EVERY month in the United States, something called the ‘non-farm payroll’ numbers is watched closely by the financial markets to get an idea about where the US economy might be headed. The Non-Farm Payroll (NFP) measures the national monthly payroll of all industries except farming.
Last Friday, it was revealed that 95,000 fewer Americans were on the national payroll than the month before. This outcome was worse than most analysts had expected. Yet by the close of business on Friday, the S&P 500 share index in New York had reached its highest level since May.
On the face of it, this makes very little sense. The numbers show that the recovery in the US is under threat, yet shares (and, in fact, all asset classes, including gold) rallied on the news.
The reason is because financial markets don’t know what is going to happen in the future. They call it — euphemistically — ‘poor visibility’. But the markets know that the government has poor visibility too. So the market players are asking themselves: “What would I do if I was the boss of the Federal Reserve?”
Using this logic, the market looked at Friday’s disappointing NFP numbers and decided that the authorities would kick off a second round of ‘quantitative easing’. This expression is shorthand for printing money.
More freshly minted dollars will be coming on to the market, pushing asset prices higher. Therefore, it is sensible to buy assets now — even if successive statistics show that the economy is still weak.
There are lessons in this for us. For Ireland at the moment, the policymakers whose reactions matter are not in Dublin, they are in Brussels.
Any investor looking at Ireland will have learned by now that policy decisions and announcements from our Government are quickly shown to be either overly optimistic or just plain wrong.
It is the European Commission in Brussels and the ECB who are now making the decisions that will decide our fate. So it is quite unfortunate for us that recent ECB policy changes seem to point to less support for our banking system.
Over the weekend, ECB executive board member Juergen Stark even raised the spectre of interest rate rises by the ECB to quell inflation worries in the broader eurozone. Obviously, either one of these, if they were to come to pass, would be disastrous for Ireland’s economy.
If the ECB reduces the generous support it currently gives our banking system, then we would quickly find ourselves back in the position we were in on the night of the guarantee.
The banks would be unable to refinance their debts in the market. Furthermore, this time, another guarantee would be useless because the creditworthiness of the State is very much in question at the moment.
An ECB interest rate hike would be disastrous for Ireland’s already-struggling mortgage holders. But it is not only ECB interest rate decisions that will be putting pressure on mortgage holders.
The fact that the commission requires us to reduce our deficit to 3pc of GDP by 2014 is likely to have the same effect. There is only one place where people will be hit by the coming Budgets — and that is in their disposable income. Even if interest rates don’t change, government austerity measures must ultimately lead to income tax hikes. In addition, the Government is sure to increase indirect taxes, such as VAT.
In the US, policy decisions are expected to lead to increased liquidity measures. This will further devalue the dollar, but may keep that country out of a second great depression. This outlook also implies a rise in the euro against the dollar.
For Ireland, the decisions with which we are faced, urged on by Brussels, seem to be designed with one thing in mind — to ensure that we spend a decade in a zero-growth and zero-hope economy.
It is difficult to see how things can turn out better. We have a massive credit contraction, along with a huge fiscal contraction and a currency that is rising significantly against those of our main trading partners.
If we were a similarly sized state in the US, we would have one national labour market, where Irish people would move to another prosperous region of the union. That doesn’t happen to us in Europe.
Also the American fiscal system would make sure that our dole and welfare bills would be paid by the other US states. That doesn’t happen in the EU.
Finally, we’d probably have very little trade outside the dollar area, so the exchange rate wouldn’t matter hugely. The opposite pertains in Ireland.
So what are we to do? If we want to get the public finances under control quickly, we will push the economy over the cliff. This appears to be precisely what our Government intends.
A boss man from Standard and Poor’s (or should it be called ‘Sub Standard and Riches’, given the agency’s lamentable forecasting record in the boom and the huge fees it continues to extract in the bust) said yesterday that Ireland would keep cutting. So the people who screwed up, this Government and the rating agencies, are telling us there is no alternative!
Our other choice is if we don’t get the Budget under control, the borrowing of the State will spiral and we will be straight into the European Stability Fund, with the EU and IMF officials running the show.
The single biggest problem in our post-bubble economy is private debt and that is not addressed either by the slash and burn or do-nothing options. Traditionally, the way economies get out of a mess like this is through huge debt forgiveness and mass debt renegotiations. This is what Roosevelt did in the US in 1935. History reveals that most major economies have experienced debt forgiveness — from the US to the UK and all the continental countries.
Without comprehensive debt renegotiation — both personal and institutional — Ireland will not get out of this hole. The idea is called ‘co-responsibility’, where the debtor and the lender are both responsible for the debts they have jointly created.
Co-responsibility is the centre of modern commerce. Without mutual responsibility, no agreement between parties can work. Debt forgiveness is not radical; it is the way the world works.
David McWilliams has designed and will teach a diploma in economics called ‘Economics without Boundaries’. This is the last week to enroll at www.independentcolleges.ie.
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The problem here is not private debt. The problem is corruption. Strange tendering for example. In Ennis, the county council office cost £30 million euro- that is £10,000 per square meter of land developed. Gama was hired to build the Ennis bypass despite only paying workers 2 euro an hour and the land under the bypass was the most expensive purchased for road use in state. One guy got 18 million euro a piece of land. Even today, its still going on despite the recession. No matters who applied for state jobs, the jobs went to the relatives of the… Read more »
Print-Baby-Print (Bernanke, Rubin, Obama, Krugman). Excellent article. Krugman says that the cure for a deflating bubble is a new bubble. I disagree. A new bubble merely adds a layer of resource misallocation which reduces the productive capacity of the economy. Print-Baby-Print is a promise to the poor that delivers for the rich and sucks out of the middle 70% of an economy. Reading Matt Cooper’s “Who Really runs Ireland” at the moment. The business elite in this country is loaded with people who at some stage renogiated bank debts. They have already destroyed the reputation that is Brian Lenihan’s persistent… Read more »
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The bank bailout has financially crippled the state. Its tough enough to stomach the thought of paying for this over the next 20 or so years without having to bail out every other Tom, Dick and Harry as well. No thanks. With actions come consequences, there must be personal responsibility. Irresponsible lending there may have been but hand-in-hand with that was irresponsible borrowing. People who bought a modest place with a big commute miles away from everything to avoid this very situation will now bail out the irresponsible greed of the big houses and the glossy brochure dart/luas line apartments.… Read more »
How much of a problem is private debt really? excluding mortgages, that is. Could we get some stats? It might be worth mentioning that I recently did a deal with my bank over a loan from student days and it really is worth talking to them. But persist – the first time I “rescheduled” the loan, they bumped the interest from 8% to 12% because it was technically a “new loan”. Anybody remember back in ’99/2000 when banks were sending letters to homeowners explaining how rich they now were and would they like some free money (to borrow)? Debt forgiveness… Read more »
Global Co- responsibility is required! David, my thoughts are going into the same direction since spring, and I wonder about this on a global scale, we should consider to push the reset button (debt forgiveness), clean up the mess (rating agencies / too big to fail / Retail & Investment /Central Banks etc., the list is much longer of course), and most of all decelerate, decelerate, decelerate! Most of it is bits and bytes anyways. So what would such a step require? The political will of the G20 for example, but I am afraid they have rather been proven to… Read more »
Conclusion
It has often been said, but it cannot be repeated enough that the structural problem of the Eurozone is the absence of a sufficiently strong political union in which the monetary union should be embedded. Such a political union should ensure that budgetary and economic policies are coordinated preventing the large divergences in economic and budgetary outcomes that have emerged in the Eurozone. It also implies that an automatic mechanism of financial transfers is in place to help resolve financial crises. Mutual solidarity cannot be avoided in a monetary union, even if it implies solidarity with the sinners.
http://www.voxeu.org/index.php?q=node/5062
Great article. David writes ‘It is the European Commission in Brussels and the ECB who are now making the decisions that will decide our fate’ I think this is the kernel of our problem. This is why debt renegotiation, default, co-responsibility, debt restructuring is not on the table. We have become a vassal state with orders/policy that must pass through the ECB clearing house of Ollie Wren & Co. EU will not countenance default from a member of the EMU that could trigger a domino raid on the Eurozone with Greece, Spain, Portugal in danger of similar default. FF policy… Read more »
So if Ireland can’t renegotiate it’s private and public debt then it is in queer street Why did Ireland give away the Corrib oil and gas for nothing? Not a whimper has been made about this issue in recent months yet the potential revenue would have solved the budget defecit and gave Ireland something to bargain with next time the oul flat cap is held out in Brussels Instead all we get is single mother bashing and the boot stuck into those who are not too enthralled about working for some gombeen for 3 quid an hour. The more I… Read more »
Just reading in the Spanish press that: “the Irish Government tried at the meeting of the Council of Finance Ministers last week for support of the rescue fund in the eurozone. The amount claimed Dublin amounted to 130,000 million in several years. The EU ministers had to reject the bailout, given the current situation of the Stabilization Fund of the Euro, after the aid to Greece. Raised in Ireland, as an alternative, to abandon its policy of tax incentives for investment and increase their levels of taxation” Expansion, the main Business paper, had it on their front page. “Irlanda pide… Read more »
Extract from last Sunday’s Indo: http://www.independent.ie/business/irish/markets-are-right-to-be-worried-final-euro50bn-to-fix-banks-looks-like-tip-of-iceberg-2372887.html “When it published its half-year results on August 4, AIB revealed that, after transferring about €23bn of bad loans to Nama and the disposal of its Polish, American and UK interests, that it would have a loan book of about €81bn. This loan book will include €27bn of Irish residential mortgages, €32bn of business banking loans, €16bn of commercial and SME loans and €6bn of personal loans. Over at Bank of Ireland, the composition of its expected post-Nama and disposals loan book looks remarkably similar to that its great rival. Bank of Ireland is… Read more »
For The Record ( only ) The following was submitted by me to Limerick Leader and part of was published on city week end edition 1st October 2010 and which a radio interview was recorded live 7th October 2010 and that interview had its internet recording deleted . SPUNKS & IRISH BANK MANAGEMENT The National Crime Forum was established by the Irish Government in February 1998. Members of the Forum were appointed by the Minister for Justice. The Forums brief was to canvas comment assessments and suggestions on crime and crime related issues from the general public and from national… Read more »
@Georg, It wasn’t simply a matter of Icelanders telling the foreign banks to shove it, there was more finesse to it than that. Icelanders had already brokered a deal with the Dutch and the UK, the question the referendum addressed was whether a previous deal should be adopted over a better deal that was already on the table. If we weren’t a vassal state bowing to impossible EMU demands and and puppet poodle politicos from our strutting peacocks, for austerity and repayment reparations , we should be doing what the Icelanders did! This is negotiating a form of debt forgiveness… Read more »
A peice of inspiration.
http://www.independent.ie/opinion/columnists/martina-devlin/martina-devlin-irish-can-learn-from-chiles-triumph-of-human-spirit-2378518.html
Even Mountainous South American countries are ling up to overtake Ireland, and the cliques that run Ireland are responsible…
Jim O Leary (ex AIB DIRECTOR) HAS SLIPPED INTO A CUSHY NO @ THE DEPT OF FINANCE.
I remember in the 80’s seeing many hundreds of Russian Promissory Notes for sale for pennies in Green Park and Covent Gardens in London and these documents were so colourful in design and texture that they were even beautiful to frame in an office even if they were worthless .I now sometimes think is that what our Bonds will be like in the 2020’s and therafter and our country run by an authoritarian ruler of some kind with all laws intact .Will the wheel turn over to President Kim Jong 3rd residing in Pyrodublin and all the state pension funds… Read more »
‘from nothing comes nothing’
Interesting clip from marketwatch.com…. http://www.marketwatch.com/video/asset/cutting-back-emigration-and-innovation-in-ireland-2010-10-12/01A39122-5330-4101-8DA1-739C2E5EF877 Watch the reason given for Deirdre de Burca leaving the government. no mention of the sustained effort at getting into MGQ’s EU cabinet office, to get on the EU gravy train. No mention whatsoever of the electorate of Dublin telling de Burca where to stick her patronizing rubbish. But not a whiff of that on international TV. Instead, we now have de Burca, who failed at nepotism in a party that excels at it, in a country that practices it continually, making the point that she is some sort of conscientuous objector to government policy.… Read more »
If crony capitalism is a merging of the political and the business class , what is the incentive for the forgiving of private debt ? The only way that they would do it is for those in negitive equity for the sole purpose of getting houses moving again . It will be laden with red tape and will focas solely on the buying and selling of houses . Leaving aside the fact that cheaper housing is a must if we are to reduce our costs , where will the credit come from for these new mortgages ? The government don’t… Read more »
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Drum and Drummer….
http://www.breakingnews.ie/ireland/drumm-applies-for-bankruptcy-in-us-courts-477689.html
Contributors interested in meeting: I have met with wills and our kind Host; Furrylugs;(John ALLEN came, but we missed him, somehow.); Liam. I have had frequent phone contact with PaulOMahonyCork, wills and some with Macholz; Online contact with Irishdebate and email with Martinho, Macholz, Malcolm McClure, PaulOMahonyCork, wills, Furrylugs and almost daily contact on Twitter with Constantin Gurdgiev, Our kind Host, Brian Lucey, Michael Taft, wills, LorcanRK, Liam, Furrylugs and occasionally Adamabyss. I have also, on a number of occasions, posted my address, home phone number, mobile and email on this site and arranged meeting places/times. I have still only… Read more »
Folks, RT @chiarraigrrl: “oh, wouldja look whose home address is still freely available on d’interwebs…”
http://short.ie/drumm #drumm :)
…Just in case some of you might like to write to the poor man and express how you feel……
We learned on Prime Time tonight that Abramovich is earning 13% on his Irish Nationwide Subordinated Bonds. It is gross negligence on the part of the Government to allow these “coupons” to be paid. FF however is capable of an even greater injustice and will likely seek to pay back a discounted capital sum for bonds, which were issued for private, INBS, development purposes and are essentially WORTHLESS. FF decided on an extended Dáil break when they could have been working on the same kind of legislation which the UK Government enacted to halt the payment of coupons to Bradford&Bingley… Read more »
Folks, this might be a good opportunity to meet, with purpose on 30th Oct. (as discussed on Vincent Browne’s TV3 show tonight):
To find out more about Claiming Our Future and book a free ticket
http://bit.ly/99KsRq
Morning,
Thnaks for the the cooments and suggestions. I am away for a few days, can someone tell me what was discovered about Abramovich and the yield he is getting on INBS bonds?
Thanks David
something here
http://reut.rs/9Ghw1b
My Name is Issacvitch and I am in Petersburg and today the 15th October 2030 I have purchased actual Irish Government Bonds worth 250 million Euros for pennies issued a long time ago in year 2010 and they are with a promissory note attached .I am a second generation Irish living in Moscow and my parents fled here after the great Bank Trade War in 2010/ 2011 and the downfall of the rogue state.I am unable to return to Al Hamdu Eerlandi ( the new Iranian sponsored state ) as my parents were civil servants and bank employees then. I… Read more »
Business run society where the ‘rabble are kept in line’ http://www.independent.ie/national-news/council-defends-its-role-in-litteroffence-jailings-2380465.html I got a fine for parking outside my apartment block, I left my car for 15 minutes on double yellow lines as I had returned home from work a bit distracted by my father’s cancer news, I wrote to the local authority explaining there were mitigating circumstances, that I moved my car and asked that some compassion to be shown and the fine waived. I got one letter telling me the fine had been increased from 40 euro to 60 euro because of non-payment (I had heard nothing back… Read more »
Chomsky: Keeping the Rich Happy and the Poor scared
http://www.youtube.com/watch?v=4BIzI9QUx4U&p=883B786830AD94CA&playnext=1&index=1
Has anyone read this?
http://www.irishcentral.com/news/-Irelands-property-crash-could-have-been-avoided-101287479.html
The Center for Public Inquiry seemed like a good idea. It’s amazing how easily it was taken out.
1.25 Trillion Euro held buy Irish residents abroad (and not fixed assets!), could this be tapped, or taxed in our hour of need?
http://www.cso.ie/releasespublications/documents/economy/current/reshold.pdf
Matthew Elderfield seems to be doing a good job, making the right moves and sounds, been impressed, one good thing that has come out of the debacle, but then maybe it took the crisis for radical and correct action to be made, whoever recommended should be thanked.
Next thing is an election which can’t be far off, Gilmore looked ike a Taoiseach on six-one last night, again, a clean sweep with a new broom. Cowen increases looks like something from a by-gone era.
FOREIGN ANGLO IRISH BONDHOLDER LIST
Caution: This has to be verified ….but….
http://order-order.com/2010/10/15/anglo-irish-bondholders-should-take-the-lossesis-the-ecb-forcing-ireland-to-protect-german-investments/
I guess David can not check /comment on this being at the DEW in Kenmare. However, I sent this info to a bunch of other people as well, If someone else here can verify the authenticity of this list…. go ahead.
Alas! It makes me sad. Some of you may have seen this housing estate featured on RTE as a step along the way to a carbon neutral future:
http://www.dundalkdemocrat.ie/dundalknews/Housing-estate-of-the-future.6577707.jp
And to think . . . I was so sure that this development which is not for from the Institute of Technology would have already sold out that when I embarked on a mini-tour of the local ghost estates, during the summer, I purposely omitted it from the itinerary.
I will need to revisit my estimates for the cost of the banking bailout.
@ Moderator
Wish the format for these posts would read across, so hard to follow the thread when they go into long narrow format, not user friendly.
Also would be useful if comments could be deleted or indicate approval as on facebook.
Here’s a funny story. I just got back from football with my cousin’s husband. He’s an air-conditioning installer. Gets sent to different locations around Dublin and even had to go to Enniskillen for three months recently for the work despite having 5 kids to worry about. Anyway, he’s a great bloke and a really hard worker for his family so it’s all good. This week he said his boss sent him to ‘somewhere called NAMA’ in town to finish off one of the floor’s air conditioning. He had no idea what NAMA was; had never even heard of it! I… Read more »
Why isn’t the Irish media covering the naming of Anglo bondholders?
Great article, what about the Irish Sunday newspaper coverage, RTE, radio? I’m not in the country so its hard to tell but I can’t see anything online. The lack of investigative journalism in mainstream Irish media is astounding. How much more epic can the “big story” be.. “Anglo-Irish Bank did not represent a systemic risk to the Irish economy, it wasn’t a high street bank like AIB or the Bank of Ireland. If it had been allowed to go the way of Lehmans the only losers would have been shareholders and bondholders. The Irish state stepped in and nationalised a… Read more »
News is spreading around about the Anglo list. By next week the official media will have no choice but to downplay or diminish this. Good job it appeared on a Friday, and in the UK, as the authorities have not yet shut it down. Politics.ie, thepropertypin.ie,thestory.ie, are covering, and they are much longer established and seem to have more bloggers than here. Here is an interesting comment. It verifies what David, Matt Cooper and Senator Shane Ross have been saying for the past five years or more. Ireland is run by a clique. Do a search on the word ‘Tiger’… Read more »
Have a gander at this especially if you are not familiar with Plato’s allegory of the cave. http://bit.ly/aaTWnX Now take a look at the drummer boy story here: http://bit.ly/d4eWSS The horrifying part of the Indo story is that Drumm appears to blame the Lehman’s led world recession for the collapse of Anglo. Drumm: “My last year at the bank was 2008 and we produced a set of results for 2008 which showed about €800m in profits and a net worth of around €4bn to €4.5bn. … No acknowledgement there of the thin ice those figures stood upon! Drumm refers to… Read more »
The news from America this weekend bears out David’s contention that: “ Without comprehensive debt renegotiation – both personal and institutional – Ireland will not get out of this hole.” What alarms Americans is that they could be watching the complete demise of the capitalist system, which has always depended on trust supported by documentary evidence. These pieces of paper, when signed by the interested parties, form contracts that are accepted as evidence in courts of law. Contracts can be reassigned to third parties, so long as each carefully drafted link in the chain of paperwork is endorsed, signed and… Read more »
Posters.
I reckon that while the *capitalist* system is imploding its always helpful to denote that the implosion is a POnzi scam built on a fraudulent paper scam engineered and implemented by the private banks control over the money system.
The *free enterprise* system is pulsing away underneath the goop and fakery and scamarama ding dong doo private banking derivatives pyramid Ponzi scam.
Off topic: SPLASH
This is Ireland… This is why I love it here…
October 17th, 14:39PM Gola Island / Donegal.
http://dl.dropbox.com/u/4914840/splash.jpg
Debt Forgiveness & Multicuralism : I was asked on Radio Limerick Live 95FM ( that has been banned on the internet archive 7th Oct recording ) – ‘where will Ireland be in a few years time ‘ , I answered ‘ Ireland will not move it will remain where it is , it is the people who will move .We will have new neighbours ‘. Read my lips , Merkel has just anounced that ‘multiculturalism has failed in Germany’. So, I wonder where they have in mind to deploy their mistakes. Does debt forgiveness have a qualified condition attached it… Read more »
I was asked on Radio Limerick Live 95FM ( that has been banned on the internet archive 7th Oct recording ) — ‘where will Ireland be in a few years time ‘ , I answered ‘ Ireland will not move it will remain where it is , it is the people who will move .
LOL :o)
Pat Kenny ‘Do we try to find the Celtic Tiger and make her roar again?’! What planet is that plonker on?