Monday, November 8, 2010

We're all doomed!

As a kid I probably watched a few more episodes of Dad's Army than I should have. One of the characters had a catchphrase of "we're all doomed" every time a crisis of some sort arose. Well Prof. Morgan Kelly from UCD is a bit like Private Fraser except that in most cases Kelly is right when he utters the magical phrase. He is the person who has been proven most accurate in his forecasting of the downfall of the Irish economy in the last number of years. So when I read his article in today's Irish Times I was half tempted to just give up trying and emigrate. In it he reveals a few items that I had not noticed before and paints an extremely bleak outlook for the country for the next decade.

For instance, I hadn't realized that €55B in bank bonds were repaid in September with cash from the ECB. This item of news seems to have been kept fairly quiet for as Kelly says, now that the investors have been repaid we have no leverage over them any more. No wonder they feel they can get away with demanding 7%+ yields on our debt when they see what a pushover the Irish government is.

The most damning part of the article is where Kelly states: "every cent of income tax that you pay for the next two to three years will go to repay Anglo’s losses, every cent for the following two years will go on AIB, and every cent for the next year and a half on the others". That's six years of blood, sweat and tears by Irish workers being flushed down the toilet to rescue banks from the folly of their actions. It really does make you weep.

His future of an extremist right-wing party rising from the ashes of FF and FG is worrying. An Irish Tea Party movement, or worse an equivalent to the BNP, would not leave us in a nice place. The ongoing alienation of the poor through frontline cutbacks and high levels on long term unemployment will only speed this process up. As has been shown time and again throughout Europe and beyond, hordes of disillusioned young males will end up taking extreme positions.

The one vague positive, and it really depends on how you look at the issue, is that he predicts a complete collapse in property prices in the next few years as mortgages dry up entirely and we are left with a cash only market. As someone who owes the guts of a quarter million on an ex corpo house in Dublin 5 that is not good, but at the same time with the few shekels I have managed to put aside since purchasing about 7 years ago, I'm looking good for buying a mansion in Foxrock by 2013.

I'm currently reading Animal Spirits by George Akerlof (who shared the Nobel Prize with Joseph Stiglitz, friend of NAMA developers, in 2001) and Robert Shiller about psychology and the economy. So far I'm only a couple of chapters in but they focus on fairness and confidence as being two key traits to economic recovery. Kelly's article certainly outlines how unfair the system has been to many people, and will continue to be into the future. Unfortunately the article is low on the confidence generating stakes as well but in a basket case like the Irish economy at present, that is actually fair as well.

I wonder if Morgan Kelly sings an updated "Who do you think you are kidding, Mr Trichet?" on his way to work every morning.

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