# "By the end of this year households will have up to €15bn extra in their bank accounts"



## Brendan Burgess (8 May 2020)

What will people do with their lockdown savings?
					

By the end of this year households will have up to €15bn extra in their bank accounts




					www.irishtimes.com
				




_One of the unique outcomes of the collapse in [broken link removed] due to the lockdown is the impact on [broken link removed]. Unlike the economic slump of 2008-2011, when the 15 per cent fall in consumption matched the fall in household disposable income, this time round the drop in spending will go well beyond any reduction in incomes.

This is despite incomes being better protected than a decade ago. In our earlier economic crash, households cut spending because their incomes fell. At the moment, spending is down not only because some incomes have taken a hit, but also because most shops and the hospitality industry remain closed._


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## Duke of Marmalade (8 May 2020)

Brendan Burgess said:


> What will people do with their lockdown savings?
> 
> 
> By the end of this year households will have up to €15bn extra in their bank accounts
> ...


Absolutely. This is what Colm McCarthy refers to as a supply side slump.  There is plenty of disposable income but nowhere to spend it.  So talk of fiscal stimulus to revive the economy when the lockdown is eased is misplaced IMHO.

I have suggested elsewhere the concept of a Covid tax to suck up that enforced savings.
In very simplistic terms one can envisage a situation where we look back and say that a large section of the workforce were denied their natural income because people were not able to spend their money.  So the State filled the gap by subsidies (quite rightly).  But these subsidies should be paid for as far as possible by taxing the money that we would have normally spent but instead saved up.  The possibility of spending these enforced savings in the binge of the century to celebrate our freedom from lockdown should be stymied forthwith.

The net financial result at the end of it all, if a Covid tax was imposed, could be that the State and the population have broadly the same balance sheets as before the lockdown.  The one off 10% slump in GDP can then be put down to 3 months or so of spending austerity when none of us were able to eat, drink and be merry.  But we would have got over our austerity, unlike the financial crisis where we had it ahead of us.


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## Megafan (8 May 2020)

Duke of Marmalade said:


> Absolutely. This is what Colm McCarthy refers to as a supply side slump.  There is plenty of disposable income but nowhere to spend it.  So talk of fiscal stimulus to revive the economy when the lockdown is eased is misplaced IMHO.
> 
> I have suggested elsewhere the concept of a Covid tax to suck up that enforced savings.
> In very simplistic terms one can envisage a situation where we look back and say that a large section of the workforce were denied their natural income because people were not able to spend their money.  So the State filled the gap by subsidies (quite rightly).  But these subsidies should be paid for as far as possible by taxing the money that we would have normally spent but instead saved up.  The possibility of spending these enforced savings in the binge of the century to celebrate our freedom from lockdown should be stymied forthwith.
> ...



Hmmm, I think the odds of a tax on savings under the cloud of Covid are remote in the extreme, the Government, if there was one, would be permanently holed below the water with a decision like that. The comparison of helicopter money in one state versus additional short terms taxes in another would go nowhere. Even the most mild mannered PAYE worker couldn't get behind that I think.


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## Duke of Marmalade (8 May 2020)

Megafan said:


> Hmmm, I think the odds of a tax on savings under the cloud of Covid are remote in the extreme, the Government, if there was one, would be permanently holed below the water with a decision like that. The comparison of helicopter money in one state versus additional short terms taxes in another would go nowhere. Even the most mild mannered PAYE worker couldn't get behind that I think.


I fear you are right.  And yet helicopter money seems so not the correct response. It is not a demand side problem.


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## Brendan Burgess (8 May 2020)

Duke of Marmalade said:


> And yet helicopter money seems so not the correct response.



Are you sure? 

David McWilliams say it's the only solution. 



			Why Central Bank must give everyone free money right now | David McWilliams


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## Megafan (8 May 2020)

Duke of Marmalade said:


> I fear you are right.  And yet helicopter money seems so not the correct response. It is not a demand side problem.


 Not so sure about that, I have a big screen tv in mind with my name on it if it comes to pass!


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## EmmDee (8 May 2020)

Megafan said:


> Not so sure about that, I have a big screen tv in mind with my name on it if it comes to pass!



The lads in China will thank you


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## Duke of Marmalade (8 May 2020)

Brendan Burgess said:


> Are you sure?
> 
> David McWilliams say it's the only solution.
> 
> ...


_Boss _I am just recovering from a very bruising emotional experience with a bitcoin cultist and you throw David McWilliams at me - that is sadistic. 
I won't go on about DMcW, how his answer to negative equity was to cancel everybody's mortgage debt, or that we should leave the euro...stop, stop.



			
				David thinks outside the box McWilliams said:
			
		

> You might think this goes against all the basic laws of economics. This is because the basic laws of economics are wrong.
> ...
> It is a stubborn idea that has nothing to do with monetary economics and can be traced to accountancy, not economics. Accountants, God bless them, are governed by double entry book-keeping, whereby every credit needs to have a corresponding debit in order to make the books balance.


McWilliams thrives on this sort of populist debunking of conventional thinking.  I realise that some jurisdictions are experimenting with helicopter money and so this time he has something to support his contrarian populism, that is dangerous.

But the argument that McWilliams puts doesn't cut it for me.  Yes people are hoarding.  But it is not panic hoarding.  That is precisely the point made in the article you link to in OP.  People will have "hoarded" €15bn by the time this lockdown winds down.  Not because they are panicking but because they have nothing to spend it on.  But once the retail outlets and hospitality sector opens up McWilliams tells us the panic will have taken grip, people will continue to hoard their money.  Why would they hoard?  So as to have it ready for the next lockdown?  And the solution to solve this panic which is causing people to hold on to their windfall hoard of €15bn is to give them more money  _(Actually maybe that explains why Hong Kong tried this trick, the populace hadn't had time to hoard enough money from their lockdown.)_

There is no doubt that when the lockdown eases the problem will shift from a supply side one to the demand side.  It will change from "not allowed to go to the pub" to "afraid to go to the pub".  That will not be because of panic hoarding or lack of money in people's pockets.  It will be the new normal that society and the economy will have to adjust to.  None of the old fiscal or monetary remedies to traditional slumps would seem to be up to the job.

I'll drop the idea of a Covid tax.  Seems to make sense to me but as _Megafan _points out it hasn't a snowball's chance in a contest with helicopter money.


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## 24601 (8 May 2020)

McWilliams seems to just go for the most off-the-wall, back of an envelope theory he can think up of every other week. I listened to his most recent podcast and he is truly wandering into the realms of fantasy. It's like his book Renaissance Nation - he convinced himself that all of our economic progress stemmed from giving the Catholic Church the two fingers and put together a few hundred pages of unreadable waffle linking major Irish economic developments with bizarre anecdotes from recent referendums. It is truly baffling that he seems to get such a free ride from the media -  it must be his affable nature. All his podcasts seem to just be streams of consciousness brewing from whatever thought popped into his head whilst having his breakfast. He's after losing the run of himself altogether.


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## Duke of Marmalade (8 May 2020)

I have a long list of "cancel mortgage debt" rabbits out of McWilliams' hat.  He is a good self publicist and has milked very successfully how after about 8 years his prediction of a house price slump eventually materialised. 
What really threw me was when Trinity gave him a professorship.  But when I read of just how commercial these outfits have become, I think I understand.  McWilliams is marketable.


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## Brendan Burgess (8 May 2020)

Duke of Marmalade said:


> _Boss _I am just recovering from a very bruising emotional experience with a bitcoin cultist and you throw David McWilliams at me - that is sadistic.



Hi Duke

It was a joke. ( He is a joke) I forgot to put in the smiley.

These figures really show how off the wall the idea is.

I am sure that they will lap it up at Kilkenomics 

Brendan


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## Brendan Burgess (8 May 2020)

Duke of Marmalade said:


> What really threw me was when Trinity gave him a professorship.



It's not a full professorship

They keep them for the real experts.

Brendan


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## 24601 (8 May 2020)

Brendan Burgess said:


> Hi Duke
> 
> It was a joke. ( He is a joke) I forgot to put in the smiley.
> 
> ...



Do they call it Kilkenomics because it's in Kilkenny or because McWilliams' theory of economics would kill economies?


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## Megafan (8 May 2020)

EmmDee said:


> The lads in China will thank you


Portugal's loss is China's gain!


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## Sunny (8 May 2020)

This is fairly unique situation. I dont think looking at normal solutions is going to work but I can see it from both sides. Of course, when the economy opens up again, there will be huge economic growth from pent up demand and there will probably be ridiculous levels of inflation in some sectors but it will be temporary. Taxing the money doesn't really make sense to me. People have been taxed. If they decide to introduce a covid tax, I think we will just see that extra money poured into the black hole of social housing and health. I dont think it will be used to improve the balance sheet of the Country. I think that the debt that Countries like Italy and Spain and even us have had to take on will need to dealt with at a European level. 

Likewise I dont see the need to helicopter money into the economy if they can open up the economy quickly and get people back to work. However, the longer this goes on and if people are scared to go places and spend their money, then it is a different conversation. I have developed what I like to call the Penny's test to judge economic recovery. If on the first day, that Penny's opens, the queue is over 10 miles long then we will be fine. Anything shorter and I think we are in trouble!


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## Duke of Marmalade (8 May 2020)

Brendan Burgess said:


> Hi Duke
> 
> It was a joke. ( He is a joke) I forgot to put in the smiley.
> 
> ...


Oh, I knew it was a joke.  But maybe a smiley would clarify it for folk who have not seen your televised bout with the genius.


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## Duke of Marmalade (8 May 2020)

Brendan Burgess said:


> It's not a full professorship
> 
> They keep them for the real experts.
> 
> Brendan


Jayz, _Boss_ this is meant to be a serious corner of AAM.  The Lucey "deposit selling moment" puts Krugman's fax machine gaffe in the hal'penny place.


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## Sunny (8 May 2020)

Duke of Marmalade said:


> Jayz, _Boss_ this is meant to be a serious corner of AAM.  The Lucey "deposit selling moment" puts Krugman's Fax Machine gaffe in the hal'penny place.



I still laugh about it. I think it is now part of accountancy exams!


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## Brendan Burgess (8 May 2020)

Sunny said:


> I think it is now part of accountancy exams!



In Trinity or in the professional exams?


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## Duke of Marmalade (9 May 2020)

Sky News quotes Top economist David McWilliams  I had almost forgotten that David was a former Central Banker himself, on a par with Mario in his own mind I suppose.


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## joe sod (9 May 2020)

Duke of Marmalade said:


> He is a good self publicist and has milked very successfully how after about 8 years his prediction of a house price slump eventually materialised.



Yea thats his career in a nutshell, but he was a lone voice back in those days and very anti establishment. I think he borrowed his style of writing from other guys in US and UK, it wasn't unique but was unique to Ireland before people started reading international financial stuff like they do now. Suddenly when the housing crash happened he was box office and then his career  as a "celebrity economist" took off.
He was shameless with regard to Brian Lenihan coming to his house for advice on how to handle the banking crisis, he couldn't keep his trap shut.


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## Brendan Burgess (9 May 2020)

So John Fitzgerald's piece is directly at odds with David McWilliams' piece.

Why did John Fitzgerald not call out the helicopter money nonsense?  Even if he did not want to criticise his Irish Times colleague, he could still have said that it is wrong thing to do. 

He has another piece today.  It's primarily about how he sees the pandemic evolving.  He speaks with such confidence about topics about which he has nothing more than a layman's understanding. 









						David McWilliams: When will the money run out in the Covid-19 pandemic?
					

The money will not run out unless the Central Bank decides not to provide it




					www.irishtimes.com
				




Brendan


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## Brendan Burgess (9 May 2020)

David McWilliams: How to avoid an economic depression
					

The new government must make saving small businesses its top priority




					www.irishtimes.com
				




_If the banks are worried about depositors not getting paid interest, the Irish Central Bank could make available one rate for depositors and one for debtors. The rate could be 1 per cent for depositors and 0 per cent for borrowers – a concept called dual interest rates.

*Carry the cost*
Then, you may ask, won’t the Central Bank have to carry the cost? Well, yes it would, but central banks can’t go bust. Have you ever seen a central bank go bust?_

What depositors would get the 1%?  Which borrowers would get charged 0%? 

I would say that the Irish banks would not be shy about borrowing at 0% to put it on deposit at 1%.

Brendan


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## Duke of Marmalade (9 May 2020)

Brendan Burgess said:


> So John Fitzgerald's piece is directly at odds with David McWilliams' piece.
> 
> Why did John Fitzgerald not call out the helicopter money nonsense?  Even if he did not want to criticise his Irish Times colleague, he could still have said that it is wrong thing to do.
> 
> ...


I kept waiting for the signature Outside the Box suggestion from McWilliams like we should all take a year off or sumfin'.  But it was really quite a damp squib just riffing on about vaccines and immunity, as you say, subjects upon which he knows as little as I do.  I couldn't find the other article you link in a later post but which is subscriber only.


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## Duke of Marmalade (9 May 2020)

Brendan Burgess said:


> David McWilliams: How to avoid an economic depression
> 
> 
> The new government must make saving small businesses its top priority
> ...


Managed to get my hands on that article.  The first three quarters made perfect sense though not new stuff.  We need to do as much as possible to address SME's cash flow problems.  He then describes the UK scheme which makes perfect sense.  The Government there are underwriting practically interest free loans of up to £50k.
So far so good and so common sense, but when will our hero don his cape? Here it comes, he reminds us of when he worked in the Central Bank and he learned all about seigniorage and the magic of central banking.  He then proposes a scheme which involves zeroising interest on existing SME loans. I couldn't quite follow where it was a quantum leap ahead of the UK scheme but it does give him the entreé to talk about central banks printing money, which has actually lost its shock factor by now - he will need a new party trick.  As an aside, why he feels depositors need 1% p.a. when they get 0% at the minute is a bit of a mystery.
I also noted:


			
				David economics is wrong McWilliams said:
			
		

> dropping money into accounts is the same as giving a tax cut


Well yes, more or less, so why does he elsewhere go for the more sensationalist depiction?  Of course, it's not quite the same - only taxpayers benefit from tax cuts.  But from a macro point of view it would be characterised as a fiscal measure rather than a monetary one.  But if it is financed by borrowing it amounts to the same thing.


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## joe sod (16 May 2020)

He was on newstalk last week again espousing his theories on borrowing lots more money and that the total debt is irrelevant. Of course his theories are widely popular which explains I think why he is doing this to sell lots more books, get more podcasts and interviews and ultimately drive revenue for David McWilliams. I dont think he cares if he ultimately collapses his reputation as a celebrity economist he will have made lots of money and will still be a media whore.
Luckily the politicians are not buying it Pascal Donohue poured alot of cold water on the idea and Ivan Yates has even challenged him to a debate about it on his show.


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## Duke of Marmalade (16 May 2020)

He has a piece in today's IT about what he calls a Pandession.  He has dropped his helicopter money idea and he stops short of suggesting an outside the box stroke of genius.  But he does remind us of how Sweden escaped the Great Depression by breaking with conventional gold standard thinking and devaluing the krona by 3%.  He calls for Ireland to deploy similar unconventional thinking but stops short of saying we should leave the euro, though why else bring up the Swedish devaluation?

Colm McCarthy in today's _Sindo _gently puts down McWilliams' idea of debt restructuring.  Interestingly he describes him as an Irish Time columnist, a sure sign they think the IT have been take for a fool.


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