A NATIONAL debt crisis, such as the one Ireland is now suffering, tends to follow a four-stage pattern. We see these stages playing out in every episode of national bankruptcy — whether in Latin America, Asia or Western Europe. In Ireland, we are moving towards the third phase.
There is no escaping this pattern because the mathematical corollary of a housing boom is a debt bust. It is only a matter of time.
Now those suggesting that the endgame will be debt repudiation are taking the flak. But it will happen.
Let’s briefly examine the four stages of national bankruptcy.
The first phase is rapid: highly leveraged banks go bust alarmingly quickly. This leads to massive state intervention to prevent a bank run, political upheaval and inklings of just how deep the mess might become.
The second stage is a period of unusual calm. The remedial action taken by the State calms things down, banks don’t collapse, there is no run on the banks and the economy settles in to the grinding reality that falling incomes and too much debt don’t mix.
During this period, vested interests, powerful “insiders” in society, move to protect themselves. Supposedly binding agreements are signed. Likewise, the banks do deals with debtors in the hope that they can postpone the day of reckoning.
The second stage leads relentlessly to the third stage, also slow, where gradually the “outsiders” — people with too much debt, traditionally working in the private sector or with small businesses — go bankrupt slowly. In the UK these people have been called the “squeezed middle”. Here they should be called the “squeezed outsiders”, caught in a vicious embrace of falling incomes, rising taxes and negative equity.
In any estate in the suburbs there can be two families which on the surface look identical — same houses, same cars with 2005 registrations, whose children go to the same school — but once the hall door closes a very different reality faces each family.
The “insiders” rest easier, not without worries but without valium. If they are “outsiders” the parents are likely to be awake in the dark. Ultimately, for the outsiders, the more taxes rise, the less they can spend and the more the economy stalls.
Despite the lowest interest rates in living memory, the number of mortgages in difficulty is now running at 11pc and likely to grow. Yesterday the EU published evidence that Irish households suffered a 9pc fall in income from 2009 to 2011.
The incomes and wealth of “squeezed outsiders” are now being looted to keep the “insiders” — who may live across the road — from paying their share.
Insiders are those with a stake in society, access to state power and the ability to protect themselves, as a sub-group, from the recession.
There are insiders on both the left and the right. On the right, the classic rich insiders are bank bondholders and members of the well-paid professional services class, who are still in positions of power. Insiders on the left are those who seek to protect themselves, whether they be trade unionists who cling to restrictive practices or senior public servants who seek to pay themselves far above counterparts in bigger countries.
In our third phase of national bankruptcy we are seeing a struggle between the unprotected “outsiders” and the protected “insiders” for the last slice of the national pie. This is playing out on the streets of our suburbs.
The evidence of the squeezed outsiders is everywhere. We have seen a 200,000 fall in the number of people with private health insurance. Similarly, the number of people able to afford private pension provisions has collapsed.
The number holidaying abroad fell from 53pc in 2010 to 39pc in June 2012, according to a survey carried out by MyHome.ie.
A KBC/Irish Independent survey on childcare costs shows that the average cost of childcare for one child stands at €1,100 per month, whereas the average mortgage repayment is €913 for those aged 25-44. If you have two or more children, it can go as high as €2,000.
When you drill a bit deeper you see that the reason the mortgage repayments are lower is that tracker mortgages — 400,000 of them — understate the real cost of borrowing because they are subsidised heavily. Even still, 10.9pc (83,251) of mortgages are now more than 90 days in arrears. What happens if that subsidy changes?
A Friends First survey in August showed that one in five of those with pensions have reduced or stopped contributing to it.
MORE than a third (34pc) of people without a pension have not thought about how they are going to fund their retirement. This is obviously because they have more pressing financial problems. And of those trying to pay into a pension, 21pc are currently unable to meet their financial commitments. Over half of participants surveyed felt less optimistic about their personal finances for 2013, compared to 2012.
Ultimately, when the squeezed outsiders have nothing left to give, we will reach the fourth phase, when those “insiders”, who used the period of calm to protect themselves, realise that they can’t escape.
They realise that their lifestyle will also be hammered and this is when, politically, it all kicks off, and the consensus fractures.
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I think the article is very accurate and sums up the current situation.
Even when it “all kicks off politically”, there is nothing any politician can do to make things go back to the way they were. Lower commerical and residential property prices, lower salaries, a totally wide-open market into the EZ and EU – for those positioned to avail of these opportunities, the vista is better than during the Celtic Tiger. For those who have huge debts from the Celtic Tiger era, and hence little spending power, the vista is awful, but then it was always destined to be, as those who never believed in the property bubble insisted all along. It’s… Read more »
The article understates the defaulting mortgage problem. At last count there were approx 170,000 mortgages that were either in default or had re-structured (i.e. because there was a problem). There are approx 775,000 mortgages in total – thus 22% of mortgaged households are in some form of trouble.
It will require an act of real political courage, integrity and sacrifice to get Ireland through this crisis. Those in power need to slash their pay, expenses, pension entitlements and other costs to maybe slightly above average industrial earner level. Then, from this high moral ground, they need to set about slashing and burning the economic lard and arrogance from everything that moves in this economy – all the stuff that is preventing its growth: sky-high professional fees, crazy rents, obscene state pensions etc. Naturally, they need to look after those who can’t look after themselves. Done right, everybody except… Read more »
We do need a New Politicl Party devoid of the current class of Politicos – they are generally useless with a few exceptions. I agree that “Insiders” have protected themselves to date but thier day of reckoning is coming fast ! Many figures are deliberately distorted by the Government such as “Unemployment” ( downwards) , Debt to GNP ( downwards) ..etc – this bunch just hoped global factors would change things here miraculously by now or before the next election in 2016 … it won’t happen – this is a big recession and will be very long.Stephen Donnelly was 100%… Read more »
+1 …..now the only new party I can see @ the minute is the Irish Democratic Party; Is there any 1 else out there? Various groups must unite under a common umbrella have any effectiveness!
Hi Dsvie,
Excellent Article, human dimension therein once again. Can’t be faulted. Weary inevitability to the whole cycle. Inwinder if it will end in revolution?
Michael.
This article sums up the comments of the more negative commentators here for the last 5-6 years.
I think we are 6 months if not earlier from a stage 4. The thing is, I am sure DMW is not the only one seeing this. So what preparations are the insiders going to make other than a grab and scram?
I was in the Aran islands a few weeks ago. This time of year they are prepping for winter and next to no tourists or ferry crossings. The atlantic makes things challenging at this time of year. I asked if they found the winters a bit long and tedious being “trapped” out here. The typical response was winter came and went too quickly. They really enjoyed their own company. This solidarity (and I am asking we view this in a mor=st positive manner), made me see what is so bloody wrong in the “mainland”. Makes me wonder if maybe we… Read more »
Gerry Adams voices his agreement on the principles of Glass Steagall
Following his address at the launch of Museam An Ghorta Mór at Quinnipiac University, Gerry Adams fields a question from Executive Intelligence Review’s Matthew Ogden on the subject of Glass Steagall. His answer illustrates Sinn Fein’s agreement with the principles of a Glass Steagall separation of banks as reflected by their policy of “burning the bondholders.”
http://laroucheirishbrigade.wordpress.com/2012/10/04/gerry-adams-voices-his-agreement-on-the-principles-of-glass-steagall/
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Hope DMW is bloody wrong about the “bloody” bit. Is societal breakdown the only way forward out of these messes? As a culture we have left a lot of thinking to a few folks. The way out is to think about making uncomfortable changes. If your and insider, the walls will be torn down. If your an outsider, maybe you have a better chance afterall because you are already in that frame of mind. Might I recommend a visit to the Aran Islands. This says it all…One Policeman for 3 big communities. A friend of mine had to visit a… Read more »
I think a case of a closeby country that went through a convulsion (when the entire elite had no Plan B), the DDR, is highly relevant. Just imagine the uncorked hatreds that could have broken out over the Stasi and its informant network, the insiders being the cushioned elites with their luxurious holiday resorts and mercs, and the people. The danger was so evident, a commission was set up to prevent either settling accounts on the streets, or using the Stasi files for further oppression and blackmail. President Gauck, now, was then head of the Gauck Commission to prevent civil… Read more »
Given the various endgame scenarios,Is there a political entity within this country capable of managing an endgame scenario.I fear not.I believe that politicians from all political persuasions have failed the country, both those in power and in opposition over the last 15/16 year period.It is now becoming more and more obvious to some that political might in this country in the face of the most serious crisis since the foundation of the state is nonexistent.The default/crash scenario,call it what you like, Is it seems inevitable yet the political will to prepare for it or even recognise its existence as a… Read more »
Good article. Nice and simple and based on fact. Condensed information with clarity is what we need as opposed to reams of newspaper waffle and useless talking shops Today there is rioting in Greece and government are impotent to act. That is why democracy had been suspended while technocrat runs the country. People are putting kids into care because they can’t afford to look after them. The horror stories coming out of Greece and Spain are awful However I suspect there are plenty of right wing economists and commentators in Ireland who are rubbing their hands in glee at the… Read more »
“There is no escaping this pattern because the mathematical corollary of a housing boom is a debt bust. It is only a matter of time.”
Sounds almost like Von Mises? The inevitable result of a debt based boom is a bust.
Recognition of the problem is the first stage to the resolution of the problem and the road to recovery.
When you drill a bit deeper you see that the reason the mortgage repayments are lower is that tracker mortgages – 400,000 of them – //_understate the real cost of borrowing because they are subsidised heavily.// Even still, 10.9pc (83,251) of mortgages are now more than 90 days in arrears. What happens if that subsidy changes? I do not follow this statement. Those on tracker mortgages are not subsidised to the best of my knowledge. They pay the rate asked. How are they subsidised? Do you mean that the rates are artificially low because of central bank manipulation. Do you… Read more »
“They realise that their lifestyle will also be hammered and this is when, politically, it all kicks off, and the consensus fractures”
The insiders and outsiders as described do not have consensus currently in my opinion. It is only when all are affected that consensus may be reached? Am I mistaken?
Portugal: Blatant disrespect and pig-headed arrogance
http://english.pravda.ru/opinion/columnists/04-10-2012/122357-portugal_pig_headed-0/
The article mentions the “insiders”. These people that are paid more than their counterparts in other countries. I think what we need from our economists is some type of model that shows how much the income of “insiders” is skewed from the European norm and also whether the salaries of “outsiders” is in line with European norms. Our salaries need to be benchmarked against other economies of about 4 million people such as Manchester or the Saxon region in Germany. Our head of Gov. needs to be paid the same amount as the person who is the top elected official… Read more »
I do not have anything to add to D’s sensational article.
What I am going to comment is that the article simply and eloquently reads the situation I see going on in my street too.
This article is not just a narrative; it is a window onto what is actually happening
in our society socio-economically in realtime and expressing it in a way everyone can understand it beyond the cover-up!
Slam dunk!
On debt repudiation, there was 1 blog ago a note on Stiglitz’s apparent sympathy for Ireland, in the press. Some started ranting about Keynesianism etc.. That as usual was not the point. See what Stiglitz is doing with George Soros below. Now I wonder if either of these turn up at Kilkenomics? Well some questions then. Even worse if they turn up to “advise” FG! Argentine President’s Courting of Soros is Dangerous Blunder Oct. 4, 2012 (LPAC)–At a time that Argentine President Cristina Fernandez de Kirchner is subject to increasingly violent attacks from the City of London’s speculative vulture funds,… Read more »
Good article.
People keep calling for a new political party. I agree, so let’s do it.
Not only could Greece become an offshore tax-haven, but also a low-wage “outsourcing paradise”. Are we going to see pacific-style sweatshops just down the road now? Is this what is planned for Ireland ? Will Greece Become a Low-Wage Tax Haven Within Europe? PARIS, Oct. 4, 2012 (Nouvelle Solidarité)–French economist Gabriel Colletis, a highly qualified source on Greece, keeps warning of all the evils which will come upon that nation if the Troika policies are not stopped immediately. In a longer analysis published a couple of weeks ago, he outlined five possible scenarios of evolution of the Greek crisis. All… Read more »
A little inflation appears to be a free lunch, lubricating the economy and gradually erasing past financial mistakes. But the nature of the free lunch is that its costs aren’t absent–they’re just distributed broadly. And in the case of low but steady inflation, the broadly distributed costs are borne by the middle class
http://www.thegoldstandardnow.com/featured-articles/1612-easy-money-is-punishing-the-middle-class-
In Ireland its easy, the insiders have government jobs and pensions or very lucrative ongoing state contracts. There, I think I got all the politicians, civil servants, lawyers and doctors in on one decription.Farmers are another group of insiders because the outsiders pay for the subsidies they get to keep their unsustainable businesses going. DMcW has never, that I´m aware, called for the scrapping of the Croke park agreement possibly because he displays fairly leftist inclinations despite being a consumate capitalist and that would involve attacking the unions. I assume his Dads period on the dole was a sobering reminder… Read more »
Have a laugh.
Amid this serious situation we can always depend on the government for a good laugh.
From the Gathering web site: (The Gathering Ireland was launched by the Irish Taoiseach, Tánaiste and Minister for Tourism in May 2012 and is being supported by Fáilte Ireland and Tourism Ireland)
Of course they even have an office a few managers more advertisements on RTE etc. So this is what they come up with more travel more money for civil servants offices rented from the “insiders”.
God I’m sickened by this, rubbish, nonsense.
I think we need to recognise fear when we see it. Those running the country are afraid. They don’t know what to do. They are not some kind of powerful insider grouping. They are worse they are a frightened insider grouping. They are being bossed by Europe, despised by the public and preyed upon by advisors. I include the permanent government in this. All the years of a cushy lazy existence has not prepared them for this so they do what alot of people do in that situation. Hang on for dear life. It doesn’t matter if someone else drowns… Read more »
Morning all
Re; Debt forgiveness..you do not need permission,it is very simple.
Put your hands together,bow your head slightly,face direction of mirror…Done ? ….okay
Now recite the words…. “I forgive you”
“and man looked upon mirror and declared “this is good”…..now ,go forth and do what is important today…..
RR6
good advice
Irish media ramming property down our throats on a daily basis. They couldnt even be bothered reporting on the situation between Turkey and Siria the other day.
I work for a bank and part of the banks collection team is based in the same building as I work, and the bank is certainly gearing up for mortgages arrears/default. They have recently taken on 22 new staff for mortgage collection and rumored to be looking for same amount before christmas. All on 6 month rolling contracts so when its all over they can just let them go.
Afternoon from the lovely Stansted Airport:)
Thanks for all the comments. I am really delighted with them on this topic which may well be one of the only true issues in our country and all over the world in the years ahead.
All the best
David
The insider outsider thing is a big issue and goes beyond the PS of course. If you look at fairness in the round you have to take into account, in no particular order, personal responsibility, responsibility for the crisis, wealth (earned, accumulated, inherited), each person’s own character (eg intelligence, low cunning, conscience, ability to sell, hustle, identify markets, network, lie, intimidate etc) and background (eg education, social supports – be they family, political, party, the GAA or the local ODC ‘criminal community’). You also have to realize that the insider outsider thing has been there since the foundation of the… Read more »
The insiders and the outsiders that says it all , is this very problim that the government should be trying to help .
Instead they make things worse why?is it because the government are the insiders.
Do insiders protect insiders I would think so.
So the con is comming full circle , greed and the feeding trough .
The outsiders must be in the majority , so why do we sit back and believe the lies and the crap.
Do we now live in a dictatorship , is this what we voted for ?
whats everyone worrying about? Isn’t our fearless leader on the front of Time magazine, shur in a month or so we’ll be grand.
I for one and not interested in a new political party. Certainly not one which is based in Dáil Eireann – one of the most non-representative governments in Europe if not the western world. No wonder we have insiders. We are a lobbyist’s dream. I want strong local government. I will gladly pay taxes (property or otherwise) to them. I want Dail Eireann only for the president, constitution and maybe security. The offcie of taoiseach should be demised and replaced by a proper presidential role and a senate with teeth. I look at suburbia and you know what? the planners… Read more »
This article reminds me of a speech given by CS Lewis to a graduating class in the 1940s ‘The Inner Ring’. http://www.lewissociety.org/innerring.php There’s always been insiders and outsiders in every society, even in communist states. And there always will be. You’re kidding yourselves if you ever think we’ll live in some sort of utopia where life is fair and everyone gets what they deserves. Unfortunately this is the lie which is fed to our young from an early age. It’s brutal out there and the insiders will fight to the death to keep what they have. It’s all about survival… Read more »
If you must break the law, do it to seize power: in all other cases observe it.
Julius
Hi David and tony Brogan et al, I have been reading all the posts for some time now and always come away dismayed when the topics degenerate into a conflict between public sector and private sector bickering. NEITHER are the enemy. The insiders McWilliams is referring to are the scumbags at the very pinnacle of the organisations organising the rot. Can we please stop falling into their divide and rule strategy! Tony brogan I just read on the Internet why Gordon brown dumped so much of the gold in the bank of England and can see a similar situation about… Read more »
No need to worry about an Irish revolt..
Most people are in a Trance/Zombie state. They haven’t a clue what’s going on. And they won’t find the answers in the mainstream media, but they are quite happy consuming that old rubbish anyway
The government would probably just up the fluoride dose in the water if they thought anyone was about to start to use their own brains
Morning All “TIME Magazine” next copy. “How hunger no longer exists in the third world” “Buying Property on the moon”? Apartment or semi-d ? “Why German P.M Merkel decided to cancel all debt with immediate effect and implement non-profit Banking across Europe” “Jamie Diamond becomes C.E.O of Trocaire” “Economist David Mcwilliams joins Iranian Rock Band,TIME asks about Touring in America” “TIME investigates..”is REHAB for quitters ?” “Pope admits Catholicism “only made up after a few beers”Bible only written to pass time,Priests demand 6 weeks redundancy” Applications to Scientology and Fine Gael party soar.”We Ask why..? Remember for all the hard… Read more »
Determining the value of gold 2012-SEP-29 When considering whether gold is a value investment, one needs to first recognise that gold does not have a balance sheet, management team, price-earnings ratio or any of the other things one needs to analyse before making an investment. Also, gold does not generate any cash flow, so it does not pay a dividend. We can therefore conclude from these observations that gold is not an investment. Indeed, it is something different, which means that normal investment analytical techniques cannot be used to determine gold’s value. Value of course arises from an item’s usefulness,… Read more »
Hi Tony brogan, Thank you for your response. I still feel a correction is possible but agree with you for medium and longterm. The reason I am reticent is because the 1 day moving average is crossing the 5 day moving average over and back for quite some time now not allowing the price to penetrate 1800/oz indicating an enourmous fight between bulls and bears. Therefore some one some where still has plenty of the yellow stuff to dump at 1800/oz. When I see penetration and support above 1800/oz only then will I add to my position. Really enjoy your… Read more »
Surely it is time to put the gold standard and glass steagall debate to bed for a while?
Every thread finds its way back to these issues regardless of the theme of the article.
This site has served as a great source of information on a wide variety of topics for years and unfortunately due to a couple of posters this is no longer the case.
http://www.independent.ie/national-news/something-is-still-rotten-in-the-state-of-ireland-3249844.html
Taste of Untouchables Shane Ross; extract of same tomorrow I think in news.
TONY BROGAN…..!…. YOU ARE SUPPOSED TO BE ON HOLIDAYS ! NOT GIVING YOUR PEACE TO BONBON OR TOFFEE CARAMEL OR WHATEVER SWEETIE HE IS…….GO AND STUDY A BUTTERFLY AND LET ME KNOW WHEN YOUR IN IRELAND….!
Good Morning..!
RR6
Spain is ahead, the “consensus” of the insiders has broken. The 25S Movement in Spain Considers New Protests Against Budget Cuts Debate Oct. 6 (EIRNS)–The Coordinadora 25S (25S Coordinating Group) intends to convene a new protest to surround the Congress of Deputies (lower house) during the expected general debate of the draft law of the State Budget (PGE) for 2013 to be held in the Congress in Madrid during Oct. 23-25. This was confirmed in statements to Europa Press by Feli Velazquez, a spokesperson for the Coordinadora 25S, who said that, even though the group’s first call on September 25,… Read more »
Here is an “insider” society, the Mont Pelerin Society of F. von Hayek, dubbed “Friends of von Hayek”, Austrian School : https://www.montpelerin.org/montpelerin/mpsAbout.html See the photo’s on that link : Milton Friedman, von Hayek, Karl Popper, von Mises. How anyone can try the trick of denying the Milton Friedman Chicago Boys (who gave us Pinochet) link directly to the Austrian School, is beyond me. Popper turning up there is very revealing. These photo’s are from 1947, just after fascism was defeated world-wide. Interesting how stated Aim #3 : “The redefinition of the functions of the state so as to distinguish more… Read more »
As DMcW says “Now those suggesting that the endgame will be debt repudiation are taking the flak. But it will happen”. Debt repudiation, “burn the bondholders”, and Glass-Steagall are exactly the same, but GS goes into precise detail, separating synthetic debt and the types of banking. Physical-economic debt, not monetary but the lack of growth per capita, must be made up with huge programs. Increasing the productive power of labor, and the natural wealth of the nation must be a priority after repudiation. In other words the purpose of repudiation, is to have a future, not merely to get revenge… Read more »