US credit downgrade/General recession thread

[pineapple stu]

Surprised there's nothing on the US downgrade yet. (There may be a general recession thread back a while; feel free to merge)

US credit rating downgraded for the first time ever (http://www.zerohedge.com/news/sp-downgrades-us-aa-outlook-negative-full-text) (Moody's are doing credit ratings since 1914). Future outlook is negative. Predictable responses from both sides - US claim this is a disgrace which will become a truism; S&P standing by their call (which they can't have taken lightly). The Chinese (http://unitednews.com.pk/en/business/12922-chinese-state-media-criticises-us-debt-deal) are having a go at the US over their debt management (cut taxes and spending is the plan. Again). I heard on the radio that India was criticising the US too, which would be hilarious; can't find anything online about it though.

Googling "US downgrade shares (http://www.google.ie/#hl=en&source=hp&q=us+downgrade+shares&oq=us+downgrade+shares&aq=f&aqi=g4g-s2g-j2g-m2&aql=&gs_sm=e&gs_upl=828l2624l0l3087l19l10l0l0l0l1l804l4999l3-1.6-6l7l0&bav=on.2,or.r_gc.r_pw.&fp=40faf19f1dd981e7&biw=1024&bih=677)" shows up a number of share drops over the news - Israel down 7%, India down 3%, Saudi Arabia down, Asia down (though recovering later on), Europe down (though we'll know the extent later today after CoB). Billions being wiped off the face of the earth really.

The US don't seem to have any real plans to reduce their debt, and it'll now be harder/more expensive for them to borrow. That can only be bad for us getting out of recession. House prices fell 2% in June (http://www.google.ie/#hl=en&source=hp&q=us+downgrade+shares&oq=us+downgrade+shares&aq=f&aqi=g4g-s2g-j2g-m2&aql=&gs_sm=e&gs_upl=828l2624l0l3087l19l10l0l0l0l1l804l4999l3-1.6-6l7l0&bav=on.2,or.r_gc.r_pw.&fp=40faf19f1dd981e7&biw=1024&bih=677), the biggest monthly drop in two years. NAMA is now getting into the social housing market (http://namawinelake.wordpress.com/2011/07/27/nama-sells-58-foreclosed-beacon-south-apartments/), which can only reduce prices and rents further.

So where's the bottom in all this? Personally, I think Churchill's comments may be appropriate again - "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

[Spudulika]

Everybody is too busy tryig to offload their stocks :-)

Here in Moscow since Thursday there has been a real hit in currency differential (which is how I've been feeling it). I was able to get 1euro for 39.80rbs, 15minutes ago the same place is charging 41.10rbs for a euro.

This time of year is always messy, remember 2008? A former colleague of mine lost 2/3's of her savings by not living up to her maxim of selling off the bulk of her shares before the summer. She's a trader with ING-Barings and got wiped out.

http://www.themoscowtimes.com/business/article/moscow-mimics-global-market-reaction/441709.html

It'll last until the kids are back in school and the J1'ers come home with their wonderful accents.

[Poor Student]

NAMA is now getting into the social housing market (http://namawinelake.wordpress.com/2011/07/27/nama-sells-58-foreclosed-beacon-south-apartments/), which can only reduce prices and rents further.


How do you reckon NAMA selling houses to the government for social housing brings down prices? The state through NAMA owns a large supply of available property in the country and by keeping it in its hands artificially sustains prices by keeping supply low. Instead of selling properties to itself if the state put them on the market they would lift supply and put downward pressure on prices. All state intervention in the property market be it through affordable, social housing, rent relief, rent supplement, interest relief, NAMA etc. keeps house prices higher than they should be which in turn raises the cost of living and necessitates high salaries and makes Ireland uncompetitive.

[BonnieShels]

Don't forget the devil that is RAS and long-term leasing.

Completely correct PS.

[Poor Student]

Don't forget the devil that is RAS and long-term leasing.

Completely correct PS.

Thanks, Bonnie, there's probably plenty of others we've left out. The problem is the government used to be accused of acting on behalf of vested interests to manipulate the housing market and keep prices inflated but now government is unquestionably a vested interest themselves. Through both its ownership of several of the banks and NAMA's large property holdings the government stands to lose badly through property finding its proper level, a vested interest if there ever was one.

It's the same with the rental market. I do apologise because I can't remember where I read it and I do ask anyone who can find something to back it up or prove me wrong to post some figures but apparently close to 50% of the rental market is made up of rent supplement. This means the state controls close to the majority of rents in this country and instead of reducing them sustains an artifically high rental market and wastes money from the public purse handing over rent to landlords. Of course again there's a vested interest. Landlords make up the BTL loan books of the banks and if rents dropped further then so would BTL defaults which in turn destroys the bank's balance sheets which in turn costs the state more money in recapitalisations.

As a result of the state's interests becoming intwined with that of the banks it cannot let the property market find its real bottom, at least not in good time. On the other side you have high unemployment, oversupply of property, unavailability of credit, high interest rates and a host of other factors creating downward pressure on prices resulting in this death by a thousand cuts instead.

[BonnieShels]

Well that was the argument against NAMA in the first place.
It would still make more sense to get rid of it now and flood the market and finally shock the country into a proper recession so we can actually get out of it.

Working in social housing you'd think I would know the RS stats but I don't so stall the digger whilst I dig out my notes.

[Poor Student]

Well that was the argument against NAMA in the first place.
It would still make more sense to get rid of it now and flood the market and finally shock the country into a proper recession so we can actually get out of it.

The state just can't afford the damage to the banks' balance sheets.


Working in social housing you'd think I would know the RS stats but I don't so stall the digger whilst I dig out my notes.

I can't exactly stand over that figure but in any event a sizeable chunk of the market is RS and the point holds but it would be great if you could get the actual percentage.

[BonnieShels]

Can't find any stats other than what you said and an unsubstantiated claim from Sarah Carey stating that over half of the rental market is made up with RS.
I'll check properly in work in the morning.

[pineapple stu]

if the state put them on the market they would lift supply and put downward pressure on prices.
That's what I imagined was happening in my original post. Just read your other one as well now. So it basically seems like we're putting off the inevitable. Ho hum.

[Spudulika]

Which is why there was sustained talk of bulldozing estates, get rid of the evidence and competition - leave brownfield sites and then when nobody's looking, build up a new estate with an even older name.

[thischarmingman]

Guys, you all seem to have a good grasp of economics (possibly in a professional context)- care to recommend me a book or two I can read that will explain about world economies and what's happening. I used to skip the more detailed chapters on economics when I did my History degree but feel I should know a bit more than I do now. I just finished Ship of Fools by Fintan O'Toole (http://www.amazon.co.uk/Ship-Fools-Stupidity-Corruption-Killed/dp/0571252680) and found it fascinating and depressing in equal measure but obviously I need something that explains more generally how exactly finance works and whats gone wrong. I have Niall Ferguson's The Ascent of Money (http://www.guardian.co.uk/books/2008/nov/02/money-niall-ferguson) by my bed, should I read it?

[pineapple stu]

I doubt there's any books out there yet that can clearly and correctly inform what's happening at the moment, mainly because it's so far from being finished.

In terms of learning from the past, Dervla Murphy's interesting and quite forthright. I remember Silverland being quite scathing about the IMF at times, for example. Plus you get a travelogue across Siberia in winter into the bargain. I'd be very interested in her views on Ireland at present.

So I suppose to summarise - I don't know.

[BonnieShels]

Guys, you all seem to have a good grasp of economics (possibly in a professional context)- care to recommend me a book or two I can read that will explain about world economies and what's happening. I used to skip the more detailed chapters on economics when I did my History degree but feel I should know a bit more than I do now. I just finished Ship of Fools by Fintan O'Toole (http://www.amazon.co.uk/Ship-Fools-Stupidity-Corruption-Killed/dp/0571252680) and found it fascinating and depressing in equal measure but obviously I need something that explains more generally how exactly finance works and whats gone wrong. I have Niall Ferguson's The Ascent of Money (http://www.guardian.co.uk/books/2008/nov/02/money-niall-ferguson) by my bed, should I read it?

The Ascent of Money is a sensational read.
Great tv series as well.

Go for it.

[thischarmingman]

So I suppose to summarise - I don't know.

*"Started badly, tailed off a little in the middle etc" quote*

I'll check out, DM :)

When I;m finished my current book I'll hit up ol' Ferguson BS.

[Spudulika]

Silverland is quite a read, and spot on about her views on the IMF.

For a general view (which is centre-left populist), some of Michael Moore's offerings explain things quite well. Downsize This and Stupid White Men are quite good. Parallels can be drawn between what happened in Ireland and what went on in, for example, Enron. Where a cozy cartel of businesspeople and politicians were hand in hand in falsifying, inflating and manipulating so that their "products" were moving ever upwards in price.

Follow the Money by McWilliams is interesting, though it is in parts an addition of his first two offerings.

How an Economy Grows and why it crashes - (I don't know the writer's name but he's a Yank) - I read it over New Year and it's quite informative and I have to say it's veyr, veyr simple to go through. If there was a guide for idiots, then this is it - which, yes, makes me a complete numbskull.

[thischarmingman]

Silverland is quite a read, and spot on about her views on the IMF.

For a general view (which is centre-left populist), some of Michael Moore's offerings explain things quite well. Downsize This and Stupid White Men are quite good. Parallels can be drawn between what happened in Ireland and what went on in, for example, Enron. Where a cozy cartel of businesspeople and politicians were hand in hand in falsifying, inflating and manipulating so that their "products" were moving ever upwards in price.

Follow the Money by McWilliams is interesting, though it is in parts an addition of his first two offerings.

How an Economy Grows and why it crashes - (I don't know the writer's name but he's a Yank) - I read it over New Year and it's quite informative and I have to say it's veyr, veyr simple to go through. If there was a guide for idiots, then this is it - which, yes, makes me a complete numbskull.

Found it on Amazon, looks exactly like the kind of thing I'm looking for as it gives a good overview. These are such huge forces that have such a huge impact on lives that I want to try and understand them better. I'll try and have a look at some of the others you mentioned, and I think I'll order that last one (it's by Peter Schiff btw).

[Spudulika]

TCM, you cannot be more out of step than I was, this book at least pointed me in some decent directions. Thanks for the author name, I was trying to remember when I was positing last time.

There are a couple of good books by more heavyweight economic figures though this one is the best. For the purely Irish situation I'd go for DMcW, he's quite insightful in some places when he doesn't try to be funny!

[John83]

These are such huge forces that have such a huge impact on lives that I want to try and understand them better.
I don't recommend it. You'll continue to be flotsam on the wave of forces beyond your ken, only you'll have learned that the highs and lows you're experiencing are mostly illusory, no less powerful for that, and even less well controlled than they are understood.

[BonnieShels]

So, I trawled for proper statistics and its a pain. Have emailed a contact in the DOECLG and await a response.

In the meantime I've been assured that its just over 60% which is scandalous.

[Poor Student]

That's what I imagined was happening in my original post. Just read your other one as well now. So it basically seems like we're putting off the inevitable. Ho hum.

Ah, fair enough. Yep, kicking the can down the road.


Guys, you all seem to have a good grasp of economics (possibly in a professional context)- care to recommend me a book or two I can read that will explain about world economies and what's happening. I used to skip the more detailed chapters on economics when I did my History degree but feel I should know a bit more than I do now. I just finished Ship of Fools by Fintan O'Toole (http://www.amazon.co.uk/Ship-Fools-Stupidity-Corruption-Killed/dp/0571252680) and found it fascinating and depressing in equal measure but obviously I need something that explains more generally how exactly finance works and whats gone wrong. I have Niall Ferguson's The Ascent of Money (http://www.guardian.co.uk/books/2008/nov/02/money-niall-ferguson) by my bed, should I read it?

TCM, I'd be like yourself, from a historical background, and I suppose like you I've come to realise recently I came out the other end of my education without any great understanding of economics. I've ended up in retail banking although to be honest my role wouldn't require any knowledge of economics. I've never read any books on the subject (even popular stuff), most of what I've picked up (and it is very basic) has come from the net and articles. On top of the stuff the other have recommended, I'd give the website The Property Pin (www.thepropertypin.com) a go. There's a good concentration of minds there from various backgrounds and across the range of political and economic thought (ranging from survivalist to socialist) and it's very much Irish orientated. A lot of it will go over your head when you see discussions of derivatives, credit default swaps etc. but there's a lot of info for the beginer too.


So, I trawled for proper statistics and its a pain. Have emailed a contact in the DOECLG and await a response.

In the meantime I've been assured that its just over 60% which is scandalous.

That would be scandalous indeed, I thought 50% might have been a bit excessive! Please let us know when you hear.

[TiocfaidhArmani]

By 2021 the US will have $26 trillion debt. That's a crazy figure, the Chinese were right, there needs to be another currency in which oil is traded other than the dollar. If the US falls, so will the rest of the world. The Empire is crumbling and the Chinese know it.

[BonnieShels]

Well Saddam went about selling Iraqi oil in euro... I wonder what happened him?

[Spudulika]

Hey, good point Bonnie, I remember being in Saudi Arabia at the time and the Saudi's mouthing about joining the same model, they also said non-believer troops were no longer allowed to use sacred soil/sand. However unless the British and US armies converted en masse oto islam I have photos of British ships unloading at Jeddah port and of US trucks and troop carriers in convoys from Riyadh north east. Nobody will mess with the almighty dollar

[pineapple stu]

Well Saddam went about selling Iraqi oil in euro... I wonder what happened him?
Iran too. Nothing to see there though.

[Spudulika]

Why is it that Iran is let be on its own for so long? I wonder is it because it's in better shape than Iraq, or it's needed to protect against the wrong type of islam spreading, or just that it's nice to have a bogeyman. Good point PS.

[thischarmingman]

I don't recommend it. You'll continue to be flotsam on the wave of forces beyond your ken, only you'll have learned that the highs and lows you're experiencing are mostly illusory, no less powerful for that, and even less well controlled than they are understood.
Sorry, are we talking about world economics or the League of Ireland...?


TCM, I'd be like yourself, from a historical background, and I suppose like you I've come to realise recently I came out the other end of my education without any great understanding of economics. I've ended up in retail banking although to be honest my role wouldn't require any knowledge of economics. I've never read any books on the subject (even popular stuff), most of what I've picked up (and it is very basic) has come from the net and articles. On top of the stuff the other have recommended, I'd give the website The Property Pin (www.thepropertypin.com) a go. There's a good concentration of minds there from various backgrounds and across the range of political and economic thought (ranging from survivalist to socialist) and it's very much Irish orientated. A lot of it will go over your head when you see discussions of derivatives, credit default swaps etc. but there's a lot of info for the beginer too.
Cheers for that, let my education begin!

[pineapple stu]

On the main evening news last night that France could be next to be downgraded. French Government and the three ratings agencies all denying these rumours. No smoke without fire though?

This could be carnage.

[BonnieShels]

The irrational behaviour of the markets and governments' belief in their omnipotency is the real problem.

As was stated so eloquently yesterday, Italy have been running large budget deficits for 15 years, why is it a problem now?

[pineapple stu]

Everyone's getting twitchy. We're basically seeing a run on the world, I think. That can only end badly.

[BonnieShels]

Probably for the best. We need a purge.

[backstothewall]

By 2021 the US will have $26 trillion debt. That's a crazy figure, the Chinese were right, there needs to be another currency in which oil is traded other than the dollar. If the US falls, so will the rest of the world. The Empire is crumbling and the Chinese know it.

The truth is the USA has no debt whatsoever. They put an awful lot of bonds out there, but they simply aren't worth the paper they are written on. They will simply print $26T. Lending money to a country in its own currency was nuts.

S&P downgrading America was idiotic in the extreme. All they did was **** of the Washington, which can't be smart.

The good news for us is that Obama will start printing a LOT of money very soon in an effort to get re-elected. The subsequent inflation that will be sparked by that will reduce how much we (and everybody else) owe in real terms.

[pineapple stu]

I think history has shown that rampant inflation isn't a good thing. For one, those with savings get them wiped out. For another thing, if you print $26,000,000,000,000, then I'd imagine inflation would be approaching pre-war European levels - in which case, you have to spend your money before it gets wiped out in value again. Inflation in Europe in the 20s led to starvation, utter poverty, violence, strikes and ultimately mass unemployment. Hardly "good news".

Also, why is something bad just because it annoys America?

[TiocfaidhArmani]

The truth is the USA has no debt whatsoever. They put an awful lot of bonds out there, but they simply aren't worth the paper they are written on. They will simply print $26T. Lending money to a country in its own currency was nuts.


I'm not expert but if the US printed $26 trillion would it not cause hyper-inflation?


Iran too. Nothing to see there though.

And as Ron Paul said in the Republican primary debate last week in Iowa, it was the US who helped put those nutjobs in power in the first place!

[BonnieShels]

I still haven't received any confirmation of the RS ratios. God bless the DoE. I've re-sent the email today.

[Poor Student]

I still haven't received any confirmation of the RS ratios. God bless the DoE. I've re-sent the email today.

You've probably been blacklisted for asking as the truth will take the whole system down.;)

[BonnieShels]

Well then in that case... STFUDOE!!!!!!

I'm not actually surprised knowing what its like in my place.

[backstothewall]

I'm not expert but if the US printed $26 trillion would it not cause hyper-inflation?

Of course. Thats the point. If you cause hyper inflation is only bad if your owed money. If you owe somebody else its great. What you owe reduces in real terms. Its how they paid for Vietnam.

[pineapple stu]

Seriously - read up on hyperinflation. Please. Wiki (http://en.wikipedia.org/wiki/Hyperinflation) for a basic start; something like Adam Fergusson's When Money Dies (http://www.amazon.com/When-Money-Dies-Devaluation-Hyperinflation/dp/1586489941/ref=sr_1_1?ie=UTF8&qid=1313482833&sr=8-1) for a more detailed look. Hyperinflation is bad. The US did not experience hyperinflation (http://inflationdata.com/inflation/Inflation_Rate/HistoricalInflation.aspx?dsInflation_currentPage=3 ) during Vietnam, and so could not have used it to pay for the war.

[dancinpants]

And to think that the US's biggest creditor is itself.

[TiocfaidhArmani]

And to think that the US's biggest creditor is itself.

An audit of the Fed would be interesting.

[geysir]

This bit of news seems to have fallen under the radar
€126bn debt (http://www.independent.ie/national-news/our-euro1264bn-debt-is-amongst-worst-in-eurozone-after-greece-2881193.html)

'IRELAND's national debt was €126.4bn at the end of July
December 2010 the Government had guaranteed bank debts valued at €113bn
The Central Bank has provided €49.5bn to Ireland's distressed financial institutions´

I don't think those figures are an accurate account of the total guarantee and the amount of distress relief aid


'It also values the National Pension Reserve Fund (NPRF) at €22.7bn at the end of 2010 but the NPRF said this had since fallen even further to €20.8bn at the end of June this year. The fund has invested €11.4bn in AIB and Bank of Ireland as part of the bank rescue programme which was down €4bn at the end of 2010 and has since reduced to €5.3bn. The value of the shares it purchased in both banks has collapsed with AIB's share price down 67pc and Bank of Ireland's down 72pc at the end of July 2011'

AFAIU, that means €4bn has been written off already or is it €6bn?
Undeterred, Noonan has earmarked another further "investment" of €10bn from the NPRF into AIB and EBS.

[BonnieShels]

Italian town decides to secede from Italy.

http://www.rte.ie/news/av/2011/0922/media-3059970.html#

[legendz]

Read a report that Enda Kenny will not support a move by AIB to break the salary cap in place. Respect if they have taken that hard stance. FG and Kenny would've lost a lot of creditability.

[BonnieShels]

Yeah it was headline news up until lunchtime

[legendz]

Yeah it was headline news up until lunchtime

Was it yeah, too busy with work to be focussing on the lunchtime news.

[BonnieShels]

Was on a morning half day

[pineapple stu]

I still haven't received any confirmation of the RS ratios. God bless the DoE. I've re-sent the email today.
Did you ever get a reply on that?

I was reminded of it by the news that the Government are looking at the rent supplement in the upcoming budget (http://www.irishtimes.com/newspaper/breaking/2011/1012/breaking3.html) -


It is understood the Government is hoping to generate [...] savings [...] from a substantial cut in the €500 million annual expenditure on rent supplements.

So I can only imagine that'll lead to rents falling, and further property price falls?

[culloty82]

So Greece is holding a bailout referendum - in the unlikely event that we ever held a similar vote, it would be easy to take the kneejerk option and vote no, but what would be the alternative to austerity? Wealth taxes and closing tax exile loopholes would only go partway to filling the shortfall, and Obama has had little to show to date for his job stimulus programme.

[pineapple stu]

And already, one firm (http://www.irishtimes.com/newspaper/finance/2011/1101/1224306844100.html) has applied for bankruptcy protection after Greece's 50% write off.

Wouldn't surprise me at all if Greece reject the austerity in a referendum. In fact, it'd surprise me if they passed it. That'd surely just drag things down further again.

[Macy]

So Greece is holding a bailout referendum - in the unlikely event that we ever held a similar vote, it would be easy to take the kneejerk option and vote no, but what would be the alternative to austerity? Wealth taxes and closing tax exile loopholes would only go partway to filling the shortfall, and Obama has had little to show to date for his job stimulus programme.
Exit euro, default, IMF only deal. There's ultimately no escaping austerity, but they may be justified in feeling that the austerity will be over quicker. As we might have been.

Have to say the coverage of the Greek Governments decision is really irritating. Imagine them have the audacity of them actually asking the people who are going to have to suffer the proposed programme whether they want it or the alternative? Several euro countries were willing to bomb Libya under the pretence that they wanted democracy, and yet now Greece is under massive pressure not to defer to it's people. It was one of the big problems of our last Government, especially the Greens who were supposed to be different to FF, that they never went to the people over the bank guarantee, or the original austerity plan, or them calling in the IMF.

However, I think the timeline the Greeks have proposed is also a bit ridiculous. I wouldn't be surprised if the eurozone take the decision for them and cut them loose, if the mechanism exists for them to do so (I'm not sure it does).