What does economic collapse look like?

As much as I am familiar with economics, I remain puzzled by one thing: if Ireland really is heading for absolute collapse – IMF intervention, seven lean years and everything else that the most pessimistic prognosticators claim – what would that mean in practical terms?

It’s not enough to say things will be bad. Things are already bad. Unemployment is at 13.7 per cent and emigration has returned to historic levels (estimated by the government no less, at 5,000 people leaving each month). Jobs are virtually non-existent and everything feels like it’s held together with little more than blind hope and sticky tape.

Despite this, Ireland remains hideously expensive.

To take just one example, rents have fallen since their 2007 peak but they remain high. Certainly they are much higher in Dublin than, say, Belfast. Obviously there’s the capital city premium, but if a quarter of all apartments are lying vacant, why haven’t prices crashed?

And what would happen if they did?

How come landlords, particularly of the small, buy-to-let variety, haven’t decided that €400 is better than zero euros? How can they continue to service their mortgages? What would happen if they failed? Would the rest of us, the great unwashed of non-property owners, start squatting?

Rents aren’t the only issue, but surely I can’t be the only person who is confused as to why Ireland remains so astonishingly expensive a place to live in.

  • joeCanuck

    A principal effect, as you mentioned, will be a return to emigration. But I wonder where the young men will go. Where are the jobs now? Government should be offering classes in Hindi and Chinese?

  • joeCanuck

    Young women too, of course.

  • lamhdearg

    one small country for sale

  • Greenflag

    But it’s too expensive so nobody can afford it . Maybe if and its a big IF if the USA economy returns to ‘normal’ in about a decade or so that might spark some interest . The UK is on its knees and apart from Canada and Australia who seem to avoided the worst of the Wall St/City financial disease the rest of the planet apart from Brazil all await the ‘upturn ‘.

    Those of us who know that ‘capitalism ‘ neo con -trickle down has failed can like the Chinese think about just exactly how much State control of the economy there needs to be so that future sociopathic bankers and investment hedge fund managers cannot wreak the havoc they did to the world economy this past decade .

    The western world needs to rethink it’s attitude to ‘financial crime ‘ in light of recent events on Wall St and in international banking circles .. Capital punishment for capital crimes above one million euros/dollars /yuan etc should become the world norm .

    Interest rates more than 5% above the inflation rate should be rated as usury for which the minumum sentence should be a public flaying followed by 10 years hard labour !

    Could help to introduce a higher ethical standard among the ‘masters of the universe ‘ sorry ‘masters of disaster !!

  • Seymour Major

    surely I can’t be the only person who is confused as to why Ireland remains so astonishingly expensive a place to live in.

    You are not.

    Many of the owners have mortgages which they have no way of servicing without a significant rental income. Some owners have only two choices – hang on in their grimly and hope for light at the end of the tunnel or face bankruptcy.

    My gut feeling is that the market is near to a tipping point and that a crash or heavy fall will occur.

  • Reader

    Greenflag: Interest rates more than 5% above the inflation rate should be rated as usury for which the minumum sentence should be a public flaying followed by 10 years hard labour !
    Then who will lend to high risk borrowers? (And are you sure you mean flaying? That’s normally fatal, I would expect.)

  • pippakin

    I have asked this question several times and the answer seems to be that reneging on Anglo debt would be unacceptable and the consequences much worse. Surely the question is how much worse?

    I keep an eye on property prices and the prices have not changed since I returned four years ago. In many cases the same houses are still iadvertised at the same price!

    Everyone knows or at least says “of course you would not pay that price!” but I think it is misleading to both buyer and seller to quote prices years out of date apparently on the off chance someone might fall for it or offer more than the property is actually worth.

    It is unrealistic and I think the result is a reluctance to buy property because a) everyone is waiting for realistic prices and b) is afraid any offer they made would be higher than the actual value of the property.

    No one knows and everyone is afraid of the truth, and that is just (just!) the housing market.

  • Reader

    Jason Walsh: How come landlords, particularly of the small, buy-to-let variety, haven’t decided that €400 is better than zero euros?
    Once you start renting out at a loss, that’s it, game over, foreclosure. But if you can hold on until you can get a profitable rent, then you can eventually pay off your debt. The landlords are all playing chicken with each other, and it can’t go on forever.

  • DC

    I cracked a joke to a mate of mine recently, I said people are worried that we might have a lost decade like Japan had, but in NI we’ve already had a lost generation – another 10 years is nothing!

  • Drumlins Rock

    it was always said that Irelands greatest export was its people, but is that comodity as plentyful as it used to be?

  • Republic of Connaught

    Irish people will always emigrate to much bigger English speaking countries anyway because we are a curious and educated people who know the world doesn’t revolve around Dublin, Belfast, Cork or Galway. Much as it’s home, there’s only so much craic to be had on the ould sod in good times or bad.

  • pippakin

    Republic of Connaught

    Thats fine as long as they remember where they live!

  • So, if the answer is: “it’s going to crash”, then: when and what does it mean in practice?

    Also, surely house prices, both rents and mortgages, must come down by at least another 50 per cent in order to be in line with reality?

  • pippakin

    I know its bad, but. Fifty percent!!!!? that destroys not just banks but lives!

    Commuting is not impossible. The UK has jobs, it’s not so far people can’t get there and back.

  • Kathy C

    What does an Irish economic crash mean? Hopefully less money for sinn fein.

  • Jane Jeffers

    what do you mean?

  • padraig

    Not so much a case of cutting your nose to spit you face as amputating your brain in a fit of sdpite, Kathy

  • pippakin

    Kathy C

    Its worse than that, much worse.

    This disaster threatens more than industry. One of the things economic success gave us was confidence, that is damaged, I feel wrongly, by the banking crisis, and there is a danger people will seek to blame the ‘old enemy’ however irrational that is and in their efforts to apportion blame reignite the embers.

  • pippakin

    Jane Jeffers

    Lots of young people travel, lots of old people go away to work. Not a problem as long as they all come home.

  • Pip,

    I wouldn’t want to commute to GB, even from Dublin. As for commuting from Galway, forget it. I drove to Oxford last month because it was cheaper.


    I think there is still an irrational expectation (fuelled in no small part by the terms of reference of NAMA) that the current asset price crash is just a temporary blip, and property will return to its previous form in the medium term. But looking at the property market here in Galway at least, the asking prices for 3-bedroom suburban houses are still in the 250k range, which is patently unrealistic. Whatever happened to the old mortgage benchmark of three times household income?

    I know of one 3-bed townhouse that was priced to sell recently by a family that had to move to Dublin for employment reasons, and it eventually went for significantly less than 180k. There is a 4-bed house on Daft identical to that one (save for one internal wall) in a neighbouring street that has 190k on it and is still unsold after several months. It is quite obvious that there is a disparity in expectations between sellers and buyers in the market. I strongly suspect that it is loss-averse sellers who are being unrealistic.

  • percy

    cara leave her to make a virtue of her bitterness

    an economic collapse will mean the marginals get voted in.
    FF/FG are surplus to requirements, a huge vote for SF and bring on UI.. the ppl can demand a 32C republic

  • pippakin

    Andrew Gallagher

    Check the cost of flights from Knock. Its doable. Its very doable,

    Time to look at all possibilities.

  • Archie Noble

    “Would the rest of us, the great unwashed of non-property owners, start squatting?”

    You might. Or you might form an unincorporated association and approach estate agents with large amounts of unlet properties on their books. You promise to maintain the property, pay any local taxes and sign a legaly binding agreement to quit at 2 weeks notice. They give you the keys because it will prevent squatters who wil do none of these things. No rental income but the property is maintained and secure.

  • another

    Think of 1970s Albania, with religion and bad weather.

  • lover not a fighter

    “What does economic collapse look like ”

    It will have massive effects on Northern Ireland (probably violently)

    There was an evolution on the island of Ireland that was developing.

    The economic collapse has stopped this evolution.

    The danger of returning to the old methods is sadly apparent.

  • pippakin

    lover not a fighter

    Sadly, I agree there is a real danger of old ‘methods’ rearing their ugly heads again,

  • test


  • Mack

    Well, a few thoughts.

    First up rents in Dublin *are* down significantly.

    One reason they were so expensive previously was because of multi-occupancy – not only many people sharing a house but even people sharing rooms (10 or 12 immigrants in a house).

    As rents fall, and more properties become available less people share. That still won’t neccessarily mean cheap rents as compared to somewhere like Belfast, just that rents wind up being cheaper than before.

    My guess is most small time owners of multiple properties either have had them rented out, or don’t / didn’t intend to. It’s much more difficult to sell a rented property so if you’re looking for a get out that’s not neccessarily the route to take (holding onto an apartment in the hope of a rebound is a big gamble).

    The large, developer / bank / NAMA owned empty apartment blocks are being drip fed onto the market. I think mark-to-market accounting may well also play a role here (the notional value of many buildings being determined by their notional rental values – folding the market / realising low rents would result in further mark downs in the value of the real estate – certainly applies in commercial could well also be relevant in large residential developments).

    An outright rental & price collapse in residential & commercial property could well lead to a boom rather than armagedon. Commercial rents are down significantly in the city, which should play a role in attracting FDI here..

  • Mack

    Incidentally it’s also worth conceptually separating notions of the solvency of the state and of the viability of the wider economy. The former is being shot to pieces because private debts are being made public (and because strutural fiscal problems – a legacy of the bubble) the later is in depression (much like many other parts of the Western world) but will recover eventually *regardless* of whether or not the state restructures debt or borrows cheap money with strings from EUSF.

  • Mack

    Andrew – check the number of houses for sale / time to sell. House prices are sticky, during a crash supply and time to sell increase quite quickly. House prices fall very slowly. Based on historical data from property crashes across the globe, Constantin Gurdgiev reckons there are 33 quarters to go (or just over 8 years!!).

  • pippakin

    I agree that a ‘collapse’ of the housing/rental market would create a boom and surely that is what is needed to restore confidence. Trying to sustain prices might help some big developers and banks but it does nothing for the people on the ‘front line’ nor does it inspire confidence, since it simply prolongs what is basically a lie.

  • Mack

    Also bear in mind that the state writes a floor on rents by subsidising up to €600 per room for those who qualify for rent supplement. That potentially means a landlord can rent a 2-bed apartment to the state for €1200 per month and a 3-bed house for €1800 per month.

    For taxpayers rent is tax deductible up to a max of €800 per year.

  • Mack

    If you doubt this Britain called in the IMF in 1975..

  • Mack

    Agree 100%

  • pippakin


    Does that have anything to do with how many people there are and how many houses are for sale.

    The English market is said to be falling but surely that is very short term, they have a real housing need. Our problem is very different.

  • Mack

    Also EUSF should be EFSF

  • Mack

    Well, generally not. Even with oversupply sellers will still price too high so the numbers of houses for sale grows rather than diminishes.

    In Ireland a big issue is the number of empty properties, that represent a huge overhand in the market. The USA had similar issues, bulldozers solved that problem there – expect to see it here eventually..

  • pippakin


    Again the US was a much bigger market and with more ‘space’ to move. Ours is a much smaller market with no where to go. Surely it makes sense for the country and the banks to allow the market to find its own level? Some would lose but that is market reality.

    Too many houses were built for too small a market. The only way for that to be resolved is as you say to bulldoze those already built or to allow the market to adjust itself. I think the best way is for the market to adjust, anything else is as false as the past.

  • barnshee

    ??? You are not getting ANY rent so you “hold on” for profitable rent? so no rent is better than some rent? I give up

  • aquifer

    “and there is a danger people will seek to blame the ‘old enemy’ ”

    incroyable. A sovereign nation takes on sovereign debt and suddenly it is the fault of people who left 70 years ago.

    Somebody gotta grow up a little.

    The state subsidy for rents is a real biggie, and the brits are dropping theirs. I guess ROI dare not drop theirs as it feeds straight through into capital values and state solvency.

    Office rents in Dublin are two or three times belfast rates, but Dublin offices are empty.

    Why? Because it does not cost the agents anything to keep offices empty, and if they drop the prices their commission drops.

    But I’ll bet the prices deals are being done, if any, at are a lot lower than the published rates.

    Will the price fall be a slow glide to a soft landing or a stall and a crash tail first? Who knows?

    Get a mobile phone number and an overnight bag and you could have big apartments monthly for no money.

  • Comrade Stalin

    Agreed. How can holding on with zero rent be preferable to holding on with a rent below the level you expect ?

  • Comrade Stalin

    Kathy was left off the SF Christmas Card list and is so mortally upset that she wants revenge in any way possible.

  • Kathy C

    Sinn fein has benefited by the Irish taxpayer via what the Irish gov’t has paid into the north and invested. Sinn fein has benefited by the Anglo Irish Bank lending the money to developers in the north…..just as the dup has benefited. Both parties wanted investment and this is what they got and this is what they brought in. The Irish taxpayer won’t be able to pay down the bail out money AND continue to fund sinn fein whims. Sinn Fein is great on blame but takes very little or no responsibility for something going badly in their neighborhoods and the bank invested in their neighborhoods.Anyway you look at it…now there will be less money for sinn fein.

  • Alias

    Rent is primarily a function of the cost of capital rather than market parameters (such as market demand a property or the market value) or distortion of them (state intervention via NAMA, state subsidy, etc). If market demand was the key dynamic rather than capital then (a) rents would fall to a price determined by the oversupply, and (b) the oversupply would not have occurred.

    As I’ve said a few times (and have still not received my Nobel Prize), the mark-to-market model that ALL banks use to determine the market value of a property is deeply flawed because it only allows for two classes of buyer: those who intend to use the property and those who intend to let it to others who will use it. It doesn’t allow for the third class of buyer who is neither of the two: the buyer who neither intends to live in it nor let it but whose business model is to buy it and then sell it to either of the two other classes at a profit when the market price has risen as a result of the artificial demand created by that buyers activity.

    So, since rent is primarily a function of the cost of capital, expect to see rent rise in those properties most vulnerable to it when the ECB increases its policy rate.

  • Alias

    Ireland is now a property ownership and management agency (the world’s largest), so that is what the government has invested a percentage of your current into income (via the taxation of it) and is it what will fund state provision of any entitlements upon your retirement (health care, pension, etc). The fact that it won’t actually fund it is what should worry you.

    Oddly enough, assets that the state bought for multi-million sums per acre will tend not to be worth as much when they bulldoze whatever empty properties were built on them or return the land to agricultural use. Since the value was increased by re-zoning land from agricultural use to building use, re-zoning it back again will decrease the value of it. Yet the government will tell you that NAMA will make a profit. Surely given small children understand that the government cannot be telling the truth to its citizens but that it is lying to them in order to defraud them and damage their collective interest in a way that they would not support it told the truth rather than utter conman’s lies.

    Still, as long as eurosystem banks get your money and we remain as good (albeit bankrupt) Europeans then that is all that matters. After all, were it not so, what would Biffo do for a job without a plumb EU post to fall back on when his domestic political career expires at the next general election?

    And just to add to the post directly above: demand is now proven as a worthless indicator of property value since it is vulnerable to distortion and the flawed models than underpin it. It is the cost of capital that is determining it, and that is why values are still high – nothing to do with the Irish being a bit slow to respond to low demand. The hard part is, however, that while you might hope that capital will keep the price of property from collapsing (and your pension fund collapses with it), the state intervening to service the cost of capital will have the effect of lowering the value of those properties by the time you retire – and then market will kick back in as the determiner so the oversupply will then come back into play (unless the state bulldozes those assets and collapses the value of your pension fund that way). Either and every way, your government has destroyed your future with these toxic assets.

  • Crooks in Suits, but Spivs with the Ugly Face of Capitalism on Everyone of Them

    Realistic House Price £100,000
    Mortgaged House Price £200, 000

    Mortgage companies and brokers are then fraudulently obtaining money with menaces from home owners in negative equity …. and the market is a Ponzi market.

  • Reader

    amanfrommars: Mortgage companies and brokers are then fraudulently obtaining money with menaces from home owners in negative equity
    My sympathy for people with negative equity doesn’t go so far as to blame the entity that responded to their pleas for a loan to get onto the property ladder. Any number of people were telling the buyers that there was a bubble and it was going to burst, but they preferred to listen to other voices.

  • Cynic

    Well, that’s all the credit cards gone then

  • Cynic

    The UK isn’t on its knees. In London the restaurants are full again and the cabs are busy. The economy has turned. there will be a difficult 4 years to get the books back in balance but on average its growing again

    Ireland problem is the Euro. In the past the punt would have helped correct the situation and the losses would have fallen to lenders through inflation

  • Cynic

    I love it now that the lemmings who drove up prices squeak that the big bad banks forced them to borrow!

  • Mack

    Only if there are enough potential buyers (at any price), who will maintain >300,000 surplus properties most of which will wind up being in the worst locations (after they get swapped out for empty properties in good locations). I.e. would you purchase and maintain a 2-bed apartment in the middle of nowhere (not in a commercial or tourist centre) with no amnenities? Even if so, and I suspect there won’t be buyers for much of the dross, would you be willing to pay a huge property tax so that amnetities can be built servicing those estates (in which no-one actually lives)?

    Cheaper all round to bulldoze them…

  • Mack

    I don’t think there is any serious commentator blaming the Brits in the south. But large amounts of the debt aren’t sovereign, it’s private (bank) debt that is being made sovereign.

    Office rents in Dublin have roughly halved over the last year, with further to fall. Not sure how much office space costs in Belfast but (new) rents in city centre Dublin well below €20 per square foot are common now, we may well see rents of less than €10 per sq. foot given the oversupply in that sector.

  • Jason Walsh

    pippakin: “I know its bad, but. Fifty percent!!!!? that destroys not just banks but lives!”

    I know it would but some people say it’s inevitable. I don’t know.

    Andrew: “I strongly suspect that it is loss-averse sellers who are being unrealistic.”

    No doubt, but how long can it go on for? In 2007 the average price for a three-bed semi in Dublin was just over €450,000 (I can’t remember if that was median or mean). That’s almost half a million euros. Maybe a million’s not what it used to be, but that still sounds like an insane amount of money to me.

    Mack: “First up rents in Dublin *are* down significantly”

    Not enough. Headline prices can be seen on Daft.

  • Republic of Connaught

    Agree, Cynic. I remember when my younger brother was going buying a house in Dublin, 4 years ago at a crazy price. I explained to him that just because the house cost x amount didn’t mean it was worth x amount to any half sane person. Let some idiot hang themselves with a crazy mortgage, I advised him.

    He agreed and is now very grateful for my infinite wisdom.
    Money lust was a powerful drug in the boom. The banks were squirting, the lemmings were swallowing.

  • is there any analysis attached to this note?

    Regarding the Dublin/Belfast ‘comparison’, surely just another manifestation of the psychosis?

  • Seymour Major

    I have read through the comments on this thread. Some of them could be confused with the writings generated on a psychotherapist’s couch.

    I have been following property markets since the 1980s. I am going to stick my neck out and provide some analysis for the benefit of all. I offer the following cautionary notes to it. The first is that my experience and knowledge as, a property lawyer, relates to the UK and NI property markets and not the Irish market. The other cautionary note is that I do not know exactly how the Sovereign debt crisis might impact on the property market.

    Over a very long period, the real increases in property prices are driven by average earnings. Of course, supply of buyers and supply of property affects prices but they are distortive factors over a long period.

    I have just looked up some stats. The Irish Government stats go up to the end of the first quarter 2010 for average earnings (€35,500 p.a.). Average house prices at that time across Ireland are c €200,000. The long – term income to price ratio is 4:1. Property prices should therefore be €142,000. That is an overvaluation of €58,000 at the end of March 2010.

    Prices are falling at a rate of approximately 20% per annum. Average earnings are falling very slightly. That means that it is going to take until the Autumn of 2012 before prices reach their equilibrium level.

    The key indicator to better times is GDP. The Central Bank has predicted that in 2011, the Irish GDP will increase by 2.4% next year (that compares to 0.2% forecast for this year). 2.4%, if sustained, does eventually lead to a decrease in unemployment but the latter is a lagging indicator. It takes about 18 months to feed through.

    If the GDP forecast is correct, then by coincidence, the fall in unemployment will become reversed just at the time when property prices reach equilibrium summer-autumn 2010.

    distortions in the market?

    There are quite a number that might alter this pattern. Those who defaulted on their mortgages are, ironically, more likely to be re-possessed once prices stop falling. Re-possessions at the end of a property slump can dramatically increase the supply of property and delay eventual price rises.

    The sovereign debt and banking crisis might lead to a distortion in the property market in several ways. One is that the Government might look for ways to raise more revenue. For example, they might increase stamp duty. The Government might want to raise revenue indirectly by stimulating the property market. It can easily do that by requiring its state-owned banks to soften their lending criteria on their mortgage products. So, for example, instead of insisting that people put in a 40% deposit, this might be decreased to 10% to encourage more first time buyers.

    Confidence in a market is usually the biggest distorting factor. It is the known unknown. The confidence could be affected positively by knowledge that the end of the recession is in sight or negatively by the adverse news of the Irish economy. Much will depend upon the way that the Irish Government presents itself over the next two years. If the stats on GDP are good throughout the next year, the Government will be able to produce much more optimistic forecasts.

    Irish people really want to know exactly when the budget deficit starts to reverse into surplus. That is light at the end of the tunnel. If the Government can engender confidence in people that this light is genuine daylight and not simply a guerrilla with a flash lamp, people’s optimism will return.

    Nobody knows when that optimism will return. I will stick my neck out and suggest this will happen towards the end of next year with a consequent bounce in the Government’s opinion poll ratings.

    There you are now. You can come off that couch!

  • Jane Jeffers

    Cynic / Reader / Republic of C

    Very easy to be a genius after the event.

    What warrants this smug and superior tone?

    I don’t recall any warnings from any of you that this was a bubble, that a crash was looming etc etc.

  • Jason Walsh

    st etienne: “is there any analysis attached to this note?”

    No, none. It’s a question, not an answer.

    st etienne: “Regarding the Dublin/Belfast ‘comparison’, surely just another manifestation of the psychosis?”

    No, simply a comparison of two cities that I am familiar with.

  • Greenflag

    Flaying but within an inch of their lives would be appropriate.

    Who will lend to high risk borrowers ? A fair question . A fairer question would be where will the high risk borrowers come from ? As of now the USA is entering into a Japanese style stagnation which may last a decade or more as individuals , banks , companies , state governments all attempt to balance their books after two and a half decades of living on credit.

    The Bank of America among many others has been forced to stop it’s foreclosures process because of what can only be described as another monumental piece of gangsterism – this one is called ‘robo -signing’ a method by which ‘cubicled’ clerks -a.k.a lawyers sign off (authorising’ foreclosures )in 30 seconds while avering that they have read all the documents in each case thoroughly to ensure that the legal side of the process was fulfilled .

    More lies from BOA .The only reason it was stopped is because of ‘whistle blowing ‘ somebody let the cat out of the bag .

    What people in Ireland , the USA and the UK seem to have difficulty in grasping is that these financial institutions are NOT immune from criminal and unethical conduct . It is a sad reflection on our societies that the only senior bank official so far to have been jailed for his complicity in fraud is that French banker who was newsworthy for a day or two. A whole horde of American and British banker gangsters have been able to avoid the jail card because of the ‘immunity’ granted to them by the ‘idiot ‘ politicians who aided and abetted these same bankers to loot their respective economies these past two decades or more !

    Which is why a new Criminal Code needs to be drawn up for those who kill or maim their societies by means of the pen , the striped suit and the 300 page closely typed contract and the ‘secret ‘ financial contribution to the re-election or election expenses of their ‘tied’ stooge !

  • Greenflag

    What people in Ireland want to hear is that the Irish Government will not guarantee the Anglo debt . The Irish Government should come right out and state that the country simply cannot afford it and take the consequences . That might give a lead to other smaller countries and even larger ones around the world to say to the IMF –

    Perhaps a Labour /FG coalition would promise such a policy in their election ‘manifesto ‘?

    The truth is that house prices are still overvalued but people do not want to believe it . The same happens all over the world . Even in California , Nevada and Florida there are hundreds of thousands of homes on the market still looking for 2007 prices . This despite the fact that tens of millions of Americans have moved into whats now called the FMC (former middle class) while millions more whose unemployment benefit -a pittance in any event -has run out and are forced to live with relatives or friends . Meanwhile the number of foreclosures continues to rise with joblessness still increasing .

    The USA is facing into a Japanese style decade of stagnation with insufficient job growth to reduce the now 23 million unemployed . Forget the official 9.6% .The real rate is closer to double that and in some areas it’s over 20% . With almost 50 million people ‘surviving ‘ on food stamps and still fighting two trillion dollar wars that they can’t escape from the USA seems set on a rapid descent into economic and social chaos . The dollar is back into descent mode and the coming election will show the world that nothing has been learnt by the neo con nutters of the right who still seem to believe that all that the USA needs to recover is to

    a) get rid of Obama and Nancy Pelosi.
    b) Reduce taxes for those who are billionaires and millionaires.
    c) Throw another 300 ,000 public school teachers onto the unemployment lines.
    d) Add another 10 million onto the unemployment lines .
    e) Go to war with Iran and/or Pakistan
    f) Blame the Chinese for the state of the dollar .

    Nobody has yet asked what the Boston Tea Party’s ‘foreign policy ‘ is ? As it’s based on anger I would’nt be too surprised if their agenda does not include lobbing a nuke or two the right way just to get ‘proceedings ‘ under way for WW3 -the next war to end all wars of course 🙁

  • Greenflag

    Good post Seymour – The Japanese solution was to hold GDP steady or even at very slow growth while the country took 15 years to restore it’s ‘balance sheet’. During that period ‘private investment ‘ was at a low or insignificant rate . The money was simply not there . It was all diverted or directed to ‘debt reduction’ The Japanese Government made up the difference by ‘borrowing’ the reduced spending -incurred in their debt crisis -enough to keep the GDP from ‘collapsing’ which of course would have then spiralled downwards into a huge depression . This is what faces the USA today and Ireland and the UK tomorrow . These economies CANNOT rely on the ‘private sector’ including the ‘banking sector’ to bring about economic recovery not anytime soon imo.

  • Greenflag

    Has anybody noticed that the IMF does not issue ‘directions ‘ to the USA Government or the Federal Reserve re US monetary and fiscal policy and what advice did the monetary experts of the IMF give to the USA Federal Reserve while the latter turned it’s back to the manufacturing and processing of billions of dollars of exports of worthless pieces of paper to the world ?

    The answer friends is blowing in the winds of destroyed economies the world over .

  • Greenflag

    ‘that’s all the credit cards gone then’

    Nobody should ever have more than one 🙂 In the wrong hands and particularly in the hands of those who cannot or neglect to read the 30 page closely printed contracted where the ‘fees’ late fees and misc charges etc etc apply -i.e some 98% of the consumer population -they can be ruinous .

    In addition they also have helped to disguise or moderate the actual financial reality for tens of millions of Americans who have not kept pace with inflation in their salary levels these past 20 years and who have resorted to credit cards and latterly falsified ‘equity ‘ values to maintain a ‘faux’ living standard .

    The Credit Card industry needs reform not ‘liquidation ‘ Although if the latter were to happen it might induce a greater sense of financial ‘realism’ to our more extreme consumers .

    But then I recall the world awaits the return of these same inane ‘consumers ‘ to start respending at previous levels in order to restart ‘economic growth ‘

    The Catch 22 of capitalism eh ?

  • pippakin

    All cards tend to give a misleading and comforting impression of not actually spending cash!

    A card is almost a form of sleight of hand. Its handed over with no actual need for thought.

    At least a cheque has to be written or signed, allowing time for the mind to acknowledge what the hand is doing…

    I am ‘off’ credit cards, they are a ruination!

  • Greenflag

    ‘In London the restaurants are full again ‘

    So everything is fine in Wigan , Sunderland , Middlesborough and Coventry .?

    I’d wait a little until Messrs Cameron/Osborne start axing their way through the public finances .

    Dublin 4 is doing very well too .

    The euro is a problem in this present crisis which while our Government and previous Governments cannot disclaim responsibility for their role in it and haven’t as yet imo -nevertheless was manufactured in the USA in Wall St and the City of London by financial interests who as we all know now responded to ‘greed ‘ with ‘avarice aplenty’ and to the prospects of immeasurable ‘profit’ with absolutely no concern for the effects such would have on the lives of the majority of people in their respective countries . Call it economic treason if you will !

    After four or five years the Euro will again be a source of ‘strength ‘ for the Irish economy and will be an assist with direct investment . The ‘punt’ is history in this economic world .

  • Greenflag

    It’s called ‘Greater Expectations ‘ 🙂

    Man has in turn been described as a sometimes rational animal and often an economic animal but mostly he/she is a wishful thinking kind of animal sometimes spurred by an excessive religious zeal which convinces him/her that Jesus is the Answer 😉

    What was the question ?

    In plain English sometimes no bread is better than half a loaf or even five sixths of a loaf . History is full of examples . From Bruno at the stake in medieval Italy to De Valera’s ‘irregulars ‘ in the Irish Civil War .

  • Greenflag

    Mack ,

    ‘The USA had similar issues, bulldozers solved that problem there ‘

    No they did’nt . This year’s foreclosures are the highest ever on record over 1 million and that’s with several million more underway . Bulldozing has only removed properties which have so fallen into disrepair that the cost of repair would be greater than any potential selling price .

    There was an article on the BBC yesterday ? about the BOA being forced to stop it’s repossessions for reasons other than purely financial – would you believe outright aiding and abetting of theft ? Other financial institutions have been forced to do likewise . I believe the current total of foreclosures across the USA in process is some 8 million . Not surprising when there is no social safety net and there are 25 million people unemployed and 45 million on food stamps and tens of thousands line up to apply for section 8 (housing vouchers for the lower incomed ) if they become available .

    The USA is facing a lost decade and perhaps more . There is no escape . Too many well paying jobs have been exported and not enough ‘replacements ‘ have been found . The entire country cannot work in the financial sector , health care , and fast food industries while the rest join the army to fight for ‘markets ‘ overseas because the USA market has no resources left with which to spend themselves out of recession .

    The Irish ‘property’ bubble burst is a pinprick in comparison .


  • Danny

    The most interesting issue here for me is why is a pint so expensive in the South?

    With so many unemployed, empty properties and little money going around, who can pay 5Euro or whatever for a drink? Why is it so expensive? In Greece you can get a pint for 2Euro or less, why not in Ireland?

  • Glencoppagagh

    Is there such a thing as a pint in Greece?

  • lamhdearg

    the tax danny boy the tax, in Greece most dont pay tax thats why Greece is F****d (technical term).

  • Mack

    It solves the specific problem of oversupply – house prices are also falling in England where there is no oversupply issue.

  • I’d question that familiarity seeing as the chief economic difference in your eyes is the incorrect observation that one is a capital and the other isn’t.

    In the real world any meaningful analysis would mention, perhaps in passing, that the cities observe different rental yields because well you know they are in fact operating in different economies…

  • Having been to Greece this summer I refuse to believe you can get a pint for anything near 2 euros.

  • Alias

    Jason, to engage with those questions more directly. The logic behind those questions is predicated on the law of supply and demand, so that if the supply exceeds the demand then you’d expect prices to fall accordingly, right? But that also assumes that prices rose because the demand exceeded the supply. However, the demand for rented accommodation never exceeded the supply of it, so that law by itself doesn’t offer an explanation for the price increase.

    The other point to make here is that although circa one million bedrooms (340,000 vacant properties) are vacant, there is a linked assumption (that is also predicated on the law of supply and demand) in the mark-to-market model that all accommodation will either be sold to those who intend to live in it or to those who intend to let it to others who intend to live in it. Clearly, there is no logical explanation for why someone would rent a house that they did not intend to live in, just as there is no logical explanation for why someone would buy a house that they did not intend to live in or let to someone who would live in it. However, while logic held in the matter of renters, it didn’t hold in the matters of buyers.

    So how then do you explain 340,000 vacant properties? While some were holiday homes (ask Gerry and Martin), most were bought by the third class of buyer who is not ‘accommodated’ in the mark-to-market model, i.e. the house buyer who didn’t intend to live in it or to let it. Since those vacant properties were not available for rent (purchased for speculative re-sale) they wouldn’t have any impact on the supply of rented accommodation (which was already over supplied).

    The other flaw here is that an oversupply in the housing market quickly leads to a self-correction by sellers withdrawing properties from the market in order to avoid creating a buyer’s market to the detriment of sellers. Since there is no logical reason for those renting property to assume that someone would choose to rent a property that he didn’t intend to live in. Those renting a property, however, will not withdraw the property from the market due to an oversupply since oversupply is normal and the landlord will simply lose money by not making a property available for rent that he has purchased for rent. Dropping the price of rented accommodation will not lead to a significant or self-financing increase in the numbers of those seeking rented accommodation, so the demand for rented accommodation is finite. You won’t rent two apartments if you only need one because of a price reduction, whereas you might buy two LCD TVs because of a price reduction whereas you will only watch one TV at any one time (unless you’re an Elvis impersonator who takes his work home with him). So the law of supply and demand isn’t a reliable determiner of price in the property sector as lowering the price won’t create the extra demand.

    The Irish property market is now so massively distorted that it is impossible to apply linear models to it and make any sense of it with them. But one thing is certain, that third class of buyer that was created by nominal ECB interests that enabled him to purchase a property and hold it for long periods of time without requiring him to have any use for the property that could generate income to repay the mortgage has now created a massive oversupply of property that will render the construction industry in Ireland dormant for the next 30 or so years. The property developers met this bogus demand, and the ECB supplied the cheap money for it knowing that when it all went tits-up that they could force the Irish government to bail-out the eurosystem banks who borrowed it from other eurosystem banks with each house sale in Ireland translating into a massive profit for a eurosystem bank in Germany, etc.

    And now it’s all determined by the cost of capital with that nice new hotel shop you pay 7 euros for a coffee in having to charge you 7 euros a coffee because to charge you less is to make a loss on it given the cost of capital they have employed in providing your coffee and the cost of servicing that coffee. Price reduction equals loss equals liquidation. When the ECB increase the interest rate he will have to increase the cost of your coffee even if you can’t afford to buy it and wonder why he won’t reduce it but has reduced the wages to his staff, etc. That’s what economic collapse looks like…

  • Alias

    Typo: “… the cost of capital they have employed in providing your coffee and the cost of servicing that capital.”

  • Alias

    All of those countries that joined the eurozone enjoyed price inflation due to local merchants using the confusion created by the new currency to bump up prices. That is why the cheap ethic food you might have enjoyed for low prices now costs you more.

  • Jason Walsh

    st etienne,

    Question whatever you like. You know nothing about me and have just fit what I wrote into your own worldview. For what it’s worth, rents are lower in Cork too, but I’ve never paid them, whereas I have in Belfast and Dublin.

  • Alias

    Let’s put it a more simple way: the Irish economy now has an external debt of 1.67 trillion, so the cost to business of servicing that capital is met by the end users of the services that the capital has provided. Folks know that they borrowed that money at nominal interest rates set by the ECB and they also know that as the policy rate is subject to go up as well as down that it can now only go one way from its present rate: up. So the 10s of billions per year that the Irish economy must generate to service that debt can only be met by sustaining prices to consumers and, when the rate increases, by increasing prices to consumers. If that capital cost wasn’t there then things would be less prone to the cost of capital and more prone to the law of supply and demand. As it is there, pretending that you don’t see it won’t make it go away or help you to make sense of the post-sovereign Irish economic landscape.

  • Alias

    And just to add that each year that Irish business services the cost of capital by providing its goods and services to consumers of them it must extract this consumer spending from the Irish economy by giving it to eurosystem banks in Ireland who in turn will export it to eurosystem banks elsewhere in the eurosystem in the form of debt repayment, so that money is extracted from circulation in the post-sovereign Irish economy and exported to the EU and it cannot therefore be recirculated in the post-sovereign Irish economy and used following year to generate the income that those businesses will need to generate to service their capital in that year. In effect, they must simply export the wealth until there is none of it left to export. That again is what your post-sovereign economic collapse will look like…

  • lamhdearg

    I read on the bbc news website a number of statues are to be moved in order to”allow for the construction of a new underground railway system in the Irish capital.” now whos gonna pay for that?.

  • aquifer

    So what is going on?

    People hate regret. It gnaws at you.

    If you rent your property out for less than the apparent going rate, you fear you have let it go too cheap. You feel foolish, because you have no other information to reassure you you that you could not have done better. All those other adverts cannot be wrong, can they?

    People crowd into fewer homes to save money, though they might like more space if it were cheaper. The people in the crowded homes spend the money they save on foreign holidays.

    Your property stays empty.

    If you sell it you owe the bank 23,000 euros. So you hold on and miss a couple of interest payments.

    And the bank holds off.

    Now is no time for them to crystallise another loss.

  • Thank you, Seymour, for your insightful analysis.

    A very good examination of where we are and where we might be heading.

    And an example of the type of debate/contribution that should characterise current affairs discussion threads.

    No disrespect to SOT posters and browsers, who are amongst, if not the best, on the island but you might also consider extending your reach with the posting of this contribution elsewhere.

    Well done.

  • Alias

    The slight problem being that the ‘here is what the government says, and if you listen then all will be well in the world’ approach is exactly what has created such a mess of things. It’s folks seeking reassurance, not analysis.

    Average earnings and incomes is what Mervyn King, the Governor of the Bank of England, used to predict that the property boom in the UK was at an end in early part of 2006 because as they had reached unsustainable levels and therefore must fall. Since then you’ve had 4 more years of ‘unsustainable’ property price rises in the UK. What sort of logic is that? How did the price-to-income ratio in China, for example, ever get to its present level of 27:1 when ‘experts’ predict that it cannot surpass a safe level of 6:1?

    Pointing out some schoolboy ratio and saying all will be well with the world when it is reached doesn’t do much to explain what will happen if it is reached. Since the fate of the state is now inextricably interlinked with the fate of its eurosystem banks which are inextricably interlinked with the fate of property values, who will take the hit for each property that is returned to the state/bank with a loss of several hundred thousand other than the taxpayers, and how will they pay for it other than by diverting personal spending from the economy into taxation which is then directly exported to eurosystem banks in Germany? And as it is extracted from the Irish economy via the government and duly exported via state-owned eurosystem banks, how exactly will that reassuring but utterly meaningless earnings multiple ratio impact upon the economy when there is no money left in it to generate the incomes needed to employ people who are supposed to pay mortgages or rent? 70 billion exited the state via state-owned banks in the year to September just gone.

    Good luck to the state finding that amount next year and the year after when the consequence of extracting it from the economy via taxed income and then exporting it to the eurosystem via state-owned banks is economic collapse. Even Mervyn King could probably figure that much out…

  • Alias

    The way to understand at this problem for amateurs is to focus on the bottom line. And it is this: lending money to buy property is simply a process of converting cash into assets. If X in Ireland borrows 500 billion for this purpose from Y in Germany and converts that cash into assets, then X no longer has the cash but instead has assets. If the value of those assets falls by 70% then X has assets worth 150 billion but still owes Y 500 billion. So where does X then get the money from to pay Y back his money? Err, that’s right: he gets the EC which has the sovereignty over Irish affairs in this matter to instruct the government to force the taxpayers to pay Y’s money back because X is in no position to repay it. Where does the government get the money? It taxes its citizens and then gives this taxation to X who in turn gives it to Y. The problem with this approach is that the money is extracted directly from the Irish economy in the form of taxation, and this extraction of 500 billion (or whatever part of it defaults to taxpayers) cripples the Irish economy causing the government to have less money to extract from it and less money to repay Y. However, Y still wants all of his money back, so more of the revenue that the government extracts from the Irish economy will be exported and less will be available to be re-invested in the Irish economy (i.e. spent of the provision of state services), so the only outcome is bankruptcy.

  • Alias

    And in case it isn’t obvious: every fall of 20% in the value of those assets is a loss of 20% of the money that the state has retrospectively guaranteed. So when some chirpy RTE hack tells you that property has just fallen 20% and this is a good thing for the economy, just remember that you as taxpayers now have to generate another 100 billion or so in wealth to make up the difference!

  • aquifer

    So the state owned banks will leave the property in your hands until its value falls, even if you have missed payments, and only repossess some time in the far future when demand is coming near supply, perhaps after some years of higher interest rates so that they still make their money back despite your personal bankruptcy.

    Sorry, if the the state is now the banks, is this talk treasonable or a state secret?

  • Suilven

    The blogger poses an interesting question. Most collapses of at least nominally capitalist economies in the last 100 years or so have generally caused/been caused by hyperinflation of their currencies (Weimar Republic, Zimbabwe, etc.) but with their economies forming a small (and decreasing) part of the Eurobloc and the ECB as stringently anti-inflation as ever, one can’t help but feel Ireland and Greece (and possibly a few others) are in unchharted territory here.

  • mnob

    “Average earnings and incomes is what Mervyn King, the Governor of the Bank of England, used to predict that the property boom in the UK was at an end in early part of 2006 because as they had reached unsustainable levels and therefore must fall. Since then you’ve had 4 more years of ‘unsustainable’ property price rises in the UK. ”

    Alias – yes the market acted in an irrational way – and look what happened. Cheap and easy credit fuelled the market into a bigger crash than was predicted. People lost track of the fundamentals feeling that property increases were self fulfilling and they would go up for ever therefore easy money for everyone.

    That ‘schoolboy ratio’ is also known as a fundamental. i.e. it is what has been established over a long period of what people can afford i.e. what property is ‘worth’. When economists and the like say in pained tones that things are different and its much more complicated than we can grasp then we all know we are in trouble.

  • another

    From Zerohedge.Com;

    “One of the most bullish stories coming out of Europe last month was that Ireland, despite a drunk and disorderly finmin, and banks either increasingly more nationalized or on the verge of full scale restructuring, managed to fund its €25 billion in sovereign debt maturities. Of course, the European media took that as a sign of strength and from that point on it was off to the races for the EUR. Yet it appears the celebration was just a little premature. We learn today that virtually all of the maturities were funded indirectly by the ECB: in other words the monetization shell game so well mastered by the Fed is now being conducted by European banks everywhere. In September Irish bank borrowings surged from €95 billion to €119 billion, a €24 billion increase, and virtually a euro-for-euro match for all the new Treasury issuance. And since no demented monetization ploy goes unpunished, the action raised Irish ECB borrowings to 9% of liabilities, the same as Portuguese banks. As for the balance, as readers will recall we highlighted that last week the ECB purchased €1.4 billion of government bonds directly, therefore confirming that every single Irish bond auction would have been a 100% failure had it not been for Jean Claude Trichet’s direct and indirect monetization scheme. But yes, somehow the euro is considered more viable than the dollar.”

  • Mack

    Good post Seymour, missing one critical factor – the increase in credit supply and its contraction.

    The increase in house prices during the bubble was fueled by an increase in the availability of credit (rather than an increase in wages). Borrowed money was imported into Ireland on a massive scale. This is what pushed house prices beyond the 4:1 ratio you quote.

    With the banks bust and the model broken, that process has gone into reverse. The private sector (the banks) is (are) deleveraging. As they are effectively insolvent (unable to repay outstanding debt) the state is driving this process. Ireland is credit constrained, there will be no more borrowing on the wholesale markets, lending will have to come from deposits. Given that outstanding debts exceed deposits by some margin, the prospects for increased mortgage lending are pretty poor. It’s unlikely that our credit balance sheet can even support your 4:1 ratio. House prices have a long way to go.

    Constantin Gurdgiev in the Irish Times

    “The OECD average is 10 quarters of credit busts for 18 per cent average contraction and 19 quarters of house price falls for a 29 per cent average price decline. Ireland’s bubble of a 60 per cent decline in credit supply implies 33 quarters of credit contraction and our 50 per cent house price fall implies 33 quarters of price declines. We are currently roughly 10 quarters into these twin crises,” he said.

  • Greenflag

    ‘somehow the euro is considered more viable than the dollar.’

    And there is a line of countries waiting to join the Eurozone, The only other country which uses the USA dollar (among some others ) as it’s ‘national currency ‘ is Zimbabwe .

    Meanwhile the dollar is at it’s lowest rate against the Japanese yen in 15 years . Currency wars ahead so now is no time to be jumping from the frying pan into the fire eh ?

  • Paddy Matthews

    The only other country which uses the USA dollar (among some others ) as it’s ‘national currency ‘ is Zimbabwe

    Not quite.

    Montenegro, Kosovo and some of the European mini-states use the Euro on the same basis.

    The difference between them and the Eurozone countries is that the Eurozone countries get a say in the running of things (at least officially).

  • Greenflag

    True -PM – I’ll remember that on my upcoming visit to the Turks and Caicos 😉

    Of course it’s not only the European mini-states such as Montenegro, and Kosovo that use the Euro -the UK major state at least in it’s off shore north western territory of NI -uses the Euro in commercial transactions as anybody who has shopped in Newry , Derry , Strabane etc etc will attest .

  • Wilde Rover


    “The way to understand at this problem for amateurs is to focus on the bottom line. And it is this: lending money to buy property is simply a process of converting cash into assets. If X in Ireland borrows 500 billion for this purpose from Y in Germany and converts that cash into assets, then X no longer has the cash but instead has assets. If the value of those assets falls by 70% then X has assets worth 150 billion but still owes Y 500 billion. So where does X then get the money from to pay Y back his money? Err, that’s right: he gets the EC which has the sovereignty over Irish affairs in this matter to instruct the government to force the taxpayers to pay Y’s money back because X is in no position to repay it. Where does the government get the money? It taxes its citizens and then gives this taxation to X who in turn gives it to Y. The problem with this approach is that the money is extracted directly from the Irish economy in the form of taxation, and this extraction of 500 billion (or whatever part of it defaults to taxpayers) cripples the Irish economy causing the government to have less money to extract from it and less money to repay Y. However, Y still wants all of his money back, so more of the revenue that the government extracts from the Irish economy will be exported and less will be available to be re-invested in the Irish economy (i.e. spent of the provision of state services), so the only outcome is bankruptcy.”

    Pithy. Depressingly pithy, but pithy nonetheless, and worth repeating.

  • JJ malloy


    I have to disagree. I don’t doubt that the US is in for a lost decade or longer (although no politicians would dare admit that in public), but in relation to the ROI the US economy will still be bettter off.

  • JJ malloy

    One more thing.

    I don’t know if you caught it but Wall Street pay (measured at the top 3 dozen firms) hit an all time high this year….breaking the record it set last year.

    Looks like the recession is over for the bankers. Back to defualt swaps!