There are good things happening in the Irish economy. Now is the time to protect them. We have heard a lot about the GDP figures and the tax data in the past few days, but these things tell you what has already happened, rather than what is going on right now. My hunch is that the economy is getting stronger faster than many people think.
We are seeing a significant turnaround in the fortunes of Irish exporters, particularly exports to our biggest neighbour and single most influential trading partner, Britain. This is invaluable.
The Brits are booming. There is currently much debate over there about how long this can last, and whether or not it is just yet another property and credit-fuelled upswing, but the fact remains that when Britain does well economically, so do we.
If you look at the chart on this page, which maps changes in firms’ expectations about the future, you see that the confidence of Irish companies and the confidence of British companies moves in tandem. In contrast, the confidence of EU firms lags well behind.
This shows you that the fortunes of Irish and British companies are intertwined. This is not just because we export so much to Britain, but also because we both export disproportionately to the US. The Americans have just had their best month for job creation in the past six years.
This entwined relationship is likely to continue. Speaking to a number of friends whose companies export services to Britain, they are all telling me that they are having their best run of orders from there in years. There is no real reason to believe that British demand will let up. In fact, the big change on the landscape is the fact that the Bank of England looks set to be the first major central bank to raise rates since the financial crisis began. This will have an effect, but a muted one.
Higher interest rates will drive up sterling even further, which is good news for Irish exporters and, given that Irish domestic demand is still subdued, the ability of Irish importers to pass on imported inflation in higher local prices is likely to be restrained. In short, the influence of Britain for the next few months is likely to be more positive for exporters selling to Britain than negative for Irish people buying British goods in Ireland.
But, looking a bit deeper at the Irish GDP figures, we see that local demand is still on the canvass. The reason for this is clear: Irish real incomes are still falling because income tax is still rising and, while unemployment is falling slowly, it is still twice as high in Ireland as it is in England.
In addition, we are still the country with possibly the highest level of personal debt in the world – the legacy of the housing boom.
At the moment, because the eurozone is in a bad way, the monthly cost of this debt is as low as it will ever be. But this will change. Economies move in cycles. Right now, the eurozone is a mess of deleveraging, deflation and policy madness. However, this won’t last for long. Europe will recover in time, because that is what economies do.
The ebb and flow is the business cycle. Most economists like to describe the economy as a business cycle. I think it is better to describe these cycles as ”human nature and can be explained by how we move from optimism to pessimism and back again. Because we are also part of the herd, we all tend to behave in a similar fashion. This is why the economy moves from optimism to pessimism, sometime inexplicably.
So all economies recover from recessions. Take Britain. Four years ago, it was on its knees. Today, it is up again. And policy lags behind these fundamental changes in human nature, so that now the British will have to raise interest rates to burst the very optimism that the rest of Europe craves.
Eventually, Europe will do the right thing, and gradually the demand for loans will increase as people get more optimistic. At this stage, interest rates will rise again in Europe. What happens to Ireland then?
Unfortunately, we are likely to see a tsunami of mortgage defaults because so many hundreds of thousands of people who are meeting their mortgage repayments now will not be able to when rates rise. Even if there are not so many defaults, the impact of higher mortgage bills on consumer spending will be profound. Remember that people’s monthly mortgage payments have been falling, not rising, since 2006. Imagine what happens when that changes?
So what should we do? We should take the opportunity now, when our economy is doing better than the rest of Europe, thanks to our natural dependence on the Anglo-American world, to strike a debt deal for mortgages in Ireland.
The government used an fictitious IOU called a promissory note to pay the creditors of Anglo. Through a financial sleight of hand, it pushed the payment of this out for another 20 years, if not longer. Why not do something similar for the hundreds of thousands in negative equity?
We could orchestrate a large debt for equity swap between the banks and the people, where the banks take equity in the now-rising house market. The promissory note is used to plug the gap in the banks’ balance sheets, and the Central Bank in Dame Street simply ”credits’ the banks the cash.
In this way, we might use the present good luck to our advantage. The good luck is that our English-speaking world is doing well and the eurozone isn’t. But this will change.
The British and Americans will rise interest rates, and so too, eventually, will the Europeans. When the Europeans do it, our house of debt will come tumbling down – at a time when everyone else is recovering.
Will they care about Ireland then? I doubt it. The European reaction might be one of resignation: ”Haven’t the Irish sorted their house out yet? And we could see our fledgling recovery knocked back again.
There are lots of good things going on now in the economy, lots of new businesses opening. There’s a new generation coming up who knew nothing of the boom and all the attendant nonsense.
We owe it to them to sort out the personal debt legacy once and for all. To lose one generation to recent economic mismanagement is bad enough. To lose two would be unforgivable.
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Nice upbeat article of a Monday. But I have lost all hope of politicians in this Country ever doing anything as pragmatic and good for the people as suggested. And to add insult to injury of a risible performance during the Crisis, Enda Kenny panders to Merkel and some of the German Business Community last week after the store opening in Berlin.
and i’ve got this really great bridge that would look just dandy in your garden…..
This is merely anecdotal I know but: “Remember that people’s monthly mortgage payments have been falling, not rising, since 2006.” Perhaps yours is, but I got a mortgage in 2010 and all its done since is risen (twice i think). Presumably you are refering to the magical tracker mortgage of boom time myth, and with the same sort of glee that mainstream news regularly informs us of “great news for mortgage holders – the interest rate has gone down again!!!”. Yet more than half of irish mortgage holders are on variable rate mortgages, and get shafted every time a senior… Read more »
You are actually suggesting that Ireland institutionalize “sleight of hand” as a national financial tool? Far from condemning the dishonesty of the Irish Government’s “fictitious IOU called a promissory note to pay the creditors of Anglo”, you are actually suggesting that the Irish Government pull the same dirty trick again “to plug the gap in the banks’ balance sheets”? This time it would be called an “equity swap between the banks and the people”? From having been the island of saints and scholars Ireland is becoming the island of scammers and swindlers. Good suggestion David, it fits right in –… Read more »
OK, we have a clear problem here – exposure to futures rises in market / ECB interest rates. Given that 65% to 70% of banks mortgage book is tracker mortgage based, clearly consumers are exposed to rising rates. My question is can anybody recommend an appropriate hedging product, which would be open to the general public, which would enable them to profit / get compensated from rising ECB interest rates and which would be closely alligned to the maturity / cash flow profile of their existing monthly mortgage payments?
[…] a new article on his web site, McWilliams is talking up the Irish economy: Strike while the iron’s hot | David McWilliams My hunch is that the economy is getting stronger faster than many people think. McWilliams […]
Hi David,
Why are so many of my posts deemed to have to be moderated?
Equity Swap
I do not advocate this procedure because the helpless borrower is aiding the banks and enslaving himself to penury slavery .
Instead the Irish Banks should embrace the positive benefits by writing off larger provisions for bad debts and topping the maximum residential loans to the current market of the house.
Collective amnesia from the banks is a good national remedy and will enhance the confidence of the national productivity of the country .
What is good for the gander is good for the goose.
…..and I thought the prudent who did not buy during the credit fuelled binge would soon be able to buy their own house at a fair price once capitalism was allowed to do what it does, with all those house re-possessions on the market at a fair price. Instead, what David proposes, is not capitalism, but socialism for the rich. What’s wrong with forcing people to trade down and live within their means? What’s wrong with good quality cheap property – something you advocated a few weeks ago if I remember correctly? Are you cosying up to the gombeen industy… Read more »
“The Brits are booming”
Really? Let me explain;
http://www.telegraph.co.uk/finance/budget/10709115/Budget-2014-Britains-false-recovery-is-a-credit-mirage-unlike-real-recovery-in-the-US.html
Hi David,
Look at this:
http://www.zerohedge.com/news/2014-04-21/how-chinas-commodity-financing-bubble-becomes-globally-contagious
The chinese are using FOOD to finance deals in the financial market in the case in the link soyabeans. As a result the soyabeans are SKYROCKETING in value (Hyperinflation) and the newly created loot is driving the cost of 1 bed apts in London over 1m (Hyperinflation).
Sorry for the double post??????
Seems the solution to our problems is to manipulate and distort the interest rates again and so affect the markets. Thought that was what got us into trouble in the first place. Something abut artificially lowering the interest rates creating a credit fueled Irish tiger.
Some people never learn!! As accounted above by various posters the touted recovery is a mirage.
“It’s The End Of The Monetary System As We Know It (TEOTMSAWKI), and although it will be a difficult time for so many, I generally feel fine. I think it’s part of an overall evolution mankind is experiencing.”
http://dollarvigilante.com/blog/2014/7/7/france-brazil-india-south-korea-join-russia-china-in-post-do.html
Yep the US is in recovery mode alright. 80% of the economy relies on the government!!!!
Britain is not booming – Britain is borrowing. In fact Britain is making itself more broke than ever. Britain is uber competitive in certain service sectors. But the debts are NOT being reduced. The housing crisis is getting worse. And Britain is investing everything in labour intensive economic sectors – which results in a miserable quality of life. Britain is the inverse of South Korea. One is looking imperially impressive, the other is simply getting very rich. Actually, to be honest, South Korea is probably doing both now. The ECB interest rates are low, as a result not of market… Read more »
Reading this article makes me feel sick.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/7_Embry_-_Unprecedented_Lies_Are_Being_Told_To_The_Public.html
Government lies and more lies. What is an economist to think?
The best of capitalism is over for rich countries – and for the poor ones it will be over by 2060
http://www.theguardian.com/commentisfree/2014/jul/07/capitalism-rich-poor-2060-populations-technology-human-rights-inequality
Germany does not Pontificate Mysteries The German Bunsdestag Finance Committee Report has finally delivered the Truth about how Kenny & Co run this western isle and have included facts from off record meetings given by the inept civil servants from NAMA and Central Bank and their personal opinions, that the Germans considered significant enough that it had to be reported back to Berlin. This report is not mysterious it embraces what they heard from both sides of the mouth of the Irish civil servants . Why did the Minister for Finance not include this in his submissions directly from his… Read more »
Looks like Krugman was visiting the site……. he agrees with David. ‘Some have offered lame excuses; some, following in the footsteps of climate-change deniers, have gone down the conspiracy-theory rabbit hole, claiming that we really do have soaring inflation, but the government is lying about the numbers (and by the way, we’re not talking about random bloggers or something; we’re talking about famous Harvard professors).’ http://www.irishtimes.com/business/economy/when-faith-meets-evidence-evidence-doesn-t-stand-a-chance-1.1858471 So your loaf of bread, pint of milk, half dozen eggs, pound of sausages, box of cornflakes, pound of butter, bag of spuds, block of cheese and packet of ham are going up in… Read more »
Universal Health insurance “tax” final straw. JR needs to be shot.
Aparrantely it is easily possible to melt lead wheel balancing weights down to make bullets. Automatic machine guns like the STEN MKIII are also fairly easy to make at home. Time for a revolution…whoes with me?
David’s argument for “debt for equity swaps” is predicated on his belief that the Irish Government will succeed in convincing the EU that the creation of money to bail out IBRC (formerly Anglo) was to pay off the bank’s creditors therefore not monetary financing. In other words that monetary financing is OK when used to make good capitalists’ losses. With the accession of Joan Burton as Leader of the Labor Party will she embrace the Fine Gael/Fianna Fail argument that the best way to thrive in the EU is to be a good friend to capitalists? Or will she argue… Read more »
WTF is Ireland Inc up to? Is there a long term goal of breaking the Anglosphere trade cycle links/synergy and syncing with Europa/Euro or not? What’s the point of trading in the Euro if your main business momentum is Britain and the US. When will German and French be made compulsory for school kids in Ireland? Etc. And why do the UK/Rep of Ireland sync their visa reqs for Chinese tourists if Ireland’s part of Schengen? Or is it? Can’t remember. Eejity Ryanair asking for passport not driving licence yet expect Brits intoxicated with Mrs Brown’s Boys to put up… Read more »
Mortgage debt overhang from the housing bust has meant lack of middle-class spending power and consumer demand, preventing the economy from growing. The problem might be fixed by a new approach from the Fed. But if the Fed won’t act, counties will, as seen in the latest developments on eminent domain and litigation over Mortgage Electronic Registration Systems (MERS). Former Assistant Treasury Secretary Paul Craig Roberts wrote on June 25 that real U.S. GDP growth for the first quarter of 2014 was a negative 2.9%, off by 5.5% from the positive 2.6% predicted by economists. If the second quarter also… Read more »
Posted at Midas du Metropole From the not-so-tame inflation files comes this update regarding trucking, which is approaching crisis proportions. This is an excerpt from a lumber industry guy’s take on the matter: “We have been receiving many calls from Transportation Managers who are under stress to explain to their sales group and management why truck pricing has jumped so quickly and dramatically. Secondly, even if you can pay a higher price, why is it that you still may have to wait a lot longer than usual to get the freight picked up? I understand the stress, and can add… Read more »
posted Midas du Metropole hi bill, the july 7 COT report was simply incomprehensible! the commercials are now net short 16 million ounces of gold. they are net short 252 million ounces of silver. what does that mean? only about 800 million ounces of silver are mined worldwide every year. only about 100 million of these are actually physically traded. the rest are use in jewelry, photography, and silverware. this means the Big Banks control 2.5 X the silver traded worldwide yearly. if people can’t see this is flagrant manipulation nothing, could convince them. best, roger yes, i’m sitting on… Read more »
In her book Nomi gets into the historic relationship between the Presidency and Wall Street. Without delving into the entire conversation, she believes GATA is correct about taking on all the money and power in the world … in that, contrary to what the Fed and others in power say, Gold is THAT BIG A DEAL … and has been for a very long time. One of her major points is that they HATE gold because it acts as a “restraint” to what they want to do in the political/financial world, among other areas. In that sense GATA is correct… Read more »
Dave from Denver… The Deteriorating Economic Outlook July 8, 2014 I wrote an article with Dr. Paul Craig Roberts and John Williams (Shadowstats.com) which details why the negative 2.9% GDP contraction for Q1 as measured by the Government was likely a gross misrepresentation of the real GDP decline which occurred. We also explain why this will likely lead to a further measure decline in GDP for Q2, despite Wall Street’s interminable optimism in calling for a 3% rise in GDP. Finally, we explain the implications for real wealth being generated by the economy in relation to the inexorable rise in… Read more »
Bill H: There is precious little time left. We have already gotten many pieces to the ending of the petrodollar puzzle. We know about Russia and China (and the remaining BRICS) making deals in all directions that will not use the dollar. We have seen the U.S. allies Britain, France and South Korea all doing trade deals with the East that will not use dollars. We know that Saudi Arabia, (the lynchpin of the “petrodollar”) has had high level talks with both Russia and China over the last 180 days. Unless you are an ostrich and just want to “hope”… Read more »
Their is still too much debt..
Their are no longer full time jobs available,
Irish Government still has no solution to Bank crisis
Banks are still too indebted
Personal debts..i.e credit cards , cars, furniture loans ,this problem has still not been addressed
This Government now has no agenda or plan other than surviving the next 18 months and protecting their individual careers.
It is the South of England that is doing well..the North ? not so much……
We need to learn not to borrow and go back to basics..cash is king
DEBT IS BAD,BAD,BAD,BAD,BAD…UNDERSTAND ?
http://www.thedailybell.com/news-analysis/35460/Italys-Renzi-a-Charismatic-Technocrat-and-Internationalist/
Conclusion
The end game is a fully internationalized world. Those who are aware of what’s actually going on should be quite conscious of this sort of manipulation and take effective steps to combat it as best they can, at least on a personal level.
David on the one hand promotes interventionist policies for governments and on the other acts as an entrepreneurial in his personal business. One can’t have it both ways. So which way is it??
This piece made me think back to the 2006/07 period, when David McWilliams was banging the drum about too much debt and over priced properties. I read a piece, sometime in 2007, predicting much of what we have seen since then, in terms of state intervention in all financial and related markets. It forecast various ups and downs, and said that the final downswing would occur then the Chairman of the US Fed went on television to announce a $1 Tn direct intervention in the US stock markets – US government directly buying shares to hold up the stock market… Read more »
http://thegoldstandardnow.org/key-blogs-6/1564-chinas-preparing-for-the-end-game-are-we-paying-attention
Why is there gold for China but none for Germany? – Linda L. This is a very good question, I guess the simple answer is “the lesser of two evils”. If there is not enough gold to go around who do you pay? Do you pay your banker or do you pay your friend? If you don’t pay your banker he might foreclose. If you don’t pay your friend you might be able to say to him “just wait a little while, it’s inconvenient right now”. The Germans have fallen into line with the Bundesbank providing some cover by saying… Read more »
Economic facts that bear some semblance to reality rather than those invented as propaganda by others.
https://mail.google.com/mail/ca/u/0/#inbox/1471caadfc1a89fe
Is there a black swan hereabouts?
http://www.bizzyblog.com/2014/07/08/gates-of-hell-update/
Nobody is immune from being bailed in
http://www.cbc.ca/news/business/moody-s-cuts-bank-outlook-to-negative-on-ottawa-s-bail-in-rule-1.2700128