Cuts vs Stimulus - Ireland Now The Example of How Not to Manage a Crisis

[C. Flower]

The CSO figures last week showed that Ireland's GNP and GDP had again declined when seasonally corrected. The whole premise of the Fianna Fail Government's approach is that export led growth would pay for the losses of the crash. On that expectation, we were told that both the bailout of the banks and a staged reduction of public spending by 20 billion+ (one third) was "manageable".

Instead, the economy is continuing to shrink, even though most of Europe has returned to some measure of growth.
Continued deflation means less money is available to pay back debt and there is less taxation revenue.

The bond markets reacted to the CSO figures last week with a sharp increase in the cost of sovereign borrowing and the cost of insuring loans to Ireland. This in turn will put further pressure on the budget and brings Ireland to the brink of Sovereign default.

The IMF has hinted that the answer is to for us to cut more from public spending. Sutherland wheeled himself out to tell us that more wage cuts and cuts in spending are "manageable".

There's no reason to believe that this wouldn't accelerate the decline of the economy.

In the UK, Ireland is now being waved in the face of the Tory Government as a bad example of how to handle a damaged economy.

http://www.guardian.co.uk/business/2010/sep/23/ireland-austerity-budgets-comment

The truth is that the Guardian's view of the Irish situation is simplistic. There's no possibility of this Government raising resources for a stimulus package. There's no easy way out of our predicament and the issue is how to minimise the damage done by the 11 year financial binge.



One measure of market confidence is the difference, or spread, between the yield on Irish government bonds and German bunds. Today that widened to a record level.

The reason for this is simple: the budget cuts have impaired the economy's ability to grow. The Irish government wants to slash the country's budget deficit from 12% to less than 3% by 2014, which would be eye-wateringly tough even if the economy were growing robustly. But when the economy is shrinking, it means the government is in effect running to stand still, hence the calls for even greater austerity to mollify the markets. That would, of course, simply weaken growth prospects still further.

Ireland, in other words, is perilously close to locking itself into permanent depression and deflation, from which the only way out may be a default that would further damage consumer and business confidence. There is indeed a lesson for the UK from Ireland: how not to do it.

[TotalMayhem]

There's no possibility of this Government raising resources for a stimulus package.

Sure there is: shut down the failed banks and tell their bond holders to suck it up. Of course, this kind of government you don't get through a general election (those you're aiming at will make sure that nobody with such 'idiotic ideas' will appear on a ballot sheet).

However, a stimulus package will do nothing but artificially inflate the next bubble, it's the preferred tool to create the illusion of 'perpetual growth'. Be careful what you wish for.

[C. Flower]

Sure there is: shut down the failed banks and tell their bond holders to suck it up. Of course, this kind of government you don't get through a general election (those you're aiming at will make sure that nobody with such 'idiotic ideas' will appear on a ballot sheet).

However, a stimulus package will do nothing but artificially inflate the next bubble, it's the preferred tool to create the illusion of 'perpetual growth'. Be careful what you wish for.

Having done that, and I don't disagree, the question is how to keep the country functioning. A proper state bank seems obvious, but borrowing costs would be very high and we are spending a third more than we bring in.

How do we avoid the IMF and keep alive and productive? Because neither cuts nor stimuli are solutions.

[Xray]

Or as Constantin Gurdgiev seemed to saying on the radio simply revoke Anglo banking license. If it is not a bank then none of the state obligations still apply. I could be wrong but that is what I took from it.

We need to start fighting like cornered rats here, but that is what we are. We need to start telling a lot of people to take a hike and ensure that state bonds are 110% trust worthy. We need one bank, just one. So pick one. We need a new government with a large majority and a streak of ruthlessness for a couple of years.

[C. Flower]

Sure there is: shut down the failed banks and tell their bond holders to suck it up. Of course, this kind of government you don't get through a general election (those you're aiming at will make sure that nobody with such 'idiotic ideas' will appear on a ballot sheet).

However, a stimulus package will do nothing but artificially inflate the next bubble, it's the preferred tool to create the illusion of 'perpetual growth'. Be careful what you wish for.

According to this the next global bubble is already beginning - without us of course.

http://uk.reuters.com/article/idUKTRE68N37R20100924?type=GCA-ForeignExchange


The Federal Reserve's promise to print more money if needed to shore up the U.S. economy, Japan's yen-selling intervention and calls for more monetary easing in Britain have all but ensured interest rates in advanced economies will stay near zero for some time.

In the past week, those expectations have knocked the dollar to six-month lows, sending gold to record highs. The yen approached levels where Japan officially intervened, stirring talk of more action -- which in turn would pump more cash into the system.

With returns on investment staying low in advanced markets, massive amounts of cash are pouring into emerging economies.

[C. Flower]

Or as Constantin Gurdgiev seemed to saying on the radio simply revoke Anglo banking license. If it is not a bank then none of the state obligations still apply. I could be wrong but that is what I took from it.

We need to start fighting like cornered rats here, but that is what we are. We need to start telling a lot of people to take a hike and ensure that state bonds are 110% trust worthy. We need one bank, just one. So pick one. We need a new government with a large majority and a streak of ruthlessness for a couple of years.

They may all be bankrupt, but BoI always looked like the best bet, with the Credit Unions as well.

The only fighting our current guys do is to get to the front of the bar queue.

[Xray]

Having done that, and I don't disagree, the question is how to keep the country functioning. A proper state bank seems obvious, but borrowing costs would be very high and we are spending a third more than we bring in.

How do we avoid the IMF and keep alive and productive? Because neither cuts nor stimuli are solutions.

A short sharp readjustment. I mean 1st Jan 2011. Everything changes to whatever it needs to be that day and then we are on the right path. Taxes, spending, rents, banks the lot. Force the private sector to play ball. Be ruthless. Actually a readjustment of 10% is quite doable for many if do in a context of reducing prices. We have many vested interest trying not to devalue as the rest do, that is unacceptable. Rents and profits must follow wages too. If everyone in the country was faced with a 10% bill on Jan 1st 2011 I think that would be better than what we face.

Bring in more and send out less. We spend money on a load of crap. We are still borrowing to put money in pensions of the future and insist on on massive capital programs. We need to take a break from that. We need to get real on the banks. Pick one bank and set the rest free. Two years is a enough time to get your house in order. Goodbye.

We need to restructure the PS big time. As you know I was against the Croke park "agreement", but even that has been ignored and remains totally unused. God knows why. It is impossible for someone who believes in public services for many things to defend them when they are run so badly.

Our tax system is a joke. More people need to pay into it and almost all tax break need to end. The whole system should be put in the bin and drawn up from the start again. There are too many incentives not to work and to put money into uneconomic things to avoid paying tax. We are not raising nearly enough tax and we are taxing the wrong things.

Unemployment - this is a no brainer, if we solve this we solve almost everything else. I have not seen ANY evidence where I am of any attempt to get anyone off the dole. Its not rocket science. Christ in the middle of depression someone decided to stop mowing the lawns in estates in Dublin. That says it all really.

[Xray]

They may all be bankrupt, but BoI always looked like the best bet, with the Credit Unions as well.

The only fighting our current guys do is to get to the front of the bar queue.

Well you would have a super bank with the best from BoI combined with the best branches of a few others. Cherry pick the staff etc. I know it is peoples jobs, but if we get one working right there is a better long term prospect for the other staff in the medium term. Banks wont be slow re-entering the market once there is money to be made in it.

There is a lot of talk about vested in interests in terms of the PS. The real vested interests that worry me are in senior positions in the PS and in banks, insurance and the legal profession. They seem to be preventing what needs to happen from happening.

[C. Flower]

Well you would have a super bank with the best from BoI combined with the best branches of a few others. Cherry pick the staff etc. I know it is peoples jobs, but if we get one working right there is a better long term prospect for the other staff in the medium term. Banks wont be slow re-entering the market once there is money to be made in it.

There is a lot of talk about vested in interests in terms of the PS. The real vested interests that worry me are in senior positions in the PS and in banks, insurance and the legal profession. They seem to be preventing what needs to happen from happening.

There's a whole privileged layer right across private and public sectors at the top who protect their positions at the expense of the rest. The strings seem to be pulled partly from outside Ireland (international finance and the EU/IMF) and partly by politicians and businesspeople. The high paid in the Public Sector are very highly paid placemen there to do Governments's will.

The worse their position the more tightly they hold on to power.

[Xray]

There's a whole privileged layer right across private and public sectors at the top who protect their positions at the expense of the rest. The strings seem to be pulled partly from outside Ireland (international finance and the EU/IMF) and partly by politicians and businesspeople. The high paid in the Public Sector are very highly paid placemen there to do Governments's will.

The worse their position the more tightly they hold on to power.

You are right and these people are far more panicked about the IMF than people on welfare of lower PS wages are. I would welcome the IMF at this stage in many ways. At least it would be a fair way of balancing the books. Our internal structures are clearly failing on that front.

[TotalMayhem]

I would welcome the IMF at this stage in many ways. At least it would be a fair way of balancing the books.

The IMF will do nothing of the kind, "a fair way of balancing the books" is the last thing on their agenda.

The IMF is the looter of last resort.

[Xray]

The IMF will do nothing of the kind, "a fair way of balancing the books" is the last thing on their agenda.

The IMF is the looter of last resort.


They dont care who you dine with on the Green though. They look at figures and nothing else. I am sure they would have a hard look at the elite now avoiding the pain as well as the rest of us.

They need to find a better boogey man to scare me. I am already scared, more so of them than the IMF I am afraid.

[Xray]

The IMF would not make concessions to local business. They'd make us put the lot up for auction and privatise everything, water and the lot.
From what I've seen elsewhere the main job would be to make us pay off the debt.

Well I would be more scared if I were an over paid protected member of the elite than someone who works for living doing something that will still be required once the IMF take over. I suspect the IMF will look more fondly on me that some waste of space earning 300k-400k to avoid making a decision. So they better try again with the boogey man. The level of income cut I have already taken is higher than what many suffer at the hands of the IMF.

[charley]

How much of the €20billion borrowing is actually for essential borrowing .
Also we have the HSE crying about having to work with a budget but neglecting to mention that they should be able to top this up from VHI/AVIVA, as well as the millions they are taking in in fees for scans etc...
Is there any reason why the wages of any politicion and higher paid public servant couldn't be paid differently. Pay the average wage and put the balance in trust until the economy improves, I believe this might stimulate politicians to get their act in gear.
On friday the 2 banks closed at a very low level, if this continues they will nationalised mid-October and the money-pit will get bigger.

[Xray]

How much of the €20billion borrowing is actually for essential borrowing .
Also we have the HSE crying about having to work with a budget but neglecting to mention that they should be able to top this up from VHI/AVIVA, as well as the millions they are taking in in fees for scans etc...
Is there any reason why the wages of any politicion and higher paid public servant couldn't be paid differently. Pay the average wage and put the balance in trust until the economy improves, I believe this might stimulate politicians to get their act in gear.
On friday the 2 banks closed at a very low level, if this continues they will nationalised mid-October and the money-pit will get bigger.

HSE gets little for VHI etc really. Most of it simply covers the costs of what was done the rest goes to the consultant. Also people are dropping out of private big time. Fools gold really. Many private rooms are not available for private use anyway such is the pressure on beds so there is little benefit in using insurance in many cases, same care either way.

We spend a low % or our national wealth on health either privately or publicly and it shows.

[C. Flower]

How much of the €20billion borrowing is actually for essential borrowing .
Also we have the HSE crying about having to work with a budget but neglecting to mention that they should be able to top this up from VHI/AVIVA, as well as the millions they are taking in in fees for scans etc...
Is there any reason why the wages of any politicion and higher paid public servant couldn't be paid differently. Pay the average wage and put the balance in trust until the economy improves, I believe this might stimulate politicians to get their act in gear.
On friday the 2 banks closed at a very low level, if this continues they will nationalised mid-October and the money-pit will get bigger.

There doesn't seem to be a real problem in the percentage of our GDP spent on public services - although there's a big issue about what we get in exchange for that amount.

The difficulty is that we're producing less and unless we can produce and sell more abroad, it will become progressively more and more difficult to spend. Of course this is made much worse because we're also trying to pay back an enormous overspend. Anyone producing goods or services for local consumption in Ireland is in a very dodgy situation.