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"We will wreck the economy if the adjustment is too severe"


ChickenBiryani

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Jul 2, 2010
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Is anyone else getting totally sick of the constant repetition of this mantra by every commentator in the land, no matter what side they are on? Every single Policitican, Journalist, Trade Unionist, Economist and any other waffler given air time or allowed to put pen to paper in the pages of the national rags has some variation on this theme.

I understand the economic principles and have studied them but Keynes is one of the most misunderstood and misquoted economists out there. His prinicples assume efficiency in spending (implying drastic knock on effects of spending cuts in recessions through money multipliers and the like on demend) and control of exchange rates and its not directly applicable to Ireland. Even when commentators espouse his principles here, they tend to pick and choose which aspects of his policies they like (for example, you don't hear anyone here calling for tax cuts).

The thing that is killing this economy is the extend and pretend as the Yanks call it. Kicking the can down the road and the lack of certainty as to whats coming down the line. I laugh when I hear David Begg this morning for example, talking about possibly killing the economy. Guess what David, the economy is dead, and its our failure to get a grapple with the deficit thats causing it.

We need to find the bottom so that we can look upwards. We need to know that its over, that yes our take home pay has just got cut by 30% but THATS IT, IT ONLY GETS BETTER FROM HERE.

The problem with the death of a thousand cuts approach is people are afraid to do anything. There is undoubtedly still a great pool of wealth in Ireland. But people wont spend it because they are afraid that worse is comign down the tracks.

Can anyone say for certain that we would not be better off now, had we just closed the gap in 2 budgets? Make marginal rates all-in 60%, limit pension reliefs to standard rates, cut property reliefs, bring the lower paid into the tax net, abolish all the useless quangoes, reallocate wasted HSE admin staff to SW or make them redundant, cut upper public servants wages by 30% and lower paid by 15%, bring in property tax, water charges, means test child benefits, cut the OAP, cut the dole, do it all in one fell swoop.

Part of the problem here is generalisations. In Ireland, we have a tendency to make policy on the basis of very broad sweeping perceptions that make no sense in reality. So try to means test or cut medical card benefits to Pensioners, and you have mass demonstrations. All public servants are poor "workers" who have been savaged by the cuts. Everyone earning over €75k/€100k/€120k[*delete as appropriate] is wealthy and not paying their fair share. All of these generalisations are totally inappropriate.

In reality, in each of these groups there are people who (because of personal choices they have made, and perhaps some element of fortune) are absolutely fine in the recession and others who are totally screwed, but the system should try to look through the groups, because if we try to cater for each individuals personal circumstances we will get nowhere. We won't know what the tipping point is until we start pushing the envelope. It can't be any worse than what we have endured for the last 3 years.
 

hammer

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Jul 6, 2009
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€15 billion adjustment over 4 years MINIMUM and they still want people to increase spending / consumption :)

They must have meant on extra charges for

VHI - Dublin Bus - Iarnrod Eireann - Waste charges - Tolls - ESB

( all Govt controlled !!!! )
 

Outlander

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May 31, 2007
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606
The Irish Economy » Blog Archive » Fiscal Adjustment After a Banking Crisis

Reference to an IMF paper posted by Philip Lane

Summary: This paper analyzes the experience of 99 advanced and developing economies in restoring fiscal sustainability during 1980 - 2008 after banking crises, which led to large accumulation of public debt. It finds that successful debt reductions have relied chiefly on generation of large primary surpluses in post-crisis years through current expenditure cuts. These savings have been accompanied by growth-promoting measures and a supportive monetary policy stance. While these results are consistent with the existing literature, the paper finds that revenue-raising measures increased the likelihood of successful consolidation in countries that faced large adjustment needs after the crisis. This reflects the fall in effectiveness of spending cuts when deficit reduction needs are large independent of initial tax ratios.
The depths of our own financial hole are due only in part to the banking crisis - exuberant mismanagement of the economy must be added to the mix.

We can try some of the solutions mentioned above, but where will the "supportive monetary policy stance" come from, and where is the fat that can be used for "growth-promoting measures"?
 

hammer

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Interesting also how the entrepeneurs that will be declared bankrupt are going to get back on thier feet after 12 years.

Well the depression is expected to last 10 years, not just until 2014.

We need about 250,000 unemployed to emigrate pretty fast.
 

A view from England

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Apr 14, 2010
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This is what went wrong..
I just can't cope, mum tells court as she loses home - Courts, National News - Independent.ie
Now take this poor family as an example. I'm assuming that he worked as builder in the good times. WTF was any bank up to when lending 336K to a brickie? Now, play the same scenario out across Ireland, the UK, the USA, Portugal, Spain, Greece and Italy and you can see what went wrong. The banks packaged up thousands of mortgages just like this one into investments for other banks, companies and individuals to invest in and it all crashed down.
The economy is wrecked and will never be the same again.
 

Watcher2

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May 2, 2010
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33,903
The quote should be:

We have already wrecked the economy on the society of Ireland. There is no hope for us at all. Please will those useless ************************es in Brussels get the finger out and fix us....or better still President Obama."
 
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We have to reform our bankruptcy laws.

Follow the UK model and allow people to go bankrupt, manage their debt and get back up on thier feet when things improve.

As it is, we have a system that hits you, cuts you and ruins you for life.
 

HarshBuzz

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that's a great post Chicken Biryani

Begg was at it again this morning on Newstalk
 

Telemachus

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Website
en.wikipedia.org
We have to reform our bankruptcy laws.

Follow the UK model and allow people to go bankrupt, manage their debt and get back up on thier feet when things improve.

As it is, we have a system that hits you, cuts you and ruins you for life.
That would be all grand if we hadnt bail out the banks.

Already our standard of living has been permanently lowered by taking on the banks debts.
 
Last edited:

dresden8

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Feb 5, 2009
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14,937
Government took money out of economy last year.

Government is now surprised tax take is down this year.

No connection, no?

We're in a nasty little trap, all designed to save the wealth of the uber rich.
 

jpc

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The Irish Economy » Blog Archive » Fiscal Adjustment After a Banking Crisis

Reference to an IMF paper posted by Philip Lane



The depths of our own financial hole are due only in part to the banking crisis - exuberant mismanagement of the economy must be added to the mix.We can try some of the solutions mentioned above, but where will the "supportive monetary policy stance" come from, and where is the fat that can be used for "growth-promoting measures"?
Never seen it put in those terms before, but it's so so accurate.
That the consequences of trough politics I guess "exuberant mismanagement"
 

john_galt

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Jun 16, 2010
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You nailed it completely CB, Begg and the like are just making comments to pretend that they are still relevant, but all the Union heads have been contaminated by their acceptances of directorships at the Central Bank and the Regulator -they did a great job!

Moreover, Keynes assumed an ability to finance, but the current IRR of any funding must exceed 4.7%, but its not, Contractional Fiscal Expansion is what is needed. Otherwise, we are paying away money to cover our day to day expenses than the growth we will gain over the long term.
 

Twin Towers

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Never seen it put in those terms before, but it's so so accurate.
That the consequences of trough politics I guess "exuberant mismanagement"
"exuberant mismanagement" is a fantastic term but exuberant destruction has been the consequence and the "exuberants" refuse to get out of the way.
 

inthemire

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Feb 3, 2009
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608
The Irish Economy » Blog Archive » Fiscal Adjustment After a Banking Crisis

Reference to an IMF paper posted by Philip Lane



The depths of our own financial hole are due only in part to the banking crisis - exuberant mismanagement of the economy must be added to the mix.

We can try some of the solutions mentioned above, but where will the "supportive monetary policy stance" come from, and where is the fat that can be used for "growth-promoting measures"?
To be honest, I think you're (possibly accidentally) deflecting the reason WHY we're screwed.

It was Banks who lent money to people who couldn't afford it, due to overinflated house prices, caused by colluding banks and developers - in some cases, Senior bank officials WERE the Developers!!

Banks who offered unsecured loans to wealthy individuals with Personal Guarantees as security - or no guarantee in many cases.

It was banks who facilitated the "buy money cheap" schemes to enable foolish people take ridiculous sums of personal debt.

Banks who lied to the Minister for Finance in September 2008 that Anglo Irish needed to be saved, due to it's "systemic" importance. NONSENSE!!

Senior Directors of Banks who "over their dead bodies" said they would need public funds, but who then took the funds happily from September 2008.

Banks who, possibly illegally, switched 7.5 billion across Balance Sheets to fool others into believing that these banks were financially solvent, when they weren't.

IT WAS BANKS WHO DID IT.

The regulators/government were ALWAYS going to be caught out. They put in political faces, not capable individuals into the regulatory authorities. Anyone Remember Insurance Corporation of Ireland?

Nothing Changes here. Just the faces. The same family names (Lenihan) are still involved.
 

ChickenBiryani

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That may be true but is completely off topic. This is not a thread for ranting about who or what got us here. We are where we are.

Its intended to question the almost universally held wisdom that we should "spread the pain" over a long timespan in order not to wreck the economy further.

I for one believe it is the spreading of the pain that is causing the uncertainty that is bleeding into everything, and a short sharp shock that finds the bottom would be more beneficial in the long run.
 

Malbekh

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Apr 30, 2009
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The domestic economy is in for an extended period in the doldrums, dragging its collective ass on the bottom of the ground shedding jobs and bankrupting viable companies for years to come.

Begg does have a point. Why destroy our domestic economy for an aspirational goal that may not be possible to achieve? Drastic cuts and increased taxation would have been ideal 2 years ago, whereas this feels very much like an execution after we've been tortured incessantly.

Seems like the main political parties have decided to put all their eggs in a collective export driven-growth basket. I've no doubt that exports will drag us off our feet.......eventually........but only at the cost of destroying what's left of our domestic focussed industry.
 

ClareGael

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Jun 8, 2010
Messages
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I'm glad to see this thread is discussing the real problems and not hiding behind agendas like begg this morning. Getting the measures right now will make our competitiveness better, improve the speed of our recovery once growth returns to the market (which it will) and hopefully put the banking crisis into the dark hole where it need to go. I totally disagree with SF's stance of spreading out the pain to 2016 and leaving us with a larger national debt and larger annual interest payments. What needs to be done has to be done now. No more fannying about with our future. Politicians, get the job done.
 

HarshBuzz

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Seems like the main political parties have decided to put all their eggs in a collective export driven-growth basket. I've no doubt that exports will drag us off our feet.......eventually........but only at the cost of destroying what's left of our domestic focussed industry.
Malbekh, we don't have any domestic 'industry' in the widely recognised sense of the term. We have consumer demand-led reselling of (nearly always foreign produced) products and also domestic services.

We are not going to become sustainably wealthy in the long-term by selling (foreign-made) goods to each other - we need to make stuff that the rest of the world wants to buy. Preferably via indigenous companies.
 

john_galt

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That may be true but is completely off topic. This is not a thread for ranting about who or what got us here. We are where we are.

Its intended to question the almost universally held wisdom that we should "spread the pain" over a long timespan in order not to wreck the economy further.

I for one believe it is the spreading of the pain that is causing the uncertainty that is bleeding into everything, and a short sharp shock that finds the bottom would be more beneficial in the long run.
`+1

CB you may find this article interesting,
http://epress.anu.edu.au/agenda/005/04/5-4-A-3.pdf

We need to start running this country like a business in the way we finance it, you cut back costs and attempt to increase revenues at the start and reward staff if it proves to be successful, you do not cut pay the minimum balance on your bills and HOPE for a recovery from elsewhere.

Anger may not be a policy, and nor is hope. Lets be realistic and start to move on. This spring will see the turning of the tide, we shall know the burden we have to carry and once the election is out of the way, we can really move forward.
 

Watcher2

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May 2, 2010
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`+1

CB you may find this article interesting,
http://epress.anu.edu.au/agenda/005/04/5-4-A-3.pdf

We need to start running this country like a business in the way we finance it, you cut back costs and attempt to increase revenues at the start and reward staff if it proves to be successful, you do not cut pay the minimum balance on your bills and HOPE for a recovery from elsewhere.

Anger may not be a policy, and nor is hope. Lets be realistic and start to move on. This spring will see the turning of the tide, we shall know the burden we have to carry and once the election is out of the way, we can really move forward.
That gives too much credibility to the oppostion parties. Do you actually believe any of those gimps have the ability to "really move forward."? I surely dont.

In case you think otherwise, I dont believe the current lot have any creibility either.
 
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