Irish bank borrowing up €23bn last month

THE AMOUNT of money Irish banks borrowed from the European Central Bank (ECB) grew by €23 billion in September.

The figure was contained in the central bank’s monthly money and banking statistics report. The 38 per cent increase in borrowing to €83 billion highlights the reliance of Irish banks on ECB funding.

Overall, the dependence on ECB funding of Irish-based credit institutions, including internationally focused banks with operations in Ireland, rose 27 per cent to €121.1 billion.

ECB policymakers have warned banks against overdependence on central bank funds. Earlier this month, council member Mario Draghi said certain banks had become “highly dependent on the liquidity injected by the euro system”. He said this should be addressed by national authorities to avoid “zombie banks”.

The central bank figures also show that lending to households continued to fall in September – down 4.5 per cent from the same month last year. Mortgage lending was 1.6 per cent lower on an annual basis in September, and was down 1.2 per cent on August.

Consumer lending for other purposes also declined by 14.8 per cent, and was marginally down on August figures.

Household lending during September was down €279 million, in keeping with the trend which has seen a drop in loans to households every month in 2010.

Lending to businesses fell by 3 per cent compared with September last year, after a 2.2 per cent annual drop in August.

The Central Bank figures indicate there was a small increase in business loans of a maturity of up to five years in August and September.

http://www.irishtimes.com/newspaper/finance/2010/1030/1224282314296.html

Cost of High Savings, Low Consumer Confidence and the Banking Crises!

The implications of the Banking crises can be seen clearly in everyday life with a free fall in Irish consumer confidence and an increase in savings. Figures from the Central Bank shows an increase in net savings by Irish families by almost 300% to over 11 billion euro. This figure represents 12% of income. Irish consumers have saved almost 100 billion of household deposits in Irish banks. Irish consumers are also looking for better deals to allow this saving rate with a growth in cross-border shopping.

On Friday, more figures released by the Central Statistics Office showed that sales dipped across most sectors in September following a slight upward trend the previous month.

But the August figures were deceptive. The increase in new car sales, up 13.2 per cent, on the same month last year and department store sales, up 8.5 per cent, masked very poor overall figures.

The Department of Finance has indicated a loss of 700 million euro in cross boarder shopping in 2009. With the current banking crises, a collection of other issues, the cost of a high savings rate and the increased cross boarder shopping has lead to an economist of Bord Snip suggesting that Ireland may lose its ability to control the Irish State to outside forces. From the front page in the Sunday Independent today Colm McCarthy believes Ireland will lose the running of Ireland to the IMF by February if this years budget fails to satisfy the financial markets. With the upcoming Budget the leaders of the Irish government are under pressure to present a convincing budget that will assure financial markets that Ireland will be able to finance itself. If they fail to do so it will lead to ,as McCarthy has highlighted, "an IMF/European bail-out and economic policy dictated from outside the country for the first time since the State was founded". The Irish government presents its budget on December 7th and in national interest it cannot afford to flunk another task.

Portugal Government Agrees Budget

Portugal's minority socialist government and opposition Social Democrats (PSD) reached an agreement on the 2011 budget today, averting a political crisis in one of the euro zone's financially weakest members.

The agreement, confirmed by the finance ministry, comes after a lengthy showdown between the government and the PSD which had threatened to derail the budget and plunge the country into paralysis.

"The agreement will be signed today at 11 o'clock in parliament," a finance ministry spokeswoman said.

Brussels, investors and Portugal's large banks have piled pressure on both sides to reach a deal. Failure to do so could have forced the government to seek a financial rescue from its European partners, as Greece did earlier this year.

Fears grew after talks between the government and the PSD collapsed on Wednesday. But yesterday prime minister Jose Socrates and PSD leader Pedro Passos Coelho said they were open to new talks, suggesting an agreement was possible after all.

Because the government rules without a majority it needs the support of the opposition to pass legislation.

The PSD has insisted on more spending cuts and smaller increases in taxes to cut the budget deficit, arguing that the Portuguese state sector is bloated and needs deep reforms.

Mr Socrates had threatened to resign if the budget was not passed, which would have created months of uncertainty because, under the constitution, a snap election could only be held in May at the earliest.

Mr Socrates has promised to cut the deficit to 4.6 per cent of GDP next year from 7.3 per cent this year and needs the PSD to vote for the budget or abstain in order to pass it. A first vote in parliament is scheduled for Wednesday.

Decrease in Retail Sales in September

When walking through shopping centres in recent weeks one can't help but notice the many signs for reductions and sales that grace the windows of many leading retailers. However, despite the reductions and the availability of so-called bargains there has been a decline in retail sales in September.
According to an article by Dan O'Brien in todays Irish Times, CSO statistics that were released yesterday reveal that core retail sales, excluding the motor sector,"were more than 4 per cent lower in September compared with their April peak." The only sectors that saw increased growth were chemicals, pharmaceuticals and cosmetics.
This worrying trend shows that consumer confidence is still low. People are still worried about their finances and are cautious of spending.
However it is not all bad news, the article goes on to tell us that there has been a strong increase in motor trade sales this year. The Government sponsored scrappage scheme has been one of the reasons for this increase, according to O'Brien. The article also explains how "large declines are usually followed by large increases, as consumers find they can delay purchases no longer." O'Brien tells us that part of the reason for the increase in car sales in 2010 was that people who postponed their purchasing in 2009 have decided to buy this year.
Source: Irish Times:
http://www.irishtimes.com/newspaper/finance/2010/1030/1224282315623.html

Wall Street was just try to gain the profit.

In 6th Oct 2010, Paul B. Farrell posted an article in Wall Street Journal. It is called “The Fed is dead, maybe by 2012”. In the article, Paul pointed out Wall Street destroyed US capitalism, democracy, and the dollar’s global reserve currency status. He even listed a timeline of how does it do that. And the American Treasury secretary and most economists are not trustable.

In the past three years, the most important event is the global financial crisis. And the source of it is the subprime crisis created by the Wall Street. If we look back to the bonus of Wall Street chiefs, I’m sure you will be very surprise. According to their words before the financial crisis, they must lose much money, but the real situation is not like that, in such a hard time, many people still got an unbelievable high bonus. From this example, we can see that, the points of Paul are right. Before 2007, the global economy showed a strong increasing, the number of money in stock market are increasing crazy. Wall Street fund managers are all pound of their investments, subprime circle was considered as the perfect model. But the real world would not always go like they hoped, Iceland government and 130 US banks were the sacrifices of their perfect model.

I don’t know will the real world go like Paul’s timeline, but the warnings in his article are too much pessimistic in my opinion. But there is another question, most people gain the super benefit from the asymmetry information between each other, and the asymmetry information will always exists. So the Wall Street is just did the best thing which could make them get the most profit. In business competition, delude the competitors is just a normal tool to get profit. It is a gamble, somebody loss and somebody win, the only different is Wall Street have more capital to do this gamble, even the capital they have could influence the government and destroy an economy. They do the pridict and then use the capital they have to influence the market then get the profit they want.

About the new, stronger post-capitalist economy which Paul reminded in his article, maybe it will, maybe not, we don’t know. But if we assume it will, it should be after a very long time develops, at least it will not like Paul and Nassim’s predicts which Fed won’t exist in 25 years.

Dollar Depreciation

In the last day of September, dollar/euro exchange rate fell to the lowest point in eight months. Before this happened, dollar/yen exchange rate had broken the deadline of 15 years.

Although dollar depreciation is caused by America’s terrible economic situation, it is easy to see that American government’s strategy that use dollar as international money.

To stimulate export by depreciate dollar is a good choice for American government. Earlier this year, Obama administration brought up “export doubling programme” in the next 5 years, but it does not perform as well as their expectation, so America has to make a big fuss about dollar depreciation. Actually, dollar depreciation has made America amount of profits. Some data shows that from 2007 to 2009 trade gap between China and USA decreased 3300 hundred million.

At present the property that hold by foreign countries reach up to 5 trillion dollar, thus dollar depreciation will make a big loss for every country. A drastic fluctuation will be caused in the international financial market since dollar depreciated. The sustaining depreciation of dollar and frequent fluctuations will increase the amount of trade in foreign exchange market and exchange rates will fluctuate frequently, and then cause foreign exchange market turbulent.

Countries that just get rid of financial crisis have not entered the healthy and sustaining growth track, so no country like its own money overvalued, to the contrary, they prefer money undervalued so that stimulate export. Just because of this, dollar depreciation stirred up many countries’ sensitive nerves.

Meltdown of worlds greatest football club brought on by financial mismanagement

http://www.ft.com/cms/s/0/cf9bbe5c-db8f-11df-ae99-00144feabdc0.html

It is rare that sporting headlines and financial headlines go hand in hand but that is exactly what has occured in the past few days as one of the worlds greatest footballers has decided he no longer wishes to represent what he once described as 'the greatest club in the world'. Wayne Rooney's revelation yesterday that he wants to quit Manchester United for pastures new has left a major cloud hanging over Old Trafford. The club which was as recently as July announced as the worlds most valuable sports team valued at $1.84 billion, has been accused of lacking ambition to match Rooney's personal goals.

The depressing reality for Manchester United fans is that the leveraged buy out by American tycoon Malcolm Glazer in 2005 has left this once financial powerhouse unable to compete with rivals in England and Europe. What will hurt United fans most is that this ever weakening financial position is not befitting the clubs performances and is solely a result of the Glazers ownership. His takeover of the club in 2005 was financed almost entirely by borrowed money, money which subsequently became Manchester Uniteds debt. United went from being a profitable and debt free organisation to a heavily indebted club in one fell swoop with the Americans purchase. In July this year Manchester United revealed record operating profits of £100.85 million, however the club still made an overall loss of £83 million due in large to interest payments necessitated due to the Glazers leveraged ownership. This business model has left Manchester United facing the prospect of having to sell its most prized assets in order to survive.

In 2009 Cristiano Ronaldo was sold to Real Madrid for £80 million. Of the £80 million recieved by Manchester United only a tiny portion has been assigned to reinvesting in players, whillst the rest has been used to service the insurmountable debt which now stands close to £800 million. Now it appears that Rooney is about to become the next high priced asset to bow out and leave United with little or no star quality and an endless amount of debt. The Glazers can remain unperturbed by this debt as it falls in the name of Manchester United, so that when the time comes they can simply walk out the door and leave someone else pick up the pieces.Tough times for Manchester United on the pitch... Even more worrying is the financial state of the so called 'most valuable sports team' off the pitch.

How long the "Bubble" will keep?

After I read MR. Ren Zhiqiang's ( CEO of Hua Yuan real estate company) speech, there is one question always in my mind: how long the bubble in Chinese housing market can keep? Because of the traditions, Chinese people tend to buy at least one house. There have been an ad said, " No house, No family". After 1998, the price of Chinese housing market increase rapidly and still increasing. " Fueled by low interest rates, prices in Shanghai and Beijing doubled in less than four years, then doubled again ", Washington Post Staff Writer Steven Mufson wrote the news " In China, fear of a real estate bubble". Compare with the wage level of Chinese people, the house prices are extremely high, some Chinese people joked that we are the slaves of house. It is sure there is bubble in Chinese housing market and the government also try to use some policies to slow down the growth of house price, however, Ren Zhiqiang said every Chinese should buy houses a few days ago to encourage more people invested in housing market. From the other side, most Chinese believe that the house price will still go up, so they are stretching to pay prices at the edge of their means or beyond. It is dangerous for Chinese development.

If we leave the example and assume people will still believe the growth of the prices, never change their mind, how long the bubble can keep? and why it break?

Another glitch in building the "Smart Economy"

Fianna Fail and the Greens, who are attempting to build the "Smart Economy" must have been annoyed to hear about IBM's plan to move its server manufacturing business in Dublin to China by next March. According to IBM the move is a positive one as it places them closer to their suppliers and growth markets which will save a lot on costs. IBM have said that they will try to redeploy as many employees as possible which in reality won't be a lot. Ultimately it will leave close to 190 employers without a job, recieving "generous redundancy packages". I'm sure these employees will not see 5 weeks pay for every year worked as being "generous". I don't feel as bad for those employees under the age of 35 as they have a very good chance of finding another job, either in the same field or a new one, but many of these employees are probably close to the retirement age and will find it near impossible to find a job in the future. The departure of the IBM's manufacturing business also marks the end of hardware manufacturing in the Dublin area. To build Ireland's "Smart Economy," we need a thriving enterprise sector, high-quality employment, secure energy supplies, an attractive environment, and first class infrastructure, and at the moment we have a lot of work ahead to achieve this especially with such glitches as IBM occuring.
http://www.irishtimes.com/newspaper/breaking/2010/1020/breaking41.html

Environment vs Economics

The debate between economic value and environmental protection has arisen countless times. It has emerged recently as a result of China's enhanced research and expeditions of the deep ocean. According to Michael Sheridan, China is currently engaging in and researching deep sea drilling and has become the world leaders in exploiting the riches of the sea bed. The aim of these expeditions is to tap into "untold reserves of gold, silver, copper, zinc, nickel, cobalt and rare elements used in electronics". Acquiring these materials and claiming areas of the seabed(which itself is poses difficulties) would be highly prosperous for China.

However, with this new economic venture comes many environmental issues. Environmentalists and marine biologists fear that this deep sea drilling will have a huge impact on marine life. Only in recent years have marine biologists began exploring deep ocean seabeds and new species are constantly being discovered. Many believe that delicate ecosystems will be destroyed if excavation of the ocean floor continues. Tao Chunhui, a chief Chinese scientist, recently spoke of a voyage in which more than 40 undersea quakes were set off and 10.382 explosions on a scale seldom seen in world history were detonated. Western countries currently have barriers in place to prevent deep sea expeditions for environmental reasons but this is seen by certain governments(incl. the Chinese government) as a way to occupy more of the seabed.

When considering a problem like this it is important to weigh the costs and benefits. The preferable way would be to strike a balance somehow considering both environmental and economic aspects. This is rarely possible. The natural environment is often exploited for economic gain as seen in the past; overuse of fossil fuels, hunting, over-cropping and so forth. The economic gain often blinds people of the consequences. However, the Green Movement has brought many issues to the fore and environmental sustainability is now a major issue. Economically viable forms of energy production are now being practiced. In Ireland, there is now an emphasis being placed on wind-energy especially wind farms and this is a lucrative project with continuous demand for these products being forecast.

In relation to the seabed drilling, more time must be given to researchers and marine biologists to determine which areas need to be protected and in which areas, if any, drilling can be practiced.

Is Ireland semi - peripheral industry?

Hopkins and Wallerstein( 1986) define grobal production as a series of commodity chains; raw material, labour, the sustenance of labour, intermediate processing and processing transport and final consumption(Chase-Dunn 1989 p39).

Core regions contain relatively high proportions of core modes in these chains, peripheral regions contain low proportions and semi - peripheral regions are between. Three common indicators of core modes are higher wage rates, higher profit rates and higher capital intensity.

Arrighi and Drangel (1986) define the core by its relatively high GNP per capita. Chase - Dunn (1989,p207 ) assumes that core activities combine all three characteristics: relatively high wage rates for skilled labour working in relatively capital - intensive production, which facilitate particularty high rates of labour productivity enabling high rates of profit. At this stage however, do not define peripheries.
Bornschier ( 1992,P4) views the state as a producer or protector of innovation, refferring to a 'world market for protection', which is a territorrially bounded public utility and an element of the national production function. States support innovation and investments by placing their firms within national and global networks of economic transactions that are effectively protected.
Regional competitors in a single industry may be core or semi - peripheral according to whether they utilise innovations. Innovative core activities are defined in relation to other core activities. If a single sector in a region innovates, it is a core activity only if it is connected with other core activities in the regions. If such linkages do not occur, the long - term stability to consistently produce innovations will be threatened. It will become dependent on outside markets and, in the long run, will either be peripheralised or decline.

Austerity Ireland

Since the costs of bailing out the banks has been quantified at around €50bn (manageable, they say, but surely still too high), the focus in Ireland has now turned to our budget deficit of just over €20bn. That this deficit is a greater threat to the solvency of the Irish state than the enormous cost of bailing out the banks shows just how big a problem it is. This €20bn needs to be financed through borrowing on the international bond markets this year, next year and every other year that it remains. That simply cannot be done; the markets just won't give us the money.

Ireland has agreed with the European Commission to get this budget deficit down to 3% of GDP by 2014. More crucially, the bond market seems to agree to lend to us once we provide a credible path towards achieving this. But the credible path that seemed to be charted last December by the Minister for Finance looks shaky now, with a higher cost of the banks and zero growth in the economy that has hampered the deficit reduction plans.

Our 10 year government bonds are now trading 4%points higher than the German equivalent (a serious risk premium). A 4 year budget plan is set to be unveiled over the next few months, along with the hairshirt 2011 Budget in December, in an effort to restore market and EU confidence. This is crucial to bring down our borrowing costs (too high at the moment to be sustainable) before Ireland goes back to the bond market in the new year.

The only solution to this problem is a serious austerity programme, as argued by Colm McCarthy. This will require a widening of the tax base, tax increases, current spending cuts, a reduction of the capital spending programme, the introduction of water charges and (if the government has it in them) a residential property tax.

Fun times.

Work Permit Conundrum!!!

This may come as a surprise to some if not all but despite the downturn in the economy the number of work permits granted in the past year is up on 2009. This conumdrum is teased out very well in an article by Emmett Oliver in the Indo.In a week where the Nobel prize was won for work on friction in labour markets this raises some interesting questions for Ireland, especially in the face of new laws requiring proof from employers a suitable EU candidate could not be found before a work permit can be applied for.
It is a worrying case where with 400,000 plus unemployed in this state that 6,000 jobs could not be filled by citizens from within the EU because those employees could not be found. Is it a case of lower wages and high benefit rates? A lack of language training? Specific job skills missing? Or after years of a culture of Irish workers turning their noses up at low paid jobs are domestic employers simply finding that eager non EU workers are preferable?

Nobel Prize for Economics 2010 Announced

The Nobel Prize for Economic Science was awarded jointly today to Peter Diamond of MIT, Dale  Mortensen of Northwestern University and Christopher Pissarides of LSE.


These had not been considered among the favourites for the prize. Though it is almost a given now that favourites do not win.


The trio were awarded the prize for their work on markets with search frictions. In particular the application of their work to understanding the operation of labour markets - a particular issue now in the context of high global un(der)employment.

How do you solve a problem like child benefit?

There has understandably been a lot of controversy surrounding the announcement by Chancellor Osborne of his intention to withdraw child benefit from 'high-earners' - being those earning more than £44,000.

Given Ireland's dire fiscal straits it is illuminating to watch how this will play out, since there must now be pressure on child benefit payments in upcoming budgets.

Some of the problems with tackling this issue are set out in this Guardian article. The delicate balancing act for David Cameron's government - and any government contemplating this - is encapsulated in these survey results.

Cameron was buoyed by a YouGov poll issued last night showing that 83% of people are in favour of higher-rate taxpayers losing child benefit. But some 46% still thought it was unacceptable to impose a crude cut-off at £44,000.

Child benefit is a universal payment. The same amount is paid to parents that are millionaires as to those who survive on jobseekers allowance. A cut in the rate will more proportionately impact on lower income families.

In Ireland child benefit costs the exchequer over €2.2bn annually. It is unlikely that such a large slice of expenditure can be unaffected by cuts in government expenditure.

But if it cannot be cut across the board how can savings be achieved? Is it possible to pick a level over which no payment is made. So in the UK will there be an incentive for a worker to take a pay rise that brings their salary over £44k? And this applies at any level you can choose.

Means testing is also problematic since the cost of implementing the test may be greater than the savings achieved.

Perhaps the solution is to have a sliding scale at various wage levels. Also, different amounts are paid for each child, with the payment for the third and subsequent children being higher than for the first two. Does this make sense when there may be 'economies of scale' in hand-me-down clothes and equipment?

Perhaps the most sensible way to do this is to tax child benefit like any other payment such as pensions. Child benefit can be included on individual's tax returns and in time when the tax and social welfare systems are integrated this wold be even more efficient. It would also make the payment more progressive.

Of course, this is all based on the premise that child benefit is something we should have in the first place. But what government will go there?