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Ireland in recession

24

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  • Registered Users Posts: 9,555 ✭✭✭DublinWriter


    asdasd wrote: »
    of course if the David McWilliams had kept his gob shut none of this woulda happened. Fact.
    A broken clock tells the right time at least once a day.

    All economic markets are cyclical. It doesn't take a lot of skill to call boom or bust, the real trick is in forecasting the size of the swing.

    If this is a recession then colour me happy. I've been through the 80's, living on a packet of Rancheros a day and watching re-runs of The Brady Bunch on RTE steeled me for hard times.


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    He was wearing more than one shirt? Why?

    Mark,
    The s, of course, as you know was a typo. Not a very good response.
    But if he can afford it, then why not?

    Can?

    He couldn't. But he wore this stuff anyway. There were lots of loans written off.

    UCD_Econ - point taken. I misread your last post as an actual request for information.


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    All economic markets are cyclical. It doesn't take a lot of skill to call boom or bust, the real trick is in forecasting the size of the swing.

    Which McWilliams has been doing for ages. As well as suggesting some remedies we could employ. Some good, some bad. Until last year, late last year, the standard economic argument was for a soft-landing. That is predicting a recession ( or a slowdown). McWilliams has been doing much more than that and pointing out that the soft-landing would not happen.

    As for his preditictions on the size of the fall, AFAIK he thinks property in real values will go back to 2000-2001 figures. I think it will be worse.


  • Registered Users Posts: 8,452 ✭✭✭Time Magazine


    asdasd wrote: »
    Until last year, late last year, the standard economic argument was for a soft-landing.

    Lol, no it wasn't. Economists have been saying, for years, that soft landings are almost unknown.

    And I'd just like to add: when people are talking about soft landings, the bubble has already bust.


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    Yeah? Someone should've told Dan McLughlin et al.


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  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    Actually researched some of this. Dr McLaughlin in April this year
    The Bank of Ireland (BOI) Quarterly Outlook for 2008 was published last week, contradicting in many ways, the spring outlook of the economic think tank, the ESRI a month earlier which predicted a steep decline in economic growth, over one per cent less than BOI's chief economist did last week.

    Bank of Ireland Chief Economist, Dr. Dan McLaughlin, believes that there will be three per cent economic growth in in GDP for 2008 in the Quarterly Economic Outlook, a one per cent drop from the figure that the bank predicted in November 2007.

    The BOI economist also predicted that the residential housing market will shorten to just 50,000 new builds this year, just 5,000 more than the then controversial figure put forward by the Construction Industry Federation (CIF) late last year.

    However, as modest as the Bank of Ireland quarterly figures are, they are in contrast to the earlier published ESRI prediction of just 1.8 per cent growth in GDP for 2008 in their Spring 2008 quarterly economic commentary.

    Even the more realistic ESRI was predicting no recession this year.

    from

    http://www.waterford-today.ie/index.php?option=com_content&task=view&id=2754&Itemid=10333&ed=257


  • Registered Users Posts: 8,452 ✭✭✭Time Magazine


    "Soft landing" typically referred to the housing market rather than the economy. In July 2007 the ESRI's Quarterly Economic Commentary published an article by Prof Morgan Kelly that siad on its first page "Assuming an inflation rate of 2 per cent, this would translate into an annual fall of average selling prices of 6 to 7 per cent."


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    It feels funny to be defending David McWilliams to David McWilliams. But I digress.

    McWilliams argument was that there could be no soft landing in the economy precisely because there could be no soft landing in the property market, due the massive percentage of GDP taken by constuction and the massive amount of debt ( expoentially increasing) needed to service all that.

    So not just a stopped watch once a day guy.


  • Registered Users Posts: 8,452 ✭✭✭Time Magazine


    asdasd wrote: »
    It feels funny to be defending David McWilliams to David McWilliams. But I digress.
    My plan is for everyone to be defending my honour to everyone else :pac:
    McWilliams argument was that there could be no soft landing in the economy precisely because there could be no soft landing in the property market, due the massive percentage of GDP taken by constuction and the massive amount of debt ( expoentially increasing) needed to service all that.
    There's a slight correlation/causation problem here. I don't think we'd be in recession had it not been for the international financial crisis or, at the very least, it'd be less severe. Our housing crash is a bubble bursting, America's is a realisation of bad debts. (Give or take.) The two together sum to recession. The ESRI, from my reading of it, were banging on about a housing bubble since at least 2005 but didn't think it alone would lead to recession. That's why they only used "the r word" this year.

    Seems all above board, non?


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    Fair enough, but I meant when I said that economists were predicting a soft landing that they were predicting a year or two of slow growth, regardless of their attitude to the property situation. Ginger was predicting recession. D Mc L was predicting a 4% growth rate as late as Nov. 2007.


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  • Registered Users Posts: 8,452 ✭✭✭Time Magazine


    asdasd wrote: »
    Fair enough, but I meant when I said that economists were predicting a soft landing that they were predicting a year or two of slow growth, regardless of their attitude to the property situation.
    Prediction, obviously enough, can only use the information available at the time. Bear Stearns et al's effect on the ISEQ (and consequently on investment, consumer confidence etc.) just wasn't "known" in a scientific way. Sure people had hunches: I remember talking to a lecturer around April 2007 and we both agreed a recession was coming, but that's not exactly going to get published by the ESRI.
    Ginger was predicting recession.
    In my opinion, for the wrong reasons. He was "lucky" the financial crisis happened in this regard. And no mocking the hair.
    D Mc L was predicting a 4% growth rate as late as Nov. 2007.
    Banks have a vested interest though, a bit like Bertie being seen on telly putting €1,000 on FF winning the election.


  • Closed Accounts Posts: 8,983 ✭✭✭leninbenjamin


    asdasd wrote: »
    It feels funny to be defending David McWilliams to David McWilliams. But I digress.

    McWilliams argument was that there could be no soft landing in the economy precisely because there could be no soft landing in the property market, due the massive percentage of GDP taken by constuction and the massive amount of debt ( expoentially increasing) needed to service all that.

    So not just a stopped watch once a day guy.

    it took the banks to stop lending people due to circumstances outside our own economy for the property crash to be so severe. McWilliam's prediction was that demand for houses would fall... well the demand is still there; there are plenty of people out there with sound businesses or personal finances who would normally qualify for loans/mortgages but the bank can't raise the funds to lend to them. that's the current situation.

    perhaps surprisingly, prices have only fallen by about 10% in my area since the peak. i know it's not correct to point to that as a nationwide indicator, but it's still a very interesting statistic.

    also in terms of the hard landing; well it looks like it might well be the case but it actually had little to do with our economy itself. in fact the indicators from the industry prior to the credit crunch were that it was beginning to slow down. and a natural and manageable pace. prices had already began to fall before this.

    the current situation is nothing like McWilliams predicted would happen. he's a pop economist, with pop predictions and pop solutions. He was correct to a point, i mean any half wit with some basic ESRI stats could tell this country was over reliant on construction, but apart from that he's not given one useful insight. he might as well write for one of the red tops for the all sensational crap he spouts.

    as someone else pointed out; a broken clock is correct twice a day.


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    Hmm. I am pretty dubious that the fall in Irish house prices is only affected by the global credit crunch. Clearly there was a downturn prior to the credit crunch - which is any case has really only caused problems for mortgage buyers in the last quarter or so ( if that). I know I was offered 6-8 times salary last year.

    McWilliams had specific data on the Irish economy which was scary enough. The private debt to GDP ratio, for instance, and its expoential growth. If the American bailout works I expect Ireland to still see a collapse in house prices.
    he's a pop economist,

    Of course he is. He is a public intellectual ( in the broader sense of the word) so he needs to popularize his views,therefore it cant be an academic or highly mathematical argument. Sure, the bread-loaf-cat-loving-van-man ****e in annoying, but there is substance there.


  • Closed Accounts Posts: 8,983 ✭✭✭leninbenjamin


    asdasd wrote: »
    Hmm. I am pretty dubious that the fall in Irish house prices is only affected by the global credit crunch.

    I didn't say there was, i'm saying contrary to McWilliams predictions it looked like we would be in for a soft landing until the credit crunch (which he didn't predict) severely amplified things.

    i firmly believe we wouldn't be in a state of recession though if it weren't for the banks. Perhaps i'm being too anecdotal here but any business owner i know of who is struggling is doing so because the banks are not lending funds they promised, or because the banks are clamping down on the more usual credit facilities. Retail is down, but not significantly enough to be putting places out of business. it will be the banks that do that.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Yeh, the credit crunch began in Aug 2007, one year after the housing market stalled here so it's indeed a double whammy.
    Speaking of private debt, its gigantic at €387bn. (http://archives.tcm.ie/businesspost/2008/06/15/story33690.asp )
    SBP wrote:
    Ireland is carrying almost 2.5 times the private debt burden of our EU partners in relation to the income we have available to service that debt.

    This problem was created in the Celtic Tiger years. The burden makes Irish costs higher than elsewhere because the country is having to pay more to service its debt than its international counterparts.

    At the end of April, the staggering sum of €386,263,000,000 was owed by the private sector to the Irish banks. This works out at €94,000 for every man, woman and child in the country.

    Scary reading on the financial system
    SBP wrote:
    Even people who don’t owe huge amounts personally are still carrying the cost, because every bill they pay includes a margin for interest and for capital repayments.

    They are also paying interest on the government’s borrowings which are at present not too high. The national debt was €36,928 million (roughly €9,000 per head) at the end of January, and the interest on that came to about €400 per person in 2007.

    Moreover, euro for euro, public sector debt is less onerous than private debt, because repayments do not have to be built into its cost.

    The annual rate at which the private sector is increasing its borrowing from the banks is slowing. It dropped from around 30 per cent in January 2006 to 15.9 per cent in April 2008.This is making it progressively harder for people to service their debts, because the amount of money available out of which they can make the payments is not growing as quickly as it did.

    If private-sector borrowing continues to decline at its present rate, the money supply will actually begin to contract towards the end of next year and loan defaults will become inevitable.

    The banks could face big problems. The capital base on which they loaned the €386.3 billion mentioned above is only €44.3 billion.

    This means any significant write-offs could cause difficulties. In fact, it’s worse than that because, once a bank starts making losses, it is required to deduct them from its capital base, reducing the amount it can lend by about ten times the loss.

    This will reduce the availability of loans, thus accelerating the rate at which the money supply contracts and making it even harder for people to service their debts. This could create a negative cycle which would be damaging to the financial system and to our economy.


  • Registered Users Posts: 14,382 ✭✭✭✭cson


    Not a fan of McWilliams, as has been mentioned he's a "pop economist" but he made a very logical argument in Wednesdays Indo. As gurramok outline above there, Irish Banks have huge lending portfolios with very little capital base. Obviously it's assets, profits and deposits that create this capital base and McWilliams argument was for the Government to guarantee all savings in Irish Banks (Which is a possibility due to our relatively low level of National Debt). Basically he was saying if we guaranteed all savings this would theoretically lead to a flood of deposits from foreign countries as Ireland would be the only country guaranteeing savings at what is quite an unstable economic climate to say the least worldwide.

    Personally I think its a reasonable argument but you'd more than likely have to have the banks disclose their level of exposure to bad debts which is more than likely going to be abnormally high. We as a country have our pants down at a very bad time.

    That said I don't believe myself that an Irish Bank will go bust a lá the US, BOI and AIB should be reisilient enough but the smaller banks such as Irish Nationwide might have to become part of the bigger ones as per Llyods in England. The one Irish Bank I'd have huge fears for is Anglo, I have a feeling they'll have a lot of defaulters on the huge loanbook they have.


  • Closed Accounts Posts: 759 ✭✭✭gixerfixer


    If the 80's where bad we aint seen nothing yet. This time the recession will be worse than the 80's because of the amount of personal debt people/families have. I already know two friends of mine who where not working in the construction sector who have upped sticks (US and Australia) in the last month alone and one other friend who will be following them next week.


  • Registered Users Posts: 27,645 ✭✭✭✭nesf


    gurramok wrote: »
    Some of us posters predicted this less than a year ago but were ridiculed :)

    It's like that each day a guy stops you on the street and tells you it'll rain tomorrow and after being wrong for a week, suddenly he is right. Does this make his prediction the day before any better than any one that he'd uttered previously?


  • Registered Users Posts: 14,382 ✭✭✭✭cson


    +1 to nesf

    The oneupmanship of "I predicted this x years/months/weeks ago" is very irrelevant right now.

    Its time to start looking at solutions and strategies so we get out of this with as minimal damage as possible. So any idea's? ;)


  • Closed Accounts Posts: 759 ✭✭✭gixerfixer


    cson wrote: »
    +1 to nesf

    The oneupmanship of "I predicted this x years/months/weeks ago" is very irrelevant right now.

    Its time to start looking at solutions and strategies so we get out of this with as minimal damage as possible. So any idea's? ;)

    Get rid of FF...pronto.


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  • Registered Users Posts: 28,041 ✭✭✭✭drunkmonkey


    gixerfixer wrote: »
    Get rid of FF...pronto.

    as much as i'd like to see the whole party incarcerated for banditry there's no party out there to replace them with.....

    I hope the economy is not the driving force is the new lean green Ireland were about to create. We and the world need a new outlook, a better place for people, where wars are fought in video games, nurses are trianed in hospitals, doctors will run the health service, teachers sit a yearly exam, ryanair is state owned, a pint of plain is €1 and we swap spuds for oil....

    What we need now is a hero, a man (or woman) to step out from the crowd and plot a people & pocket friendly course for this wonderfull Island of ours.....but how can we ever find them with the current political theatre?

    We need a new political party, it's the only way! I suggest David Mc Williams, Eddie Hobbs, Larry Mullen, Liz O'Donnell, Trevor Sargent, Ben Dunne and Michael O'Leary start a new party....


  • Registered Users Posts: 27,645 ✭✭✭✭nesf


    doctors will run the health service

    Eh, doctors are in no way trained in how to run a hospital, not to mention a bureaucratic monolith like the health service, doctors running the thing would be bad in a whole number of ways...


  • Registered Users Posts: 4,276 ✭✭✭damnyanks


    It's concerning that we are the first EU Country to fall into recession. It's also concerning because who controls our interest rates?

    Action to resolve the problem will be slow. I really do think we're beginning to see a very long and painful few years. Hope I'm wrong.


  • Closed Accounts Posts: 459 ✭✭eamonnm79


    I hope you are wrong too but I dont think you are.

    I think the fall out for Ireland hasnt even started yet.

    As Nesf pointed out in the Business post article, our private debt is staggering. 94k euro per person. America is 132k dollars per person. roughly the same.

    In America they are feeling big pain because the forclosures have started en mass. It hasnt started here in big numbers yet, but it will. It has to with all the job losses. That will put the banks in huge problems. They are way over leveredged for the current climate. All this talk of America being different is completely wrong. Our house prices have gone up way more than America in the last ten years.

    BTW I am a fan of Mc Williams. For starters He tries to tell it how it is rather than constantly putting a positive slant.
    Most analyists justify putting an over positve slant as confidence is such an important factor in the economy.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    nesf wrote: »
    It's like that each day a guy stops you on the street and tells you it'll rain tomorrow and after being wrong for a week, suddenly he is right. Does this make his prediction the day before any better than any one that he'd uttered previously?

    Not comparable.

    Anyone with an ounce of sense could see that if you have a huge housing bubble with about 25% of your economy based on construction related activity at the peak, you are going to have a recession when that bubble bursts.


  • Closed Accounts Posts: 2,208 ✭✭✭Économiste Monétaire


    eamonnm79 wrote:
    All this talk of America being different is completely wrong. Our house prices have gone up way more than America in the last ten years.
    Asset bubble in Ireland bursting, and the subsequent drop in tax revenue and domestic demand, is =/= Lemons model problem in relation to MBS, and overall problem with the securitisation of mortgages.


  • Posts: 5,589 ✭✭✭ Kadence Scarce Lawn


    Point is, shouting 'Recession! Recession! Recession!' doesn't mean you predicted it.

    It means you saw it coming.

    Think of this, you are standing on a motorway and you see a truck coming. You want a lift but you also want to buy a drink. Now it is clear that a truck is coming, but that is very different to predicting when the truck will come. Having that skill allows you to cross the road and buy a drink and you know how long you can spend buying your drink without missing the truck.

    In terms of this analogy, standing at the side of road shouting (A truck is coming! A truck is coming!) doesn't really help anyone nor does is differentiate from other people (as they can also see the truck). It was the glorious and illustrious ESRI who predicted the recession (truck) in this case as they gave quantifiable info rather then 'gut feeling' / stating the obvious.


  • Registered Users Posts: 27,645 ✭✭✭✭nesf


    gurramok wrote: »
    Not comparable.

    Anyone with an ounce of sense could see that if you have a huge housing bubble with about 25% of your economy based on construction related activity at the peak, you are going to have a recession when that bubble bursts.

    You miss my point, I'm talking about the timing element of prediction which is extremely important. Making predictions without timing is fairly useless.


    As an example, I predict a recovery from this downturn. Anyone with an ounce of sense knows that there will be one and can see that. Should I get credit when this inevitable recovery happens? In other fields I also predict a White Christmas at some point, Fianna Fail going into opposition and then getting back into Government and rain on my birthday in mid July.


  • Closed Accounts Posts: 3,185 ✭✭✭asdasd


    You miss my point, I'm talking about the timing element of prediction which is extremely important. Making predictions without timing is fairly useless.

    it is impossible to time in a lunatic boom. If property is overvalued for 5 years then for 5 years the naysayers sound like lunatics, and the promoters of the boom sound rational. This is the nature of the boom, of all irrational bubbles. During the tulip mania the people who argued that they were overvalued in the first, second, third, fourth year ( etc. I dont know how long it lasted) would sound like crazies, like end-of-worlders while the snake-oil salesmen would sound rational - after all they were right for years.

    McWilliams did not just "predict" that one day we would have a recession, he predicted the cause ( property) and brought attention ( at least to a wider audience) to the incredible private debt owned in this country and it's exponential growth - growth which was still exponential recently( i.e. 15.8 % in April this year).

    This is hardly the mere claim that there will be a recession someday in the future.

    Basically the "stopped clock" brigade are saying that McWilliams was wrong in 2001, in 2002 etc. He wasn't. Property was overvalued then, as now, and prices will - at best - fall to the real levels of the turn of the millenium. At best.


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  • Registered Users Posts: 27,645 ✭✭✭✭nesf


    asdasd wrote: »
    it is impossible to time in a lunatic boom. If property is overvalued for 5 years then for 5 years the naysayers sound like lunatics, and the promoters of the boom sound rational. This is the nature of the boom, of all irrational bubbles.

    The problem wasn't that naysayers were saying that property was overvalued, it was that they were predicting the bursting of the bubble on nothing more evidence than property being overvalued which in a bubble isn't very accurate or useful. Predictions without timing aren't very impressive.
    asdasd wrote: »
    McWilliams did not just "predict" that one day we would have a recession, he predicted the cause ( property) and brought attention ( at least to a wider audience) to the incredible private debt owned in this country and it's exponential growth - growth which was still exponential recently( i.e. 15.8 % in April this year).

    This is hardly the mere claim that there will be a recession someday in the future.

    Basically the "stopped clock" brigade are saying that McWilliams was wrong in 2001, in 2002 etc. He wasn't. Property was overvalued then, as now, and prices will - at best - fall to the real levels of the turn of the millenium. At best.

    Why is the bubble bursting though, and ask yourself, is it the bubble bursting that has put us into this recession or is it the same external factor that burst the bubble that is also plunging us into recession? The bursting bubble could be as much a side effect as the recession itself. Causality is important here, correlation can be misleading.


    Think of it this way, if interest rates rise and credit availability decreases markedly, an asset bubble will tend to burst or at least to putter out. The thing is, why are the interest rates rising and why has credit availability decreased? Are these the cause of the recession/downturn or is the bursting bubble? Does it make any sense to predict the bubble to burst rather than to predict what will cause it to burst and what this, rather than the bubble, will do to the rest of the economy.


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