If America recovers, will we recover as a result?

hatrickpatrick

Obama has said today that he sees the first glimmers of hope for the US economy, and I notice that the DOW is up today and above 8,000 again.

Seeing as the housing market situation and the bubble burst were largely triggered by events in America, would an economic recovery for Ireland be triggered by a recovery across the pond?

Time Magazine

It depends on the level of trade between the two countries.

Unfortunately the % fall in international trade in the past year or so has been even more severe than in the first year of the Great Depression.

johnnyskeleton

The property market crash had nothing to do with America; it was because house prices were higher than people could afford due to a speculative bubble. By 2006 a regular joe soap couldn't buy a property in Dublin because even a one bed apartment in a outer suburb was beyond his borrowing range. 1/4 of the workforce was involved in construction, a similar level of domestic activity was based on construction or was construction related, the vast majority of bank lending was towards property (development loans, commercial loans, residential mortgages and residential investment mortgages were the majority of new banking business, with small productive industries finding it difficult to obtain finance). Productive industries closed down as their bosses found that they could make more money flipping property. The government's finances relied on property related taxes to pay about 20% of the total tax. In short, we had become rich by selling each other houses with cheap credit, and one day the market stalled, credit slacked, banks realised that most of the collateral was worth less than the outstanding loans, and people realised that asking prices were too high, and the house of cards fell apart. Very little was due to international factors, and those that were were due to, for example, less credit being made available from Asia and the Middle East.

The politicians trotted out the line that the recession was due to international factors but that's simply not true. Our exports have performed at a fairly consistent level through the recession, although they had been dropping for some time before that as, as said above, productive industries were being replaced due to high cost and better profits in the speculative housing bubble.

Notwithstanding that, if the US economy does well, will we do well as a result? Well there will be a small benefit to us no matter what happens, but it does not necessarily follow that an increase in the US will make a difference to us. Unless we reduce our cost base and generate more export led industries, we will continue on this slow decline long after the US (and indeed the rest of the EU, the UK, Japan, China etc) recover.

The era of tax havens and minimal regulation of financial industries also looks like its at an end, so there too go two of the major draws of Ireland. We need to encourage innovative new industries, and competitive old industries in order to recover. We can't do that when we have such a high tax base and the government pursues a policy of keeping public sector wages, house prices, minimum wage, rents, rates and social welfare artificially high.

PCPhoto

simple answer to the question ..... NO

we need to take care of our own financial situation - address the spending and wastage of public funds.

In fairness the government cant/wont make the big decisions that everyone else can see need to be made (probably due to ramifications from Europe)

Personally I think the recession will help us to learn that there are more important things than money - society over the last 10yrs had become obsessed with possessions and greed - popularised by the marketing departments of many companies who have probably now gone bust.

At least this will mean that the various loopholes will be addressed by the government and some amongst us (Welfare scammers + Rich Socialites etc) wont be in a position to benefit from governmental incompetance

Latchy

PCPhoto wrote: »

)

Personally I think the recession will help us to learn that there are more important things than money - society over the last 10yrs had become obsessed with possessions and greed - popularised by the marketing departments of many companies who have probably now gone bust.

At least this will mean that the various loopholes will be addressed by the government and some amongst us (Welfare scammers + Rich Socialites etc) wont be in a position to benefit from governmental incompetance

At least a large % of the irish population can look back and say they had roughly 10 years of having a good living byond what many previous generations of Irish ever had ( or perhaps ever will have ) Remember the many threads on here about people bragging about what they earned ,the houses, appartments and nice areas they live in now , the cars and holidays etc they have had .Some of course will just about be able to keep up the lifestyle they have become accustomed to .Many others should be glad they at least got a taste .

silverharp

we are in a secular deleveraging period that could last years , I thnk anyone talking about green shoots now is delusional.

daveirl

This post has been deleted.

Économiste Monétaire

silverharp wrote: »

we are in a secular deleveraging period that could last years , I thnk anyone talking about green shoots now is delusional.

What do you think of outstanding consumer credit in the states? I don't know if Bernanke et al have factored in the possibility of considerable consumer de-leveraging into their proclamations of 'progress'.

nesf

hatrickpatrick wrote: »

Seeing as the housing market situation and the bubble burst were largely triggered by events in America, would an economic recovery for Ireland be triggered by a recovery across the pond?

Leaving aside whether the US will recover quickly, the international situation did to an extent turn a slow fizziling out into a very bearish (negative) market very quickly with respect to the Irish housing sector it was the pebble that started the landslide rather than the root cause of why there was a correction in the Irish property market.

The US recovering won't automatically result in a revival of the Irish property market. What it may do though is cause some growth in the Irish export sector if trade with the US picks up again. This will help somewhat by increasing tax revenues and hopefully creating some employment but it won't fix out "structural deficit" or our unemployment hangover left after the collapse of the construction sector. At best it'll improve things on a regional level somewhat rather than orchestrate a national recovery.

That said, the Irish economy will not recover until the situation in our major trade partners improves.

silverharp

Économiste Monétaire wrote: »

What do you think of outstanding consumer credit in the states? I don't know if Bernanke et al have factored in the possibility of considerable consumer de-leveraging into their proclamations of 'progress'.

I'd say they very worried about it but I cant see how they can change the trend. On the plus side house price have dropped from nose bleed levels and this may be touted as one of the green shoots , but its not possible to lever up when asset prices are falling and there are just too many negatives from commercial real estate to credit card defaults. Never say never with the stock market but I dont think the bottom is in , seems early based on past bear markets and P/E's and dividend yields havnt gone anywhere near bear market bottoms of the past.

uncle_sam_ie

hatrickpatrick wrote: »

Obama has said today that he sees the first glimmers of hope for the US economy

Ya, and Jim Cramer said the depression is over too. These guy's have never been wrong. Happy days are here again. I'll have to get me a Margarita vill like the one on South Park to celebrate :rolleyes:

johnnyskeleton

nesf wrote: »

Leaving aside whether the US will recover quickly, the international situation did to an extent turn a slow fizziling out into a very bearish (negative) market very quickly with respect to the Irish housing sector it was the pebble that started the landslide rather than the root cause of why there was a correction in the Irish property market.

I'd put the downturn in Irish property starting Aug/sept 06 and the start of the US financial meltdown in the first half of 2007, so I don't think the US situation played any part in starting the burst of the bubble.

nesf

johnnyskeleton wrote: »

I'd put the downturn in Irish property starting Aug/sept 06 and the start of the US financial meltdown in the first half of 2007, so I don't think the US situation played any part in starting the burst of the bubble.

Nope but it turned a retreat into a full scale rout to borrow military terminology. Once the US situation started hitting home in the EU things went from grim to the bottom falling out of the market. The housing bubble had burst before the trouble broke, this just made the whole situation worse.

silverharp

Anicdotal but...

https://www.youtube.com/watch?v=nzACsGrumEU

MrMatisse

I wouldnt think so either.

The level of economic activity in Ireland had gone far beyond any kind of long term sustainable state. Large capital inflows borrowed from overseas were used to pump up the housing market and distort the underlying economy.

The last 7 years were an illusion. The banks are now a mess and we have long term structrual unemployment ( How many electricians do we actually need ?).

Économiste Monétaire

silverharp wrote: »

I'd say they very worried about it but I cant see how they can change the trend. On the plus side house price have dropped from nose bleed levels and this may be touted as one of the green shoots , but its not possible to lever up when asset prices are falling and there are just too many negatives from commercial real estate to credit card defaults. Never say never with the stock market but I dont think the bottom is in , seems early based on past bear markets and P/E's and dividend yields havnt gone anywhere near bear market bottoms of the past.
[...]

Interesting graphs. The drop in house prices has been quite pronounced, Case-Shiller national index shows that we're back to 2003: Q3 levels. Compare that drop to the spike in real estate loans held at U.S. commercial banks; from ~$2.3tn to ~$4tn in 5 years. About the only way to change the savings trend would be to aim for very negative real rates on deposits, but the potential rising rates on U.S. government debt could be a haven (there's only so much the Fed can buy). Fast money: buy TIPS.




Wells Fargo seemed to bump spirits and the retail figures. People are just clutching for anything positive, really. The U.S. is back to post-9/11 industrial production levels, unemployment is still climbing at a rapid pace, the excess of debt is still lingering, an ageing cohort with wrecked 401(k)s and home equity, the Fed is refusing to allow banks to release stress tests, there's believability in the idea that you'll see another, at the moment hidden, wave of foreclosures... So, yeah, don't expect U.S. economic renaissance too soon.

silverharp

Why interest rates matter :eek:




Also.....

And foreclosures keep climbing, though some point to that fact that they seem to be leveling off. However, a strange thing is happening. We are seeing what is being called a "shadow inventory" of foreclosed homes.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage." (San Francisco Chronicle)

johnnyskeleton

silverharp wrote: »

Why interest rates matter :eek:




Also.....

And foreclosures keep climbing, though some point to that fact that they seem to be leveling off. However, a strange thing is happening. We are seeing what is being called a "shadow inventory" of foreclosed homes.

"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. "California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You'd have further depreciation and carnage." (San Francisco Chronicle)

Just to throw a spanner in the works, foreclosure (i.e. the bank takes the property with no recourse to the lender) is extremely rare in Ireland, so much so that the average mortgage holder has almost no chance of the bank foreclosing on their property. In Ireland, most likely the mortgagee will take possession and retain a personal debt for any difference between the sale price and the outstanding amount on the loan.

At the same time, we never engaged in ARM loans, jumbo loans, self certified or the NJNA style of lending.

So the Irish model will never resemble the US model.

silverharp

johnnyskeleton wrote: »

Just to throw a spanner in the works, foreclosure (i.e. the bank takes the property with no recourse to the lender) is extremely rare in Ireland, so much so that the average mortgage holder has almost no chance of the bank foreclosing on their property. In Ireland, most likely the mortgagee will take possession and retain a personal debt for any difference between the sale price and the outstanding amount on the loan.

At the same time, we never engaged in ARM loans, jumbo loans, self certified or the NJNA style of lending.

So the Irish model will never resemble the US model.

I agree its different here , it was just a comment on the state of the US housing market and further bumps on the road ahead for the US economy

bobbbb

I wouldnt worry too much.
Recessions always end.
Its just a matter of time.
People seem to forget that. Just like they forgot that booms always end too.

In a boom the bulls think it will never end or at least not for a very long time.
In a recession the bears think it will never end or at least for a very long time.

Its just the way economies work. You cant predict it. Nobody can. Anyone who says they know or can read all of the signs - ignore them, they are just guessing.

Toiletroll

The current upward trend of the Stock Markets is being labelled by some economists as the "fools rush"