Celtic Tiger woolly thinking reappearing: document it here

Orbit v2

Well-known member
Joined
Dec 8, 2010
Messages
11,798
I think we need a thread to document the woolly thinking which created the Celtic Tiger catastrophe and specifically incidents of it reappearing today. Take a look at this piece in the IT published Dec 26.

Our most recent financial meltdown was the result of a failure of bank regulation. It didn’t happen because of budgetary mistakes.
Come again? Not because of budgetary mistakes? The failure of bank regulation cost us around €40 billion, but we have borrowed another €100 billion on top of that to keep the country going, to pay the inflated public sector salaries and pensions, and for social welfare. How can that not have been a budgetary mistake? The Celtic Tiger pay and welfare hikes were a calamity not a mistake.

The article is primarily about the question of whether the economy is overheating or not.

One way we could potentially cause trouble for ourselves is via domestically generated inflation. This, I suspect, is the bogeyman most feared by those firefighters standing ready to spray ice water over our red hot economy. Horror of horrors, they say, a rise in Irish wages could prompt a loss of competitiveness and bring the job creation engine to a juddering halt.

It is often said that Ireland has one of the most flexible labour markets in the world. If that’s true (it is) then it is highly unlikely that a domestically generated bout of wage inflation will prompt financial catastrophe.
I remember people speculating like this before the catastrophe, but how can you do it, just after we've had the experience? Has he forgotten that the experience was painful in the private sector, but still basically unresolved in the public sector. Some reductions have occurred but the extent to which they are permanent is open to question. The pensions time-bomb (which the author has written about recently) is also unresolved. When are we going to tackle the problem of retired public servants who will be given more in pension payouts than they earned during their working lives?

"Overheating" is a fuzzy term but the main policy question at this point is whether the few billion in fiscal space should be used on paying off the debt, on capital spending, or on higher wages/benefits. One thing is absolutely clear. It should not be spent on higher wages and benefits in the public sector - if we want to avoid the mistakes of the past at least.
 


Lumpy Talbot

Well-known member
Joined
Jun 30, 2015
Messages
27,836
Twitter
No
The Times seems to have forgotten that the profligacy of the celtic tiger years in terms of government spending was based on an inflated and overheated property bubble which overstated the natural earnings in taxes and made assumptions about the level of exchequer income on which spending was based.

When the tide went out the national exchequer was found to be swimming naked.
 

Sync

Well-known member
Joined
Aug 27, 2009
Messages
28,913
They’re saying the meltdown occurred because of the banks, botnother budgetsry mistakes. That’s a factually accurate statement. No bank collapse, no meltdown. You’re misreading it. The overspend on salaries/spend etc could have been corrected almost at leisure. The bank collapse caused the meltdown.
 

Lumpy Talbot

Well-known member
Joined
Jun 30, 2015
Messages
27,836
Twitter
No
They’re saying the meltdown occurred because of the banks, botnother budgetsry mistakes. That’s a factually accurate statement. No bank collapse, no meltdown. You’re misreading it. The overspend on salaries/spend etc could have been corrected almost at leisure. The bank collapse caused the meltdown.
Well when the IMF quarterly warnings between 2002 and 2006 about four European Union member states having overheated credit bubbles in their economy were being carefully tucked away in dark cupboards by civil servants in the Dept of Finance on a regular basis because it didn't agree with the narrative that saw them collect their McCreevy-arranged 'productivity bonuses' I'd call that something of a budgetary mistake and unrelated to any activity at the banks.
 

Catalpast

Well-known member
Joined
Nov 17, 2012
Messages
25,560
What caused our woes were the ditching of our own currency [the Punt] and opening up the State to Mass Immigration from the NAS in particular

All else followed from those two Blunders....:?
 

Sync

Well-known member
Joined
Aug 27, 2009
Messages
28,913
Well when the IMF quarterly warnings between 2002 and 2006 about four European Union member states having overheated credit bubbles in their economy were being carefully tucked away in dark cupboards by civil servants in the Dept of Finance on a regular basis because it didn't agree with the narrative that saw them collect their McCreevy-arranged 'productivity bonuses' I'd call that something of a budgetary mistake and unrelated to any activity at the banks.
I think that would stretch the interpretation of “budgetary” to breaking point.

Read the article. The core point is that increases in salaries and welfare didn’t cause the crash and wouldn’t cause the next one.

That’s a reasonable and accurate statement. What they ignore though is that high expenditure exacerbated the situation, and would again. Just because you can increase welfare doesn’t mean you should. Having a surplus is not a reason to increase current expenditure.
 

Orbit v2

Well-known member
Joined
Dec 8, 2010
Messages
11,798
I think that would stretch the interpretation of “budgetary” to breaking point.

Read the article. The core point is that increases in salaries and welfare didn’t cause the crash and wouldn’t cause the next one.

That’s a reasonable and accurate statement. What they ignore though is that high expenditure exacerbated the situation, and would again. Just because you can increase welfare doesn’t mean you should. Having a surplus is not a reason to increase current expenditure.
But the core point is wrong. Look at the figures. €40 billion odd spent on the banks. €100 billion on all other government spending over and above what tax revenue raised. Not all that was spent on salaries and benefits, but at least as much as was spent on the banks was.

It's unconscionable to brush that under the carpet.

Wage increases given to the public sector can't just be taken back when times are harsh. Pension payouts greater than what the person earned in their lifetime is voodoo accounting. It's not sustainable.

If we blow the couple of billion fiscal space on public sector wages, then that will lead to the next crash because when the downturn comes, we'll find that public servants won't want paycuts and we'll end up borrowing even more money. And if the market doesn't lend it to us we'll be going cap in hand to the IMF and the troika again.
 

farnaby

Well-known member
Joined
May 15, 2006
Messages
1,930
What caused our woes were the ditching of our own currency
Which assumes that in an era of globally low inflation and interest rates, Irish central bankers and policy makers would have pushed for higher interest rates than the ECB to control the housing bubble. The kowtowing of the central bank to "successful" bankers like Seanie and Fingers, and the political power of developers at the time suggests otherwise. The Euro isn't even in the top 5 reasons for the crash.

and opening up the State to Mass Immigration from the NAS in particular
Really? Gross mismanagement at banks, public sector wage benchmarking, buy-to-let craziness in Leitrim - all caused by Polish plumbers renting in Blanchardstown? Well I never...
 

Orbit v2

Well-known member
Joined
Dec 8, 2010
Messages
11,798
The other cloud on the budgetary horizon, not mentioned in the article is interest rates. They can only go in one direction, and will reduce fiscal space in the coming year.
 

Sync

Well-known member
Joined
Aug 27, 2009
Messages
28,913
But the core point is wrong. Look at the figures. €40 billion odd spent on the banks. €100 billion on all other government spending over and above what tax revenue raised. Not all that was spent on salaries and benefits, but at least as much as was spent on the banks was.

It's unconscionable to brush that under the carpet.

Wage increases given to the public sector can't just be taken back when times are harsh. Pension payouts greater than what the person earned in their lifetime is voodoo accounting. It's not sustainable.

If we blow the couple of billion fiscal space on public sector wages, then that will lead to the next crash because when the downturn comes, we'll find that public servants won't want paycuts and we'll end up borrowing even more money. And if the market doesn't lend it to us we'll be going cap in hand to the IMF and the troika again.
Unless your contention is that the meltdown would have occurred when it did without the bank crash, then the wages are a side issue which made the crash worse than it otherwise would have been.

Spending was unsustainable. The banks caused the meltdown. Those are not contradictory statements.

Your brake fluid light is on. You need to fix it. The you drive home drunk and crash. You crashed because you were drunk. You should still get the fluid fixed the next time the light is on, but that’s not why you crashed.
 

Spirit Of Newgrange

Well-known member
Joined
Dec 4, 2010
Messages
4,602
Celtic Tiger wooly thinking : oh quick, i must put in a 700 k bid in for this ex-council flat in Ballymun. Gotta get in quick before you miss the boat. Otherwise you will be up sh1.ts creek without a paddle.
 

stanley

Well-known member
Joined
Jun 20, 2007
Messages
9,867
Celtic Tiger wooly thinking : oh quick, i must put in a 700 k bid in for this ex-council flat in Ballymun. Gotta get in quick before you miss the boat. Otherwise you will be up sh1.ts creek without a paddle.


Donie Cassidy from FF will be on soon encouraging us all to buy, so he can pay off his debts from the last crisis.
 

Catalpast

Well-known member
Joined
Nov 17, 2012
Messages
25,560
Which assumes that in an era of globally low inflation and interest rates, Irish central bankers and policy makers would have pushed for higher interest rates than the ECB to control the housing bubble. The kowtowing of the central bank to "successful" bankers like Seanie and Fingers, and the political power of developers at the time suggests otherwise. The Euro isn't even in the top 5 reasons for the crash.



Really? Gross mismanagement at banks, public sector wage benchmarking, buy-to-let craziness in Leitrim - all caused by Polish plumbers renting in Blanchardstown? Well I never...
Once we were in the Euro we were not setting our own interest rates

- these were geared towards the bigger economies like Germany and France whose economies needed low interest rates to stimulate business investment

We in this State did not need such low interest rates

- these rates imposed on us were harmful to the economy as we were still expanding and this overheated the Economy

Mass Immigration fuelled the Housing Boom as the numbers mushroomed then the demand for accommodation (even Polish plumbers need a roof over their head) did so too

Surely you remember the one from circa 2006

Why is there a Boom?

Because they are building more houses

Why are they building more houses?

Because there's a Boom....
 

Spirit Of Newgrange

Well-known member
Joined
Dec 4, 2010
Messages
4,602
oh, and also my house value has just gone up by 100k . So lets buy a new Lexus SUV. borrow the money from the bank. Throw away my 5 year old car for a pittance.
 

Orbit v2

Well-known member
Joined
Dec 8, 2010
Messages
11,798
Unless your contention is that the meltdown would have occurred when it did without the bank crash, then the wages are a side issue which made the crash worse than it otherwise would have been.
Spending was unsustainable. The banks caused the meltdown. Those are not contradictory statements.
Your brake fluid light is on. You need to fix it. The you drive home drunk and crash. You crashed because you were drunk. You should still get the fluid fixed the next time the light is on, but that’s not why you crashed.
The country's finances were on a knife-edge. Government ministers had convinced themselves, we had paid off the national debt when all that actually happened was fairy tale GDP had sky-rocketed (and therefore debt to GDP had dropped, but we hadn't paid off a cent of the debt). GDP was about to plummet regardless of the banking crisis. And as I've pointed out twice already, the long term consequence of both events is clear. The budgetary calamity was worse than the banking crisis. Arguing about which caused the other, is like saying WWI was "caused" by the assassination of the arch-duke. If that event hadn't started it, some other event would have.
 

Jim Car

Well-known member
Joined
May 19, 2014
Messages
2,695
The main problem we faced was bridging the gap as a result of run away public spending based mainly on inflated taxes taken in from all things related to real estate. The bank bail out was the right thing to do but it was rushed mainly due to panic, had it been done properly and a more calm approach taken then its negative effect could have been mitigated by quite a bit. Over all though we did well in comparison to others just compare us for example to Greece. We can complain but there is a reason we are getting out of the mess and others are not. That being we did what needed to be done others F***ed about.
 

PBP voter

Well-known member
Joined
Sep 18, 2015
Messages
9,254
SF FF and the various builders unions are all cheerleaders for more development.

SF like FF want the private developer back.



http://www.sinnfein.ie/housing
Sinn Féin priorities in government would include:

Build 100,000 new social and affordable homes.
Ensure 20% social and affordable housing on all new developments.
Introduce legislation to limit the rate that banks can charge - even a 1% reduction would save mortgage holders an average of €2,000 a year on a €200,000 mortgage.
Abolish the Local Property Tax.
Provide rent certainty.
Introduce a tenant's rights charter.
Alongside the introduction of rent regulation, look at the capping of rent subsidies
Make an extra €30 million available for emergency housing in 2016.
 

Orbit v2

Well-known member
Joined
Dec 8, 2010
Messages
11,798
The main problem we faced was bridging the gap as a result of run away public spending based mainly on inflated taxes taken in from all things related to real estate.
That sentence should be burned onto the foreheads of everyone who runs for election because people will start to forget it otherwise.
 

Analyzer

Well-known member
Joined
Feb 14, 2011
Messages
45,623
There needs to be an index of expensive escapism to measure relapses into profligate waste.

The hard sell propagands of The ISIS Times would be a component of such an index.

The banks WERE regulated.

ICTU big shot David Begg sat on the board of the central bank right throw the entire build up.

Gay Byrne's biographer ( who also got on the PRAVDA-rte payroll herself) was ON THE BOARD OF THE FINANCIAL REGULATOR. What qualified her for that role is equivalent to what qualified useLiz O'Donnell to run the road safety quango.

The Quangocrats ARE THE PROBLEM.
 

Apple in Eden

Well-known member
Joined
Sep 15, 2016
Messages
1,705
Well when the IMF quarterly warnings between 2002 and 2006 about four European Union member states having overheated credit bubbles in their economy were being carefully tucked away in dark cupboards by civil servants in the Dept of Finance on a regular basis because it didn't agree with the narrative that saw them collect their McCreevy-arranged 'productivity bonuses' I'd call that something of a budgetary mistake and unrelated to any activity at the banks.
I would go further and say it was a criminal offence or at least should be.
 


New Threads

Popular Threads

Most Replies

Top