Economic Recovery

[OneRedArmy]

Paul Krugman had an excellent bit in his NY Times blog about exactly this.

Fiscal stimuli only work when there is a credible expectation that the benefits are permanent and won't be replaced by tax rises in the near future (which is EXACTLY what the Chancellor in the UK has said!).

Where consumers fear that stimuli are temporary they increase their savings rate and hoard any surplus income, negating the effect of the package.

Japan is the best example of this as it has negative real interest rates for years and even that couldn't provoke demand.

So, banks won't lend to other banks because of fear and consumers won't spend because of fear. Problem is that emotion is sometimes impossible to change with reasoned argument.

[pete]

Don't see the logic of VAT decrease in the UK. In non-competitive markets the Sellers won't drop prices & will keep it themselves. We saw this when VAT was decreased in Ireland before.

I would think saving (not spending) is starting to become contagious as everyone gets concerned about the future & holds off on non-necessary spending.

Christmas is always an excuse to spend money but retailers could see very lean new year due to the annual Christmas hangover. January will be a good time to pick up bargains from desparate retailers.

[dahamsta]

We saw this when VAT was decreased in Ireland before.

Was the Irish decrease during a recession though? I don't think it was. Plus there's a fair difference between 1% and 2.5%.

Of course there'll be some retailers that'll chance their arms with it, but Britain is more competitive by definition, and it's tough times out there.

adam

[Ringo]

In fairness to retailers , if someting is 1.99 / 9.99 etc , it doesn't make a lot of sence to change the price up or down i/2% or in the UK case 2.5%. It should be passed on by the supermarkets where price points aren't as important.

[OneRedArmy]

http://www.rte.ie/business/2008/1126/eurozone.html

Last person out of Ireland turn out the lights.....

[pete]

Latest figures

More cuts in public spending are on the way following a sharp deterioration in the tax revenues collected by the Government in November, according to exchequer returns data published this afternoon.

Minister for Finance Brian Lenihan said the latest tax returns, which included a €3 billion shortfall for the month of November alone, were "poor" and reflected the severity of an accelerating economic slowdown.

"There is now a major gap between spending levels and tax receipts," the Minister said in a statement.

The Department of Finance now expects that the overall exchequer deficit for 2008 to exceed €11.5 billion, the revised deficit forecast in October, while tax receipts are likely to fall short of start-of-year expectations by far more than the €6.5 billion predicted in July.

The Minister said it was now "inevitable" that the current budget deficit of €4.7 billion forecast for 2009 would now be higher given the developments in the last two months.

Who does the forecasting in the Dept of Finance? In 4 months they have had to "readjust" by 5 billion. Have things really changed that much since July?

Hard to think what 2009 deficit will be now. Should be a boom time for placard sellers.

[OneRedArmy]

Economically speaking, its become clearer over the last few weeks that the world is fecked, to put it bluntly.

Depression is now more likely as unlikely.

The worlds banks are effectively nationalised.

I would expect interest rates to be at or as close to zero as to make no difference early in the new year. That won't have much effect either.

The only positives are that the central bankers will hopefully have learned from the Great Depression and more recently Japan's delayed response to a similar asset price bubble.

Then the worlds Central Banks will be forced to implement Quantitative Easing (look it up, basically printing more and more money).

This notwithstanding, its impressive that our own Dept of Finance managed to overestimate revenue by E2bn in the few short weeks since the budget. It means that their 2009 projections are likely to be even further off. Clowns.

[dahamsta]

Quantitative Easing

[Reality Bites]

Economic Recovery - 2014

[OneRedArmy]

Economic Recovery - 2014

Any particular reasons for 2014, or did you just pick 5 years ahead?

I honestly think nobody has a clue as we've never had a truly global depression before, its uncharted water (although Keynes seems to be very popular again after about 30 years of being a laughing stock).

[Stuttgart88]

Long live Keynes.

In the long run we're all dead - classic.

I always felt intuitively that fiscal policy was a necessary complement to monetary policy yet many western societies adopt the anglo saxon view that tax is theft. It's a shame that few economies have the fiscal ammunition to attack this crisis.

Economies self heal though God knows how lon it'll take this time. It'll get far worse before it gets better. In the UK I can see a gradual reversal of globalisation induced outsourcing, a reversal of the trend to service provision and an increase in engineering and manufacturing - though little of the latter can take place until demand recovers.

I think people are just going to have to get used to the idea that only exceptional people get to retire early, you have to work hard to get well piad, the time in life to earn the big salaries is aged 50+, we're all going to have to work longer. At the same time we'll all get to reassess the important things in life like getting home to see your kids.

It looks like the Germans & French were probably more right than wrong all along.

[NeilMcD]

I agree Stutts, I have been saying that for years amongst my mates etc. Time off to be with family, or Ireland games or whatever it is, is invaluable and then also to be able to retire with full pension.

Over the last few decades we have had Reagan and Thather politics and lost our sense of the important thing in life and that is time.

[mypost]

Economically speaking, its become clearer over the last few weeks that the world is fecked, to put it bluntly.

Depression is now more likely as unlikely.

The worlds banks are effectively nationalised.

I would expect interest rates to be at or as close to zero as to make no difference early in the new year. That won't have much effect either.

The only positives are that the central bankers will hopefully have learned from the Great Depression and more recently Japan's delayed response to a similar asset price bubble.

Then the worlds Central Banks will be forced to implement Quantitative Easing (look it up, basically printing more and more money).

This notwithstanding, its impressive that our own Dept of Finance managed to overestimate revenue by E2bn in the few short weeks since the budget. It means that their 2009 projections are likely to be even further off. Clowns.

If the budget was today, as it usually is, then the government would have been able to make projections on the latest deficit figures.

As it was, it happened 7 weeks ago, and looks like it was written on the back of a Post-it note, then commended to the House.

[dahamsta]

...like most Irish legislation, which of course adheres to the well-known "errah-sure-we'll-fix-it-later" principle popularised by lazy, talentless Irish politicians. Or "Fianna Fail", as they're popularly known*.

adam

(* Or the Greens. Or Fine Gael, mostly. Or the other ones to a certain extent.)

[pete]

I think part of the problem is lack of leadership especially in Ireland. I think even the biggest supporters of the government now realise they don't have a clue what to do. It is debatable if the opposition have any better ideas.

It is fairly clear more service cuts & tax increases are on the way but the government have to make at least symbolic gestures to at least make it look like they are taking a hit too. It is largely symbolic but cutting Junior Minister positions, no new car for Minister, ground the government jet etc... would be a good start.

The world is not helped by the lame duck Bush Presidency. Don't know if Obama has any solutions but at least there will be an effective leader & the US is very important for the world economy.

In the short to medium term consumer spending is fecked. When retailers had 25% off last year people saw it as a once off deal. Now when we see 25% off we don't spend as know that might be better next month. Will surely see deflation next year.

The EU interest rates have can be dropped a bit unlike other countries like US where it is so low can't drop further.

[pete]

The EU interest rates have can be dropped a bit unlike other countries like US where it is so low can't drop further.

RTE

The European Central Bank has cut its interest rate by 0.75%, its biggest ever move as inflation plummets and the euro zone economy sinks deeper into recession.

The move takes the ECB's main refinancing rate to 2.50%, its lowest in nearly two and a half years.

The Bank of England is expected to cut interest rates for sterling by another full percentage point later today, which would leave the main UK rate at 2%, while the Swedish central bank has brought forward its rate cuts to today. It too is expected to cut by 1%

Sensible move.

[OneRedArmy]

RTE



Sensible move.

Valuable to a subset of people on a micro-level (home-owners not on a fixed rate), but completely irrelevant in the context of the challenges facing the wider economy.

They may as well have put them to zero immediately as that is pretty much inevitable within the next 3 months and even that will do little to slow the decline.

Those that benefit will increase their savings rate (and not spend it),banks are de-leveraging so won't be making any new loans and it doesn't make a jot of difference for the newly unemployed as they can't even pay back the principal never mind the interest.

[pete]

Euro = 87p sterling. No VAT rates can compete with that.

Car Dealers getting desparate

IRISH car dealers are so desperate to get rid of growing stockpiles of second-hand motors that they are reducing prices by as much as 25%, a Sunday Times survey has found.

[pete]

Euro = 95p today, parity can't be far away

The British pound weakened to 95 pence to the euro for the first time this morning, before trading at 94.49 pence as of 2.57pm in London.

Mr Barry said this level would correspond to £1.20 in “old money” (ie Punt) terms for those with memories of the pain of the early 1990s currency crisis in which the peak for the Punt/sterling rate was just over £1.10.

Government Rescue plan for the economy

The Government is to establish a series of venture capital funds worth a total of €500 million in a bid to lure innovative industries to the Republic and boost research and development activity here.

The funds will be 49 per cent supported by cash from the National Pension Reserve Fund (NPRF) and 51 per cent backed by private sector venture capital players who specialise investing in start-up companies focused on developing new technologies and products.

Seems like a reasonable idea & much better than same wasting 500m on propping up the housing market. Overall though 500m isn't a lot of money. These companies are likely to be exporters which is what the country needs.

I presume there are other plans or schemes on the way?

[OneRedArmy]

Thats a good long-term plan and is the kind of thing thats useful at any stage in an economic cycle. But it will do nothing for stimulation in the short-term.

I think the Government have decided that they'll let the ECB do all the work through interest rates and quantitative easing to stimulate demand. Unfortunately thats not going to help Ireland as much as we have our own economic issues that the rest of the Eurozone don't have (apart from Spain arguably).

The only thing that will work are US style tax cuts and capital investment plans but we've decided to reduce spending. By doing that we effectively accept we are prolonging the depression.

Tough calls.