How The Irish Saved Civilization, — Again !!! Options Rating

[Jon Awbrey]

    The figure seated on a large boulder at the foot of a round tower was that of a broadshouldered deepchested stronglimbed frankeyed redhaired freely freckled shaggybearded widemouthed largenosed longheaded deepvoiced barekneed brawnyhanded hairylegged ruddyfaced sinewyarmed hero.  From shoulder to shoulder he measured several ells and his rocklike mountainous knees were covered, as was likewise the rest of his body wherever visible, with a strong growth of tawny prickly hair in hue and toughness similar to the mountain gorse (Ulex Europeus).  The widewinged nostrils, from which bristles of the same tawny hue projected, were of such capaciousness that within their cavernous obscurity the fieldlark might easily have lodged her nest.  The eyes in which a tear and a smile strove ever for the mastery were of the dimensions of a goodsized cauliflower.  A powerful current of warm breath issued at regular intervals from the profound cavity of his mouth while in rhythmic resonance the loud strong hale reverberations of his formidable heart thundered rumblingly causing the ground, the summit of the lofty tower and the still loftier walls of the cave to vibrate and tremble.

—James Joyce, Ulysses

[Herschelkrustofsky]

The irony, dear friend, lies in the fact that the UK claims already to be Christian, and in fact possesses a quasi-theocracy where the monarch is also the head of an established church.

[Milton Roe]

The irony, dear friend, lies in the fact that the UK claims already to be Christian, and in fact possesses a quasi-theocracy where the monarch is also the head of an established church.

Clearly the Christian thing to do, is let the Irish go fish, as happened in the potato famine. It beats the Cromwell treatment, at least.

Though I think it's safe to say that while the Irish are in trouble, they're doing better, relative to the UK and Europe now, than they ever have in history. They just spent themselves broke with retirement and entitlement programs, like the rest of Europe. And business is bad all over. Ouch, but that can be fixed. It's not like their kids are so short of vitamin C that they just sometimes fall over and die. Which used to happen happen to the Irish not that long ago.

[Herschelkrustofsky]

Though I think it's safe to say that while the Irish are in trouble, they're doing better, relative to the UK and Europe now, than they ever have in history. They just spent themselves broke with retirement and entitlement programs, like the rest of Europe.

Bear in mind that Ireland doesn't want or need a bailout. It's the banks that are bankrupt, and most of them aren't even Irish banks. The Irish are being asked to take a truly staggering cut in their standard of living in order to co-sign a bailout of foreign financiers.

[Alison]

Bear in mind that Ireland doesn't want or need a bailout. It's the banks that are bankrupt, and most of them aren't even Irish banks. The Irish are being asked to take a truly staggering cut in their standard of living in order to co-sign a bailout of foreign financiers.

This guy knows the truth.

[TungstenCarbide]

This guy knows the truth.

grumpy old guy is right but missing part of the story. Much of economics is driven by psychology. After the great depression people thought credit was evil. You wanted a car ... save your money and pay cash. Nowadays most people choose to live their whole lives with large credit loads.

Easy credit is like a drug, some people can't get enough of it and end up bleeding themselves dry. Governments have been making credit easier and easier for decades.

This post has been edited by TungstenCarbide: Fri 10th December 2010, 2:11am

[Alison]

This guy knows the truth.

grumpy old guy is right but missing part of the story. Much of economics is driven by psychology. After the great depression people thought credit was evil. You wanted a car ... save your money and pay cash. Nowadays most people choose to live their whole lives with large credit loads.

Easy credit is like a drug, some people can't get enough of it and end up bleeding themselves dry. Governments have been making credit easier and easier for decades.

That's also true. Interesting article here which shows the situation in 2004. Back then, they were stating that nearly 43% of American families spend more than they earn each year. So yeah - not good, but where does the blame lie; government or wide-eyed, gullible people?

"Call 1-800-YOU-FAIL to get the credit you deserve!"

Deserve?? How many times have they played those adverts on TV? And they're always aimed at people with already bad credit ratings

[Milton Roe]

This guy knows the truth.

grumpy old guy is right but missing part of the story. Much of economics is driven by psychology. After the great depression people thought credit was evil. You wanted a car ... save your money and pay cash. Nowadays most people choose to live their whole lives with large credit loads.

Easy credit is like a drug, some people can't get enough of it and end up bleeding themselves dry. Governments have been making credit easier and easier for decades.

That's also true. Interesting article here which shows the situation in 2004. Back then, they were stating that nearly 43% of American families spend more than they earn each year. So yeah - not good, but where does the blame lie; government or wide-eyed, gullible people?

"Call 1-800-YOU-FAIL to get the credit you deserve!"

Deserve?? How many times have they played those adverts on TV? And they're always aimed at people with already bad credit ratings

Sigh. The Irish situation is a duplicate of the US one, already much-discussed here. During the 2000-2007 housing bubble, both the US and Ireland (I mean the good people of both countries) borrowed a lot of money against their inflating housing prices. The new financial instruments (which HK calls generic "derivatives") made it easier than ever to convert real estate "paper-equity" into cash. One of those derivatives was insurance on securitized mortgage backed loans. You could even buy stock in companies that sold insurance on securitized mortgage backed loans. Like AIG. Level piled upon level of speculation there, and it all collapsed in 2008 when the markets simply could not take any more, and all the loaned out money on housing that wasn't worth it, came due to be repaid. In both the US and Ireland, since the capital markets around the world are all connected too well now for any to be isolated.

2004 was right in the middle of this. How could 43% of American families (or Irish families if you like, because it was all the same there) spend more than they earned each year? No problem in 2004 at the height of this rising housing bubble. It wasn't going all on credit cards, but coming out of houses being used like ATM machines, as second and third mortgages became available. There even existed plastic cards that gave you money from a loan against your house (a home equity line of credit-- try to get one of THOSE now). Nobody cared about this, before the housing equity values (on paper) were going up faster than the home loan borrowers were spending the money; it was sort of like spending money you were making on your stock account in your portfolio. Except that everyody knows such rises in stock value are imaginary numbers until you lock in the earnings by actually selling the stock. In housing speculation people weren't actually selling their houses even though they were speculating with them in just the same way as with stock-- they were just watching their paper value rise, and borrowing against THAT, and spending it.

When it all came crashing down in 2008, people owed more on their houses than they were worth. In Ireland, too. HK thinks the banks got all that money, but he's wrong. The people who borrowed against the housing market, which means the home-owners, got most of that money. Letting banking systems collapse now that they own the titles to all the real estate left behind (the "ash" of this bubble), is not going to fix this problem. The blame for all this is everywhere. A lot of it is with homeowners who had a great time with the money they "made" speculating against their own home prices as they rocketted up.

If you can let your banking system collapse, which means that your industry is not far behind, then your economy goes down and everybody is out of work. Not just 10% but 25% or more. They tried that 1929-1932 in the U.S., and it didn't work so well. Tight-money made the depression worse. Bernanke, a student of the depression, is therefore now trying the opposite, which is to put all the housing credit default on the government credit card. So far it has kept the US economy from imploding.

Now it's Ireland's turn. They (like the U.S.) have a total government debt of about 100% of their yearly GDP. But this next year, if they bail out all the housing market lenders (and yes, most of them are banks, who will foreclose on the houses) that will go up to 133% of GDP. They will have spent 33% of a year's GDP in a SINGLE YEAR, bailing themselves out. The US did almost that last year, but it put them only up to 94% GDP. Ireland's debt position is worse.

But they don't really have any choice. If they allow the housing sector, mortgage lenders and banks to take the default on all that credit, there won't be any more banking in Ireland. Which means no more Irish economy, no more Irish industry, and no more Irish miracle. So they're going to have to do what the U.S. did, or else have a Great Depression of 1929. Were it not for the suffering that would cause, I'd wish that they actually would do that, just to teach HK and LaRouche a lession that they seem to have failed to learn from 1929-32.

[Herschelkrustofsky]

Level piled upon level of speculation there, and it all collapsed in 2008 when the markets simply could not take any more, and all the loaned out money on housing that wasn't worth it, came due to be repaid.

You still think this is about housing?

If you can let your banking system collapse, which means that your industry is not far behind, then your economy goes down and everybody is out of work.

Why do that? The only course of action that will actually work is to put the system through the equivalent of a Chapter 11 bankruptcy. Then sovereign governments will need to create new credit which will be channeled very specifically into productive activity. The alternatives are the kind of collapse you describe, or a series of bailouts culminating in a collapse much bigger than what you describe.

See also: Iceland Better Off Than Ireland Because They Let Big Private Banks Fail, says President

[Milton Roe]

Level piled upon level of speculation there, and it all collapsed in 2008 when the markets simply could not take any more, and all the loaned out money on housing that wasn't worth it, came due to be repaid.

You still think this is about housing?

Yes, I and most economists. Let your eyes wander over this chart of Dublin housing prices 1970 to 2005:



Do you see anything that looks like a housing bubble? Hmmm?

Here's a pretty good review of what happened to Ireland. You'll like this quote:

An extraordinary housing bubble emerged [in Ireland]. From 1997 to 2006, housing completions grew by 9.6 percent a year, and by IMF calculations, Irish house prices grew by 90 percent more than fundamentals predicted, compared to 28 percent in Spain and 20 percent in the United States.

As in other GIIPS, the economy shifted away from manufacturing and toward services and housing. Financial intermediation, real estate, and business sectors sapped 10 percent of GDP away from the industrial sector from 1999 to 2006. Residential investment grew from 5 percent of GDP in the mid-1990s to over 12 percent by 2007.

Throughout the course of this boom, the Irish government appeared to behave responsibly, running an average budget surplus of 1.6 percent of GDP from 1997 to 2007, helped by surging tax revenues. Over that period, the aggregate Euro area never once recorded a surplus, and Greece averaged a deficit of 4.8 percent.

Doesn't that make it rather clear?

If you can let your banking system collapse, which means that your industry is not far behind, then your economy goes down and everybody is out of work.

Why do that? The only course of action that will actually work is to put the system through the equivalent of a Chapter 11 bankruptcy. Then sovereign governments will need to create new credit which will be channeled very specifically into productive activity. The alternatives are the kind of collapse you describe, or a series of bailouts culminating in a collapse much bigger than what you describe.

Hershel, FDR already tried what you suggest, with the WPA and all the alphabet agencies created in 1933. Basically that didn't work. It was a bit better than Hoover's tight money policies (basically "let the private banks fail" which allowed the Great depression up till then, from late 1929- early 1933). But all that happened was that FDRs policies kept things from getting any worse. It is also not true that WW II ended the great depression-- during the war the standard of living stayed at great depression values, but nobody cared because they expected it (since it was a war). They put up with rationing and taxes they would not have in 1934. Finally, the US emerged from WW II as the only major western power with a working infrastructure, and that was not courtesy of FDR, but courtesy of the Atlantic and Pacific oceans. THEN we emerged from the great depression, with personal income and joblessness reaching 1928 levels for the first time in 1947.

See also: Iceland Better Off Than Ireland Because They Let Big Private Banks Fail, says President

That's not what the story says. Ireland didn't let its banking system fail. It divided it into a foreign-investment sector and a domestic-investmnt sector, and it let the foreign-invested banks fail, basically selectively screwing foreign investors in Iceland. You recommend the US should do this? What do you think China will say about it? And how will LaRouche feel about the U.S. screwing China's investors? Come off it, HK-- Iceland's "solution" (if you can call it that) is not open to the U.S.

[Herschelkrustofsky]

Do you see anything that looks like a housing bubble? Hmmm?

Absolutely. You have successfully demonstrated that the housing market was a bubble, but not that it was the bubble. In fact, there are bubbles everywhere:

That one is not the bubble, either. The bubble, or what history will call the Greenspan bubble, is an order of magnitude larger. Housing, soybeans, and all the other stuff are just part of the froth.

[Milton Roe]

Do you see anything that looks like a housing bubble? Hmmm?

Absolutely. You have successfully demonstrated that the housing market was a bubble, but not that it was the bubble. In fact, there are bubbles everywhere:

That one is not the bubble, either. The bubble, or what history will call the Greenspan bubble, is an order of magnitude larger. Housing, soybeans, and all the other stuff are just part of the froth.

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Soybeans. How much of the US GDP went into soybeans? Did our investment increase that much in any other sector you can think of, from 1998 to 2006? I'll give you the answer: no. So single thing sapped as much investment money, by turning it into capital and then cash, as the housing market. Nothing else was that big.

You can try to deflect attention away from the housing bubble all you like, and it's not going to work. There was a housing bubble in the first 6 years of this century. It ate $7 trillion, which we spent. Now our houses are worth half as much as they were in 2006. That didn't happen with soybeans. It may be the soybeans are not worth nearly what they once were, but they're not $13 trillion worth of our economy.

[Herschelkrustofsky]

When residential investment goes from 5% of your GDP to 12% in just 8 years, as happened in Ireland, that's not "froth." You won't find anything else remotely like it.

Unless you count US derivatives holdings, which at $223.4 Trillion are actually worth (on paper) about 1500% of our GDP. Now, there's a bubble.