What next for Ireland?

Flamed Diving

I have a list of current issues which the Irish government is facing for the next 18 months. How best should we be apporaching this minefield?

• Rising unemployment
• Rising inflation
• Rising interest rates (due to inflation)
• Exchequer deficit and cutbacks (and possible ECB fines)
• Union pay disputes
• Flight of FDI
• Historically high personal debt levels
• Slumping building sector
• Strong Euro vs Dollar and Pound

I think the governments biggest short-term problem is the combination of running a exchequer deficit (possibly over 3%) and containing the pay disputes that are bound to arise. The unions will be pressing for more wage increases due to rising inflation which could possibly lead to strike action. In addition to this, the government cannot make capital investments to aid the building sector due to the deficit, which may run over the 3% limit. If this happens then the government will need to cut spending further and/or increase taxes, both of which could lead to further unrest with unions and the general populace.

And thats without mentioning many of the other bulletpoints above. So, what do ye think? If the above paragraph pans out should the government raise taxes or cut spending further?




EDIT: n00bs are particularly welcome on this thread!

Économiste Monétaire

Inflation fell from 5% to 4.4%, it's not rising! :rolleyes:

Will make longer reply, need tea.

Flamed Diving

UCD_Econ wrote: »

Inflation fell from 5% to 4.4%, it's not rising! :rolleyes:

Will make longer reply, need tea.

I realise that, ya bollocks. :pac:

I am forecasting for the next 18 months. Maybe I am wrong with that, but I think that food and oil prices will rise significantly during that time period.

Time Magazine

Flamed Diving wrote: »

I realise that, ya bollocks. :pac:

UCD_Econ banned for being a bollocks.

Économiste Monétaire

Flamed Diving wrote: »

I realise that, ya bollocks. :pac:

I am forecasting for the next 18 months. Maybe I am wrong with that, but I think that food and oil prices will rise significantly during that time period.

Hehe :cool:

Antithetic wrote: »

UCD_Econ banned for being a bollocks.

I'll show you banned sunshine!!!! :pac:

suckslikeafox

What can be done apart from tell the unions to get real and cut a few non-essential projects? The government can do nothing about inflation, interest rates, the Euro and to a lesser extent the housing slump

silverharp

well the 70's was a good model of what not to do, ie raising taxes, more spending. The only way for a country to prosper long term is to save and invest and become more efficient. So reform of the public sector (unlikely) more privatisation, airports? An Post? and try to break some of the monopoly pricing in the health and legal sectors which seem to be a millstone around our necks.
As for forecasting I'd be more worried that we are heading for a deflationary outcome, so the current focus on energy and food prices may go away

Économiste Monétaire

We may get around the SGP rules of 3% by applying on the grounds of difficult circumstances. The French and Germans ignored it. But, I'm not advocating borrowing for the current account.

Inflation is slowing like I said , expectations are that oil will remain hovered around $115-120. All we need now is for the sh*t to hit the fan in Iran and/or Chavez land. Also... Georgian pipelines.

Unions will chase inflation nothing new there. However, with inflation falling recently their hand my be deteriorating. The national agreement was a nice sign of stability for potential FDI, though.

I don't see the Euro depreciating greatly. China and those with $500+ billion in reserves are seeing it increasingly as a more sound reserve currency. I doubt they will, on mass, dump the dollar though.

UCD_Econ

UCD_Econ wrote: »

We may get around the SGP rules of 3% by applying on the grounds of difficult circumstances. The French and Germans ignored it. But, I'm not advocating borrowing for the current account.

Inflation is slowing like I said , expectations are that oil will remain hovered around $115-120. All we need now is for the sh*t to hit the fan in Iran and/or Chavez land. Also... Georgian pipelines.

Unions will chase inflation nothing new there. However, with inflation falling recently their hand my be deteriorating. The national agreement was a nice sign of stability for potential FDI, though.

I don't see the Euro depreciating greatly. China and those with $500+ billion in reserves are seeing it increasingly as a more sound reserve currency. I doubt they will, on mass, dump the dollar though.

how do you see the dollar doing ?

Économiste Monétaire

Deleted User wrote: »

how do you see the dollar doing ?

I really have no idea. Those who bet on currency shifts have bigger cohones than I. That said...

There are those who predict in the next 3 years the dollar will collapse because of the current account deficit. They say the U.S. economy won't be able to generate a supply of secure dollar denominated investment vehicles sufficiently large to recycle the $500 billion current account surplus of the rest of the world. Also, the U.S. government won't be able to service new deficits of $500 billion indefinitely. But, they are also the people who promote the gold standard & predict a massive derivatives meltdown.

I'm doubtful about either of the predictions, they're more doomsday scenarios. Your guess is as good as mine for the next 18 months to three years.

silverharp

UCD_Econ wrote: »

I really have no idea. Those who bet on currency shifts have bigger cohones than I. That said...

There are those who predict in the next 3 years the dollar will collapse because of the current account deficit. They say the U.S. economy won't be able to generate a supply of secure dollar denominated investment vehicles sufficiently large to recycle the $500 billion current account surplus of the rest of the world. Also, the U.S. government won't be able to service new deficits of $500 billion indefinitely. But, they are also the people who promote the gold standard & predict a massive derivatives meltdown.

I'm doubtful about either of the predictions, they're more doomsday scenarios. Your guess is as good as mine for the next 18 months to three years.

an alternative is that the dollar could do quite well, in effect it has already crashed but from previous similar episodes in history the senior currency tends to strengthen as it was the currency most shorted during the preceding boom ie "investing" in commodities is a dollar short, so the unwinding would have the opposite effect.

Flamed Diving

Isn't the biggest problem for the dollar the fact that Treasury keeps issuing Treasury bills to fund the war?

silverharp

Flamed Diving wrote: »

Isn't the biggest problem for the dollar the fact that Treasury keeps issuing Treasury bills to fund the war?

its not a plus, but the federal debt is not excessive relative to other countries for instance Japan and some European countries. In theory the US is already insolvent if it used GAAP accounting because future pension liabilities have not been accounted for, I gather that even if taxes were raised to 100%, there would still be a funding gap, I can only guess that a lot of promises are going to be broken in the future.

Al_Fernz

Hi lads,

A bit of a noob here - but I hear were being welcomed these days.

I've been hearing a lot about the Chinese playing a major role in the Dollars depreciation. AFAIK the Chinese have been funding US budget deficits by accumulating massive Dollar reserves over the last few years. However, this year the Chinese are reducing their reserves. I know I read something about it on RGE a while ago.

Edit -
Heres the link: http://www.rgemonitor.com/asia-monitor/252834/of_course_chinese_dollar_holdings_rose_but_something_changed_drastically

Flamed Diving

What do people make of the levels of private debt in Ireland? IIRC, the figure is something like 150% of GDP. Given that most of this would be tied to the housing sector, what is the likely outcome?

Économiste Monétaire

What do people make of the levels of private debt in Ireland?

Paper on high household indebtedness. From two Fed economists, worth taking a skim through.

The last statistics on personal credit levels was from the Central Bank quarterly, about a week ago I think.

babytooth

Debt, something that has to be paid back in the future, simple as.

So, three scenarios:

1ST: Steady State:
We retain the same relative purchasing power and hence same relative disposable income. This would indicate that future earnings would deteriorate relative to current standards in so far as the fact that our debts remain constant as already agreed, interest rates have increased and are still low historically and wages rise with inflation.

Result, future disposable income declines in line with the debt burden (including the servicing of said debt burden) until the debt is paid off.

If house prices drop, you are worse off, if they increase greater than inflation yon are better off

2nd: Declining real incomes
The decrease in disposable income is greater than in the first case above. This is the most likely scenario as capital becomes scarcer. Already, it has been estimated (and I say estimated as no one truly knows) but the credit crunch and bank write-downs will reduce available capital by about 3.2 trillion directly and more indirectly through the fractional reserve banking system.

Inflation is high at 4%, growth is zero or as good as, so our real wealth is decreasing. Our book value is also on the slide as our liabilities (mortgage & c.card etc) are constant but our assets (house, car, handbags etc) are depreciating, some rapidly.

This makes us, as individuals technically insolvent.

3rd: Real incomes rising more than inflation.
This is hard to have happen outside of a technological increase, that ramps up our productivity. We can't inflate ourselves out of this Irish "depression". We have only the option of increased productivity and increase international competitiveness to do this.


Most likely scenario:
House prices drop and unemployment soars. Consider that 16% of our labor market is directly employed in construction. If house numbers are to drop by 2/3 from 90k unit to an estimated 30k units we will see 10.66% of our labor force out of construction. This will be for the short to medium term as they are re-deployed, but training takes time and money. Related services will also see head count reduction, pushing our unemployment number higher.

International competition will see us have the need to drop real wages and costs to compete for jobs and services that we can export. This will further increase our debt burden. Dependence on oil will further increase our exposure to volatility shocks that make energy cost more than countries with the infrastructure in place to reduce this dependency.

Unions will try and exert their control on the wages they can demand. Whilst this may result in paper gains if the business and civil service have to pay for them, the obvious result is that direct paye taxes and Vat will have to increase to pay for this.

Pension liabilities are enormous and will increase the debt burden on the country going forward.

All told, right now, currently, as things stand with the current government, policies and infrastructure Ireland are set for a very bad time. This is evidenced by what the international markets think of our Irish economy, considering we are the worst performing market in the developed world this year by a long shot, a very long shot.

The good thing is that we are a small nimble country, so overall change is less arduous than larger countries. We have a large brand image that is of huge use to us. We have an entrepreneurial spirit. We need to promote the best and brightest to places where change can happen. We need to shed allot of excess baggage in many areas of our public service, increase accountability and reduce overall costs imposed for services provided.

To do this, the population as a whole need to realize that we need action and the sooner we make decisive and required action the better. The current government may not be able to do this and i would question the suitability and expertise of the ministers and their advisors.

Simple thing: You want to run the best company in the world, you get the best manager, the best staff and give them the room to become the best. You don't place a book-keeper in the role of a CEO or a lawyer in the role of the CFO, you don't ask a school teacher to perform heart surgery.

Hire the right people, get rid of those who can't do the role and move fast to stay ahead of the competition.

My 2 cents worth


Excuse the spelling and grammar but time is of the essence and the substance is there.

Flamed Diving

Christ on a bike, a monster of a post!

babytooth wrote: »

Debt, something that has to be paid back in the future, simple as.

So, three scenarios:

1ST: Steady State:
We retain the same relative purchasing power and hence same relative disposable income. This would indicate that future earnings would deteriorate relative to current standards in so far as the fact that our debts remain constant as already agreed, interest rates have increased and are still low historically and wages rise with inflation.

Result, future disposable income declines in line with the debt burden (including the servicing of said debt burden) until the debt is paid off.

If house prices drop, you are worse off, if they increase greater than inflation you are better off

Good point, I think we will see a decline in the growth of earnings, particularly in the construction sector. The fact that the potential of our debt being paid off is at the whims the housing cycle is rather worrying. Hopefully we wont see a huge increase in defaults or we could be in for a rough ride.

babytooth wrote: »

2nd: Declining real incomes
The decrease in disposable income is greater than in the first case above. This is the most likely scenario as capital becomes scarcer. Already, it has been estimated (and I say estimated as no one truly knows) but the credit crunch and bank write-downs will reduce available capital by about 3.2 trillion directly and more indirectly through the fractional reserve banking system.

Inflation is high at 4%, growth is zero or as good as, so our real wealth is decreasing. Our book value is also on the slide as our liabilities (mortgage & c.card etc) are constant but our assets (house, car, handbags etc) are depreciating, some rapidly.

This makes us, as individuals technically insolvent.

In fact, our liabilities could be increasing due to individuals failing to pay the principal whilst interest/penalties accumulate. Had the government been saving to a stabliisation fund during the boom years? I'm surprised that we could potentially be running a deficit and cutting spending after so many years of growth. Surely this is the time for dipping into a rainy day fund, or would that be counted as deficit spending by the ECB?

babytooth wrote: »

3rd: Real incomes rising more than inflation.
This is hard to have happen outside of a technological increase, that ramps up our productivity. We can't inflate ourselves out of this Irish "depression". We have only the option of increased productivity and increase international competitiveness to do this.

That is very much a long-run solution. While technically possible, we are unlikely to see the results of such endevours in the next few years. Although this is the long-term policy of the government.

babytooth wrote: »

Most likely scenario:
House prices drop and unemployment soars. Consider that 16% of our labor market is directly employed in construction. If house numbers are to drop by 2/3 from 90k unit to an estimated 30k units we will see 10.66% of our labor force out of construction. This will be for the short to medium term as they are re-deployed, but training takes time and money. Related services will also see head count reduction, pushing our unemployment number higher.

Agreed, and lets not forget that a substantial portion of our construction sector are our friends from the east of europe, whose emigration should ease pressures such as above.

babytooth wrote: »

International competition will see us have the need to drop real wages and costs to compete for jobs and services that we can export. This will further increase our debt burden. Dependence on oil will further increase our exposure to volatility shocks that make energy cost more than countries with the infrastructure in place to reduce this dependency.

This is a worry, and our biggest competitors will be our friends, once again, the baltic states. The question is whether the climate is right for them to emulate our successes in the 90's, and subsequently attract the same level of FDI that we did. Another issue is whether they will attempt to undercut our corporation tax rates.

babytooth wrote: »

Unions will try and exert their control on the wages they can demand. Whilst this may result in paper gains if the business and civil service have to pay for them, the obvious result is that direct paye taxes and Vat will have to increase to pay for this.

This is very much at the whims of inflation rates, heres hoping that things dont kick off between Iran and Israel in November/December.

babytooth wrote: »

Pension liabilities are enormous and will increase the debt burden on the country going forward.

Very true, this is a problem for all of Europe. Involuntary euthanasia? :pac:

babytooth wrote: »

All told, right now, currently, as things stand with the current government, policies and infrastructure Ireland are set for a very bad time. This is evidenced by what the international markets think of our Irish economy, considering we are the worst performing market in the developed world this year by a long shot, a very long shot.

I read a couple of months back that Forbes magazine ranked Ireland quite highly in a survey of businessmen. I still think Ireland has a lot to offer despite losing our low-cost advantages of the early 90's.

babytooth wrote: »

The good thing is that we are a small nimble country, so overall change is less arduous than larger countries. We have a large brand image that is of huge use to us. We have an entrepreneurial spirit. We need to promote the best and brightest to places where change can happen. We need to shed allot of excess baggage in many areas of our public service, increase accountability and reduce overall costs imposed for services provided.

Agreed, its perhaps time to privatise the transport system, methinks. Its a shambles as it is. I also have no issue with a return of 3rd level fees at this stage.

babytooth wrote: »

To do this, the population as a whole need to realize that we need action and the sooner we make decisive and required action the better. The current government may not be able to do this and i would question the suitability and expertise of the ministers and their advisors.

The only problem are the alternatives.

OfflerCrocGod

Dollar is up - no surprise really. Even Goldman Sachs has changed it's bear stance on $.

Flamed Diving

OfflerCrocGod wrote: »

Dollar is up - no surprise really. Even Goldman Sachs has changed it's bear stance on $.

That should hopefully depress the price of oil a bit.

johnnyskeleton

Flamed Diving wrote: »

So, what do ye think? If the above paragraph pans out should the government raise taxes or cut spending further?

Both. It's not even a case of what they should do, it's what they have to do. They need to cut costs dramatically, but at the same time these cuts will not be enough, so taxes will go up.

What they need to do is be ruthless - chop up the public service, increase taxes and spend money in wealth creation areas - science, technology and supporting start up industries (while retaining as many multinationals as is economically feasable). They should not try to prop up the construction sector or house prices, although infrastructural investment is essential.

However, they wont do this as it will a) lose public sector votes b) lose tax payer votes c) lose homeowner votes d) lose their cif and developer backing, so I wouldn't be surprized if they try to borrow through the recession and at the same time try to keep house prices up at any cost.

To be honest, virtually everything that would be economically beneficial to the country will be political suicide.

mumhaabu

Our economy is literally in tatters, and I agree with most of what has been said but we cannot raise taxes that will be economic suicide. I advocate that we withdraw from the Euro and either do two things.

We either return with a New Punt or we adopt the Pound Sterling, the strength of the Euro has Ireland badly damaged and we have no control over our affairs this is bad for Ireland.

Our entire social model needs to be eliminated, we need to move laissez faire and encourage the Private Sector. High personal taxation, socialised services and the nanny state need to go and let each to his own. It is radical and the entire root of Irelands problems lay in our form of Government, And this is why important decisions are not made, if we federalise Ireland and let the vast majority of decisions to the County Councils, then each county can grow differently. But this is not the right thread for this.

Basically we have no control, the Government are inept, money is wasted and Ireland is heading for Economic Depression and by 2060 Irish people will be foreigners in our own country, this demographic change will see successful Irish people leave for successful countries while Ireland as the sick man of Europe will garner immigrants from all corners with low paid jobs and the social system we have.

Ireland is wrapped in Cotton Wool like the Soviet Union in 1989 and needs a dose of Reaganomics and Thatcherism to put on track for once as the Celtic Tiger never exsisted as it was a mass orgy of planning permission, cheap credit, housebuilding and going on the tear. Ireland benefitted from access to cheap easy credit which was paid my more credit but now that the goose that layed those eggs had died we are in deep sh*t.

Ireland is no different to Nauru in the South Pacific who blew it all and are now back to the stone age. We are an economic disaster and our sole export will soon be people again and our only thing going is our master of the English language and the fact that some of us are very well educated. Alot of the Irish "returnees" that came back in the 1990's are now re-emmigrating away again.

Sad but true, I could write and write about this but won't. thanks uncle Bertie for the mess

Économiste Monétaire

I advocate that we withdraw from the Euro and either do two things. We either return with a New Punt or we adopt the Pound Sterling, the strength of the Euro has Ireland badly damaged and we have no control over our affairs this is bad for Ireland.

And who do you think would control monetary policy if we ‘adopt[ed] the Pound Sterling’ - Ireland? Ireland is on the benefit side of any optimum currency debate, in the Economic and Monetary Union. Also, which currency is 'stronger' - the Euro or the Pound?

And this is why important decisions are not made, if we federalise Ireland and let the vast majority of decisions to the County Councils, then each county can grow differently. But this is not the right thread for this.

Federalisation isn’t appropriate for Ireland. I advise you to actually research the reasons pertaining to federalisation. You should also check into what is the largest motivating factor as to why people vote for a candidate in a general election in Ireland – that pretty much negates your argument to federalisation. Do you propose 26 federal counties in such a small area?

by 2060 Irish people will be foreigners in our own country, this demographic change will see successful Irish people leave for successful countries while Ireland as the sick man of Europe will garner immigrants from all corners with low paid jobs and the social system we have.

That’s hilarious - seriously it is. You assume that there will be jobs created to satisfy a 400% increase in foreign labour/immigrants even though our economy is “in tatters” (and that’s keeping Irish citizens’ population constant).

BarryCreed

so if the recession is going to be worldwide, which country are we going to have to emigrate to in order to get work....:(

assuming everyone is f**ked..

Tipsy Mac

We should make a massive Casino area and the taxes from it would be enough to keep some projects ticking over.

anonymous_joe

BarryCreed wrote: »

so if the recession is going to be worldwide, which country are we going to have to emigrate to in order to get work....:(

assuming everyone is f**ked..

Brazil. Their economy's in rude health at the moment. Huge construction boom too, so we can send some of our Poles and Irish builders over there, reducing the number of builders about to become unemployed.