# "The next bust is on its way but nobody is shouting stop"



## Brendan Burgess (4 May 2019)

A good article by Shane Coleman in today's Times Ireland (subscription required) 

*The next bust is on its way but nobody is shouting stop*

_All the mistakes and failings of the Celtic Tiger and previous booms have returned. Nobody on either side of the Dáil seems to have noticed or to care. On the contrary, they appear determined to keep outbidding each other with populist politics.


We are destined to maintain our boom-bust-boom-bust cycle. At its core lies the perverse correlation between politics and economics in this state. Irish politics is at its best at times of crisis when all economic hope seems lost. Unfortunately it is at its worst when things are good, losing all semblance of backbone and pandering to every vested interest for electoral gain.

...
With the return of the good times, there seems to have been a wiping of the collective memory as to how we got into the horrendous mess in the first place. We’re back spending money we’re not sure we’ll have in a few years. During the Celtic Tiger we did this with stamp duty from property sales. This time it’s inflated corporate tax receipts. All difficult decisions have been shelved._


----------



## AlbacoreA (4 May 2019)

While we certainly have problems it's definitely not the same as Celtic Tiger. May have similar problems and outcomes eventually but the cause and effect is different. 

We are invested heavily with outside money and workforce. Our services especially health can't cope. Our housing can't cope. Govt does nothing except encourage it. 

What happens when the outside money pulls out or sells out.


----------



## Palerider (4 May 2019)

I completely agree with the piece, a look at traffic on the roads confirms , they are jammed with vehicles of all sizes, I travel the N7 at various times of day and it is incredibly busy, advance orders of the likes of the Camry ( €40k ) and Tesla 3 ( starts at €49k ish) suggest we are out there happy to spend or finance.

Cash buyers snapping up houses, large funds snapping up apartment to let projects, money no object.

Depositors getting nothing.

Fundamentals like Health suffering from poor governance from the children's hospital cost debacle to long waiting lists for the ordinary Joe.

The black economy is thriving, receipts are hard to come by, you have to request a receipt, followed by a long face, tradesmen charging what they want to, I'm culpable, I like cash work done on my house but that cash work is not there now, the handyman now considers cash work to be the same as vat included....if you can find a tradesman.

When a pint costs almost €8 in parts of Dublin it's hard not to wonder where we are going, for €8 I'd want it from a golden chalice and served in a pub where Billy Joel is the resident piano man.


----------



## cremeegg (4 May 2019)

Things are going well so the next bust must be on the way.

Well unless the current expansion lasts forever I suppose the next "bust" must be on the way.

The government response to the current expansion is nothing like the government response to the previous boom.

In housing the last time we borrowed hugely and built lots of houses. Now borrowing is restricted and not enough houses are being built. I know which response I think was better.

We spent tax money in the previous boom on increasing public service pay. We are spending it today on capital projects. Wether we are getting value for money is a separate question. But a less important one. Was rural electrification value for money ? The issue with rural broadband is not do we need it, we do. Its not even how much it will cost, what did rural electrification cost, (its irrelevant), I am slightly concerned about who will own it and more concerned that it may become obsolete rapidly. Will 5G make a nonsense of fibre networks just as they come online in rural areas.


----------



## Folsom (4 May 2019)

I agree with the general sentiment of the article (or the snippets that I have been able to read), but I do think its observations are somewhat flawed.
I think it is naive to consider the political system and the economic system as a 'perverse correlation', the two are intrinsically intertwined.
I also think commentators would be well minded to cast their eyes abroad and observe the political upheaval occurring over the last decade. Be it Trump or Brexit, Yellow Vests or the rise of far-right groupings, be it Catalonia or Scottish Independence, Ukrainian civil war, Russian annexation, or perpetual regime change wars by the US in Venezuela, Africa and Middle East.

Since the international economic credit crunch crash in 2008, and 9/11 before that, the global political, economic and social order, is being slowly pulled apart.

For us, the FG/FF supply and confidence has kept the political system on life-support. But it is all window dressing and a great deal of riding the wave as long as possible.

I do think Ireland is somewhat between a rock and a hard place. The monetary system is being artificially pumped up by the ECB in order to keep it ticking over. Do we try to exploit it and try to grow the economy out of debt and hope the system doesn't deflate beforehand leaving us caught truly with our pants down?
Or do we impose rigid fiscal discipline once again and watch as the whole political patchwork job we have in place splinters into a thousand pieces?


----------



## noproblem (4 May 2019)

In fairness the piece of journalism is very simply looking back at what went wrong before the Celtic Tiger bolted, pick out the obvious headline markers and all that, but there's as much good going on in Ireland as there is wrong. Coleman makes headlines by doing a David McWilliams on it, ie, it might go belly up, but it might not either. You wouldn't need to be any genius in journalistic terms, or economics, to write it.


----------



## pauric (5 May 2019)

cremeegg said:


> I am slightly concerned about who will own it and more concerned that it may become obsolete rapidly. Will 5G make a nonsense of fibre networks just as they come online in rural areas.



The issue about who owns it is potentially a valid one.

However the technical solution is the very best that is out there and won't become obsolete in the next 25 to 30 years as once you have the hard and expensive part of laying fibre in the ground and stringing on the poles to upgrade that in the future is just a matter of swapping the optics at the end of the fibre which means a new modem for the customer and an upgraded piece of equipment in the exchange.

In all the years you have had broadband how many modems or routers have you gone through as technology advances, they are very cheap items and easily replaced.

To future proof to best of our capability today our Internet needs to run over fibre and and not over the air. 

5G on the other hand is just another iteration of a wireless technology where previous generations have been commercially deployed for broadband schemes in Ireland and failed after a few years. We need to do this rollout right and fibre is the only way of doing that.

The amount of available spectrum on fibre compared to wireless spectrum is order of magnitudes greater and is in general not influcenced by poor weather such as rain or snow.

Other problems such as building new masts in rural areas will also be a huge problem as nobody wants them in their area and they will be a must to deploy a 5G radio network. 

At this stage the government needs to just get on with it and start the rollout, perhaps it is more expensive than it should be but there are no other credible options so let's get started as the country badly needs it and if we wait there may be no money left as we could well be already on the road to bust at that stage.


----------



## NoRegretsCoyote (5 May 2019)

This all depends on where the economy is with regard to its potential.

I don't think Coleman has a view on this, and I doubt he even has its conceptual framework.

Some claimed economy was due for a crash in 2000, some said it 2007. They weren't both right.

The more useful questions (and my suggested answers) below:

Is there room for manouevre (a few years of deficits) if there is a downturn? *Probably, but a surplus of 1%-2% right now would be better than a balance.*
Is the tax base sustainable? *The tech sector, and corporate profitability in general, are in a good place right now. It's not clear that corporation tax revenues will be there medium term.*
Is the public spending mix right? *Policy since spending started growing again in2014 has been to prioritise current spending over capital. This is changing, but is vulnerable to a downturn when capital would be the first to be cut.*


----------



## Folsom (5 May 2019)

NoRegretsCoyote said:


> Is there room for manouevre (a few years of deficits) if there is a downturn? *Probably, but a surplus of 1%-2% right now would be better than a balance.*



I agree in general terms that a surplus would be better, presumably to pay down debt? But the problem is where do you extract the surplus from?
Politically it is a quagmire. Economically, would running a surplus have significant effect on our levels of debt?
I would be more minded to run balanced budgets or small deficits insofar as growth continues to exceed the rate of increasing debt.



NoRegretsCoyote said:


> Is the tax base sustainable? *The tech sector, and corporate profitability in general, are in a good place right now. It's not clear that corporation tax revenues will be there medium term.*



I take it from that that you consider it unsustainable. If that is the case, I would agree. The question is, where to find alternative sustainable tax streams to compensate for any diminishing of current tax streams?


----------



## Gordon Gekko (5 May 2019)

To be fair, global multinationals paying taxes on their profits is a world away from transactional property stuff.

Pessimism sells, but the reality is that Ireland Inc is in rude health.


----------



## NoRegretsCoyote (5 May 2019)

Gordon Gekko said:


> To be fair, global multinationals paying taxes on their profits is a world away from transactional property stuff.



Yes and no. Revenues have really soared since 2014 when a few companies (this is all anecdote) decided to register IP in Ireland. 

Corporation Tax is forecast to be €10bn next year, it was €4bn in 2010. 

It's fair to wonder about the sustainability of any revenue item that grows 150% in ten years.


----------



## cremeegg (5 May 2019)

NoRegretsCoyote said:


> Corporation Tax is forecast to be €10bn next year, it was €4bn in 2010.
> 
> It's fair to wonder about the sustainability of any revenue item that grows 150% in ten years.



The number of people at work in Ireland has grown nearly 20% in the last 6 years. So a 150% growth in CT is not as out of line as you might think, nor entirely due to IP accounting tricks.


----------



## Gordon Gekko (5 May 2019)

Also, things like the Double Irish are falling away.

Some people are just naturally bearish; the reality is that due to a wide variety of factors, Brexit included, we are becoming even more of an aircraft carrier for countries to access Europe.

Rather than built on clay, our economy is now built on real things.


----------



## Folsom (5 May 2019)

The Irish economy is certainly purring away nicely. But is Irish society benefiting accordingly? I would suggest that it is not. 
Aside from the headlines of homelessness, there is an underlying personal debt issue that is hanging on a large sector of Irish people. 
There is a significant glut of people who bought from 2005-2008 on the promise of a 'starter home' who are now half way through repayments but no hope of aspiring to the 'finisher home'. 
Others bought into the promise of commuter midland homes only to be caught in daily grind of travel fatigue. 
Families are being deferred, wages still relatively subdued, immigration is required to sustain and grow population. 

I think people are rightly concerned of an economic downturn of any significant scale. It will be a tipping point for many. That is why I think exploiting cheap money now for capital infrastructure that will serve us well into the future is far better than trying to batton down hatches now.


----------



## NoRegretsCoyote (5 May 2019)

Gordon Gekko said:


> Also, things like the Double Irish are falling away.
> 
> Some people are just naturally bearish; the reality is that due to a wide variety of factors, Brexit included, we are becoming even more of an aircraft carrier for countries to access Europe.
> 
> Rather than built on clay, our economy is now built on real things.



Which of the following taxes has the most potential to fall 20% (absent policy change) in the next five years:

PRSI
LPT
VAT
Corporation tax
Income tax
When you've picked your answer, tell me what the best policy response is.


----------



## Gordon Gekko (6 May 2019)

NoRegretsCoyote said:


> Which of the following taxes has the most potential to fall 20% (absent policy change) in the next five years:
> 
> PRSI
> LPT
> ...



VAT I’d say. Cut it or launch a stimulus programme.


----------



## PMU (6 May 2019)

cremeegg said:


> The correction is more likely to come in the form of inflation.


  Why?  EU inflation was 1.4% to end of March (estimated to increase to 1.7% by end of April) https://ec.europa.eu/eurostat/docum...P-EN.pdf/dbcc52b0-a975-4da5-a3c2-8f7eb892b802, i.e. below the ECB target of 2%. The ECB isn't printing money https://www.ecb.europa.eu/press/pr/stats/md/html/ecb.md1903~3484303072.en.html.  So where will this correction in the form of inflation come from?


----------



## joe sod (6 May 2019)

cremeegg said:


> The correction is more likely to come in the form of inflation.



yes correct, thats the big danger for the global economy, interest rates at historic lows , over indebted governments addicted to the cheap money and borrowing, ireland will not be able to borrow its way out of the next crises because we already have over 200 billion in debt. The oil price is rising, the supply is very tight with sanctions on iranian and venezualan oil . 
A small rise in interest rates will cause carnage, the euro will come under real pressure then, maybe italy and greece will crash out bringing the whole thing down


----------



## noproblem (6 May 2019)

joe sod said:


> A small rise in interest rates will cause carnage



Every now and then we hear this comment, it's an absolute load of codswallop. I'd love to hear the  facts of why this might be so, in fact any iota of it  being a cause of carnage?


----------



## Gordon Gekko (6 May 2019)

The authorities WANT inflation because that’s what will deal with the debt.

Take the Anglo promissory note as a microcosm; inflation at around the 2% level will make that far more manageable in 2038.


----------



## NoRegretsCoyote (6 May 2019)

joe sod said:


> *A small rise in interest rates* will cause carnage



I know some savers who will be very happy, and an exchequer that will welcome the DIRT revenue.

Remember - someone's debt is always someone else's asset!


----------



## PMU (7 May 2019)

joe sod said:


> A small rise in interest rates will cause carnage, the euro will come under real pressure then, maybe italy and greece will crash out bringing the whole thing down


Will it? We can only speculate what will happen in euroland as we have never had QE before for the euro.

But e.g., in the US QE has tailed off since 2014. Interest rates have risen since 2016 to 2.5%. Inflation increased in 2018 and then declined to 1.9%. In that period GDP has risen 3.4% and employment has fallen to 3.8%. https://tradingeconomics.com/united-states/indicators. So no carnage there. 

In the UK QE has tailed off since 2018. Inflation rose and then declined to 1.0% Interest rates rose and then declined to 1.9%. In that period while GDP growth has declined, unemployment has fallen from 7% to 3.9%. https://tradingeconomics.com/united-kingdom/indicators. So no carnage there either.

It would appear that modest increases in interest rates after QE, i.e. that keep inflation at or below the target 2% rate, have not caused carnage. The USA has never had it so good, and considering Brexit-related uncertainty, the UK hasn't done too badly either.


----------



## WolfeTone (22 May 2019)

Is this the same Shane Coleman that back in January proclaimed that "we never had it so good"?
That feel good factor evaporated pretty quickly.


----------



## Gorteen (9 Jun 2019)

I think the Celtic Tiger type behaviour is back..... A local woman sought a home improvements loan for a new kitchen of €2500. I asked when was she getting the kitchen and she replied saying she was happy with her kitchen, she was going to Lithuania for new boobs (.)(.)


----------



## Bronte (10 Jun 2019)

NoRegretsCoyote said:


> I know some savers who will be very happy, and an exchequer that will welcome the DIRT revenue.
> 
> Remember - someone's debt is always someone else's asset!


The ECB have signalled no rate rise for some time to come. So that’s not going to happen.


----------



## Bronte (10 Jun 2019)

Gorteen said:


> I think the Celtic Tiger type behaviour is back..... A local woman sought a home improvements loan for a new kitchen of €2500. I asked when was she getting the kitchen and she replied saying she was happy with her kitchen, she was going to Lithuania for new boobs (.)(.)


The expensive new cars on the roads signal to me the Celtic Tiger is back. Also the cost of things. From my visitor viewpoint the cost of accommodation, food in supermarkets and restaurants. Having one drink is amazingly expensive.  

You can see the place is booming again. Noticeable that the Irish staff have moved on again to other jobs and the foreigners are again replacing them in the hospitality sector. Rents are beyond extraordinary. Full employment very noticeable.

House prices are not yet at Celtic levels though.


----------



## Ceist Beag (10 Jun 2019)

Bronte said:


> House prices are not yet at Celtic levels though.


Maybe not outside of Dublin but certainly in Dublin there are some crazy prizes being quoted (and obviously believed to be obtainable). Here's just a sample - all apartments.
1 bed apartments in Grand Canal Dock - €485K
2 bed apartments in Clonskeagh, €510K, 3 bed apartments in same block, €800K 
2 bed apartments in Howth and Dun Laoghaire at €550K and €495K respectively. 
Frightening really.


----------



## noproblem (10 Jun 2019)

You can still get a 1 bd apt in Dublin for less than 200k, Dublin 8 to be precise and in near proximity to everything.


----------



## Monbretia (10 Jun 2019)

While I am a long way from Dublin and the new boom has been limited a bit to there and the environs it seems to be spreading!  I want a kitchen extension but I have missed the boat, I tried to do it back in the last boom and it was mad money, I suffered job wise when that went to hell and didn't have the financial security to do it in the lean years.  Now I am back with my plan and there is not a builder to be found that even wants to look at it not to mind actually build it!

In another midlands rural town I am looking for someone to do a bit of garden work, build patio etc that sort of thing, no takers either, the last work I had done there was the year Trump was elected and it was much easier find someone to do it then.


----------



## WolfeTone (19 Sep 2019)

Oh dear! 









						Why the Fed was forced to intervene in short-term money markets
					

The repo rate spiked in an alarming echo of the financial crisis




					www.economist.com


----------



## Palerider (21 Sep 2019)

Gorteen said:


> I think the Celtic Tiger type behaviour is back..... A local woman sought a home improvements loan for a new kitchen of €2500. I asked when was she getting the kitchen and she replied saying she was happy with her kitchen, she was going to Lithuania for new boobs (.)(.)



Not the 'bust' we are referring to perhaps a 'BUST '  that would probably interest at least 50% of the population, definitely more than care about some views on this thread.

I think we are heading towards a financial bust that will be a lot less curvy and welcoming as the brand new kitchen funded Lituanian variety.


----------



## joe sod (22 Sep 2019)

Ireland is hugely dependent on foreign capital investment and especially American, if anything interferes with that we are in big trouble. However lately there are a few very worrying recent developments, the loss of the Apple case in the European court where Apple were ordered to pay the Irish government the 13 billion in tax, however immediately there will be counter claims by other European countries for their share of that revenue thereby undermining the very advantage of us multinational s locating in Ireland.
The recent hostility by the Irish government and media to other foreign investment in Ireland most notably in property investment, now referring to them as cuckoo funds.
The brutal attack on the Quinn executive in the border region last week, if this is not immediately stopped then us executives may conclude that Ireland is not a safe country for them to be now.


----------



## NoRegretsCoyote (22 Sep 2019)

joe sod said:


> However lately there are a few very worrying recent developments, the loss of the Apple case in the European court where Apple were ordered to pay the Irish government the 13 billion in tax, however immediately there will be counter claims by other European countries for their share of that revenue thereby undermining the very advantage of us multinational s locating in Ireland.



The case is ongoing and hasn't been lost.


----------

