduring considerable pain, Irish society has stuck with the program, staging few of the street protests that have been common in other austerity-hit countries”

    The Shawshank Redemption line – “how can you be so obtuse?” comes to mind.

    The answer was probably seen in the Sunday Times poll that showed only 5% of people in Ireland could name who the ‘troika’ was made up of. With such a dearth of knowledge how in gods name do we expect enough people to understand just how wrong the bank bail out was. Ironically John Bowe’s analysis in the Anglo tapes probably gives the most user friendly analysis of the whole thing when put in context.

  2. I follow El-Erian on various. Have to say that this isn’t a very well informed piece….or rather that he has been given more of the potential “rocket recovery” than is real.

    Ireland is in recession, unemployment and emigration are disastrous, exports are falling (due to outside reasons, ok), official growth figures have been revised down (again) to flatline levels, Ireland’s reputation abroad has taken a battering over tax policy and Anglo tapes, it’s current account deficit is still enormous, gross debt (public, personal & corporate) is at horrendous levels, still, its banks are still insolvent, no resolution of the mortgage and personal debt crises, little institutional reforms, massive pension fund contingency obligations for the public sector, continued, disastrous domestic demand conditions, etc, etc, etc.

    As to TOGIT, I think that became true once the guarantee was given – the Irish don’t have a real choice within the Troika austerity programme. The creditors rule. It also works well for the large portion of the Irish population that are relatively sheltered from the worst of the current economic climate. As I said before, from Irish bankers, to public servants to those on the dole, all (including downstream) are benefitting from EU welfare.

    It is clear though that the current account deficit will need to be eradicated before Irieland can have some real choices again.

  3. “On my current visit, most of the Irish citizens with whom I have spoken say that the country had no alternative but to follow the path of austerity. While they appreciate the urgent need for growth and jobs, they believe that this can be achieved only after Ireland’s finances are put back on a sound footing. They also argue that, given the banks’ irresponsibility, there is no quick way to promote sustained expansion. They are still angry at bankers, but have yet to gain proper retribution”

    The ‘citizens’ to whom El Erian conversed were obviously of a certain cohort and one can only imagine they were not currently living in Ballyfermot, Longford or Waterford – where I’d safely suggest the ‘citizens’ from these parts may have a rather different slant on the economic ‘no alternative’ policy options.

    As mentioned above he fails to grasp (perhaps he doesn’t know) the biggest elephant of them all and that’s the legacy of private sector debt which consumes the 30-50 year cohorts economic well being like no other. Until the policy options surrounding the slashing of this private sector debt mountain are dealt with in a way that moves those stuck in economic limbo to a significantly better place, Mr. El Erian is wasting his time commenting on this sad little island.

  4. One can quibble with some of the details, a la Paul W but it is a fair and balanced article., in which the author hedges his bets. Clearly, if we remain in a monetary union, with the core ruling the roost, then we are debt pay down mode and dependent a lucky bounce in the global economy to generate some growth. We are probably also condemned to wait for this policy to fail to get some debt restructuring. The majority are happy with that for the moment.
    A more radical gamble on leaving the EZ/EU and printing money has little support yet but chances are it becomes inevitable if the,status quo remains.

    Of second order consideration, is the type of govt that gets to implement such a policy. It will not be a centrist pro EU coalition.

  5. @Tull
    Fair and balanced but also a hedge of bets? There is nothing quibbling about my comments above. The Irish picture is generally awful, with some minor, non-gamechanger positives (e.g. reduced CoF for the country due to proxy EU /ECB support).

    It’s going to take more than “a lucky bounce in the global economy to generate some growth” to get Ireland off the EU teat.

    You think the Irish will not vote “a centrist pro EU coalition”. Is there any other type of party to vote in (bar a SF)? As El-Erian remarks, the Irish are not up for change.

  6. I would suggest that this is the most significant point made in the article.

    “Ireland’s accumulation of wealth during its Celtic Tiger period, when the country surged toward the top of Europe’s economic league table, has also been an effective shock absorber.”

    Now, if we could ensure that it is (i) repatriated to the extent that some semblance of patriotism requires (ii) not spent on expensive imports – especially gas guzzling German cars – or foreign holidays and (iii) devoted to supporting local industry, the job would be oxo.

  7. My contention is the periphery is near breaking point. As evidence look at the resignation of the Portuguese finance minister. Either the core acknowledges failure and agrees to a range of measures that end up in debt restructuring. Or there is political change in the periphery which results in a series of defaults.

    In Ireland, that would involve a coalition of SF and probably FF plus a few Mings.

  8. ” how sociopolitical systems, including economically devastated countries like Cyprus and Greece, have coped so far with shocks that were essentially unthinkable just a few years ago.”

    Very good point. I wonder what the long term consequences will be for finance.

  9. @DOCM
    That I thought was the worst /incredible statement by El-Erian. Ireland’s “capital” was largely reflected in “property revaluation reserves”. When everything crashed, those reserves went with the losses, including the national pension reserve fund and most “goodwill” in the balance sheets of private enterprise (e.g. collapse of the banks and in the value of hotel businesses, small businesses etc). There are a few out there who had encashed their lot before the cash, whether through luck or skill. That does not represent the majority.

    The only “positive” that Ireland seems to have achieved and sustained during the boom years is its FDI /MNC business, but that is now under increasing (silent) attack….With no Plan B is things fundamentally change.

    As for repatriation of deposits (mainly corporate), I notice that the Revenue is asking people who moved money abroad why they did so and who helped them do so. It appears that the Mandarins are developing contingency plans for any future deposit runs e.g. if the exit from official Troika funding does not go as planned, etc…..Big brother is preparing to hold what it has….Watch out for private pension fund monies also.

    @ Tull
    God help the country if it will be “a coalition of SF and probably FF plus a few Mings.” Again, maybe that is the other major reason why the people of Ireland are happy to have the Troika run the country economically….beyond the welfare /liquidity aspect.

  10. @ Paul W

    You have hit a few nails on the head there.

    El Erian is good on the broad analysis, the broad brush strokes, but has failed miserably with his feet on the ground analysis. He was nowhere near putting his finger on the true pulse of the economy. He is like a war correspondent that wined and dined, at the top table, but failed to put his boots on the ground.

    Our policy options have been shut down and we are in lock step with the EU technocrats and autocrats by way of the conditionality as manifest our MOU. This compliments of both FF/Greens and now enthusiastically carried out by FG/Labour. It suits those who work for government to postpone as long as possible any debt restructuring at the national level and that has also been reflected in their pillar bank treatment of debtors. The game plan, at political and government level is to postpone insolvency for as long as possible, while you fasten down pension rights and salt away as much as possible, to help with the day after restructuring.

    When people talk about “austerity” with regard to Ireland, it has to be qualified. Austerity for who? I don’t see too many people that have been subjected to austerity in fact some people are about to move up the property ladder and relocate to parts of Dublin they were priced out of during the false boom. Unless, of course, they have lost jobs or could not get on a suitable gravy train which is another possibility. Those who have lost jobs in the private sector or who worked in construction are being forced to emigrate or else live years on welfare payments. All those who depend on consumption and consumer spending are going to be hit much harder going forward and the property tax and water charge is indicative of the suck it up attitude of government towards SME’s. Fiona Muldoon of the ICB pointed out earlier in the year that 40% of 50bn in loans to SME’s were non performing and that furthermore 70% of people who work in the private sector work for these businesses. I wonder the El Erian discover this? Doubt it very much. Did he mention our second bailout aka precautionary loans? What about our still insolvent banks with their tracker book around them like a millstone?

    Welfare payments will eventually be attacked when buying the silence of those on welfare is no longer strategically valuable and when the Noonan’s, Kenny’s, Rabbittes and Gilmore’s walking out the door to accumulated contingent state liability pensions.

    The only way that “austerity” has worked across society is that people have taken hits on the value of their properties but again one section of society have propped themselves up with pay agreements that enable them to weather the storm longer.

  11. Paul w
    That is life. Sometime there is no good solution. Ireland seems destined to be stuck in a German debtors prison with the rest of the periphery until that policy changes. The alternative is to leave the EZ & the EU by extension, default and print money and hope that we do not end up with Nuevo Peronist govt.

  12. Whether the choice is radical policies or the status quo, the challenge for Ireland is that it has no viable jobs engine.

    With a broad rate of unemployment of 24% according to the IMF last month; a 25% bad loans ratio, in line with Greece, despite the transfer of toxic property loans to a public agency; second to Greece in the rankings of the burden of sovereign debt but when household debt is included, Ireland is the biggest debtor of the western world as a ratio of economic output excluding business debt.

    Ireland’s gross public debt burden is at 159% of GNP; Irish household debt as a ratio of GNP is 155% compared with Greece’s ratio of 55% of GDP. Gross national product is used as a better but still imperfect metric of Irish economic output as it excludes the profits of the dominant foreign-owned sector.

    Maybe Ireland will be able to piggyback on an economic miracle in the developed world in a decade, to grow it’s way out of debt (!), in the meantime, the prospect is low growth. Even if a radical route was taken to ditch the euro and aspire to force some debt accommodation on Europe, not even the farmers would be able to feed themselves without imported basic food.

    Jobs in the internationally tradeable foreign-owned sector peaked 13 years ago and there has been limited transfer of technology to the indigenous sector, as many of the jobs in foreign firms are in administration and software localisation.

    Even if the value of exports was discounted for multinational transfer pricing and revenue diversions by firms such as Google, indigenous exports would only account for 20% of the resultant total.

    Two-thirds of private sector workers are in traditional non-exporting firms; only 7% of SMEs export and the poor performance of the indigenous sector coincides with low social security costs and corporate taxes.

    Ireland with 20 firms per 1,000 inhabitants, is at half the European average.

    The apparent acceptance of austerity in Ireland relates to its concentration on a minority in the private sector who have no job security and are not unionised. Social welfare rates also are higher than levels in the UK.

    This year, tax revenues (excluding social security receipts) will be at a similar level to 2005 while gross current government expenditure will be 44% above the 2005 level.

    It should also be noted that despite a failed governance system, apart from changes at the Central Bank, it’s business as usual in Ireland.

  13. @ MH-ff: “… the challenge for Ireland is that it has no viable jobs engine.”

    Yep, that’s it in a single sentence. Should send a severe chill down folks’ spines. Now, when borrowing rates rise … it will be pass out the Pampers time for our political elites.

    And as for our Nationalist Socialist Party [SF] – they are actually Right-wingers in Left-wing drag. They will attempt to out-do Fianna Fáil, Fianna Fáil style. And, hopefully, the Irish Labour Party will go the way of Clann na Talmhan. Should be fun, of an un-funny sort. Three inconclusive elections in as many years?

    “People get the government they are prepared to tolerate” [Sophie Scholl]

  14. @ MH: “With high debt levels, low growth over a long period threatens the sustainability of developed country standard of living.”

    Yep, again. This one I shall print out and paste into my Quote Book!

    Do modern economists not understand the difference between investing accumulated savings v ‘investing’ borrowed credit? Seems not. Bad prognosis.

  15. MH,
    All vet valid but you dsmage your arguments with your failure to acknowledge the real hit to living standards that the PS has taken. Even I, though no fan have to acknowledge that fact.

  16. @ Tullmcadoo

    Lot of people lost money and I have three direct family members in the public sector, two of them teachers married to teachers.

    I was highlighting where most of the suffering has been.

    People working as self-employed in the PS and substitutes have been victims of the brutal recession but my own family members would have a cheek if they compared their lot with that of a small self employed individual whose sales collapse or an SME worker of middle age who gets basic redundancy, has no occupational pension and maybe little prospect of working again.

    How much is the security of a guaranteed job and a guranteed pension worth?

    Anyone who spent time in a dying company, as I have more than once, would know.

  17. MH
    At the risk of drawign your ire – can we ONCE have a comment that doesnt channel your irkedness at the PS? Once? No? Ok….
    Then maybe do canned responses
    a) Universities dont do innovation well
    b) PS are overpaid and must be brought to heel
    c) SOMETHING IN BOLD
    etc
    Then you could do a c a d and we would all save time?

  18. @ Fiat @ 11.49pm
    Agree. The wholesale interest rate environment is changing…..interest rates will rise from here. Just a matter of timeframe now. I hope the Irish economy’s managers have sufficiently stressed their figures /projections.

  19. @ Brian Lucey

    If you have nothing positive to say, try to resist posting as the drumbeat of negative sniping may give an unintended impression.

    The right-wing focus groups in the US have perfected ways of shutting down debate on topics that they cannot handle on a fact-based basis and that appears to be your angle.

    I did not raise the public sector in my main post:

    The apparent acceptance of austerity in Ireland relates to its concentration on a minority in the private sector who have no job security and are not unionised. Social welfare rates also are higher than levels in the UK.

    It’s fun to be part of the IMF’s broad unemployment rate of 24%?

    Like it or not, this is where the main concentration of victims are to be found; that does not mean that there are not other victims.

    ..as for the other issues, better could be expected.

  20. “Drumbeat of negative sniping may give an unitended impression”
    That was kinda my point MH?
    I could count on the fingers of one foot the positive “what to do” points from your good self.
    I’ checked my political compass this afternoon on another topic entire and it put me right in the center of the left libertarian axis. So , ROFLMA at you my man 🙂

    But anyhow…I must go now tell the valet to get the pool boy to warm the Infiniti pool. Hard being an irish public sector worker.

  21. @Paul W.

    I wonder? Today’s figures show we paid over 5 billion in interest in the first six months of the year and are running a deficit of 13 billion. Any new borrowings are going to cost us dearly.

    Btw, 10 billion a year in interest …..dead money and they can’t get any DIRT or PRSI out of it.

  22. @ Fiat: “… 10 billion a year in interest …”

    It’s actually the ‘external cost’ (hidden in plain sight) to the Irish taxpayer of the many, many election ‘promises’ made to special interest lobbies, by each administration, since 1977. But whose counting?

    Irish (and many other govs) cannot rule without borrowing some very large sums. If they had to apply taxation = spending they would be history! Better to spend, spend, spend, get into power, enjoy the trappings (and the pension), then swan about later on – as the unfortunate taxpayer pick up your tab. Bloody marvelous!

  23. @ Fiat
    E13bn run rate, yes. Quite unbelievable that the small country of Ireland is still spending so much borrowed money every month….I notice then the E17.6bn in tax revenue for the first six months which would imply a run-rate of E35.2bn but (archaic) Irish govt cash accounting exaggerates the situation i.e. a.o. corporate tax take has been front loaded…..”Good news” and spin continues!

  24. He captures the ‘supine’ nature of the citizenry and its capo_masters well.

  25. @ BW

    I like this one by Nehru

    They probably know it in KL

    “The purely agitational attitude is not good enough for a detailed consideration of a subject”

  26. @Michael Hennigan

    “… when household debt is included, Ireland is the biggest debtor of the western world as a ratio of economic output excluding business debt.

    Ireland’s gross public debt burden is at 159% of GNP; Irish household debt as a ratio of GNP is 155% compared with Greece’s ratio of 55% of GDP. Gross national product is used as a better but still imperfect metric of Irish economic output as it excludes the profits of the dominant foreign-owned sector.

    +1

    I bin making this point for a while …. as El_Erian notes, much of the former is becoming ‘official’ – making hair-cuts somwhat ‘sticky’ to borrow some slang from another split …

  27. @Paul W

    What is your problem with SF?

    I hear that Tull has re_applied …. again!

  28. There is no shortage of evidence that all economic models have a shelf life and Prof Frank Barry’s recent paper on the contrasting levels of political control of the Irish civil service a half century ago and today dovetails with the need for thinking beyond an election cycle.

    This is the first week of Australia’s new financial year and Sunday marked the 22nd year without a recession.

    China’s rebalancing towards consumer spending will impact commodity producers in particular and it will not be easy as in common with many other Asian countries, its social protection budget is about 4% of GDP compared with the OECD’s highest: France at 32%.

    It’s also realistic to assume that pre-2008 growth rates are not set to return anytime soon.

    In the years preceding the US recession, growth, job creation and business startups, did not match the previous two decades.

    Over the past five years, Australia’s economy has expanded by about 13% compared with the US at 3% and Japan, the Eurozone, and the UK, at negative figures.

    Chinese GDP is up 50% since the start of 2008 and in Australia and other Asian economies, growth has decelerated in recent years.

    The latest data shows that US S&P 500 companies added $30.1bn more in cash and short-term investments to their cash hoards in the first quarter of 2013, pushing up the total to $1.29tn. However, data also shows that investors punish high capital expenditures relative to sales, suggesting that the safety of large cash hoards, even at continuing low interest rates, are likely to remain a priority for companies in coming years.

  29. @ MH

    as far as I know Australia is heading for a recession now.
    They had the luck of a gigantic commodity boom for many years, which now seems to cool off.

    If you look at US Stocks, there seems to be a 40 year long wave on top of the 7-10 year pig cycles, and Germany seems to be in anti-sync.

    1973 we had our heydays with 11% pay raises, the golden days, and when the US collected their peace dividend in 1992 we and the nordics had our years of discontent.

    To invest prematurely into an upturn, which might come, is not a wise idea.

    They first look, how the sequester and the debt limit / budget fight in the fall turns out, before making decisions.

  30. @ francis

    Australia is in good shape economically to handle the mining sector downturn that accounts for 10% of gdp.

    Net debt is at 13% and the economy is diversified.

    Education is the third biggest export earner and Australian beef is in big demand in the rest of Asia.

  31. @Francis who’s afraid of sequester…WP ran some great articles hardly a bastion of ring wing nuts-links in the article
    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/07/02/remember-what-they-said-the-sequester-would-do-this-chart-shows-what-it-actually-did/

    In other US economic news…a little off topic-a must read over here.
    “A former NYU economics professor has been busted for stalking the chief economist at Citigroup, sending him pictures of her pleasuring herself and writing salacious e-mail come-ons, according to court papers.”
    http://www.nypost.com/p/news/local/stalker_prof_busted_LxjxgsLwWRJjPxBtsUkkHO

  32. @ MH

    I am not worrying much about Australia. You mentioned their favourable net international position, and just cutting back a little bit from years of indulgency will certainly not make them need us sending our surplus food rations : – ).

    I read somewhere, that the internal debt ratios are somewhat high, but I am too lazy to look into more details.

    @John
    I am not worrying about the sequester, I am actually somewhat enjoying the show. When they came out with that, I was actually thinking, wouldnt that be an interesting solution to solve most of their budget problem without all the hotheads out loosing face? But I didnt say that anywhere, so I cant claim my genius …. LOL … : – )

    I am not worrying much about the US, the latest CBO projections have the debt held by the public stabilizing at a little above 70% of GDP.

  33. Hi francis the second link is rather hilarious my fav part….sorry apols to those sensitive people out there but it made my morning coffee,hell hath no fury and all that….
    “Dutch-born academic Heleen Mees, 44, was charged yesterday after she allegedly threatened fellow Dutch economist Willem Buiter, 63, with whom she allegedly had a past relationship.
    In addition to the nude pictures, she also sent the prominent money man oddball requests — including “Shall we adopt a child?” and “What can I do to make it right? Shall I lick your b—s?” according to court documents.”

    For those perhaps not ‘signed up/in” here is yesterdays slide or sh*t show from UB-trying locate a non paywall link to the webinar…i may get ‘banned’…oh well.

    http://webcasts.rbs.com/Group_Information/Investor_Relations/Analyst_Conferences/02jul2013/files/UBG_Investor_Roundtable.pdf

    they must have read the WSJ puff/fluff piece on ABN…
    http://online.wsj.com/article/SB10001424127887323689204578571384001879420.html

  34. That makes me actually ask a question:

    who of you is using Excel solver, or is doing fitting non-linear, more than 2 parameter equations to numbers in any other way, or more complex things?

    Dont worry, this is getting back to topic quickly

  35. that question cant be directed at me,i had to outsource,ask an analyst to run a simple IRR for me on here once!
    On topic Fiat above suggested that with 2 TRILLION under mgt,PIMCO had some skin in the game viz-a-viz Irish ‘gilts’ and perhaps that was the reason for this piece,with a NYT dealbook link….hmm.
    Anyway Bill called it like he normally does-some good comments on irish banking above overall a nice postcard from a tourist but..

    “Never,” I tweeted, “have investors reached so high for so little return. Never have investors stooped so low for so much risk.”
    http://www.pimco.com/EN/Insights/Pages/The-Tipping-Point.aspx

    Regarding the too big to jail and lack of prosecutions the states have not exactly locked up that many perps either…its just not gonna happen in Ireland,but nice distraction keeps the spotlight off the real problems such as strategic non payment off MORTGAGES !

  36. John !

    Thanks! Only the name Buiter makes it really juicy!

    And the non payment of mortgages, or as it is called in the US “strategic default” will stay pretty interesting the next 2 years

  37. some might see that as a little off topic,

    but we had recently paul quigley and other repeat the vicious claims of the american nationalist Kansas Hoenig and the hate mongerer Simon Johnson against the Deutsche Bank (DB).

    Last evening the FED / Bernanke decided to go with BASEL III, risk adjusted capital requirements.

    http://www.reuters.com/article/2013/07/02/us-bank-capital-basel-idUSBRE96104F20130702

    And I went, and got myself a bottle of Champagne.

    In the end, the good is winning, “with the FED on our side” : – )

    Paul, and others here, I do not hold it against any of you. It is not your fault.

    But Germans like me are so fed up with the constant nationalist slander.
    Hoenig and Johnson are not good people, not at all, to say it mildly.

  38. Flood economics

    Before anybody here gets any idea that we/I go overboard here.

    We had a very serious flood here, again, 3 weeks ago. And I am so proud of my neighbors, good people all around. It took me 8 times to rush to points, just to not be needed anymore, before I could do meaningful work.

    So many thousands manned the defenses that the regular forces could go early on to help neighbor states and our French and Dutch friends too. My police minister defended the honor of our good Czech neighbor’s vigoursly in public.

    For me my government is not a “corporate agency”, it is the will of the people, the common good, the fatherland, I am willing to kill and die for any minute.

    Not “THEM”, but “MY” CHANCELLOR, MY police minister.

    I tour my area daily with the bike, most the times a short one hour, sometimes longer.
    And I have been 2 or more times to 800 year old cities like Pirna and Meissen, tortured 3 times now within a dozen years. Not just a 30 – 100 meter perimeter, but 1 -2 kilometer deep 50%+ x commercial center.
    And it breaks my heart, when I see this 25% +x sign of “to rent”, “to buy” signs in often well and often long established shops. After each of these signs is the fate of a family, whose existence, spirit, back was broken this time. They do not even wait for the generous support of the fatherland anymore.

    I have gone in quite some detail of the physics, economics of it, long term time series.

    These floods were way more common in the long history, but after 1940 there was a 60 year lull, and we now go back to long term (thousands of years) normal.

    People who believed they own a 1 or 2 million thing, somebody has to tell them it is worth next to nothing. Bitter.

    Full disclosure:
    I have never had any relation to the Deutsche Bank. I am not employed or in any other way dependent on any German government. I have got never anything from any German government, beyond some few months of unemployment insurance, which was about 20% of what I had paid previously into. But I have served and am being fiercely loyal to my fatherland.

    But I actually encourage some folks here, to what I should add to this disclosure, to make my impartiality totally clean, visibly.

  39. @ Francis

    Those floods sound awful. You describe it very well.

    Debt is contingent. The Wirtschaftswunder started when most of the Reich debt was written off. Even Germany is contingent. That Northern European plain is flat for ages and you can draw the border so many ways . But the water is real. And it’s going to come more and more frequently.

    http://www.nybooks.com/articles/archives/2013/jun/20/design-collapse-and-crash/?pagination=false

    “The engineer, like the insurance agent, is hampered by the fact that his skill depends on the earth behaving in the future as it has in the past. As Petroski writes,

    Since it is future failure that is at issue, the only sure way to test our hypotheses about its nature and magnitude is to look backward at failures that have occurred historically. Indeed, we predict that the probability of occurrence for a certain event, such as a hundred-year storm, is such and such a percentage, because all other things being equal, that has been the actual experience contained in the historical meteorological record.

    That record, however, is now shattered. In the course of Petroski’s lifetime, and all of ours, we’ve left behind the Holocene, the ten-thousand-year period of benign climatic stability that marked the rise of human civilization. We’ve raised the global temperature about a degree so far, but a better way of thinking about it is: we’ve amped up the amount of energy trapped in our narrow envelope of atmosphere, and hence every process that feeds off that energy is now accelerating. For instance, this piece of simple physics: warm air holds more water vapor than cold. Already we’ve increased moisture in the atmosphere by about 4 percent on average, thus increasing the danger both of drought, because heat is evaporating more surface water, and of flood, because evaporated water must eventually come down as rain. And those loaded dice are doing great damage. The federal government spent more money last year repairing the damage from extreme weather than it did on education.”

  40. @francis happy 4th-suez canal keep an eye on oil prices..
    “The structural shifts over the last 20 years imply that peripheral eurozone countries are less integrated into Germany’s trade structures than is commonly thought. A Commission study published in December 2012 found that more dynamic domestic demand in Germany would have only a very limited direct impact on the current account of countries such as Spain, Portugal or Greece.”
    http://blogs.ec.europa.eu/rehn/

  41. @ John

    happy 4th to you! Dont burn the barn of your neighbors with the fireworks : – )

    On the numeric level, vix, brent /WTI spread is at 4.6, record low in 3 years, 0.9 smaller since last friday.

    And I do have my personal riot indicator, involving it, but mostly global food prices.

  42. Be afraid very afraid….in fairness not at schocking as BOD in a suit in the stands Saturday,at least have him on the bench.
    Still quite surprised by this….
    http://blogs.wsj.com/atwork/2013/07/03/celebrity-economists-make-waves/
    @francis the barns are safe,fire on a beach perhaps some s’mores after the BBQ..Hendrix playing star spangled..
    NYT today on DB,Fed rules/decision on Basel 111 mixed reaction a bit early to say.They could scale back a few yank banks too.
    http://dealbook.nytimes.com/2013/07/02/deutsche-bank-resists-pressure-to-scale-back-its-global-ambition/

  43. The Government today has published the Forfás 2012 Annual Employment Survey, which details data on jobs in the internationally tradeable goods and services sectors.

    The format has remained unchanged since thee 1990s but crucial data that should inform credible policy making is missing.

    For example the majority of computer services jobs may well be in administration and sales not in high tech work.

    From about 1,000 IDA Ireland client companies, less than 300 spend more than €100,000 annually on R&D.

    Irish Economy 2013: New jobs data missing inconvenient facts

  44. @ seafoid,

    I am in favor of carbon taxes and other ways to minimize the increase, and I have for myself a pretty small carbon food print.

    And the reason for that is, that I am convinced, that we know much less about how that whole system with atmosphere and especially the ocean layers really works, than most people believe.

    And gambling with that system can have pretty drastic results.

    But we also have to check, how much effect do I get for how much effort.

    People are very quick to blame others, the Czech, the global warming, the german banks, …. for what is just natural variation. When you look at the public flood markers, easy to see for everybody, we had some 19 in 230 years, just not in the 60 years until 2002. Nature has some long term variation, we know that the medieval times were somewhat warmer than today, but we do not have really relieable measurements of that, just the stories of Vinland, and what kind of stuff grew here around.

    And when I look on rain patterns for the last 50 years here, there is no real trend. They do not even try to make a statistical significance test. Just claiming.

  45. @ John Gallagher

    Krugman as business adviser, people must be gaga.
    I think it was Norbert Walter from the Deutsche Bank, who summed up the German view about Krugman: ” I can’t stand this rubbish anymore.”

    In Europe we have universal banking. The US had Glass Steagall, separation of investment and retail banking.

    What did they do, when they screwed up? They declared Goldman Sachs a normal bank, in order to flood it with Government money, the Deutsche Bank didnt need.

    And now the failures try to tell us how to do proper organisation.

    @ paul q
    we live in deep peace with our neighbors. So we could slash our defense budget, unlike Egypt. We dont overpay our public sector. So we have enough money. But this is not up for redistribution to folks who can not control their spending.

    When I look at this portuguese blog, in 15 years not one, where they were within the 3% deficit limit. The guy seems to be ignorant of a 0% target.

    What is it with these people?

    The cuts seem to be a simple percentage, making one plot very redundant, and some other thing. And I wondered whether I leave a comment, and decided, probably I would just get on his nerves, and they dont have any discussion anyways.

  46. This is what I observe –
    1.Economists arguing over the detail and niceties of economic stats, theories and apparent trends while the rabid and greedy version of capitalist moguls, more than ever supported by ‘democratic’ governments, laugh all of the way in their private planes and yachts to their tax havens, harbouring 30 trillion +$, which is, in turn, protected by the political, administrative and financial elites in those so-called democratic countries.
    2.The planet is ‘goosed’ for our children and grandchildren and we, supine, selfish idiots as we are in the ‘baby-boomer’ generation, have allowed and encouraged this mayhem, driven by the insatiable greed of major corporates and their political/administrative supporters , to happen.
    3. There is an almost universal failure of governments to underpin the welfare and interests of its average citizens due to an absence of policy and action frameworks which would allow wealth to be created, retained proportionally to the advantage of the wealth creator while ensuring proportional redistribution of the wealth and services created be delivered across society in a fair and balanced fashion.
    4.We,as a people and planet are most definitely supping in the ‘last chance saloon.’This version of ‘capitalism’ will see us out.
    5.Slainte!

  47. Have to say the deposit base is attractive,has been suggested its highly leveraged,depending on metric.
    JP Morgan/GS claiming DB is over leveraged is ironic.Some views on keeping capital closer to exposure,say oh in NY/USA.
    Re economists as gurus….the refuge of the confused…I’m confused why you think I read this blog?
    They have to fix the mortgage mess in IRL,lots lessons/mistakes to be learned from other international boom/bust cycles.
    But they “Irish” so Irish solution to Irish problem… in other words nothing happens… It’s been. 5 years!

  48. @fancis

    You said you want to kill and die for Germany. – God help us!
    From these words I would say it’s obvious that you were born and raised in East Germany and it tells about your age.

    I think one would have to search a long time until one finds a West German even thinking along these lines. West Germans grow up without a shred of patriotism. One does not have to be a patriot to love one’s home.

    Please, don’t be offened, but may I suggest not to voice this in an international forum. The memories of WWII and the holocaust are still strong. For you thinking along the lines of “willing to kill and die for my country” is obviously natural – unfortunately, they are apt to give rise to old resentiments.

    BTW, there is no “police minister” in Germany.
    Francis has chosen a word from the former GDR – German Democratic Republic – East Germany.

    If you want to now a bit more about the structure of German government – have a look at the government’s website.
    http://www.bundesregierung.de/Webs/Breg/EN/Homepage/_node.html

    I apologize for the digression – but as you can tell now, in many ways West Germany and East Germany still have a different culture.

    Another BTW – this time economical.
    The estimates of the damages of the floodings in Germany are about 10 billion Euros. That’s too much even for Germany. Of course, we will do it. But for this the government has to take more credit and that comes expensive. At the moment the federal government will cover 5 billion and the federal states 3 billion. Yes, that’s only 8 billion. But the government doesn’t cover the whole damages.

  49. Interesting front page no less,in NYT today by Floyd Norris…
    “This plays into all the German concerns about moral hazard, that they have been taken for a ride by these people,” Jacob Funk Kirkegaard of the Peterson Institute for International Economics in Washington said this week. “Stealth fiscal transfers to Ireland will not be politically possible in Germany unless this results in jail time for some of these people.”

    http://www.nytimes.com/2013/07/05/business/in-ireland-dire-echoes-of-a-bailout-gone-wrong.html?pagewanted=2&_r=0&ref=business

    Can’t disagree with that,I’m sure most Irish would agree with Germany here.

    Francis,@Francis is me…was mobile put @Francis instead of JG-but the ubiquitous typos spelling puncation may have been a tell:)

  50. Adelgm,

    I am a West German, we had and have patriotism, just not this big flag waving 4th of July type, and in Eastern Germany the commander of the wiki/Volkspolizei was also the Interior_ministry. I had to look it up.

    I did not say “I want” and made it pretty clear, that I want to waste as little as possible on a military we don’t need, and ask, why Greece needs to spend …

    Cross that. The CIA database has data from 2005 ….. : – )
    Newer data from
    http://milexdata.sipri.org/files/?file=SIPRI+milex+data+1988-2011.xls says, that with the exception of the US with 4.4%, we are all now down to 1.x%

    My prior contribution “flood economics” was originally intended to be a little longer, but I got tired and I write here too much anyways.

    http://www.bafg.de/DE/08_Ref/M2/03_Fliessgewmod/label_bericht.pdf?__blob=publicationFile

    In 2006 our Czech friend’s reservoir management reduced Pegel Dresden from an unmitigated 806 cm to 737 cm, and delayed by 1.5 days, worthful time to save things. This 2013 flood lasted 5.1 days at the 740 cm level.

    When you look closer, and I actually did some modeling of flood heights / flow, you will find, that at least here around there is not that much you can do about it, without gigantic investments, which destroy the landscape, property, and are not in relation to the cost of the damages.

    People have to rebuilt in ways, which are much less flood sensitive, and those who can’t stand the situation, have to leave.
    http://www.n-tv.de/panorama/Bad-Schandau-immer-wieder-Bad-Schandau-article10756366.html

    This truth is not nice, people don’t want to hear it, they always blame the government, never themselves, and some also try to start nationalist slander, and that has to be stopped very quickly.
    And some older guys here react much better to a word like “police minister” : – )
    When I tell them to stop their foul mouth.

    @John,
    I knew it was you, I am out for dinner, maybe a little more from me later into the night.

  51. @ vinny

    I actually have a very different view.

    I dont think that any economic system / government will look very different in the near future.

    And on a scale of 1 (very good) to 6 (failed) I ll give the German system and practice a straight B, with an option for a PLUS.

    I do not think that everybody protesting or demanding more is right.

    And maybe we start this discussion with:

    a) how would you describe the income distribution, somewhat quantitatively , and

    b) how “should” it look like, and

    c) why, and via what measures

    My experience is, that only a very few people can answer a)

    nearly nobody can answer b)

    and I still have to find one person, which can answer c)

    But something like 80% of the population are somehow convinced that the present distribution is somehow injust

  52. adelgm,

    may I ask where you have your number of 10 b flood damages from?

    based on what argument that is “too much even for Germany” and based on what comparison “that comes expensive”?

  53. Well,

    with the comment traffic on this site today truly abundant, I dont think, I divert any attention : – )

    I followed up on this a little bit, because I had also discussion here locally and in the family, and I think the result is extremely typically for the central political problem we have now in most places in the world.

    The claim for “at least 10 billions” was made (http://www.linksfraktion.de/themen/hochwasser-2013/?drucken) by some hard core leftist, a Marxist economist Dietmar Bartsch on 11.06.2013, at a time nobody could estimate the damages, because some areas had not even reached peak flood.
    And definitely not him, he was not involved.

    In contrast :
    http://www.impulse.de/finanzen-vorsorge/die-finanzierung-des-fluthilfe-fonds-steht
    On 19.06.2013 (the day we still had alarm level 2 in Dresden) they have determined the size of the payments (“up to 8 billions”, or 0.4% of our current debt or 0.3% GDP, or about 2 weeks of our current account surplus : – ), the distribution( roughly 2/3 federal, 1/3 Länder), financing conditions (20 years, prefinanced by federal germany at 1.6% post tax yield, and therefore some 0.4 – 0.7% below the inflation level of 2% – (short term 2.5%).

    A textbook example, how this is done.

    The laws were passed very timely, in proper fashion, setting limits, and with an additional budget plan “Nachtragshaushalt”, and unanimously https://www.bundestag.de/dokumente/protokolle/vorlaeufig/17251.html
    Responsible eastern communists like Dr. Helmuth Markov lauded the excellent solidarity, execution, and collaboration, especially with his neighbor Poland.

    Why do I go into all this details here?

    Because I have some problems here with adelgm.
    – She tried to limit my free speech
    – She cites data of required help, which were just pulled “out of his arse” by others, just as this David Drumm, to then lament, that what all of Germany has decided is not enough
    – Critizing it simultaneously from the left as not enough and from the right as “too much”, where in fact we can do this with little difficulties, as shown numerically above. This kind of criticism is not productive in terms of “what is wrong here, and how do we fix it?”, but plays towards a vinny style kind of “we need a revolution, small steps don’t fix anything”. It breeds brooding resentment and doesn’t improve anything.

    It irks me then also a little bit, when http://www.irishtimes.com/news/world/europe/conned-a-german-view-of-ireland-1.1454115/conned-a-german-view-of-ireland-1.1454115?page=3
    makes the claim, that other EU fishermen took anything comparable to the debt in fish. Good comment link from that a JohnDiamond.

    Since I already have so many links, that I have to wait for moderation : – (
    2 more:

    http://www.umwelt.sachsen.de/umwelt/klima/1285.htm

    http://www.climate-service-center.de/030987/index_0030987.html.de

    if any of you finds there proof that global warming has something to do with our floods, tell me.

    And since some of you might read one of my prior postings as if I would claim to be somehow involved with the reservoir study, I don’t, but my private calculations, not just pulled out of my a.., were for 50 cm and 1 day the Czechs helped themselves and us with them.

    Just to complete this, a link (http://www.umwelt.sachsen.de/umwelt/wasser/7806.htm)
    where I can look up all data of my country and my neighbors (just clicking on their symbols, my trust is based on knowledge and understanding, and not just on faith) in real time.

  54. @ francis to give you a graphic set of answers to your questions –

    Finland for Education, access to Judicial systems and equality of opportunity income and citizenry.
    France for health services.
    Sweden for public administration structures.
    Singapore for implementation of laws and public services.
    Finland again for implementing reforms of governance, delivery of public services, revenue collection and efficient income distribution.
    Germany for societal cohesiveness.
    One question – why are so many German workers on government assisted income supports?

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