John Moran: “Alternatives to Austerity” Post author By Philip Lane Post date August 6, 2013 John Moran’s Macgill speech is here. Categories In Uncategorized 99 Comments on John Moran: “Alternatives to Austerity” ← IMF on Fiscal Councils → Cross of Euros 99 replies on “John Moran: “Alternatives to Austerity”” It’s not austerity it’s financialism. Anybody who doesn’t grasp that simple fact isn’t worth reading “Let me make things clear though: we remain committed to meeting the targets set out in the Programme but what exactly that requires needs to be determined at the time of the Budget (and not before).” Clear? And the cow jumped over the moon. Opening with an Ernest Blythe reference … Fianna Fail got 50 years at the doorstep over him “knocking a shilling off the old age pension” — did Noonan read his speech? A Preliminary Report on the Scource of Ireland’s Banking Crisis ” by Klaus Regling and Max Watson-page 6: “This was a plain vanilla property bubble,compounded by exceptional concentrations of lending to property-and notably commercial property” When the commercial property bubble burst it bankrupted the entire Irish banking sector,which in turn bankrupted the sovereign. Reckless Irish banks lent billions against the feudal leases i.e. upward-only rent reviews tied to long leases,not aganist the properties themselves ,and created the greatest commercial property bubble in the history of mankind. The reason Ireland had these ruinous leases was because the sovereign signed them and copper fastened them for all commercial tenants. On austerity, the people who have a grip of the public megaphone are least affected by the jobs disaster, and tax/ spending changes in recent years. Most if not all of the audience in Donegal would be in the same boat. Moran points out that the overall data suggests that austerity is a misnomer; capital spending has been drastically cut while current spending has risen. However, averages mask the distorted impact of austerity while the euro provides the personal security for the mainly older men and their eco system that run Ireland. Why would anyone of them embrace urgency or radicalism that would endanger their comfortable status quos? Fintan O’Toole who was also in Donegal, reflected some of the discussion in the Glenties yesterday in The Irish Times, bizarrely putting the operation of a Cabinet committee on the economy among the pillars of a ‘failed state.’ Whether formally or informally, how could a European coalition government of several parties operate without prior coordination between leaders? The reason why there is no serious reform or radicalism in Ireland is that the armchair experts on both sides of the ideological spectrum only see the humps on the distant camels. John Moran’s speech was essentially an accountant’s report. On a positive note it was missing last year’s nonsense claims on unit labour costs and fake services exports. As an accountant’s report, it lacked any vision on reform and the challenges ahead. Even on the accountancy, there was no reference to the IMF’s report on the Victorian era public accounts system …and on the era of Queen Vic, Adam S. Posen, the new president of the Peterson Institute for International Economics and former member of the Bank of England’s MPC, deals with the challenges in the FT today, arguing that the world is returning to the economic stability of the latter part of the 19th century with long-term low growth. http://www.piie.com/publications/opeds/oped.cfm?ResearchID=2450 It seems a reasonable argument but in Ireland it might be too much for the pub. @Michael Hennigan On austerity, the people who have a grip of the public megaphone are least affected by the jobs disaster, and tax/ spending changes in recent years. Do you include yourself among them? Re: Posen that piece “… arguing that the world is returning to the economic stability of the latter part of the 19th century with long-term low growth.” Economic stability in latter part of 19th? Methinks Mr Posen might benefit from a closer inspection at some of the historical downturns that occurred around then. No matter. Coal was king then. Steam was all the rage. No radio, no TV, no mobiles, just the telegraph and newspapers, no automobiles, no aircraft. Omnibuses were horsedrawn. Railways had just completed a second massive expansion and the collateral economic effects of this were rippling out. Normal? I would not have thought so. But no matter. Its all in the history books if you care to spend the time reading. Quite fascinating stuff. Actually, what western developed economies are experiencing is a ‘norm’ – of Capitalism. The periodic ‘flatlining of their economies. This propensity (where aggregate growth stagnates for almost a decade) occurred twice in the last century; 1933-1940 and 1973-1983 (or near enough). There have also been a few shorter episodes. That’s your Normal! Japan entered a Flatline phase in 1990 and is still in there! That’s your Normal. The western economic flatline phase probably started in the early years of this century and has been masked by gross financial chicanery and the massive inflation in property asset values and very low interest rates. There are a few other variables also at work in there. That’s Abnormal! Ernie, its a bit early in the morning, old chap! Go enjoy a coffee and croissant! Its a lovely morning. @ Brian Woods Snr Adam Posen is using the term ‘Old Normal’ as a response to some who term the current US economy as being in a ‘New Normal.’ He’s not endorsing the scenario. Posen is an interesting economist with a lot of international experience for an American: http://www.nytimes.com/2012/12/23/magazine/god-save-the-british-economy.html?pagewanted=all @ Ernie Ball “On austerity, the people who have a grip of the public megaphone are least affected by the jobs disaster, and tax/ spending changes in recent years.” Do you include yourself among them? No I try not to be a hypocrite; If I said I always succeed, I would be one. I’m waiting for Jeff Bezos in the guise of a white knight or tooth fairy. @ MH: Thanks for that. Noted and appreciated. Brian. Interesting look at EU response to the crisis…reminds me of Thatcher..the lady is not for turning, no matter what. http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_06/08/2013_513044 @ MH An “accountant’s report” is still a considerable improvement on what has gone before. A note will, however, have to be added to it as Ireland Inc. does not have a reliable and up-to-date accounting system, as you point out, and as explained in detail by the IMF. http://www.imf.org/external/pubs/ft/scr/2013/cr13209.pdf My suggestion would be that the staff resources across all departments devoted under current legislation to the will-o-the-wisp pursuit of “strategies”, “visions” and “outputs” be devoted instead to implementing the recommendations of the IMF. The only slight problem is that this would remove most of the raison d’etre for the existence of the Department of Public Expenditure and Reform. I read the document and it all seems to make sense if you’re thinking very traditionally about how to get out of recession but I can’t help question how unimaginative it is. The debt crisis was caused because it is the banks which create the money of the economy and they can only do so by creating a matching debt. Equally banks delete money when a debt with them is settled and so every euro has to have a matching debt. It’s as simple as that. If we want less debt, we have to have less euros and vice versa. There’s no sidestepping this issue and the debt crisis cannot be resolved under this system (although it can be delayed). If anyone would like more information on how money is created and destroyed I’ve prepared a paper here. On structural reforms, a reduction in long-term Government debt will reduce the assets with which banks have to trade with each other. On supporting growth there is a fundamental problem because perpetual growth as a means of stability is an unnecessary policy which cannot be supported on a finite planet. Furthermore, growth in the economy/money supply must be accompanied by growth in the levels of personal or business debt and perpetual increases in household debt in particular is not possible in a system in which mortgage durations have approached their natural limit in taking two incomes around thirty years to repay. External Environment and Private Sector Investment cannot resolve a global debt crisis. Bear in mind every euro/pound/dollar has a matching debt. If the extrenal environment and private investors have enough money to trade with Ireland it has to take on an equal amount of debt. The debt will stay abroad while the money circulates in Ireland meaning default is systemically inevitable somewhere. A true alternative to austerity would be to have the central bank create some/all of the electronic money of the economy without recording a matching debt. Indeed, we can never have a stable economy with stable jobs until we stop the haphazard creation/destruction of money by banks so if we were serious about controlling the business cycle we’d have the central bank create the entire money supply and have banks just do banking. Sheer common sense. Puts the Gene Kerrigan “stuff your austerity” brigade right back in their box. But one comment disturbs, I hope it was not fully considered. “In the absence of economic growth, Ireland cannot hope to emerge from this period of crisis”. That is a chilling thought given how dependent we are on external factors for that growth. Let’s say there is a 20% chance the growth fairy will not deliver that is a 20% chance that we are doomed. BW11 Would that be 80% fairytale then ? @ BWII Apart from the reference to Ernest Blythe, as adverted to by Frank Galton above, that was the second major hostage to fortune in the speech. @ All From the executive summary of the IMF report linked to above. “Ireland has the capacity and information to bring its fiscal transparency practices into line with international best practice standards within a reasonable time frame and relatively modest additional cost. The Irish administration already incurs many of the fixed and ongoing costs associated with modern accrual-based accounting and risk-based fiscal management. The CSO already prepares a consolidated general government financial balance sheet. All government departments, agencies, and local governments maintain registers of their fixed assets and produce partial operating statements and balance sheets. Actuarial estimates of public sector pension liabilities are periodically undertaken. Information about PPPs, guarantees, contingent liabilities, tax expenditures, and financial derivatives is regularly disclosed. The fact that this information is being collected, but is not being consolidated and published in comprehensive set of financial statements for the public sector and its sub-sectors, means that Ireland is not reaping the principal benefit from this effort. In the wake of the recent crisis which has seen general government’s financial liabilities triple, financial assets rise by 40 percent, and contingent liabilities rise to over 136 percent of GDP, the benefit of having this more comprehensive overview of the public sector’s net worth is that much greater.” Poor quality of discussion here. You’d swear we hadn’t 13% unemployment, mass emigration and a deficit of 1 billion a month. No thinking outside the box – in fact most haven’t figured out that it is a box. Very very poor By way of example: http://www.independent.ie/business/irish/black-day-for-retail-as-450-jobs-lost-29480998.html Maybe you’re all very insulated from this mess. Maybe you’re all over 45 in decent paying jobs. I dunno but there’s no sense of anything here. No leadership no vision no balls. We are a disgrace to our children. @BW II +1 That’s the critical point. We have seen from various official figures over time that, without growth, the economy’s trajectory is 130% + within a reasonably short timeframe. That trajectory will continue to break the economy. “there was an awareness that sound fiscal management must be accompanied by policies which are supportive of growth.” However, structural reform has been non-existent….The Fiscal Compact and related appears to be the extent of the Govt’s plan…..an accountancy exercise, as alluded to above. So it remains a wish and a prayer that something will turn up. In the meantime, borrow more and keep the liquidity going. In the absence of a default option, it is a dangerous strategy to assume that something unknown will save the day and deliver growth. It also mis-understands that debt service capability and sustainability is the creditors’ main priority; not whether the Irish standard of living can be maintained. While I am no fan of Vincent Browne, I think he got it right today in entitling his IT article today “Taoiseach’s ‘good year’ consisted of defending the position of the comfortable”. The problem is how much longer that can go on…..John alludes to critical data expected in September. That’s a bit of an arbitrary timing target, and is too open to manipulation, spin, election ‘prep’, etc. We have already seen over time that things have got much worse, not better (bar reduction in funding costs aspects assisted by the EU or proxy Troika support). Despite John’s saying “the recent disappointing growth figures from the CSO, which makes the job somewhat more difficult than anticipated before the release”, the plan is clearly to stay the existing course, regardless. Therein lies a great mistake. They appear incapable of adapting to changed circumstances….Surprised that John isn’t capable of more pro-active financial management. The best post I have seen in recent times on the Irish situation came from Chris Gardiner in Limerick in response to Vincent’s article: “Chris Gardiner I am one of those “have nots”. The inequality of living here is my greatest source of stress and anxiety. I just feel angry all the time which is no good for my life. I dream of living in another country but it is outside of my capabilities and resources. I feel stagnated and paralysed in this environment. I do not see light at the end of the tunnel. Depressing? Yes I suppose it is but then again how can it be otherwise. Thats what living on the basics is like. You go from pillar to post. Thank you Vincent for the article though. At least someone is trying to flag this charade of a government. Chris in Limerick.” Says much….very much about the economic management and social deterioration in Ireland. So, if growth doesn’t happen to save the day, expect the State “to resort to the imposition of unforeseen and arbitrary burdens…” on the taxpayer. The only option, outside of default, will be to accelerate reduction of the primary deficit. It will be difficult to reduce the public service. There will be more cuts to SW, health and education.However, that will not be enough. All that are left to plunder will be deposits (over say 100k….Revenue has been gathering info on that aspect for some time now), and private pension funds…already plundered, so why not some more. That is where the Govt is potentially leading the country. “probably”if no growth materialises. Such an eventuality is not denied by John. @ All FYI http://www.irishexaminer.com/ireland/fg-junior-minister-urges-harsher-budget-cuts-239102.html With such penetrating analysis, how can we possibly go wrong! Paul W, VB article was largely fact free. If you search the DOF website you will find a report on the distribution of the fiscal adjustment. The burden has largely been carried by the upper income cohorts. Little things like facts…so inconvenient. @Tull I said that his title is apt/spot on. Once upon a time,I made a very decent living in Ireland. Could afford more in tax. Yet child allowance, etc….child allowance is a complete joke…but would come in every month for my three kids. Won’t solve the problem though by increasing tax on the wealthy although it might begin to address the fairness issues. Chris (above) really captures the inequality issue…. Main difference in approach as far as I can see between me and the likes of Kohn McH is that he sees it as economic management with recovery as the goald.I see it as economic management with debt service as priority for the Troika (extract value for creditors) and “structural reform” (lower labour, SW costs, etc) being of secondary importance…to the creditors (a local concern….choose yourselves how you wish to do it). It’s demonstrated somewhat by the foreign banks in Ireland….Alllooking to get out (but minimise costs of doing so…extract as much they can before exiting fully).In the meantime, the Irish think that these (and their Giovts, peoples, etc) are benevolent partners….Load of crock. Simpleas that. So, the like of John McHale and John Moran (he appears very “resigned” to Ireland’s “fate”…surprising but maybe inevitable when one accepts debtor prison for one’s sins) are busy being busy. It may or may not work out…but they and Official Ireland is not in control.They /it are merely part of the well established international system….system of law favours the strong /creditor. Simpleas that.It is no more complicated really than than that, execpt that the Irish Govt and agents are (maybe unknowingly?) part of the debt collection system. All the rest is noise…..as we have seen in Greece, Cyprus, etc. I would have thought (despite what Eureka has written) that the situation was reasonably clear. Thought what to do – is another matter entirely. No income – no taxes. Little income – little taxes? Big income – ??? taxes? A state needs tax revenue to function, and there is a limit on the amount the Revenue can ask (or demand) taxpayers to pay. Taxpayers (irrespective of their income levels) have to eat, sleep and perhaps have some leisure. Taxpayers are the consumers. You mess with their incomes and consumption falls – as will the total tax revenue. Taken to its basics, Austerity (or fiscal consolidation, if you prefer) will nett out at less disposable income for consumer spending. And the government arranges to ‘borrow’ the shortfall for day-to-day spending. This latter only works if there is an annualized, incremental increase in aggregate economic activity (with the appropriate level of credit creation) to ensure the increasing interest charges on the incrementing debt level is payable. WE have run into a stonewall on aggregate economic activity. Its ‘stalled’ – or worse, its decreasing. The inconvenient fact is that the state cannot continue to fund its day-to-day expenses. Well, it could, but the consequences of that are really too awful to contemplate. Our politicians need to have a truthful conversation with their taxpayers about how the revenue to fund the state’s activities is to be raised. This they have failed – so far, to engage in. It would be a pretty unpleasant conversation. Which is probably why it has not happened. Economic ‘growth’ cannot be resumed – at the pace needed, because the accumulated level of debt (private, corporate and public) is too high – and rising. And even if all those debts were Jubileed away – we’d still have a problem. We’d have to endure a significant level of inflation. Which would simply pile on more misery. “Little things like facts…so inconvenient.” Quite! @ BW Snr “The inconvenient fact is that the state cannot continue to fund its day-to-day expenses. Well, it could, but the consequences of that are really too awful to contemplate.” If the debt is unsustainable, the Irish Govt’s (FF or FG/Labour) track record is to not rock the boat and go for the easiest path. If they cannot cut people enough (PS related, including PS pensions), the only sources of wealth left are deposits and private pension funds. As we have seen elsewhere, deposits would be targeted first. In Ireland, given the existing precedent, already funded private pensions will also be in line for attack.Likely that it will be a combination of all. However, standing back, what is that all about? Saving sovereign reputation, solvency, etc….Nah, it’s just debt service (from the opposite side). Believe me, if you saw up close how the Germans and the Dutch (who I know) deal with insolvency, you wouldn’t be surprised. So,noise and more noise from Ireland. Solutions. Without debt restructure option, reduction of the primary deficit is the only option. How many years ago was it that this was recommended by Morgan Kelly? If it had happened then, what would the ESRI projections have then contemplated (another real “Achilles’ heel” in John’s speach….actually, too “party line” all in all….he must be getting old (compared to when I did business with him). Another solution might be some general economic alignment of Ireland with Boston as opposed to Berlin…Afterall, most FDI is US. Right now, Ireland is among the “unwanted relatives” in Europe….There won’t be much “family love” from Europe if Ireland isn’t capable (whatever about willing) to pay all its debts. Better cosy up to your Yank cousins if looking to defend against the bullies in the EU yard. @Paul W After World War Two, Irish America controlled the Democratic Party. In 1948,the Democratic Party president Harry Truman, organised the Marshall Plan to rescue Germany and mainland Europe from economic ruin. Irish America’s control of the Democratic Party reached its zenith twelve years later in 1960, when the Irish big city bosses of the great eastern and midwestern cities combined to nominate the grandson of Honey Fitz as the Democratic Party candidate for president. On June 26, 1963, the US President, John F Kennedy, spoke at the Berlin Wall, and committed all of America’s resources to the defence of West Berlin. Mr Kennedy arrived at Dublin Airport later that day and was greeted by another American-born President, Eamon de Valera. JFK spent eight hours in Germany and four days in Ireland. On the day he died, the President of the United States, the Speaker of the House of Representatives, the Majority Leader of the United States Senate and the Chairman of the National Committee were all Irish, all Catholics and all Democrats. Irish America rescued Europe after World War Two. Perhaps Germany and the rest of Europe should be reminded of this important fact. http://www.independent.ie/opinion/letters/saving-ireland-26842830.html The purpose of John Moran’s speech is not to educate (and certainly not to entertain) but instead is to endorse the “nearly there” / “final stretch” / “end is in sight” / “90% done” nonsense. Some relevant information not mentioned in the speech: (1) By virtue of EZ membership, there are multiple mandatory fiscal targets, not just the 3% by 2015 one. The most salient of these other targets is the MTO 0.5% deficit target for 2019. (2) Since this is a mandatory EU target, there’s a plan in place to achieve it (from the SGP submission). The main elements of this plan are, between the years 2013 and 2019: (i) HICP/inflation will increase by 9% (ii) Both GDP growth and government revenue will increase by 22% (iii) Government expenditure will increase by 1% (3) Ireland has the second lowest tax-to-GDP ratio in the EZ (Eurostat). While taxes on those in the upper income brackets appear to be in-line or higher than others, the combined tax/social insurance on lower and middle income is below average. The target for inflation seems OK, somewhat lagging the 2% EZ-wide target. The GDP growth/revenue target is, as always, based on things taking off in two years time. (This time is different, you see). The expenditure target assumes that nominal expenditure is essentially kept flat for the entire period, which amounts to a significant real decrease. (Has anyone told Labour yet?). The numbers in (2) just don’t add up, which is where (3) comes into play as the basis for the likely policy response. (And that’s just the fiscal side of things – the unprofitable/deleveraging banks are another story). John Morans’ speech, like so many “a lot done, a little more to do” ones, spends most of the time on the past, and says conspicuously little about the future, other than vague hand-waving about confidence and growth-friendly measures. To do anything else would be to invite analysis and the realization that the numbers are unlikely to add up, and to discuss the policy options available when the numbers don’t, in fact, add up. Mustn’t frighten the horses. Brian G, Well spotted. Debt service and fiscal sustainabilty requires more cash from/less cash to the average household. Cuts in transfers loom irrespective of who governs. Paul W, Agree 100%. form common cause with the anglo saxons. Our gallant allies in Europe have never been a) gallant or b) allies and c) reliable. A Churchillian salute. @ John Corcoran Every US president since Kennedy, except Johnston, was Irish (see Wiki). But I take your point, they are not really Irish if they aren’t RC. A good article from Ann Cahill …… http://www.examiner.ie/austerity-focus/europe-perspective/special-report-day-4-is-austerity-working–the-european-perspective-239187.html A bleak autumn??”? @ John Corcoran John, On this thread alone, you have made 2 postings that you have pasted on multiple threads over the past year, whether there is any link with the subject matter or not. Bore someone in a pub or whatever, but if you have nothing new to say, don’t make a nuisance of yourself. @ Flj A good but rather impressionistic article! What is missing is any quantification of the economic weights of the different players. France and Germany make up half of the economic activity of the EA. There are signs that the French economy is at least beginning to stabilise. http://www.ft.com/intl/cms/s/0/d2f309b2-ff6c-11e2-b2fa-00144feab7de.html#axzz2b5qV4DiM As Wolfgang Munchau points out in his Der Spiegel blog, the likely winners of the federal election, the CDU/CSU, whether outright or in some coalition, have no detailed economic policy. Merkel has simply been riding the wave of the delusion that Germany can surf unscathed through the crisis. The Autumn will see IMHO a scramble to find one. @Brian Woods 11 Brian I am merely quoting Daniel Patick Moynihan on his chapter on the “Irish” in the 1964 classic “Beyond the melting pot” co authored by him and Nathan Glazer. He only dealt with the Irish Catholics in this great book. @ Paul W: Obliged for that. My op is that we (Irl) have to stop fretting about our near and not so near neighbours, and get on with planning (swiftly!) for our own survival. Its possible, but a lot of noses would have to undergo some unpleasant surgery! And the plan has to be an all island affair. That’s politics: its politics first, economy second. Those ‘bullies’ as you term them, have political, economic, demographic and geography problems which do not encumber us. We could threaten. And our threat would be both real and credible. You just need to know what you actually want (for this state) and be possessed of the political testicles necessary to empower the process. Lot of honest persuasion (not fear-mongering rhetoric) required. @ John C: ” …organized the Marshall Plan to rescue Germany and mainland Europe from economic ruin.” Opps John! – that plan was to corral and sterilize the emerging Soviet sphere of influence as its (then) socialist-style economic policies were completely inimical to the re-surgence of western (aka: US centric) monopoly capitalism. The UK had just recently dumped Churchill and the Conservatives: some folk were feeling the chill. Dictators have two hands John. One carries the carrot, the other a rather menacing stick. Or in the case of the US, a gently oscillating baseball bat! Anyways, back to the topic in hand. Its not about the ‘success’ or ‘non-success’ of Austerity – or whatever you want to name it – Its about incomes, and whence they come. And how much folk have left to spend on the necessaries of life, after they have had their wallets, purses and savings accounts looted! Looted! That’s what has happened. Its not some airy fairy future scenario. Its here. Y’all better have a Personal Survival Plan. @ Tull “If you search the DOF website you will find a report on the distribution of the fiscal adjustment. The burden has largely been carried by the upper income cohorts. Little things like facts…so inconvenient.” Depends what facts you want to look at. Here are 2 simple ones. 1. The number of people working in the economy over the age of 35 is the same now as it was in 2007. All of the unemployment has been bourne by the younger age group. 2. The spending in the domestic economy by people over 45 has actually increased between 2007 and now. All of the decrease in spending in the domestic economy has come from the under 45s 35-45 because they are paying down huge debts and 16-35 because they are unemployed, underemployed or emigrated. There is also a popular line rolled out that core rates of social welfare have not been touched. Not so for 18-21 year olds JSA and JSB has gone from 188 to 100 per week. 22-25 year olds it has gone from 188 to 144. At the same time pension payments have increased. Any wage increases people got between 2002-2008 were only possible due to a property boom that has left 35- 45 year olds in massive negative equity. Wage increases at this time were massively over inflation and built on sand. The business classes 45-65 years of age in both public and private sector have spent the last 5 years protecting those completely unjustified wage levels using any means possible. Those means included letting many young people go from employment, hiring freezes, a lack of new well educated energy and huge increases in unpaid/low paid intern work. This has had a devastating effect on the domestic economy and the lives of younger people. I would be willing to bet this level of self interest was a large part of the reason behind the regular gluts of emigration in the past. Worst of all they are cutting off their noses to spite their face. They continue to butcher the domestic economy they rely on for business. Eurekas comments about being “a disgrace to our children” hit the mark. @ DOCM The IMF says Spanish unemployment will be above 25% in 2018 and French unemployment will be at 10.4% – higher than 2012 when Hollande was elected. Eurointelligence says Hollande is planning to add thousands of minders in playgrounds and training places. John Moran concluded his speech with the official talking point that 20,000 jobs were added in the private sector in the 12 months to March 2013. This is a dodgy claim and there are already 65,000 in publicly funded back-to-work schemes. By hook or by crook, the Government will achieve its goal of adding 100,000 to the employed by 2016. NewEra is the official name and the minister responsible has had nothing to say for over 2 years but the €6.4bn cash from the public pension fund will soon be in hand. Ann Cahill refers to dodgy banks but some of her own detail is not correct. When EU finance ministers met in Portugal in Sept 2007, the subprime crisis was old news, dating from early Feb 2007. German banks’ exposure to the PIIGS wasn’t €550bn. At the time of the IMF bailout, the Bundesbank put the net exposure to Ireland at €25bn. As for Irish income being back to 1999 levels, that’s ok if it is meant to be GNP rather than earnings. CSO data shows that in the four years to Q1 2013 average weekly earnings fell 1.8% with a rise of 11% in IT and falls of 13% in construction and accommodation/ food services. The decline for those who remained in work mainly reflected lower overtime and bonuses. The German goods surplus in H1 2013 was as low as €1.5bn. http://www.finfacts.ie/irishfinancenews/article_1026380.shtml Franz Nauschnigg of the Austrian National Bank writes on Project Syndicate (link below): In 2004, the PIIGS’ biggest trade and services deficits were with the rest of the eurozone. But in 2005, their combined deficit with the rest of the world, at €37.2 billion ($48.6 billion), exceeded their combined deficit with other euro members by more than €4 billion. Then, in 2008, before the worst of the global financial crisis hit, the PIIGS’ global deficit reached a record-high €116.5 billion, of which €34.8 billion was with China, surpassing their deficit with Germany for the first time – by more than €2 billion,. Crucially though the PIIGS’ combined deficit with Germany, the eurozone, and the world narrowed substantially over the next four years, their deficit with China remained huge – at €33 billion in 2010 and €29 billion in 2011. @ eamonn moran There was a comfortable but smaller middle class in the 1950s and today, a pillar of that sytem, the Four Courts, appears to be a hive of activity. Shatter, who has done well himself from the legal business, appears to have parked legal services reform in a place called Limbo. What emergency? The big name firms in the sheltered sector are doing well from government work and foreign multinationals. What recession? http://www.project-syndicate.org/commentary/why-southern-europe-needs-currency-devaluation-by-franz-nauschnigg @Eamon Moran The business classes 45-65 years of age in both public and private sector have spent the last 5 years protecting those completely unjustified wage levels using any means possible. These well to do ladder pullers are tomorrows widows and pensioners Eamon, how can you be so callous? Everything they did to secure their position in society was either technically legal or commonplace. Nothing has changed in the last four years. The fight over economic policy remains about which countries and which classes within those countries bear the costs of the European component of the global financial crisis, with the creditor countries using their control of European monetary policy and effective control of national fiscal policy to recover as much as possible from the debtor countries and the elites of the debtor countries trying to protect their own financial interests from the consequences of these gutless reparations. Finally there is Tull, guardian of the enfranchised, friend to those in surplus. I find it hard to believe that anyone could argue with a straight face that the increased relative contribution in taxation from the well off in Ireland is in any way equivalent to the worsening conditions for the unemployed, marginalized or poor. It is comparing reduced luxury to increased misery, a bankers missed golfing weekend to a child’s missed dinner. How dire does unemployment have to get before something explodes??? http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_08/08/2013_513325 27.6% headline and 64.9% for young people. “Most worrying of all is the fact that childhood obesity has reached epidemic proportions in Europe, with body weight now the most prevalent childhood disease. While currently there are no agreed criteria or standards for assessing Irish children for obesity some studies are indicating that the numbers of children who are significantly overweight have trebled over the past decade. Extrapolation from authoritative UK data suggests that these numbers could now amount to more than 300,000 overweight and obese children on the island of Ireland and they are probably rising at a rate of over 10,000 per year.” http://www.dohc.ie/publications/report_taskforce_on_obesity_es.html @ JG All very well but where is the substantive action? “The vision of the Taskforce is expressed as: An Irish society that enables people through health promotion, prevention and care to achieve and maintain healthy eating and active living throughout their lifespan. Its high-level goals are expressed as follows: The Taoiseach’s Office will ensure that an integrated, consistent and proactive approach will be taken across all government departments, agencies and public bodies in addressing the problem of overweight/obesity. The private sector has an important role; it acknowledges it has a responsibility and will be proactive in addressing the issue of overweight/obesity. The public sector, the private sector and the community and voluntary sectors should work in partnership to promote healthy eating and active living to address overweight/obesity. Individuals should be personally empowered to tackle overweight/obesity and sensitive interventions should be developed to support them.” This is the type of management twaddle that got the country into the situation in which it finds itself; and is keeping it there. As Helmudt Schmidt (I think) famously remarked “anyone who has visions, should consult a doctor!”. @ Fiatluxjnr In Greece, using the number of people below 25 who are not in full-time education or full-time training as a denominator, gives a youth employment ratio of 17%. Ireland’s broad rate of unemployment is 24% according to the IMF and in July there were 486,000 people from a workforce of 2.1m in receipt of some form of public unemployment benefit or job subsidy. @ Fiatluxjnr …that should read: youth unemployment ratio of 17%. @ john gallaher The NYT reported Tuesday: “The obesity rate among preschool-age children from poor families fell in 19 states and United States territories between 2008 and 2011, federal health officials said Tuesday — the first time a major government report has shown a consistent pattern of decline for low-income children after decades of rising rates.” http://www.nytimes.com/2013/08/07/health/broad-decline-in-obesity-rate-seen-in-poor-young-children.html?pagewanted=all&_r=0 The US is unique among advanced countries in its adult obesity rate of about 36%. Credit where it’s due, compared with emerging economies, the standard of health awareness has hugely increased in the developed world in recent decades. @DOCM,oh it was a quick response to Shay’s evocative and heart wrenching tale.. “In Ireland at the present time 39% of adults are overweight and 18% are obese. Of these, slightly more men than women are obese and there is a higher incidence of the disease in lower socio-economic groups.” @Fiat/MH the lazy,non tax paying greeks,and other myths… http://www.brookings.edu/~/media/Research/Files/Papers/2013/08/06%20greece%20recovery%20dervis/ELIAMEP_BROOKINGS%20Greek%20Myths%20and%20Reality.pdf @MH thanks yes its been widely covered here,the first lady made it her top priority. Samaras is in Washington,some pretty decent coverage and a few good papers. @Shay was just having a bit of fun,bad taste as usual,not making light off the situation at all,but extensive coverage last few days here prompted me take a look at the Irl. numbers. The papers linked above were released in connection,with Samaras visit. @Shay +1 More succinct than I wrote. @Bryan G Very interesting as always. In terms of increasing taxation, there are real limits to that. The average cost of living in Ireland is higher than in Europe. My point is that once the social limit is reached, the main other sources of wealth (deposits and pensions – both private and public) will be attacked. A combination is likely. The elite will not let go their salaries and benefits too easily and the unions will protect the PS. ‘Dutch Mood shifts against austerity and the EU’, by Matt Steinglass in The Hague for the FT. http://www.ft.com/intl/cms/s/e0cef102-0040-11e3-9c40-00144feab7de,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fe0cef102-0040-11e3-9c40-00144feab7de.html&_i_referer=http%3A%2F%2Ft.co%2FG3742F2ZEn#axzz2bOhTzMUr @ John Corcoran Maybe a few facts: When I looked up Truman on wiki, it looked like his mother was Scottish, and this about it with the celtic connection. Even when I put an apostrophe into O’bama it doesn’t exactly sound like an Irish name. If I would have a 32th of jewish blood in me, the Stammbaum is a little dirty in one part : – ), would that make me a “Son of Israel”? Obliged to defend some settlers in Palestine West Bank? The Marshall plan was about 1.5b , or 5 % of GDP, and resulted in back payments of about 15 b (Agreement_on_German_External_Debts), and 500 k motivated German soldiers (rising to 2 million to be mobilized at the peak, within 2 weeks) firmly on the western side of the divide. All parties involved, including Ireland, Spain, and Greece, agreed upon it as a good deal. When subsequent payments were activated after reunification, via the BIS, I did not hear anybody complaining until the last payment on 3rd Oct 2010. As far as I know, Ireland has NO allies, since it chose to not join NATO, and contribute to the common defense, as now even Albania has done. Maybe something to think about? What did Ireland contribute? When Kennedy was 1963 in Berlin, he said http://www.berlin.de/kennedy/26-juni-1963/rede/artikel.11656.php „In 18 years of peace and good faith, this generation of Germans has earned the right to be free, including the right to unite their families and their nation in lasting peace with good will to all people” I do not read that much of your claim “committed all of America’s resources to the defence of West Berlin.” But maybe you can point me to a somewhat official reference for that? We defended my fatherland together with our American brothers in arms, then in Kosovo and in Afghanistan, shoulder to shoulder, after NATO declared Article 5. Mainland Europe has supported Ireland very generously http://www.money-go-round.eu/Country.aspx?id=IE&year=2011&method=gdp Even more than Greece. Could you point me to one country in history, which has received more help? Could you tell me, why that obliges the mainland, of which Germany is only 27%, and Italy, France, Spain, Netherlands, and so many others, contributing to their abilities as well to finance Irish mortgages? Mainland Europe has given Ireland very generous conditions on the aid credits in the last few years. With NPV around just 50%. Do you think this is your birth right, or contemplate just a tiny little bit of gratitude for that? From Samuel Brittan in the FT “Meanwhile, it is in the interests of the eurocrats to make the problems seem as complicated as possible so that only a small number of so-called financial experts can even discuss them; and we have had one financial package after another and one guarantee after another to keep the structure going. But loans and guarantees do not make the unsustainable sustainable. There is only a limited number of ways that the situation could develop.” With Official Ireland’s decision to borrow and borrow (and borrow) again, debt restructure becomes les and less morally justifiable, until one hits a point where the debt simply overcomes the debtor. Ireland is a long way from that. What’s sad (even shameful in many respects) is how the Irish have managed the social aspects, within the Troika debt service package. Leading Irish economists such as JMcH and co have largely ignored the social aspects in favour of the accounting, simulation and like aspects. @Paul W The numbers I gave were from the latest IMF report (and were from 2013-2018), and not the SGP submitted to the EU as I indicated. As is usually the case the latter is even a bit more aggressive (-0.3% deficit in 2018 rather than IMF’s -0.9%). Interest payments on the debt will be about 10bn a year, so the plan is to run a primary surplus in the 4.0% – 4.5% range. What could possibly go wrong? Where this will end up politically is hard to say. Asset grabs are certainly possible, but I think the shape of personal taxation in Ireland will end up much closer to the EZ norm than it is now, one way or the other. If the political will to tackle high costs (property/house prices – which are still too high, legal/accounting services, healthcare specialists etc.) hasn’t been demonstrated in the last 5 years, I don’t expect much of a breakthrough in the next 5 years. Off topic but could be relevant …maybe… The Brits send in the gunships…for a visit….might help Rajoy overcome his problems. http://www.telegraph.co.uk/news/worldnews/europe/gibraltar/10231438/British-navy-warships-to-visit-Gibraltar-amid-diplomatic-row.html @francis With NPV around just 50%. Do you think this is your birth right, or contemplate just a tiny little bit of gratitude for that? You mean like the gratitude you feel for the 50%+ NPV writedown Germany was granted in 1953? You do understand that Ireland’s EU loans haven’t cost German taxpayers a cent? (with the possible exception of the ESM capital contribution much of which is recycled back into Bunds so that the true per capita cost of this is less in Germany than anywhere else – i.e. Ireland is borrowing at its own costs money that is then lent by the ESM to Germany and other AAA countries) And you do understand that there’s at least 60bn+ in privately held Irish sovereign debt standing in line before any EU contingent liability would be realized, and that even worst case scenarios don’t involve defaulting on more than 60bn of sovereign debt? Or do you simply enjoy your own brand of arrogant and ignorant nationalism and prejudice – you know, the one where your “fatherland” is always the victim and is constantly under siege by a bunch of ungrateful criminals and slanderers? @Bryan G It’s natural for Irish people on here to dislike Francis. However, he has a point of view that we should nonetheless listen to. From his point of view, many of our views are alien and (up to) abhorrent. The issue is whether we can learn anything dorm each other. So far, Francis has been an entertaining and counter presence in debate here. Let’s recognize that and chill. @Paul W False narratives, whether peddled by the Irish Dept of Finance/media/commentators or the German Dept of Finance/media/commentators should be called for what they are. Those served with lashings of moral rectitude and overt prejudice even more so. You’re entitled to your opinion of course, but it’s certainly not one I share. The actual narrative, in contrast to the false one, is that for the EU loans to Ireland, the EU acts as a small-profit-making conduit and not a loss-making source of funds. That will remain the case until such time as Ireland actually defaults on its official loans. All funding costs (e.g. for the recent maturity extensions) are borne by the Irish state, not absorbed by any other countries. The only people paying for anything are the Irish taxpayers. @ Bryan G I am a simple soul. Ireland was able to borrow at 3% or whatever from the EU when, if left on its own, it would have found it either exorbitant or impossible to continue to live way beyond its means. To twist the fact that the fund making these loans gets its funding cheaper still and therefore makes a small accounting profit into an interpretation that after all Ireland is borrowing on commercial terms is preposterous. Maybe a diagram will help. My friend is in dire straits. He can’t feed his kids. The banks won’t lend him any money. But I go guarantor. That changes things, bank now lends my friend at vey attractive rates indeed. My friend suddenly turns on me “you have given me absolutely nothing, the banks are making a tidy profit from everything they have lent me”. this reflects the ‘view’ to some degree.. “It is often said that Germany has benefitted from monetary union and it therefore has a duty to help. Weidmann: I think that argument is incorrect. First, counting up the for and against of who has benefited to what extent from monetary union is not helpful. A stable single currency benefits all member states – some perhaps more than others, but that, too, can change over time. After all, Germany was certainly not considered to be a winner during the first few years of monetary union. Second, when monetary union was established, we agreed on a legal framework which has to be respected: a single monetary policy ensures price stability and each member state is responsible for its own fiscal policy. This is precisely what is expressed in the “no bail-out” clause. And third: Germany is already providing large-scale assistance for the peripheral countries, not least as an anchor of stability and as a guarantor of the rescue packages.” http://www.bundesbank.de/Redaktion/EN/Interviews/2012_07_27_weidmann_bundesbankmagazin.html @Brian Woods II If the guarantor said that he had guaranteed a loan at a concessionary rate, of senior status, with a high probability of being paid back given debtor’s earning power and making a nominal profit overall, that would be one thing. (It is, after all, what the IMF has been doing worldwide for decades.). That’s not what is being said, however. paul w, bw2, paul g, thanks a lot for your words. I was wondering, whether my comments here have a positive effect. From my perspective, this engagement a) makes sure, that I, and therefore also other folks here in Germany understand the “Irish side” in significant detail b) I comment at least on such statements, I regard as easily demonstratable wrong c) that some comments and thoughts get played and checked against each other This is something that should happen a lot more across all of Europe. When I look at what is actually happening, then it is mostly some Germans and a few Americans engaging in some native english blogs, and the rest is silence. But if somebody has some encouraging examples, I would be delighted to hear them. I hear in Germany also many thinks I find pretty weird. Some people are convinced, that this republic is really a private corporation, owned by the bilderbergers and alike, because, e.g. the institution, you can buy the bunds from, is formally a limited liability corporation (GmbH) and some more below. Mostly people are just simmering in their own stew. Same happens, at least here around, in the various political camps, mostly simply left/right. And then people are surprised if they lose votes and plebiscites, despite “all reasonable” people, a.k.a. all the people they talk to, having their special opinion. A study colleague of mine gave up railing against the suebian railway station (Stuttgart 21) just a few weeks ago. He had written “scientific analysis” about how fast the trains can enter and leave, according to his opinion, given press conferences, organized a wiki project web portal, the whole nine yards, really impressive, from a certain point of view. Whether that railway station project is a stroke of genius or cost efficient, or not, one can perfectly reasonably argue about, people put on demonstrations, and there was a plebiscite on 27. Nov 2011 with 59% pro building. It took him and others, mostly on the left/green side 1.5 years to finally make peace with this decision of the people. Now he wants to move on to rail against the NSA, same way. Here in Dresden some greenies can not accept 8 years later, that they lost the public vote over a bridge by over 2/3. Well, Germany certainly has enough minders of the common good, maybe other countries could use a few more, probably we should try some cross-breeding :- ) What irks me, is this intolerant intensity in small scale issues, within a well working democratic environment. I could add some words on what passions people have on some tiny perceived east/west injustices of the German pension system. If you then think about more common European institutions, and how little people are talking with other nations and countries are willing to adapt simple things like retirement age or how to deal with mortgage defaulters, this would just end up in everybody feeling short changed and intense hatred. The second point, why I am bringing this up, because, when I look at e.g. Egypt, I see a very similar activist minority on the Taksim place, which then couldn’t understand that the silent 2/3 islami in the country outside Cairo think and voted otherwise. And if both sides are then hell bent on getting their goals through 100%, a civil war is in the making. How this will play out, when China makes hopefully the transition away from one party rule, scares me a lot more than Ireland, to be honest. John G One small comment on the powerball, the wiki and http://news.yahoo.com/report-nj-workers-ticket-448m-powerball-074748626.html basically say, that the best payout is just 33% pre tax, And that a 3$ ticket, with a 175e6:1 chance for the max, basically pays out just 58 m post tax, in states without state tax on it, kind of a < 20 % post tax for NYC. Nice trickery with the annuity accounting, I didn’t recall it as that bad from 10 years ago. It begs of course the question, what kind of people are playing this for what reason. @francis,hi francis,this interview by the dallas Fed chap Fisher hit CNBC and the WSJ. http://www.handelsblatt.com/finanzen/boerse-maerkte/anleihen/us-notenbanker-fisher-fordert-abkehr-von-lockerer-geldpolitik/8614658.html Here is the Dallas Fed,economic update,a quick breezy read,and yes no luck with the old powerball.I enjoyed your link and piece by that maths fellow.Sort of ruined the excitement for me though:) http://dallasfed.org/assets/documents/institute/update/2013/int1305.pdf @ Bryan G Ok, fair point, it is more complex than simple man like me can cope with. But still it remains that without the forbearance of our partners we would now be goosed. Maybe not entirely altruistic on their part, but still not really appropriate to throw their bail out in their face. @Brian Woods II I’m not throwing bailouts in anyone’s face if the bailouts are characterized accurately for what they are, and seen in historical and economic context. If turned into a medieval morality play where the undeserving criminal rich are trying to steal the good folks’ money, dragging everyone else down into the abyss with them, but where they can and will be stopped and whipped into shape, then I think the proper place for that is a book of fairytales. @ John G I think Fisher is in general more on the hawkish site. And it seems that their house prices go up faster than expected, means they can take away the QE punchbowl faster than orginally planned. Gotta update my case shiller file with the prediction I made in 2009. the budget deficit is down to 4%, debt held by the public at 70%, the CA ist not really negative, and in a year they start bitching about socialist Europe, cant control their spending …. In the moment I look at the papers with regard to air contamination in China @francis,house prices have been on a tear,mainly in sunbelt,but from a very low basis.Driven to some degree by hedge funds-the new landed gentry. Yeah my bet is Larry,who has indicated the party is coming to an end.China has been in the news a lot here,but more about ‘austerity’ confucius style,than pollution. I look at the European papers the odd time mainly FT-but US Ed-France is a cause off concern,Friday evening off drown my sorrows over powerball! http://www.foreignaffairs.com/articles/139629/john-delury/austerity-with-chinese-characteristics Always nice to get your money back too,w/o too much mud slinging and nonsense. “Once the second-quarter dividend is paid, Fannie will have repaid $105 billion of the roughly $116 billion it received from taxpayers.” http://www.nytimes.com/2013/08/09/business/fannie-mae-reports-earnings-of-10-billion.html @ Bryan G, maybe you remember that the thing started, when John C repeated his bizarre claim: “Irish America rescued Europe after World War Two. Perhaps Germany and the rest of Europe should be reminded of this important fact.” It reminded me of some Greeks, who demanded that we should subsidize them to eternity, because they invented 2500 years ago some kind of “democracy” @ John G, all The China air data are interesting with many respects, at least for me. a) has that impact on their development perspectives, with 5.5 years it would, probably b) what does that mean for living in a city center for myself (with an estimate for 2 compared to above, and local PM data, I end up with about 3 min per day that might cost me, … shorter distance to the bars and restaurants is more important for me : – ) c) how far can you go with advanced modelling http://andrewgelman.com/2013/08/05/evidence-on-the-impact-of-sustained-use-of-polynomial-regression-on-causal-inference-a-claim-that-coal-heating-is-reducing-lifespan-by-5-years-for-half-a-billion-people/ @francis …It reminded me of some Greeks, who demanded that we should subsidize them to eternity… I guess you’re just surrounded with undeserving rich criminals that are trying to steal your money. I hope you reminded them of your moral superiority. A bit of weekend reading: Ireland’s PCAR in “actually not terrible” shock. http://www.imf.org/external/pubs/ft/wp/2013/wp13178.pdf BW II , Without forebearance, we would have had to slash public spending and raise taxes to get to PS. However, without forbearance, back door QE, and fiscal transfers, the Euro would probably have collapsed by now. Brian G is right to highlight the enlightened attitude shown by the allies to a people who had just destroyed a continent again and committed genocide. The alternate to this enlightenment was the Morgnethau plan. @ john g ‘Yeah my bet is Larry,who has indicated the party is coming to an end.China has been in the news a lot here,but more about ‘austerity’ confucius style,than pollution’ This man is always worth a read. http://blog.mpettis.com/2013/08/the-changing-debate-over-chinas-economy/ @ Bryan G Your comments always well informed, but Ireland was neutral in WW2 and does not participate in NATO. We had our reasons, which arose from our particular history as an emerging state. It was the right stance then, then and it is still the right stance, IMHO 🙂 @ Tull Alternatively the government could have introduced capital and all other sorts of controls. Paid public servants any salary in excess of say 20K in IOUs. Emergency legislation that IOUs are legal tender. Introduce punt nua at par but let it float. Redenominate deposits, mortgages and all legal contracts including employment contracts in PN. Either outright default or convert sovereign debt to PN. PN sinks to 50c. Massive transfer of wealth from old to young, some minor brolllie protests but no tall buildings burnt down. Wind back all austerity measures aimed at public servants as they start to grumble about inflation. And then live happily ever after. And I forgot. Germans and others would confiscate any Irish assets as a reprisal for effective default by Irish government so those canny folk who thought they had got it all out would be caught. BW II, All that might still happen. Anybody who has their running away money in euros in a German bank is insane for the reasons you state. Better to keep it in $/£ as I presume we would have the good sense to honour our obligations to our natural allies rather than ” our enemies in the common market” …Sir Humphrey. @francis-way too early in the morning for that paper had a quick look,will have come back to it.There was a very interesting contributor on here,may be before your time-“Richard Toll”,cool guy too marches to his own drummer. http://www.irisheconomy.ie/?author=14 @paul quigley ehm like thanks for that link…i would just like to let the NSA know that paul quigley sent it to me 🙂 It opens with this….thanks Paul had a quick look at it,i really am not that well informed on their economy too comment on it.But my kids all learn the language,its know as “mandatory mandarin”,they visit too as part of studies. “I will do this because I have been advised that there might be infected code buried in my site that creates a backdoor that allows the hackers to break into my site regularly.” Lots changes in Greece,tax inspectors also reported after a spot check that the national sport continues,i think they are the world champions… http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_09/08/2013_513575 @ John Gallaher Revolutions in Ireland nowadays are always quiet ones; seemingly! http://www.independent.ie/irish-news/property-tax-activist-has-levy-deducted-from-wages-29488210.html @DOCM,hi DOCM yep the old garnishment of wages lark,surprising that no court order required… Noticed the mention off the BIS conf. now i have go read KOR’s paper,i actually did but need read it again before commenting. Of the ones linked Lee’s as always is excellent,have not read all of them yet though. http://www.bis.org/publ/bppdf/bispap72s.pdf As this tread has gone a little off track or rogue,and we are sorta,kinda discussing debt default,zerohedge kindly provided the definitive guide to Detroit’s BK. http://www.zerohedge.com/news/2013-08-09/ultimate-guide-detroits-chapter-9-bankruptcy @ John Gallaher 1. Thanks for the hint to Richard Toll, „bogtec“ , I like it, and I will have a closer look. I had brought that question recently here, why Ireland is not running more wind mills. 2. the Foreign affairs For a while (ca 1999 – Oct 2008) I got nearly every copy, but then this permanent grandstanding “we are the last standing superpower on earth” got a little on my nerves, and I got the impression that ca 20% of the articles were kind of “I am a strategic genius, and I need a job, preferred with my own new agency and a few underlings”. Your link still has some of that. 3. Case shiller A big thank you to hinting at that. I nearly fell of my chair, when I looked at the data. We are way more up to the predicted roller coaster at QE End, than I thought. I usually run that against http://www.realtor.org/topics/housing-affordability-index/data which shows shocking decreases of affordability by 20%. This is no time to go wobbly, no wonder the Fed talks up rates now. 4. China soot analysis Please forget about my link, if you are not deeply interested in modeling this stuff. You gain insight only, if you spend significant work. 5. katherimi http://photo.ekathimerini.com/kath/eng2/elements/a_Home/51/bloombergsamaras_480_0908.jpg I dont know, but mayor bloomie seems to have a pretty thick pointing finger in the picture and it looks to me a little bit like Samaras hand expresses: give me money, quick, Maybe we try a picture caption contest, like: “If you don’t pay your Goldman Sachs derivatives, you will wash up with your feet in concrete somewhere over in New Jersey, close to where they found Mr Hoffa” : – ) I know, that you are more in the securitisation , so I understand your original link, But with respect to your “national sports” I think you have to change in your link the last digit “5” to a “2” : – ) “Half of Greek tourism businesses inspected found to be breaking law” Cheap O’bama words as encouragement for violating agreements again: http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_10/08/2013_513629 when will they ever learn? @francis,oh I got his name wrong apols. its Tol,very interesting guy,left Ireland,quite a loss. I never had enough “skinny” or intel to comment on his posts but thoroughly enjoyed then. Wind mills of they have lots of NIMBY’s there, tree hugger types,always whining and moaning standing in the way off thousands upon thousands of high paying jobs! Francis it’s a little complicated but definetky read Richards work on this,the protestors going on and on about noises ruining scenic views …..not my area at all:) FA-I lived in DC for a while its very well read inside the beltway,actually MH referenced it and I subscribed again,get the emails the China piece is this issue. But I do find some the articles worth reading. Housing,it’s mixed at best,hedge funds have been very active in this space.cant link now mbl. but yep that party is ending,thankfully. Looks like Uncle Sam will get made whole on Freddie/Fannie and pull the plug!! China numbers oh that was me being ironic/funny bout the unreliability of Chinese data,front page FT today case in point. Regards good to have you back posting. @ john g We all have infected code, in one way or another. Pettis is a sound man, and a very well informed American friend of China. Re this point: “Once the second-quarter dividend is paid, Fannie will have repaid $105 billion of the roughly $116 billion it received from taxpayers.” Always nice to get your money back too, w/o too much mud slinging and nonsense’ Pull my other one. The story is a hell of a lot more complicated than that First Housing reform is hardly even started. http://www.businessweek.com/news/2013-04-01/fannie-mae-and-freddie-mac-face-new-problem-profitability Second The recovery is US housing is a direct result of Bernanke money printing, with resulting artificial boost of financial assets. So, with respect, most of the nonsense emanates from the financial sector. @ paul quigley the just 4.5 months since your business week link actually make a whole lot of a difference (> 10% in prices), and that means that the end of QE will be pulled in by 9 months minimum. US 30 yr rates are already up by 0.8% since that, only half of that seen in bunds and gilts so far,. There has recently been an interesting kink in the CAD Dollar, which makes the next B o Canada balance sheet statement interesting, which I say has done a stealth QE to run an implicit 1:1 peg. And now we watch how the wind down will work out. I believe there will be some orderly wind down of Fannie and Freddie. fhfa, ofheo didn’t work either, interesting what will be tried next. Our “covered bonds” pfandbrief scheme (Depfa) got somewhat mangled too, over in Ireland : – ) @francis i assumed you of all people would get the national sport reference,tks for links,yeah the visit was a bit of a non event.Peterson institute released some good papers in fairness. Francis,kinda strange article in NY Times today regarding banking,does not make a lot of sense but it may get throw at you some time,not worth linking. Looked at Canadian unemployment numbers last week,it was a big miss as a gain was expected,quite the surprise,i think around 7.2% now! @paul quigley housing reform,oh thats not happening any time soon,could fill an entire tread on US housing but two small points.Regarding the ‘code’ was listening to POTUS press conf. yesterday quite a lot about NSA… Home ownership is now at an 18 year low-pg 5. http://www.census.gov/housing/hvs/files/currenthvspress.pdf in other news… http://realtormag.realtor.org/daily-news/2013/07/31/firms-eye-first-bond-backed-home-rental-payments @ paul q, john g Since Paul seems to blame Bernanke for all this, where I am damning just Greenspan, And since the situations in US, Ireland, Germany are very different, maybe I try to paint my picture of it in as few strokes as possible, and then John tells me where I got it all wrong : – ) Greenspan was pretty famous for saying, it is not the job of the Fed to control prices and burst bubbles, and for each little weakness there is one universal medicine, the Greenspan put: lower rates. The reason, I brought that realtor affordability index above, because I see this, in general as an interesting concept. They calculate it from pre-tax household income, of which 25% (please look at the “renter FOR” in the Fed link below) is available for housing, assume a down payment of 20%, and a 30 year fixed rate mortgage, which is normally about 0.7% higher than the time corresponding fed bond rate, and compare that to the average going rate for the houses, they sell. Somewhat old fashioned, I know, but I did not come up with something significantly better for myself. In December 2007 that was at 120%, meaning that even at the peak of the bubble, Dec 2006, it was not below 100%, and June 2013 it still is at extremely affordable 170%, peaking during the last two Januaries at > 200% Same thing with the debt service ratio (DSR), the Fed was allegedly focusing on: http://www.federalreserve.gov/releases/housedebt/default.htm look at 2005 and 2006, and tell me where the problem should to be seen. Same with housing starts numbers. From the Top of my head (TomH, to discriminate from where I have in general hard data in Excel sheets) they were, in hindsight, maybe 15% higher as what they “should” have been, but how to discriminate this from some long term trend change, in real time? And then hell break lose, slowly in 2007, the dumb German bankers got burnt first (IKB June 2007), the silenced Generali Risk manager story in Ireland in 4/2007, yeah, some trouble ahead, but crisis? January 2008 was somewhat unusual for a drop in stock prices. US Inflation was just a tiny bit higher, … as the Fed, me worry? Baah. House prices fell by 25% in the US in 2008, and both the normal U-3 US unemployment rate took off from 5 to 8% until Year end, and the U-6 underemployed from the usual 9 to 16%, only after mid 2008. The party was over, and the Minsky moment came. All those sub-prime went under water, and the risk models, based on the assumption, that nominal US house prices do not fall on a national average, based on 50 years of data, broke down. Given that the US has with their mortgage tax deductibility AND city taxes, financing e.g. schooling, based on an about 2.5% real estate tax, AND the “new finance” possibilities, HELOC, etc. made their system very sensitive to drastic changes, “strategic default” /jingle mail had to be done or contemplated by lots of folks. And then the Fed lowering the short term rate to zero was not enough, and they had to massage the whole yield curve via QE, and again, driving “affordability” to insane 200% levels. From our Ordnungspolitik point of view, this is heresy, but what would I as a Bernanke have done differently? I believe I understand this slippery slope very well. And this unconventional behavior was not only driving the US far of “equilibrium”, but the EU, and even more China as well. All those funny stories about informal markets, crazy real estate valuations, especially with respect to incomes. You most probably know most of that, but I want to keep the chain of arguments complete, and giving you the opportunity to take issue with various specific parts of it. From an engineer’s system controls perspective, I believe to understand, how that this speeding up, forward stabilization works, the real control problems are still ahead of us, how to bring this down again, in a controlled way, to a kinda normal. And I am scared, after I look at e.g. http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf please divide official R100 line 20 / line 21, what I call the wealth / income ratio With 1Q2013 we are with > 5.5 in bubble territory again, fueling again Aggregate Demand (AD) with the illusion of wealth, as after 1996 tech stocks and 2004 real estate In terms of (problem) size hierarchy: Sun China Earth USA Moon Germany Satellite Ireland I know perfectly well, that most people here do not like to hear it this way, and what I write here after “From an “ sounds pretty cryptic, but I now make lunch, and wanted to put some global perspective / links /questions out. We will not understand our own problems in the future, without understanding China, as until 10 years ago, we had to understand the US first. @francis American born President De Valera greets US President John Fitzgerald Kennedy at Dublin airport 26th June 1963; http://www.youtube.com/watch?v=CiZveIM7olg President De Valera ‘s speech below; ” Mr President I thought it fitting that my first words of welcome to you should be in the language of your ancestors. The welcome is universal. We welcome you in the first place as the head and chief executive of that great republic of the west,upon whose enlightened,wise and firm leadership hangs the hope of the world. We welcome you in the second place as a representative of that great country,in which our people sought refuge when driven by the misery of tyrant laws from their motherland, sought refuge and found themselves and their descendents a home,in which they prospered and gave distinguished service in return. Finally Mr President we welcome you for yourself,as a distinguished scion of our race,who has won first place amongst his countrymen,first in a nation of one hundred and eighty millions of people. We are proud of you Mr President,we admire you for the leadership you are giving. We trust that,under God’s inspiration and with his help,you will be able to accomplish the aims you have in mind,the aims of all who love mankind. We wish God’s blessings upon you and your work.” @ francis FYI http://www.ft.com/intl/cms/s/0/1d6016e2-ff9b-11e2-b990-00144feab7de.html#axzz2bben43IB The one essential point that Tony Barber fails to address is how to bring about a change in approach i.e. the mechanism for matching economic and social policies in order to achieve balanced economic development not just in Germany but across Europe. It is already in place within the existing legal order of the EU (in the treaty articles relating to the Single Market). There is a political unwillingness to use it because the present corps of European leaders is simply not up to the job. It is easy to see where this is leading if there is not a change in political sentiment. http://euobserver.com/environment/121034 In former times the US could throw their weight around, and the rest of us had to accommodate. When they run > 10 % inflation, ours was just a few percentage points lower. But even in that comfortable position Greenspan could not keep his tanker at a stable moderate cruising speed, having to watch just one knob. Always trying to eke out a little more, and avoiding little short term pain. Now Bernanke has to fiddle with at least 3 major knobs. The Case Shiller data are in May 2013 at 100 % relative to peak level for the Metros Denver and Dallas, 89% for Boston and Charlotte, NC, screaming at you: raise rates now, but 49% in Las Vegas and the likes, with the sub-primes. Looks like Europe, LOL. But at least they have the data, long term, and we all can have a look at them. China is running their 1400 pound Gorilla at break neck speed over the high wire, with all sorts of additional constrictions, like energy / environment (that’s why people like me are sniffing around in their soot : – ), but who of us can speak / read Chinese, and do they even have the data for themselves, if allegedly 1/3 of the credits are “off the system”. Our histories tell us that these growth spurts nearly always ended in some credit bubble finale hangover, just we Germans missed out on the binge before. Running a country at full economic speed into the demographic cross-over, with a still archaic social system, “hukou”, and especially such a large one, is without historic precedence. And if they would try to stabilize their political system by picking fights with the outside, not unusual in our histories, it can get real ugly. @ Paul Quigley I see large overlap of my thinking and your pettis link. But I am too old to learn Chinese, I tried it. At least my English is good enough to get my thoughts across. @ John Gallaher Interesting experiment, this Blackstone / Deutsche bank (DB) rental bond, but I wouldn’t buy it. They have a bad track record with these repackagings, US annuities, etc. and my father led 12 years ago the resistance against them cross-border selling our sewer system, calm and with a successful plebiscite. We want to keep our precious shit for ourselves : – ) @ DOCM Interesting links. Just a few short comments, before bedtime: Barber is right on that advice on what we should do is plentiful, and nearly all involves us paying. I care very little about GDP and its growth. I care ZERO about the nonsense number of “service sector productivity”. We share this allegedly low number with good company like Korea and Japan. A more reasoned response to that hopefully soon. I am actually working on some hopefully intelligent response to Michael Hennigan, who brought that number up as well (Korea / Malaysia), and that got some interesting twist with the Albert Hirschman and the Dan Rodrik (green industrial policy) paper. So I am presently reading up on his books, try to get my feet into his boots, pouring over GDP and life expectancy (LE) numbers a 50 and 100 years ago. Speaking so much about myself is not exactly “academic paper” style, but I believe it helps you to mention some of that. One of the reasons I come to this blog is that it triggers constantly new questions for me. With the “matching” I have gone pretty sober now. I don’t adjust to bad old habits in other countries. The mass immigration thing we tried in the 90ties, and this has clearly failed. Those folks cost more than they contribute. Same thing in Sweden, Denmark, Netherlands. And I will not discuss about having Sharia courts in Cologne. Period. @ francis You, and other bloggers, may also be interested in this coverage of the decision by the head of the CDU’s coalition partner, the CSU, to make participation in any future coalition dependent on the introduction of a motorway toll confined to foreigners using German motorways (!). http://www.fr-online.de/politik/seehofer-loest-mit-maut-forderung-koalitionsstreit-aus,1472596,23978120,view,asTicker.html Nothing demonstrates better the provincialism in German politics to which Tony Barber refers. On the other had, what country is free of it? Certainly not Ireland. It matter rather more in the case of Germany. @ francis By the way, when it comes to stupid politicians, no country has a monopoly as the current dispute between Spain and the UK in relation to Gibraltar demonstrates. http://www.theguardian.com/world/2013/aug/12/gibraltar-britain-legal-action-spain What it demonstrates is the common fault that threatens to dismantle the EU i.e. dining a la carte on the elements in the EU menu that suit and ignoring the rest. There is a particular irony in the current situation with regard to Gibraltar as the UK – with Ireland in tow – has opted out from all the EU agreements on controls at frontiers which would probably have avoided the current dispute. DOCM, maybe as a starting point Nockherberg 2013 http://www.youtube.com/watch?v=5brUykaioac&list=SPP4hePAK6Tv5kPy2SmFQcQ5bCUNanTw8o&index=11 where the 2 potential heirs to the bavarian throne, Aigner and Söder, talk about making acting prime minister Seehofer disappear in a Lasagna (2:30 : – ) The traditional regicide was scheduled for Jan 2014 in wiki/Wildbad_Kreuth. At what point of an candidate going gaga are you doing this 3 weeks before the elections? @ francis ‘The mass immigration thing we tried in the 90ties, and this has clearly failed. Those folks cost more than they contribute.’ My understanding is that the dynamism of the US economy is related to the constant influx of immigrants. It certainly maintains the age profile of the workforce. Why do you think immigration has failed in Europe ? @ Paul Quigley I am exhausted and melancholic tonight, so no funny, “entertaining”, and only a somewhat asymmetric answer tonight. A lot to say about how to implement good immigration policies, given what constrictions. Germany has open borders (no passport controls) with all its neighbors, please look at the text and map in wiki/Schengen_Agreement In stark contrast to Ireland and the US with their “militarized borders” http://www.washingtonpost.com/blogs/wonkblog/wp/2013/08/10/everything-you-know-about-immigration-is-wrong/ Where I live (http://en.wikipedia.org/wiki/%C3%84u%C3%9Fere_Neustadt), I buy an American extra crunchy peanut butter, have an English tea with carrot cake in the afternoon, and fall into bed after a last kilkenny in the Tir na nOg I ll go on bike tours with a colleague who wears a head scarf, and we celebrated the End of Ramadan last week. When I go to the university library on a saturday morning, 40 % of the students are asian. It it working very well our way here. A conservative muslima is candidate for the Christian democratic union in Germany: http://www.handelsblatt.com/politik/deutschland/bundestagswahl-2013/serie-wir-sind-die-neuen-die-pionierin-der-cdu-seite-all/8510886-all.html http://peoplemov.in @ DOCM, To this Seehofer, maybe some kind of “official” statement http://www.tagesschau.de/inland/kommentar-mautplaene100.html It s a kind of chewbacca defense, “it just doesnt make sense”, and the advice is, just as for Corcoran and Tull Morgenthau here, “Einfach weitergehen und freundlich lächeln.” Just keep going and friendly smile. Seehofer knows, that his days are numbered, they will not wait till January to dispose of him, and now it is getting loud and shrill. I have seen at least 3 cases like that, before people got into mental institutions. Paule Dubreuilh in Simone de Beauvoir’s “Mandarins of Paris” is actually an interesting literature reference for that. (Simone having this Timoshenko hairstyle, for whoever cares about something like that) to this air conditioner / Daimler thing. Somewhere I read that the legislation was somewhat tailored to target specifically Daimler, and that there is some supplier monopoly issue with DuPont, which has a French name, but is in fact US based. Today I read http://www.spiegel.de/auto/aktuell/kaeltemittelstreit-kba-haelt-r1234yf-tendenziell-fuer-schlecht-a-915567.html which says that Daimler was producing versions with the r1234yf before, removing questions about “too stupid to order enough in time”, or similar, and that there are at least 3 other car companies using the stuff, removing the “picking on Daimler” argument. People who buy that class of cars will not fret about paying 50 Euro (number just wild guess) more for a more expensive “Kaeltemittel”, and given the small number of that kind of cars, sticking to the older tried and proven material would not make a dent in global warming either. The EU bureaucracy is not the ultimate wisdom, and sometimes it is worth to pick a controlled dispute. Our justice minister has also some dispute running about privacy rights. Soo, lets see how that works out through the EU mechanisms. Tonight we mourn the death of a good man, Lothar Bisky. @ DOCM, To this Seehofer, maybe some kind of “official” statement http://www.tagesschau.de/inland/kommentar-mautplaene100.html It s a kind of chewbacca defense, “it just doesnt make sense”, and the advice is, just as for Corcoran and Tull Morgenthau here, “Einfach weitergehen und freundlich lächeln.” Just keep going and friendly smile. Seehofer knows, that his days are numbered, they will not wait till January to dispose of him, and now it is getting loud and shrill. I have seen at least 3 cases like that, before people got into mental institutions. Paule Dubreuilh in Simone de Beauvoir’s “Mandarins of Paris” is actually an interesting literature reference for that. (Simone having this Timoshenko hairstyle, for whoever cares about something like that) This is a really interesting speech as it gives a very clear and coherent outline of government policy. It will become a useful resource for future economic historians documenting this Euro-Irish experiment. One of the striking observations is how similar it is to the Program for National Recovery (PNR), negotiated between FF, ICTU and the FUE in 1987. The macroeconomic policy strategy is the same: reduce spending but maintain some capital investment to reduce the budget deficit, enhance competitiveness and jobs through supply-side structural reforms, and hope that export growth kicks off in response to international demand. Much like 1987-1990 this was assumed to do the heavy lifting in reducing the debt-GDP ratio. But in 1987 growth was a reasonable expectation. The currency had just been devalued, Ireland was receiving social funds from the EC, and Britain was spending more. Furthermore wages increased nominally by three percent. This, in addition to income tax cuts, got people spending. By mid 1990’s the strategy appeared to have worked. The question, therefore, it seems to me, is whether we can assume the same conditions apply today. Unfortunately no. There is not a stable international economic environment, we are in a semi-closed trading area with a fixed currency union, there is limited investment, and private household debt is colossal. Hence the strategy, and by default government policy, doesn’t confront or at least acknowledge the totally changed political economic challenges facing Euro-Ireland today. The type of growth and sectoral based employment expansion necessary to support this consolidation are not foreseeable. Hence while the constraints facing government – in the sense that they are compelled to do what they do – are real, it doesn’t change the facts about what conditions are necessary for a recovery strong enough to create full employment. @ francis That response is interesting but, with respect, it doesn’t address the question at all. Ireland has open borders within the EU. I really enjoyed the speech, it illuminates a few points and values that are all but forgotten in todays society. We forget how much our ancestors have given up for us, how much they struggled and fought through difficult time periods such as the great depression. I for one started my business in 1992 and treat it like the most precious commodity that I have, it puts food on the table for my family and keeps a roof up over our head and I couldn’t be more thankful. Joseph Trevell http://www.bailbondsbros.com Comments are closed.