Recession predictions

Wanderer78

Timing belt wrote: »

Because they will be an increase in defaults(non performing loans) which will tie up there capital and they won’t be able to make a profit which will lead to cost cutting which means redundancy.

They have already cut to the bone so not much room to cut. This is why Ulster we’re talking about pulling out of irish market. If you look at ulsters capital it’s at about 22% which is way higher than they would like it to be and means they will struggle to make a profit even in normal times without a increase in defaults

i know that, so why not introduce other types of banking systems, that seem to be a little more stable, for the reasons ive outlined, baring in mind, some public banks are a train wreck, heres looking at you italy?

Timing belt

Wanderer78 wrote: »

i know that, so why not introduce other types of banking systems, that seem to be a little more stable, for the reasons ive outlined, baring in mind, some public banks are a train wreck, heres looking at you italy?

Retail Banks are the same as a utility company (electricity water etc) since the last crash where they should be servicing customers and taking a small fee for doing so. They should not have huge profits or losses as a result. Unfortunately a banking crash happens every 10-15 years as people forget and greed takes over.

The investment banks is where the real risk sits and hence huge profits and losses. Where it gets complicated is where a retail bank undertakes some investment banking business as in America. In those situations you have retail customers funding investment bank lending which is a recipe for disaster and why the UK introduces ring fencing to prevent this from happening.

Timing belt

Wanderer78 wrote: »

the bank of north dakota was believed to be the only us bank largely unaffected by the 08 crash, and seems to be holding up well, considering the current situation with oil, it effectively acts as a central bank for the state. i suspect the german infrastructure bank, kfw, operates in a similar way, funding public infrastructure needs. the german sparkasse bank, is heavily protected under constitutional law, so much so, even the conversation of potentially selling a branch is illegal, i.e. branches cannot be sold, it sounds like theyre also very well used and respected in germany. id imagine they could be far more transparent, compared to their private sector counterparts also, as its probably easier to create such mechanisms to do so. its generally in their mandates to serve the public, and not prioritise the needs of their share holders, apparently theyre very good at supplying credit to critical sectors such as sme's, and of course citizens. again, public banks generally dont get involved in high risk activities such as derivatives, believed to have played a vital role in 08, i disagree with your belief, our banks are plain old vanilla for all of the above reasons. does a public bank, truly need to make a profit, compared to its private sector counterparts? all it truly needs to do is, make sure its operational, covering all the rules and regulations you mentioned, baring in mind the general lower salaries and bonuses, in comparison.

i also like the idea of dual interests rates, it might just unstick our current low rates situation, but that will probably need to occur at ecb level.

thanks for that, thats great stuff

I am not familiar with North Dakota so can’t comment.

An infrastructure bank is very different to a retail bank whereby it will arrange the finance for infrastructure projects by issuing paper to the markets. Comparing one to a retail bank is like comparing chalk and cheese.

You will also find that the public banks pay similar remuneration to a private bank if they didn’t they wouldn’t have staff.

Wanderer78

Timing belt wrote: »

Retail Banks are the same as a utility company (electricity water etc) since the last crash where they should be servicing customers and taking a small fee for doing so. They should not have huge profits or losses as a result. Unfortunately a banking crash happens every 10-15 years as people forget and greed takes over.

The investment banks is where the real risk sits and hence huge profits and losses. Where it gets complicated is where a retail bank undertakes some investment banking business as in America. In those situations you have retail customers funding investment bank lending which is a recipe for disaster and why the UK introduces ring fencing to prevent this from happening.

yea i understand that, the problem is, the lending restrictions didnt actually change much in the financial sector as a whole, it just forced the money supply further up the chain, as you explained, its still one of the main causes of things such as maintaining or even rising asset prices, in particularly in property. again, i somewhat disagree with the term greed, i actually think its largely to do with complex human behavior more so than greed, but greed certainly is an element.

we clearly should have reinstated glass steagall, this has the potential to turn very nasty, very easily and quickly, very soon, we re all starting to hold our breaths, and hope all the measures implemented, actually work, and i truly hope they do. i understand why our government is trying to do whats its doing, but i suspect theyre jumping the gun, and it has the potential to back fire very badly

Timing belt wrote: »

I am not familiar with North Dakota so can’t comment.

An infrastructure bank is very different to a retail bank whereby it will arrange the finance for infrastructure projects by issuing paper to the markets. Comparing one to a retail bank is like comparing chalk and cheese.

You will also find that the public banks pay similar remuneration to a private bank if they didn’t they wouldn’t have staff.

not sure why your saying im comparing, the bank of north dakota isnt a normal retail bank, i think only state bodies have accounts with it, and the local commercial banks, it effectively backs the local commercial banks

yea i understand that, the problem is, the lending restrictions didnt actually change much in the financial sector as a whole, it just forced the money supply further up the chain, as you explained, its still one of the main causes of things such as maintaining or even rising asset prices, in particularly in property. again, i somewhat disagree with the term greed, i actually think its largely to do with complex human behavior more so than greed, but greed certainly is an element.

apparently not true, apparently some dont pay big salaries and bonus, compared to their private sector counterparts, the multiples of millions etc

Timing belt

Wanderer78 wrote: »

yea i understand that, the problem is, the lending restrictions didnt actually change much in the financial sector as a whole, it just forced the money supply further up the chain, as you explained, its still one of the main causes of things such as maintaining or even rising asset prices, in particularly in property. again, i somewhat disagree with the term greed, i actually think its largely to do with complex human behavior more so than greed, but greed certainly is an element.

we clearly should have reinstated glass steagall, this has the potential to turn very nasty, very easily and quickly, very soon, we re all starting to hold our breaths, and hope all the measures implemented, actually work, and i truly hope they do. i understand why our government is trying to do whats its doing, but i suspect theyre jumping the gun, and it has the potential to back fire very badly



not sure why your saying im comparing, the bank of north dakota isnt a normal retail bank, i think only state bodies have accounts with it, and the local commercial banks, it effectively backs the local commercial banks

yea i understand that, the problem is, the lending restrictions didnt actually change much in the financial sector as a whole, it just forced the money supply further up the chain, as you explained, its still one of the main causes of things such as maintaining or even rising asset prices, in particularly in property. again, i somewhat disagree with the term greed, i actually think its largely to do with complex human behavior more so than greed, but greed certainly is an element.

apparently not true, apparently some dont pay big salaries and bonus, compared to their private sector counterparts, the multiples of millions etc

You are comparing to investment bank salaries and bonuses. Retail banks are modest when compared and I think you will find similar remuneration to public banks.

Also lending restrictions did change quite a lot since the last crash and banks should have sufficient capital and liquidity as a result.

If there was a crash in banking I wouldn’t expect it to come from the retail sector and would impact the ifsc banks more than it would the retail banks.

The only other thing to add is there is no immediate sign of any trouble with any of the banks even in America as the fed have stepped in and is willing to buy everything.

Wanderer78

Timing belt wrote:

Also lending restrictions did change quite a lot since the last crash and banks should have sufficient capital and liquidity as a result.

I disagree here, it just managed to lock a whole pile of people out of the property market, and just forced it up the chain, towards individuals and investors that can get access to the credit

Timing belt wrote:

The only other thing to add is there is no immediate sign of any trouble with any of the banks even in America as the fed have stepped in and is willing to buy everything.

I'm not convinced of this at all, and a lot of folks are starting to panic over the likelihood of defaults and non performing loans, this is gonna be one rough winter. it wouldn't surprise me if the government will have to step in to garantee the banks again, due to this, I just can't see the private sector rebounding quick enough, to keep the show on the road. confidence is collapsing quickly in the private sector, I've no idea where the demand is gonna come from, particularly for private sector credit. This is very worrying stuff, and I think the government is pulling the reins in too quickly, I understand they can't keep borrowing indefinitely, but.....

Timing belt

Wanderer78 wrote: »

I disagree here, it just managed to lock a whole pile of people out of the property market, and just forced it up the chain, towards individuals and investors that can get access to the credit

Totally disagree with this statement one of the best rules that was adopted by Ireland was linking mortgages to a multiple of salary. This had the effect of insuring that we would not see another property bubble. The only time we saw an increase in property prices was when the government introduced changes for first time buyers which ripples through the whole market unintentionally because it was not thought thru enough.


The problem is with supply and the fact that there is not enough profit to be made from building new houses so they don’t get built and a government who won’t adequately address the issue.

Wanderer78

Timing belt wrote:

Totally disagree with this statement one of the best rules that was adopted by Ireland was linking mortgages to a multiple of salary. This had the effect of insuring that we would not see another property bubble. The only time we saw an increase in property prices was when the government introduced changes for first time buyers which ripples through the whole market unintentionally because it was not thought thru enough.

But it hasn't done anything with one of the main causes of rising house prices, the availability of credit!

Timing belt wrote:

The problem is with supply and the fact that there is not enough profit to be made from building new houses so they don’t get built and a government who won’t adequately address the issue.

There's definitely a shortage of supply, but we ve known this since about 08

Timing belt

Wanderer78 wrote: »

But it hasn't done anything with one of the main causes of rising house prices, the availability of credit!

The central bank rules on multiplier of income has definitely slowed down house prices. I think you will also find that the rise in house prices is not due to availability of credit from banks etc but from the bank of Mum & Dad.

Wanderer78 wrote: »

There's definitely a shortage of supply, but we ve known this since about 08

Yes and still 12 years on noting meaningful done to address it. That is the biggest scandal of all.

Going back to printing money just came across this article in todays FT:

https://www.ft.com/content/8ef4792c-9ef1-4b4e-a296-73895034124f

Wanderer78

Timing belt wrote:

The central bank rules on multiplier of income has definitely slowed down house prices. I think you will also find that the rise in house prices is not due to availability of credit from banks etc but from the bank of Mum & Dad.

So people are rocking up with larger deposits than loans, buying property? There's still an availability of credit, to those that can offered it, including investment groups!

Timing belt wrote:

Yes and still 12 years on noting meaningful done to address it. That is the biggest scandal of all.

Sure if you have a large cohort of folks that are potentially stuck in the house of mum dad, or stuck in the rental sector, being unable to save enough, and get access to sufficient credit, who's fault is this? Have these measures truly worked, or put a block in place, preventing social mobility?

Wanderer78

Wouldn't be overly concerned about rising public debt, particularly in the developed world, we have better abilities to service our debts. It's looking likely our private debt issues are resurfacing again, rising private debt has caused far more serious issues, globally and historically, than rising public debt, as we discovered yet again in 08. And again, a similar set of issues are arising again

the goon

Timing belt wrote: »

The workers that kept working from home have an increased disposable income as they no longer have transport costs, lunches, coffees etc. On top of this there is a saving on childcare costs. Bank deposits grew during the same period which suggests not all disposable income was spent.

People that were luck enough not to be directly impacted financially by covid did well during this period but over the next few months may be impacted as businesses tighten there belt. It takes up to 1 year for the effect of covid to be felt fully by the wider economy as it takes time to build new business cases, work with unions etc. Before a restructuring can take place.

I reckon the last recession which started in 2007 didn't hit bottom until 2013 and the recovery thereafter wasn't particularly strong until 2016.So just looking at that I don't see this hitting fully for another couple of years.

Timing belt

Wanderer78 wrote: »

So people are rocking up with larger deposits than loans, buying property? There's still an availability of credit, to those that can offered it, including investment groups!

Define investment groups ? The reason for asking is that lending to the BTL market has dried up since the last recession. If you are taking about institutional investors then yes they have access to credit but are not heavily invested in domestic property and are more focused on the CRE market.
See Chart 3 on page 4
https://centralbank.ie/docs/default-source/publications/financial-stability-notes/no-6-who-invests-in-the-irish-commercial-real-estate-market-an-overview-of-non-bank-institutional-ownership-of-irish-cre.pdf

Wanderer78 wrote: »

Sure if you have a large cohort of folks that are potentially stuck in the house of mum dad, or stuck in the rental sector, being unable to save enough, and get access to sufficient credit, who's fault is this? Have these measures truly worked, or put a block in place, preventing social mobility?

This is firmly the governments fault as there is no supply and there is a lot that they can do but they do not want to interfere with the market.

Its not like there is no land to build on in Ireland. They just don't want to rezone as it will lower the existing's holdings of land banks.

They could cut vat rates on new builds in designated areas making houses cheaper as long as this was passed on to the consumer.

They could introduce tax rebates for investors which would provide the capital to build.

They could build themselves (personally I think this is what should be done and any profit should be then used for the next development etc.)

For fear of this turning into a thread about Irish property I would also add that yes there are wider problem that would need to be addressed such as infrastructure, schools etc but I'm sure these could be overcome.

Also just to be clear I think all the political parties are to blame because at a local council level they will deliberately delay if the idea has not come from there party. They are all a joke and are never held accountable.

Timing belt

Wanderer78 wrote: »

Wouldn't be overly concerned about rising public debt, particularly in the developed world, we have better abilities to service our debts. It's looking likely our private debt issues are resurfacing again, rising private debt has caused far more serious issues, globally and historically, than rising public debt, as we discovered yet again in 08. And again, a similar set of issues are arising again

Unless I am mistaken the IMF Loan in the last crisis was because of public debt.

yes the public debt existed because the government gave a guarantee for all deposits which in turn saw a run on banks in other countries as investors moved there deposits to Ireland. But never the less it was still public debt.

Timing belt

the goon wrote: »

I reckon the last recession which started in 2007 didn't hit bottom until 2013 and the recovery thereafter wasn't particularly strong until 2016.So just looking at that I don't see this hitting fully for another couple of years.

Hopefully not but you could be right. I think the length of any recession in Ireland it will be determined on what happens in the US and UK.

Geuze

wassie wrote: »

So if printing money leads to hyper inflation, like Zimbabwe (and Nazi Germany, the other often quoted example) why has inflation in the US never risen above 4% yet they have performed QE four times since 2008?

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

KyussB

Timing belt wrote: »

There is a cost associated with printing money so it’s not free money and when used needs to be done in a targeted way. The point that I am making is covid is going to be around for a long time and I don’t think it’s the best use of money. It’s not conservative rubbish as you call it.

Let’s say that the country continue borrowing from the ECB who have created an extra 1.2tn in cash how will that be repaid in the future if covid is still around. At some point it will lead to a sovereign crisis which will lead to tax rises, job cuts and the government not having a say on how to implement it.

The other point that is worth noting is that Ireland is more dependent on the global economy than other countries so if they don’t pick up Ireland is in trouble regardless of gov spending.

The difficult part is how you target the cash. For example if you said tourist industry needs to be targeted where do you draw the line Hotels, Restraunt’s, pubs. What about the small business supplying these. This is the same problem being experienced by every country.

The economy can afford any level of spending up to the point of reaching maximum GDP/employment (*). That's just how macroeconomics works.

Anyone denying this is a fiscal conservative bent on holding down public spending for political reasons.

* This is talking about general spending in the economy - not ridiculous hypothetical scenarios like spending chasing a single good of limited supply.

KyussB

Richard571 wrote: »

This is just rubbish. Sure central banks can print money, but you will then see hyper inflation where currency would become devalued like Zimbabwe. Also being part of the EU would prohibit this as it would undermine the EURO.

Someone always pays - either we face up to it now or let our children Pay our bills.

The people who are first to scaremonger about 'hyperinflation!' always have no idea about how it works. There are several main triggers of hyperinflation:
1: Economic collapse, 2: Foreign Denominated Debt, 3: Economic Sanctions, 4: Limited Exports and Foreign-Exchange collapse, 5: Deliberate devaluation/printing.

'5' is almost never the trigger. Hyperinflation almost always occurs through economic collapse (as it did in Zimbabwe, due to agricultural collapse), foreign denominated debt (one of the most common triggers - a large number of countries denominate debt in US dollars), Limited Exports e.g. oil (Venezuela being a prime example - screwed when oil prices dropped), and Economic Sanctions.

Printing may follow these, but it's almost never the main trigger.

The archetypal example of deliberate money printing, is Weimar Germany - and they did that to default on war debts. You know what Germany did shortly after that? They printed money again to fund rearmament for WWII using MEFO bills, as a means to get around the Versailles Treaty restrictions - and they used money printing all the way through WWII - funding one of the most successful economic recoveries in European history, followed by one of the most destructive militaries in European history.

The people who spout 'but hyperinflation' to everything - know nothing about the history of money printing or hyperinflation.

bobbyy gee

European governments are pumping money into economy this can last year then they stop collecting as much taxes people have stopped spending on eating out shopping etc
If deaths go down the ressesion will not be as bad some site has prediction of 19000 irish deaths

Wanderer78

Timing belt wrote:

They could build themselves (personally I think this is what should be done and any profit should be then used for the next development etc.)

Agree with a lot of those statements, but would slightly disagree with the above, the state doesn't truly have the capabilities to build, as we ve more or less dismantled that, over the last few decades, but as you said, there's plenty of land available and the state has abilities to create the funding, as discussed, but our governments are obsessed with leaving it to the market, including financially, funnily enough, this was one of the main causes of the previous boom and bust! We should publically fund some of our housing and accommodation needs, but allow the private sector to actually do it, as that's who normally does it.

Timing belt wrote:

Unless I am mistaken the IMF Loan in the last crisis was because of public debt.

Twas indeed, but why did that occur?

Wanderer78

Timing belt wrote:

Hopefully not but you could be right. I think the length of any recession in Ireland it will be determined on what happens in the US and UK.

This will indeed play a critical role, and at the moment, things don't look too healthy!

Wanderer78

Timing belt wrote:

yes the public debt existed because the government gave a guarantee for all deposits which in turn saw a run on banks in other countries as investors moved there deposits to Ireland. But never the less it was still public debt.

Apologies for all the single posts, where did all this extra public debt come from?

Wanderer78

an interesting tweet on derivatives, plain vanilla, my hole!

https://twitter.com/Halsrethink/status/1310501736818319366

wassie

Geuze wrote: »

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

Correct - I was trying to counter this commonly held misconception of QE.

This article from Positive Money puts it far more eloquently than I ever could.

Throughout history, governments have used their ability to create money to fund public spending. While none of these policies were called, “People’s QE”, “Strategic QE”, “Sovereign “Money Creation”, or “Helicopter Money” (what Positive Money collectively refers to as Public Money Creation), they shared the common trait of using newly created state money to finance government spending, rather than relying on commercial banks to create new money through lending.

The common response to the idea of allowing the state to issue money and spend it into the economy is that such an approach would be highly infla­tionary... ....In this post, we will show that misleading conclusions have been drawn from the case studies of state-led money creation in Zimbabwe and the Weimar Republic.

The empirical reality, both when looking at quantitative data and qualitative descriptions of what actually happens in hyperinflations shows that they are not the results of well-governed states abusing the money creation process.

Rather, hyperinflation is typically a symptom of some underlying economic collapse, as happened in Zimbabwe and Weimar Republic Germany.

Wanderer78

wassie wrote: »

Correct - I was trying to counter this commonly held misconception of QE.

perfectly put, hyperinflation has occurred in the past due to a couple of economic conditions occurring together, not solely due to increasing the money supply, generally with supply side issues, as was the case in relation to Zimbabwe's problems

Timing belt

Geuze wrote: »

Just to be clear, the QE done by the Fed and ECB did not involve any "printing".

It is nothing to do with cash currency.

The extra money is all electronic, and is created and used to buy financial assets.

Electronic money is still money and QE is the same as printing money as it increases the cash in circulation.

The ECB buy a gov bond and pay cash (electronic) to the financial institution that pledged/delivered the bond. And as a result there is an increase in the money supply in the market.

Just look at the irish banks balance sheets and you will see the increase in central bank placements as a result of QE and negative rates.

I am not saying QE is wrong the opposite it is needed at the moment to keep rates low so governments can borrow cheaply. The government can not borrow forever so need to be wise with how they use the funds as a point comes when the country gets crippled by debt repayments. We are not near that stage yet but it needs to be kept in check.

There is also a risk that when it comes to roll the debt that rates will not be so low and create problems down the line.

Wanderer78

Timing belt wrote: »

Electronic money is still money and QE is the same as printing money as it increases the cash in circulation.

The ECB buy a gov bond and pay cash (electronic) to the financial institution that pledged/delivered the bond. And as a result there is an increase in the money supply in the market.

Just look at the irish banks balance sheets and you will see the increase in central bank placements as a result of QE and negative rates.

I am not saying QE is wrong the opposite it is needed at the moment to keep rates low so governments can borrow cheaply. The government can not borrow forever so need to be wise with how they use the funds as a point comes when the country gets crippled by debt repayments. We are not near that stage yet but it needs to be kept in check.

There is also a risk that when it comes to roll the debt that rates will not be so low and create problems down the line.

...again, rising public debt has caused far less problems, than rising private debt

Timing belt

Wanderer78 wrote: »

an interesting tweet on derivatives, plain vanilla, my hole!

https://twitter.com/Halsrethink/status/1310501736818319366

Not sure what you mean ‘plain vanilla my hole’. If you think retail banks have undertaken all these transactions then you are mistaken as the majority will be undertaken by investment banks, funds, insurance companies etc.

Derivatives are not bad if used right and the risks are understood by the investors.

Derivatives got a bad name at the last banking crash as they were sold to retail investors who did not understand what they were buying when they were sold a cap or a floor along with a fixed term loan. The famous CDO’s that caused so much trouble were flawed as the ratings agency’s did not do there job correctly and they included rubbish due to fraud on the underlying mortgage applications.

Timing belt

Wanderer78 wrote: »

...again, rising public debt has caused far less problems, than rising private debt

Regardless of the debt being public or private the man on the street repays it whether directly or via taxes.

Wanderer78

Timing belt wrote: »

Not sure what you mean ‘plain vanilla my hole’. If you think retail banks have undertaken all these transactions then you are mistaken as the majority will be undertaken by investment banks, funds, insurance companies etc.

Derivatives are not bad if used right and the risks are understood by the investors.

Derivatives got a bad name at the last banking crash as they were sold to retail investors who did not understand what they were buying when they were sold a cap or a floor along with a fixed term loan. The famous CDO’s that caused so much trouble were flawed as the ratings agency’s did not do there job correctly and they included rubbish due to fraud on the underlying mortgage applications.

ah come on now, even well respected commentators such as i posted, have been shouting and screaming about this for years, get over it now, theres something fundamentally wrong deep within our financial systems, which lead to previous crashes, and have not been resolved yet, and activities such as derivatives trading is more than likely playing a critical role in these issues