Wednesday, 10 February 2010

Hallelujah - the recession's over!

Whew – well that's all right then. What a relief. There was I thinking that the Irish economy was just at the beginning of a catastrophic economic crisis when, like magic, it’s all over!

How do I know this? Because all the great and the good say it’s so. By this I mean our political leaders, the economists (and not just the media whores who shill for their bank employers), the IMF, the Central Bank, the ECB….I could go on. For example Marc Coleman, by no means the worst of the economic commentators and a genuine independent, assures us that ‘signs of recovery are everywhere’. In fact while everyone admits things are bad just now, it’s almost impossible to find anyone who thinks it’s going to get worse.

Apart from your beloved Savant.

Now why would I doubt these eminent sources? Well, their being spectacularly wrong on just about everything to date could be a factor. For instance Peter Sutherland, The Greatest Living Irishman, and former Chair of both BP and Goldman Sachs, was not so long ago sternly wagging a finger at those who were ‘talking down the economy’. It was ‘not a bubble’ he assured us. I can see how he made the Chair at GS. All the rest of those worthies have similar track records.

Now here I must put aside my customary modesty and self-effacement. I'm forced to do it in order to show that the truth about our economy was there for anyone to see. Well anyone who wasn’t a fool or a rogue. Yes, almost three years ago I called it out – see here. In the same post I showed how the economy was being fundamentally undermined by sidelining science and technology. Just like the US has been doing.

It’s astonishingly simple to show that we haven't even come close to turning the corner. The ‘Government’ is running a massive deficit of over €20 billion equal to about 40% of its entire budget. It’s been hysterically praised for its ‘bravery’ in shaving off €4 billion off that. But that’s only a fraction of what needs to be cut.

Surely that's self-evident?

Meanwhile, despite these cuts we’re adding about €20 billion to the national debt each year. Which means that the principle and the interest on the borrowings continue to rise. If you do the math you’ll see that this will almost demolish the €4 billion savings within a few years.

What then? Well, the US is getting around the same problem by printing money. This works, up to a point, but self-evidently has colossal negative implications down the line. And being in the Euro zone, Ireland can't do this. For a variety of reasons which I can't go into here, pulling out of the Euro just isn't an option. And we can't continue borrowing as this would mean unsustainable repayment levels and/or unsustainable increases in what the lenders charge us.

This leaves a sovereign default, or massive draconian measures to correct the budget. That's what I hope happens, as our bloated inefficient public sector and indulgent social welfare (on the dole in Ireland you earn triple what you do in the UK) need to be cut drastically. That will set us back on the road to recovery. But it'll be slow and painful

Take a micro example: Say a Diversity Manager in the Health Service Executive has to get laid off, together with her staff. She - it will of course be a she - will suddenly go from earning about €200,000 a year to a tenth of that. Now even if she gets the usual obscene public sector pay-off, she still won't be rushing to spend it. There will be tens of thousands of people like her if the essential deep cuts take place.

Add to this the certainty of continued pay reductions for everyone – apart from the golden circle – and major taxation increases and you get a sense of the amount of money that will - has to be - be taken out of the economy.

To compound the problem we haven't seen the last of the property bubble collapse. This will soon enter its second phase when the huge numbers of borrowers who survived up to now by living off savings will dump their problems at the doors of the lending institutions. This is going to be a severe problem, but nobody’s talking about it.

Not yet.

Does the ‘Government’ have a plan? Well, kind of. The plan/hope is that a miracle occurs in the form of a major boost in our exports once the international economy takes off. But as I showed in the earlier post I referred to, the madness of the last seven years or so has meant that Ireland has become a very expensive place to do business, while technology and entrepreneurial skills and capabilities have been drastically undermined.

Is it all doom and gloom then? For the next few years, an emphatic yes. But out of evil cometh good. Because the forthcoming cleansing hellfire will hopefully result in a lean, efficient public sector, the elimination of welfare dependency as a lifestyle choice, honest competition in the 'professions', and an environment that actually, as distinct from verbally, encourages technology entrepreneurs.

Consider it as a kind of enema.


Anonymous said...

Typical and the only comment your prescient post attracted in march '07 was from a public servant.

Buzz said...

I think you're - unfortunately - 100% correct. I cannot believe that the people who are selling us this BS believe what they're saying.

Eileen Og said...

A very perceptive post as usual. But the ones to suffer will largely be those who did nothing to cause the crisis.

But what's new about that?

George said...

Does Lady Savant have her own yacht?

Anonymous said...

The genius Irish economist and ex-td (Irish mp) George Lee will save us yet. We need more immigrants for the economy. That's what George was telling us a few years back.

Why not fill up up all those empty houses in Ireland with Haitian refugees and Nigerian asylum seeekers. It will sure get the economy booming again with all that cheap labour.

RegThe Hedge said...

Me thinks you read the property pin Savant.

Anonymous said...

Yes, almost three years ago I called it out – see here.

Carefull or people might think you're Eoghan Harris. Did you win any jacob awards.

Anonymous said...

What did you think of George Lee going

openyoureyes said...

When you think of the degree of unrelenting PAIN that your country and mine (the US) are going to have to go through to have a real economy again, it's almost unimaginable.

I mean to actually make stuff, manufacture again, to grow, to re-invent a real economy is going to require nothing short of a complete SOCIETAL change.

Now if that change happens without actual capital destruction via war (which is my own prognostication) or people wise up (dare to dream) is going to be the difference between complete regression ,something akin to the dark ages, or progression ala a new renaissance. One is a realist prediction and one is an idealist one.

Bottom line this is no garden variety recession, where you "back and fill" correcting a few mild mistakes. This is a full blown, knock you socks off, Katie bar the door depression. A depression is an indication that there are SERIOUS fucking imbalances and you need to tear down all the way to the foundation, "soup to nuts" and rebuild anew.

Anyway, we saw what happened in the last depression, hopefully we are better students of history this time.

Anonymous said...

I agree with your central point. That we're in for a lot more pain. I'm not so sure though that it will lead to the outcome you suggest. I think that, being Ireland, we'll all go back to the way we were once things even out. Unfortunately.

count-ch said...

Today's Irish Independent has headline "Retail spending slump is 'worst in memory'

Anonymous said...

Is that your borther in the boat??

dunleavy said...

Add another point: The banks will not be lending to SME's for the foreseeable future. It's too risky. They'll make their moeny selling insurance and pensions etc.

Another very serious blow to the economy.

Enoch Powell's Hangover said...

Hey Savant, for what it's worth the financial news channels over here in the states have all been saying that Greece, Spain and Ireland are headed for a major systemic crisis that may threaten the Euro and/or shrink the Euro zone. I have no idea whether any of their bloviating has any truth to it but I thought you might like to know.

SAVANT said...

Hi Enoch - I think they're right. I think there are comparisons with California and the US. Will be interesting to see what happens.

SAVANT said...

openyoureyes: I agree that this sin't just an average recession and that more awfulness is on the way.

As I've said on a number of times tho, if it wakes up the sheeple it might all be worth it. They might throw out the bloodsuckers and create a worthwhilespciety again.

openyoureyes said...

Savant my point was that to get from here to there is going to be, well very, very intense. How are you going to get all the African blood suckers to stop sucking and go back to their despotic homelands? What will make them want, nay, possibly beg to be sent home?

What will make mealy mouthed, spoiled liberal brats see the light and reactivate neurons dead for eons? I just saw a video of Sinn Fein assuring African immigrants that they are behind them all the way on their noble pursuit towards Irish citizenship. What is going to make Sinn Fein adopt the exact opposite attitude?

You see my point? There is NO doubt this is going to happen, but to get there is going to require almost a rebirth of sorts and we all know what giving birth feels like, well we can imagine at least.

Anonymous said...

I t'ought Sinn Fein were the self-appointed DEFENDERS of Oireland and t'oppressed Oirish?

Anonymous said...

There's a new breed after taking over Sinn Fein and they're possibly the most enthusiastic immigration supporters of any party.