The latest government suggestion to gullies, "SPEND MORE"!

MrDarcy

Taoiseach Brian Cowen insisted today that people must start spending more cash as he dismissed claims that Ireland was heading for a double-dip recession.

Official figures revealed the economy began to contract again between April and June after showing the first signs of recovery in the previous three months.

National output dropped a significant 1.2% but Mr Cowen rejected claims that the country was slipping back into a second prolonged downturn.

“I don’t accept that analysis, based on this second quarterly report,” he said.

“You have to look at the full year to get the best possible estimate of how things will go.”

Mr Cowen said the Central Statistic Office report came against a backdrop of the economy performing better than expected in the first three months of the year.

Despite unemployment soaring to 462,000, the Taoiseach singled out the big decline in consumer spending and claimed that people will have to get out and shop to help resurrect the country’s fortunes.

“We have to continue to encourage people – those who have disposable income - to spend in the domestic economy,” he said.

The CSO report showed Gross Domestic Product (GDP) – the value of goods and services including foreign-owned companies – suffered a 1.2% decline in trade between April and June.

The downturn came after businesses, both homegrown and multinational, had shown signs of picking up after the New Year.

Domestic firms were also hit in the second quarter, but not to the same extent, with their value down by 0.3%.

In a breakdown of the national accounts, the CSO said the economy was hit by a fall in consumer spending – down 1.7% compared to the same period last year.

The Government suggested a sudden surge in imports had also damaged the early signs of recovery.

Finance Minister Brian Lenihan insisted he stood by his assessment late last year that the economy had turned a corner and called for a cautious analysis of the report.

“I agree that these (figures) are not encouraging but we have moved from a position of a very sharp, steep, decline to a position where we have stabilised,” he said.

He added: “It is clear the economy is sluggish. But it has moved from a position of decline to a position of stability and that will pose serious budgetary challenges for the Government.”

The Government is planning to issue revised forecasts on the economy and state finances in October ahead of Budget 2011.

The Opposition dismissed the Government’s insistence that a corner had been turned.

Joan Burton, Labour’s finance spokeswoman, said the figures should come as a cold dose of reality and a bitter disappointment.

“These numbers show that far from having turned the corner earlier this year, the Irish economy suffered a ’dead cat bounce’,” she said.

Arthur Morgan, Sinn Féin’s finance spokesman, said: “The Irish economy may have technically emerged from recession in the first quarter of the year but today’s figures underscore the reality that there can be no sustainable economic growth when there is still an absence of jobs.”

The report overall showed the domestic economy was still struggling, prompting analysts to warn over how far the Government should go with plans for at least €3bn cuts in the December budget.

Question marks have also been raised over Mr Lenihan’s economic forecasts after last December’s budget projected a return to growth in six to nine months.

Mr Cowen said a lot of work remained to be done to drive up exports, despite the CSO reporting an €884m rise on the same three months in 2009.

The CSO also reported that the overall value of industry output grew 1.7% on the second quarter of last year but construction, one of the biggest victims of the country’s downturn, was down 28%.


Read more: http://www.breakingnews.ie/ireland/cowen-urges-people-to-spend-more-to-offset-economic-setback-474843.html#ixzz10N0VD9pp

MrDarcy

If only it was that simple, if only WE HAD IT YOU FAT OBESE F*CKING PLEB!

Mr Benevolent

Spend more? I'm on the dole and trying hard to save most of it in case there's a massive cut!

MrDarcy

He obviously can't get past the sheer hundreds of thousands of people who can't pay ESB and Bord Gais bills and winter hasn't even f*ckin' started yet?!?!?!?!?!?!?!?!?

If you're a father of two, unemployed and you can't pay your gas or your ESB bill, I can kind of think it's a safe enough assumption to make that you can't head into South William Street and treat the wife and kids to an Indian?!?!?

What planet is this guy living on, does he not read the papers or something, is he drunk again?!? :mad::mad::mad:

jimmycrackcorm

There are a hell of a lot of people who actually have a lot of cash but are apprehensive to spend it:

• Not everyone is on the dole.
• Not everyone has had a pay cut.
• Some people have even gotten rises.
• Many People who had bought houses pre-boom benefited from the rise in incomes while their cost ratio improved (mortgage as a % of their pay).
• Lots of people stashed away nice profits from property deals made during the boom.

Even though the recession has gotten worse since last year, more new cars have been sold this year because people have started to get over the shock from last year but they are still generally cautious.

hinault

Cowen's statement.
Bit like Hitler telling people to come to Berlin on holiday in 1945:D:D:D





I wonder was Cowen pickled when he made that statement?
Seriously.

wilson10

Yeah, get out and spend your money on Korean TVs, German cars, Italian leather sofas and just about everything else made in China.

Wait a minute, won't that mean most of our hard earned money going out of the country.

I thought it was goods & services we needed to be going out and money coming in.

Oh darn it, I'm all confused now, I'm sure Mr. Cowan must know what he's talking about, after all he is running the country so he must be very clever.

P. Breathnach

jimmycrackcorm wrote: »

There are a hell of a lot of people who actually have a lot of cash but are apprehensive to spend it....

There's truth in that. There's a lot of saving going on.

hinault

jimmycrackcorm wrote: »

There are a hell of a lot of people who actually have a lot of cash but are apprehensive to spend it:

• Not everyone is on the dole.
• Not everyone has had a pay cut.
• Some people have even gotten rises.
• Many People who had bought houses pre-boom benefited from the rise in incomes while their cost ratio improved (mortgage as a % of their pay).
• Lots of people stashed away nice profits from property deals made during the boom.

Even though the recession has gotten worse since last year, more new cars have been sold this year because people have started to get over the shock from last year but they are still generally cautious.

Indeed, Jimmy.

And all those new car sales were subsidised by you and me, the hardpressed taxpayer, via the scrappage scheme.

I have some money set aside.
But I'll be damned if I am going to trust Clowen or Lenihan.
They moved the goalposts too often since September 2008.
You'd be a fool to trust either of them.

Olaf

Even the people with disposable income must surely be a bit wary of the budget coming up designed to remove as much of that as possible.

If you had spare cash at the moment, would you be throwing it around?

dan_d

What he said was "those who have extra money have to get out and spend it".

That's what got us into this mess in the first place. Following this, we then went out and spent money we didn't have (technical term being "credit").

We pretty much spent ourselves into the ground.

Is this the best he can come up with? Spend your money, so my quarterly figures look good? No matter that you won't have any kind of a cushion for when you lose your job?

ei.sdraob

Make me!


Anyways sounds like ff are planning to raid the savers' savings

lmimmfn

right so the country is fecked, no job is safe and were supposed to spend everything that might actually help us get by if we lost our jobs? or spend it all and have nothing indefinately with the next 2 years tax increases?

lol, i actually laughed when i heard Cowen on about this on the news today

Sikie

If you have a job you are cutting back household spending and saving as you don't know whether next week will bring a P45.

goat2

now asking the few that had a bit of sense all along to know that the past 10 years seemed too good to be true, and knew it was too good to be true, these same people who did not put us in the position we are now in, they were not fooled in the past, and they will not just be spending willy nilly now.if others did what these few did, we would have a great place

BornToKill

All my money is already tied up in investments:

Count Dooku

MrDarcy wrote: »

“We have to continue to encourage people – those who have disposable income - to spend in the domestic economy,” he said.

When in few months time, Gilmore will be next taoiseach, all disposable income will taken out from pockets of private sector workers through high taxes to preserve living standards of public sector workers anyway.

gurramok

We have one of the highest private individual debt levels in the EU(there was a link on this forum somewhere before).
That together with the prudent who still have jobs been shafted by profitable companies using the recession as an excuse to reduce pay and create job uncertainty is also fuelling the contraction.

flutered

yeah i wish i could spend more, my pension of 201 lids is going to have a 15% slice knocked off it come december, as i am disabled i am an easy target, who is going to bother helping my equals, but i am goning have some temperory fun when them gits come asking for my vote.

Sizzler

I know its nigh on 5 months ago but has Clowen forgotten this already?

http://www.moneyguideireland.com/national-solidarity-bond.html

Trampas

the vicious circle of wanting people to spend to increase tax returns and maybe generate a few jobs but people afraid to spend as they don't know when they need that rainy fund which seems only around the corner.

johnnyskeleton

MrDarcy wrote: »

If only it was that simple, if only WE HAD IT YOU FAT OBESE F*CKING PLEB!

Supposing for a minute that we did have it. Let's say after all everyday expense everyone had 5k p.a. extra from their pay packet.

What should they do with it?

Should they buy a new car under the scrappage scheme, sending their money to Germany?

Should they buy things that they neither need nor particularly want?

Should they spend more on the same things that they are already buying (I insist on paying an extra 20c on this loaf of bread marked €2, in the public interest)?

God forbid that they keep it and save it in case they lose their jobs. Or invest it in a start up company. Or lodge it in a failed bank to reduce the amount of money the government has to put in.

I wish he would tell us what we are supposed to spend our hard earned yos on, because I genuinely want to know. Should I buy more ipods or something?

johnnyskeleton

P. Breathnach wrote: »

There's truth in that. There's a lot of saving going on.

1. I think the level of savings is usually overstated.

2. Saving is exactly what people should be doing right now.

3. I'm not saying you are suggesting it, but this kind of talk sounds to me like a precursor to additional tax on savings and/or a general campaign against savers.

In the real world, if I work harder than my neighbour and spend less, thus leaving me a nice pile of savings, I'm a prudent, sensible person and I have been a net contributor to the economy. However, in Ireland, the neighbour is the victim of a ruthless plot by the saver to get him into a mire of debt and because the saver refuses to change his godless habits and go out and spend, the neighbour loses his job selling overpriced bling and tat.

whatawaster

Why does he expect people to spend money when it's likely most things will be cheaper next year, when prices are forced down by lack of demand?

Idbatterim

must be great to not have to worry about your job or pension hah Cowen?

ardmacha

I'm not saying you are suggesting it, but this kind of talk sounds to me like a precursor to additional tax on savings and/or a general campaign against savers.

But if people remove money from banks they will have even bigger problems.

Scarab80

ardmacha wrote: »

But if people remove money from banks they will have even bigger problems.

If the money is spent in Ireland it gets redeposited in sellers bank account so it's not a problem from a banking point of view, just a transfer of disposable income / savings to someone working.

Figures from the Central Bank Credit, Money and Banking Statistics.



There has been some decrease in amounts held on deposit however the main way people have been saving money is by paying down their credit. Since Feb 09 approx 50bn has been removed from the private sector money supply.

Of the €179bn currently on deposit, 97bn relate to households, 36bn to non-financial corporations and 46bn to pension funds, insurance companies and other financial intermediaries.

Scarab80

johnnyskeleton wrote: »

2. Saving is exactly what people should be doing right now.

Gotta disagree with this. Saving is what people should have been doing for the last decade when there was too much money in the economy but instead we inflated our wages and gave all our money to landowners.

A release of these savings at the start of the recession would have ended it fairly quickly, maybe we wouldn't have had a recession at all.

Unless you earn your income exclusively outside Ireland you need people to spend money to keep you in employment, if it were possible for people to save 100% of their income almost the entire country would be unemployed.

rumour

MrDarcy wrote: »

Taoiseach Brian Cowen insisted today that people must start spending more cash as he dismissed claims that Ireland was heading for a double-dip recession.

Official figures revealed the economy began to contract again between April and June after showing the first signs of recovery in the previous three months.

National output dropped a significant 1.2% but Mr Cowen rejected claims that the country was slipping back into a second prolonged downturn.

“I don’t accept that analysis, based on this second quarterly report,” he said.

“You have to look at the full year to get the best possible estimate of how things will go.”

Mr Cowen said the Central Statistic Office report came against a backdrop of the economy performing better than expected in the first three months of the year.

Despite unemployment soaring to 462,000, the Taoiseach singled out the big decline in consumer spending and claimed that people will have to get out and shop to help resurrect the country’s fortunes.

“We have to continue to encourage people – those who have disposable income - to spend in the domestic economy,” he said.

The CSO report showed Gross Domestic Product (GDP) – the value of goods and services including foreign-owned companies – suffered a 1.2% decline in trade between April and June.

The downturn came after businesses, both homegrown and multinational, had shown signs of picking up after the New Year.

Domestic firms were also hit in the second quarter, but not to the same extent, with their value down by 0.3%.

In a breakdown of the national accounts, the CSO said the economy was hit by a fall in consumer spending – down 1.7% compared to the same period last year.

The Government suggested a sudden surge in imports had also damaged the early signs of recovery.

Finance Minister Brian Lenihan insisted he stood by his assessment late last year that the economy had turned a corner and called for a cautious analysis of the report.

“I agree that these (figures) are not encouraging but we have moved from a position of a very sharp, steep, decline to a position where we have stabilised,” he said.

He added: “It is clear the economy is sluggish. But it has moved from a position of decline to a position of stability and that will pose serious budgetary challenges for the Government.”

The Government is planning to issue revised forecasts on the economy and state finances in October ahead of Budget 2011.

The Opposition dismissed the Government’s insistence that a corner had been turned.

Joan Burton, Labour’s finance spokeswoman, said the figures should come as a cold dose of reality and a bitter disappointment.

“These numbers show that far from having turned the corner earlier this year, the Irish economy suffered a ’dead cat bounce’,” she said.

Arthur Morgan, Sinn Féin’s finance spokesman, said: “The Irish economy may have technically emerged from recession in the first quarter of the year but today’s figures underscore the reality that there can be no sustainable economic growth when there is still an absence of jobs.”

The report overall showed the domestic economy was still struggling, prompting analysts to warn over how far the Government should go with plans for at least €3bn cuts in the December budget.

Question marks have also been raised over Mr Lenihan’s economic forecasts after last December’s budget projected a return to growth in six to nine months.

Mr Cowen said a lot of work remained to be done to drive up exports, despite the CSO reporting an €884m rise on the same three months in 2009.

The CSO also reported that the overall value of industry output grew 1.7% on the second quarter of last year but construction, one of the biggest victims of the country’s downturn, was down 28%.


Read more: http://www.breakingnews.ie/ireland/cowen-urges-people-to-spend-more-to-offset-economic-setback-474843.html#ixzz10N0VD9pp

This F****ing grotesque monkey still doesn't get it and he's trying to take us all down with him.
Spend all your savings!!!!! When thats done and that pool of money is completely bled from everyone what then??? What then?

DO NOT LISTEN TO THIS IDIOT

hinault

Scarab80 wrote: »

Gotta disagree with this. Saving is what people should have been doing for the last decade when there was too much money in the economy but instead we inflated our wages and gave all our money to landowners.

I agree 100%.
People should have been saving their money during the "boom".

However, if you recall there was a lobby who were very vocal and were saying during the boom that "capital appreciation on property represented a better return for savings".

Scarab80 wrote: »

Unless you earn your income exclusively outside Ireland you need people to spend money to keep you in employment, if it were possible for people to save 100% of their income almost the entire country would be unemployed.

Ideally you want people to save a % of their income.
As you say saving every single penny, is actually harmful to an economy.

Scarab80

hinault wrote: »

I agree 100%.
People should have been saving their money during the "boom".

However, if you recall there was a lobby who were very vocal and were saying during the boom that "capital appreciation on property represented a better return for savings".

Well let's say if people had saved during the real boom then we might not have had the "boom".

Most people I know that bought into the property bubble did so because they saw the "paper profit" others were making and wanted in, I don't know anyone who bought because Donnie Cassidy or Frank Fahey told them to.

Not that government or TDs should be giving out investment advice to the electorate, and bad advice at that, clearly they should not, but I would blame the government a lot more for continuing property related tax reliefs in the midst of a bubble and for failing to take the appropriate delfationary fiscal measures needed in the face of an overheating economy and inappropriately low interest rates.

The damage was done prior to 2008, what happened afterwards was an inevitability, but were any lessons learned?

hinault wrote: »

Ideally you want people to save a % of their income.
As you say saving every single penny, is actually harmful to an economy.

Unfortunately, at the moment people are saving more than they did during the past decade (I shouldn't say more than the past decade as more debt was incurred than money saved) which is just making a bad situation worse.

hinault

Scarab80 wrote: »

Well let's say if people had saved during the real boom then we might not have had the "boom".

Most people I know that bought into the property bubble did so because they saw the "paper profit" others were making and wanted in, I don't know anyone who bought because Donnie Cassidy or Frank Fahey told them to.

Not that government or TDs should be giving out investment advice to the electorate, and bad advice at that, clearly they should not, but I would blame the government a lot more for continuing property related tax reliefs in the midst of a bubble and for failing to take the appropriate delfationary fiscal measures needed in the face of an overheating economy and inappropriately low interest rates.

The damage was done prior to 2008, what happened afterwards was an inevitability, but were any lessons learned?

The property bubble was madness in hindsight.

I can recall distinctly Tom Parlon TD - before he became head honcho at CIF - urging people to consider buying property.
And you also had rags like the Sindo lauding the developers and property industry.

The tax breaks for property developers were the rocket fuel for the credit
explosion in my opinion and the extension of those reliefs after 2003 sent what was a sustainable boom in to overdrive.

It may sound obvious but the various categories of debt (sovereign debt, personal debt, bank bailout debt) will make any recovery all the more difficult to achieve in my opinion.

Bad enough having rising unemployment and falling GDP/GNP.
An economy saddled with the level of debt that we have, faces a huge task in trying to increase GDP/GNP and to reduce unemployment.

hinault

Scarab80 wrote: »

Unfortunately, at the moment people are saving more than they did during the past decade (I shouldn't say more than the past decade as more debt was incurred than money saved) which is just making a bad situation worse.

True.

But you can expect people to be reluctant to spend especially when there is huge concern at what might be presented in the next budget, coupled with the uncertain employment situation that many people face at present.

Ideally we need people to spend some of their money but their reluctance to do so is perfectly understandable given the prevailing conditions.

Austerity

Haha is this man living on the moon? People with jobs are afraid that the axe might be falling on them. The people who are working also can look forward to more taxes. Who on earth would want to be spending money when things are looking like this?

Mister men

Thanks anyway Biffo but i'll keep saving.:)

Cookie_Monster

hinault wrote: »

Indeed, Jimmy.

And all those new car sales were subsidised by you and me, the hardpressed taxpayer, via the scrappage scheme.

I have some money set aside.
But I'll be damned if I am going to trust Clowen or Lenihan.
They moved the goalposts too often since September 2008.
You'd be a fool to trust either of them.

which is 1500 per car in VRT. Whereas the VRT from the car sale + all the Tax from the dealer and dealer employees outweigh this many many times. IF the car was not sold we'd have a net tax loss and possibly the dealership go out of business and employees be on the dole at the end of the day, just like many other had done.

The scrappage scheme is a very cheap way of making a lot of additional tax for the government

Nijmegen

Amusing thing in any economy is... You need people to save, and you need them to spend, at the same time.

On an individual level, my savings are my safety net in a country that has proven inept at providing a safety net of a good economy and a recovery.

We know that the amount of savings has gone through the roof. But frankly, people don't have any confidence to spend that money.

It's a circle, we don't spend, the economy doesn't get better, we save more as the rainy day gets worse.

It'd be nice of we had a government that could increase confidence.

Clearly, not FF.

johnnyskeleton

Scarab80 wrote: »

Gotta disagree with this. Saving is what people should have been doing for the last decade when there was too much money in the economy but instead we inflated our wages and gave all our money to landowners.

A release of these savings at the start of the recession would have ended it fairly quickly, maybe we wouldn't have had a recession at all.

The level of savings during the bubble wasn't overly low (although this was bouyed up by the SSIA etc). Throughout the whole time, we should be saving a portion of our income. Then when a recession comes along, we should use the savings if (but only if) we need to for our daily spend. We certainly shouldn't go "whoops, it's a bit of a recession, lads get out your savings and buy some rubbish".

Scarab80 wrote: »

Unless you earn your income exclusively outside Ireland you need people to spend money to keep you in employment, if it were possible for people to save 100% of their income almost the entire country would be unemployed.

Or if you work in the export sector within Ireland. But in any event I'm not suggesting that people should save 100% of their income, but they should have a fairly decent level of savings.

A rough guide is this - people should in general spend less than they want to and save more than they want to. That way, instead of buying 2 new DVDs for €50, I only buy 1 good value one for €10 and save the other €40. I want to buy the others, but I make a rational choice to preserve more of my income. Because of this there is less inflationary pressure on goods and services and thus wages remain competitive.

Over spending is far worse than over saving. The only way I can think of an economy truly oversaving is if everybody denies themselves basic food, shelter or health services in order to save a few quid. Short of that, people are dead right to save as much as they feel comfotable with.

The idea that we can bring ourselves out of recession by "spending more" is just as ludicrous as trying to create economic growth by overpaying for houses. Each one leads to malinvestment. When you look at the places that are closing due to people not spending, it is rarely the supermarket or the hardware shop that closes, but more likely the boutique (read overpriced) bakery and the exclusive (read impractically designed) furniture shop. It is the second latte shop on a street, or the shop that just sells expensive perfume that will do badly, not the established shops.

Plus, until we get back to making stuff in this country, the policy of buying more stuff just increases our imports. I find it very hard to think of anything that I could buy that is not imported, from the big ticket items like a new car or flatscreen tv to the gadgets, entertainment items or clothes.

Is that really a bad thing?

johnnyskeleton

Scarab80 wrote: »

Unfortunately, at the moment people are saving more than they did during the past decade (I shouldn't say more than the past decade as more debt was incurred than money saved) which is just making a bad situation worse.

Where's the proof for this though? The oft trotted out Central Bank report is not good evidence, because that just shows that the rate of savings has increased. Look a little deeper into this, and the main factors are not individuals saving but institutions (i.e. banks, pension funds etc) building up cash reserves). There is also the factor that as people's incomes decrease they cut their savings but they cut their spending by more (so the rate of savings goes up but people are actually saving less due to less money). Also, debt destruction is factored in as an increase in savings.

Thus those statistics are not the most reliable. Equally DMW has a statistic that savings are going down, although he seems to have plucked it from the air.

So I haven't seen any reliable measure of whether people are saving more or less than they were.

I suppose it is easy to look at one's own situation and say whether you are spending or saving more than before, but there is a good chance that people posting in this forum are saving because they (quite rightly) are concerned about the future of the country.

Scarab80

johnnyskeleton wrote: »

The level of savings during the bubble wasn't overly low (although this was bouyed up by the SSIA etc). Throughout the whole time, we should be saving a portion of our income. Then when a recession comes along, we should use the savings if (but only if) we need to for our daily spend. We certainly shouldn't go "whoops, it's a bit of a recession, lads get out your savings and buy some rubbish".

Of course savings were too low, that's why we borrowed billions from French, German and UK savers to fund our spending. While the amount held on deposit by Irish residents increased, the amount that we borrowed increased by a lot more. One need only look at Irish wages or our house prices too see that there was too much money in the economy for the amount of goods and services provided, either we borrowed too much or saved too little, they are two sides of the samecoin.

johnnyskeleton wrote: »

Or if you work in the export sector within Ireland. But in any event I'm not suggesting that people should save 100% of their income, but they should have a fairly decent level of savings.

A rough guide is this - people should in general spend less than they want to and save more than they want to. That way, instead of buying 2 new DVDs for €50, I only buy 1 good value one for €10 and save the other €40. I want to buy the others, but I make a rational choice to preserve more of my income. Because of this there is less inflationary pressure on goods and services and thus wages remain competitive.

Buying items which are good value is just efficient allocation of resources and is to be encouraged, this keeps the price of goods and services competitive. Saving for your future needs, say for when you are retired and without income is of course a rational and sensible thing to do. Saving over and above that amount, say worried about the state of the economy, while rational from an individual point of view has a deflationary impact on the economy and only increases that which you are worried about. Inflation pressures on goods and services occurs where you have full utilisation of resources, such as during the last 5 - 10 years, with 450,000 people out of work there is sufficient excess labour capacity that we shouldn't need to worry about wage inflation for a number of years. Continuing wage deflation is more likely.

johnnyskeleton wrote: »

Over spending is far worse than over saving. The only way I can think of an economy truly oversaving is if everybody denies themselves basic food, shelter or health services in order to save a few quid. Short of that, people are dead right to save as much as they feel comfotable with.

OK, consider your economy where people only spend money on food, shelter and health. By definition therefore everybody must be employed in one of these three sectors as no other economic activity exists. What you are describing is a primitive agrarian society. Our world is the way it is because we managed to reduce the time we spent on these activities through the use of technology which freed us up to either sit on our asses all day or devote our time to other "non-essential" aspects of life.

Over-spending is a problem too much money is chasing too few goods hence we have variable interest rates to try and control the money supply to stop this happening, the euro threw a spanner in the works.

Saving what you feel comfortable with is a subjective and emotive term which creates boom bust cycles, spend a lot with full production because you feel your job is secure and overheat the economy, save when you feel your job is not secure and deflate the economy. There is a correct amount to save, which is that which will see you through the years when you are unable to work.

johnnyskeleton wrote: »

The idea that we can bring ourselves out of recession by "spending more" is just as ludicrous as trying to create economic growth by overpaying for houses. Each one leads to malinvestment. When you look at the places that are closing due to people not spending, it is rarely the supermarket or the hardware shop that closes, but more likely the boutique (read overpriced) bakery and the exclusive (read impractically designed) furniture shop. It is the second latte shop on a street, or the shop that just sells expensive perfume that will do badly, not the established shops.

Overpaying for houses is exactly what it says, overpaying. Spending in a depressed economy is an attempt to maximise production within that economy. How this production manifests itself is a matter of choice for the consumer, in a balanced economy some of the shops you mention might not exist, if there is sufficient excess production over the basic necessities they might.

johnnyskeleton wrote: »

Plus, until we get back to making stuff in this country, the policy of buying more stuff just increases our imports. I find it very hard to think of anything that I could buy that is not imported, from the big ticket items like a new car or flatscreen tv to the gadgets, entertainment items or clothes.

Is that really a bad thing?

Not a bad thing but in our new global economy capital and production can easily move to where labour is cheapest. Manufacturing labour is generally unskilled and there is an abundance of unskilled labour in the world so unless we want to try and compete with Chinese wages I can't see that happening. If you want to spend in Ireland purchase services or irish food products.

johnnyskeleton wrote: »

Where's the proof for this though? The oft trotted out Central Bank report is not good evidence, because that just shows that the rate of savings has increased. Look a little deeper into this, and the main factors are not individuals saving but institutions (i.e. banks, pension funds etc) building up cash reserves).

http://www.centralbank.ie/data/site/cmbs/07%20-%20July%20Info%20Note(1).pdf

The central bank split the amount of credit and savings between household, non-financial corporations, and pension funds/insurance companies/financial intermediaries. In the previous graph I used the total amounts of credit and deposits by all groups because the figures for Irish Resident Deposits held in other EU countries do not have this breakdown.

These are the figures for household credit and deposits, the big jump at January 2009 is the inclusion of credit unions in the figures. If anything the reduction in money supply is more marked in the household sector than in other sectors.

johnnyskeleton wrote: »

There is also the factor that as people's incomes decrease they cut their savings but they cut their spending by more (so the rate of savings goes up but people are actually saving less due to less money).

Can't you see the deflationary spiral here, people's incomes decrease because there is a decrease in economic activity, they then cut their spending which decreases economic activity more which results in a further cut in their income.

johnnyskeleton wrote: »

Also, debt destruction is factored in as an increase in savings.

Yes Debt write offs are included in the figures, you can see them in the outstanding credit figures where there are little step downs when banks release their provisions in their annual accounts however ignoring these the overall trend is still downwards. Regardless as debt write offs have been funded by shareholders and government, private sector deposits have not been affected so the overall position of private sector households has been increased.

johnnyskeleton wrote: »

Thus those statistics are not the most reliable. Equally DMW has a statistic that savings are going down, although he seems to have plucked it from the air.

I haven't seen his figure though he could be getting it from the central bank figures, amounts on deposits peaked in January 2010 and there has been a slight reduction since then, however this ignores the fact that credit has been paid down at a much faster rate.

johnnyskeleton wrote: »

I suppose it is easy to look at one's own situation and say whether you are spending or saving more than before, but there is a good chance that people posting in this forum are saving because they (quite rightly) are concerned about the future of the country.

I'm not trying to look at my own situation as that wouldn't be a very rational way to judge the economy, the macro figures indicate a reducing money supply in a deflating economy with unallocated resources. Increased spending, restricted as much as possible to irish goods and services (no stupid tax raising exercises like the car scrappage scheme) would go a long way to getting us out of this recession.

johnnyskeleton

I had a point by point reply to you but internet explorer rather annoyingly went back a page rather than deleted the graph in my reply, so I’ve taken a few of the points I object to instead.

Scarab80 wrote: »

Of course savings were too low, that's why we borrowed billions from French, German and UK savers to fund our spending

Scarab80 wrote: »

Can't you see the deflationary spiral here, people's incomes decrease because there is a decrease in economic activity, they then cut their spending which decreases economic activity more which results in a further cut in their income.

...amounts on deposits peaked in January 2010 and there has been a slight reduction since then, however this ignores the fact that credit has been paid down at a much faster rate

First of all, savings weren’t too low, borrowings were too high. Equally, people are not saving now, they are paying off debts or having their debts written off or finishing a loan and not taking out any new loans. As you point out yourself, the sharp rise in Jan 09 was due to the change in the metrics so the level of savings has more or less stayed the same (declining 2% from Jan – July 2010

In a functional closed economy the difference between saving and paying back debt is negligible, but in an open economy that is after one of the largest credit bubbles in world history it is not the same at all.

Unlike savings which are for future consumption, we have to pay back the debt to fund our past consumption and that reduces our future consumption capacity. More importantly, however, the difference between actually saving and repaying debts undermines the argument made by the Taoiseach. He either 1) thinks that people are increasing their savings or 2) knows that debt is being reduced. [/COLOR]

So in the first scenario, he is labouring under the mistaken impression that people are putting away a few bob that they could easily spend in the economy. But this isn’t true as the absolute level of savings has stayed the same (although the rate of savings relative to declining incomes has increased). If it is the second one, then he is basically exhorting the people of Ireland to reinflate the bubble by taking out more borrowings instead of paying back the ones they already have.

So when you are agreeing with Cowen I am curious, do you believe (contrary to the stats you posted) that savings are actually going up, or do you believe that we should spend more by borrowing more? Borrowing more is the cause of our problems, and it is not the solution.

Scarab80 wrote: »

OK, consider your economy where people only spend money on food, shelter and health....

I never suggested that we revert to such an economic model. People can spend or save according to their desire. There is no optimum rate of saving for all persons or even for all countries on a macro level. You suggested that people were saving too much, and my point is that you can only say that people are saving too much when they are denying themselves the basics of life which they could easily afford to do so. A person earning €1m a year can eschew the bling bling lifestyle and live a Spartan existence on say 15k and putting the rest of his money into a bank account if he so wishes. Warren Buffet, for example, lives a very unglamorous lifestyle and probably spends less than 0.1% of his income. But these people cannot be said to be saving/investing too much because their lifestyle choices are completely rational and reasonable. But if Warren Buffet were sleeping rough, eating out of garbage cans and denying himself medical treatment because he wanted to save the money instead, then I suppose you could legitimately say he was saving too much. But short of that, who is to say what is the right amount to be saving?

Scarab80 wrote: »

Saving for your future needs, say for when you are retired and without income is of course a rational and sensible thing to do. Saving over and above that amount, say worried about the state of the economy, while rational from an individual point of view has a deflationary impact on the economy and only increases that which you are worried about.

I think we need a bit of deflation. Our costs are too high and we spend too much money on overpriced items. Even if we spent all the money we had, it still would not be enough to defeat the deflationary pressures upon us, because we are coming out of what could well be the largest asset bubble in the world (relatively speaking). And yes, less spending means less is bought which leads to business closing down and job losses, but where I disagree with you is whether these jobs were ever sustainable. Certainly those in the construction sector weren’t. Should we go back to buying overpriced houses in order to keep construction workers at work (at very juicy hourly rates too)?

If not, then I fail to see why we should be encouraged to spend in Ireland’s overpriced retail and hospitality sectors because they also contain unsustainable elements. What we will see is not a loss of jobs that should be retained, but rather a return to basics. Remember too that a lot of sustainable but boring businesses went bust during the boom because the profits in construction/retail/finance/hospitality drove them out by increasing prices and turning investment away from productive sectors into less productive sectors. So a period of deflation is inevitable as we shed one kind of economic activity and try to regain another kind.

But the government can’t survive such a change, and so is desperate for us to go out and buy stuff from the existing businesses in order to prop up the old system.

Scarab80 wrote: »

euro threw a spanner in the works.

Don’t blame the euro, it’s a cliché and in my view not correct. If you want to blame the ECB’s low interest rates, just remember that during the time of ECB interest rates, the FED, BOE, BOJ all had very low interest rates and there was also a flood of cheap money from China and the Middle East. The idea that Irish banks would have resisted this cheap money if they stayed out of the euro stretches the imagination; the idea that the Irish Central Bank could have effective control over interest rates in such world circumstances is laughable.

Scarab80 wrote: »

Saving what you feel comfortable with is a subjective and emotive term which creates boom bust cycles...There is a correct amount to save, which is that which will see you through the years when you are unable to work.

Right. So what I think is subjective opinion but what you think is verifiable fact?

Scarab80 wrote: »

If you want to spend in Ireland purchase services or irish food products.

Scarab80 wrote: »

Increased spending, restricted as much as possible to irish goods and services (no stupid tax raising exercises like the car scrappage scheme) would go a long way to getting us out of this recession.

Such as? Seriously? I’ll take out 100e and go to some shops and spend it right now if you tell me what to buy (and I want it for the price it is being offered at).

johnnyskeleton

johnnyskeleton wrote: »

Such as? Seriously? I’ll take out 100e and go to some shops and spend it right now if you tell me what to buy (and I want it for the price it is being offered at).

Just to put this theory in motion, I went out to have a look at a few shops to see what I could buy. I walked around for a fair bit, and in the end the only thing that I wanted was a DVD (bad lieutenant) which I bought. However, that was made by a US company, the disc was manufactured in China and the profits go to who knows where.

Some of the other things that were available were clothes (made in China and India), electronics (Taiwan and Japan), books (printed mainly in the UK), Coffee (Africa and South America), Jewelry (United States / Switzerland) kitchenware (Germany and Eastern Europe), gardening equipment (Italy & UK), musical instruments (everywhere, but mostly US, Spain and Korea). The list goes on.

Virtually everything is not made in Ireland. The few Irish products I might realistically buy are a juicy fillet steak, a bottle of Redbreast whiskey or maybe some pharmaceuticals (although even then the majority of the price goes abroad).

In terms of big ticket items, the only thing that is an "Irish" product is housing but I'm not going to go out and buy a house. Other than that there are cars (imported), TVs (imported) etc.

So again, for Cowen, Scarab or anyone else who thinks we should go out and "spend more", what can I buy that is useful, desireable, reasonably priced and/or made in Ireland?

Jaysoose

If this whole mess has taught us anything its to do exactly the opposite of any advice coming from these guys.

Amhran Nua

johnnyskeleton wrote: »

So again, for Cowen, Scarab or anyone else who thinks we should go out and "spend more", what can I buy that is useful, desireable, reasonably priced and/or made in Ireland?

Indeed, whats needed is a readily accessible vehicle for the public to invest a little in a lot small firms and businesses directly, businesses they wouldn't otherwise have any contact or dealings with, exporters and similar employers. Thats exactly the kind of capital influx the economy needs most.

Fentdog84

Of course biffo wants people to spend more.. more VAT & taxes to maintain his faT SALARY.. But more people are unemployed & have less money & more people who are earing are saving because they dont know whats next..:)

SkepticOne

johnnyskeleton wrote: »

In terms of big ticket items, the only thing that is an "Irish" product is housing but I'm not going to go out and buy a house.

I can see another CIF campaign in the making. "Buy Irish - buy a house: the patriotic choice!"

ei.sdraob

On almost all uk frontpages today

same message from the top "go and spend" :rolleyes:

Savers told to stop moaning and start spending
Savers should stop complaining about poor returns and start spending to help the economy, a senior Bank of England official warned today

http://www.telegraph.co.uk/finance/personalfinance/savings/8028884/Savers-told-to-stop-moaning-and-start-spending.html

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gurramok

Its a govt(British & Irish) way of making the private individual sacrifice himself into a mountain of debt in order to make the economy look good.

ardmacha

Its a govt(British & Irish) way of making the private individual sacrifice himself into a mountain of debt in order to make the economy look good.

The article referred to savers, no suggestion whatsoever of people taking on debt.

gurramok

ardmacha wrote: »

The article referred to savers, no suggestion whatsoever of people taking on debt.

What happens when you spend all your savings? You end up with nothing and when you end up with nothing you will need to borrow especially when things go wrong.

ardmacha

What happens when you spend all your savings?

Don't spend all of your savings, then.