Irish economy have we escaped recession

T

techman

Guest
Just wondering what people think has Ireland and Western economies generally escaped recession. I for one thought that the high tech meltdown in 2001 would have resulted in a much deeper recession with unemployment rising sustantially to around 9%. Of course this did not happen and it also didn't happen in the US and other Western economies. We merely had a mild recession where the only industries that suffered were high technology. This seems amazing many individuals and corporations ammassed enormous debts during the late 1990s. Normal logic would suggest that the huge debts ammassed should have resulted in prolonged period of thrift in order to clear these debts with many big corporations going bust this is what happened in previous recessions.
But one man Alan Greenspan has changed the rules by reducing interest rates to historically low levels. This has meant that corporations which should have went bust didn't. Also private individuals kept borrowing and spending which has resulted in a worlwide property boom. The question is has this really worked, have we really avoided the recession or is there a huge world recession coming.
 
Global problems

Stephen Roach of Morgan Stanley had an excellent article in Yesterday's FT dealing with the enormous amount of debt accumulated and the "asset economy" as he calls it.
The future is unknowable but you have been warned.
If you explore this link you can find a lot of his writings on the subject and others including the global housing bubble.
www.morganstanley.com/GEF...gests.html
Best Wishes
tyoung
 
response to tyoung

I read the article on the "asset economy" on the website you pointed out. You are right it was an excellent article.
The key point I thought in the article was

" For global property markets, the balance of risks is now shifting. With housing markets in about two-thirds of the world either in or close to a bubble, the impacts of the coming normalization of monetary policy cannot be taken lightly. Courtesy of property-induced wealth effects, the global economy was neatly able to sidestep the potentially devastating aftershocks of a burst equity bubble. As the liquidity cycle now turns, the odds are that the world will not be so fortunate the next time a bubble bursts."

Very few commentators have been pointing to the crucial fact that we didn't have a recession in 2001 after the equity bubble burst and that it was merely transferred to a housing bubble. But at some stage the chickens will come home to roost. The question is when it happens will there be a banking crisis with many people defaulting on their debts.
 
response to tyoung

> The question is when it happens will there be a banking crisis with many people defaulting on their debts.

Why would that necessarily happen? If interest rates or unemployment surged then fair enough as some people will be unable to afford their repayments. However if house prices fall it arguably means nothing to somebody who can still afford their repayments and negative equity only becomes an issue if the falls are such that they eat up the equity that most buyers own in their house from day one (e.g. 8% in the normal case of a max 92% LTV mortgage assuming no other borrowings are used to fund the purchase) and negative equity is only a problem for somebody who needs to liquidate their property immediately.
 
credit growth/money supply growth

A few weeks ago I read in the newspapers that both mortgage and non mortgage credit growth was running in the 20% plus range. I wonder how much of this represents recycled savings and how much is brand new credit courtesy of the Central Bank?
Does the Irish Central Bank publish money supply figures for the Irish economy independent of the Euro zone figures? I have not seen any but if they did I bet it is not insignificant. This nice new credit ripples through the economy.
It is simply naive to suggest that a slowdown or reversal in the property market would not be a significant drag on the Irish economy.
 
credit growth

No mention,that I could see, of credit growth or money supply figures. In fact everything is just wonderful according to the government.
Credit growth this strong is not sustainable. When, how and what the effects of a slowdown remain to be seen.
Best wishes
 
credit growth

Credit growth is still running in the 20% range. However according to the Irish Central Bank M3 is only running at around 6%. This is much less than I would have guessed.
As an aside anybody want to guess how much gold Ireland holds in it's reserves?
 
Re: credit growth

Oh, that sounds like a challenge but why guess when it's in [broken link removed] €63m
 
gold reserves

sorry!
I was surprised that it was so small(less than 1% of the country's reserves). That's just extraordinary for an asset that has been the bedrock of every monetary system up to 33 years ago. No wonder we had continuous inflation since.
 
re gold reserves

Does it really matter how much gold Ireland has in reserve now. As we are now in the euro is it not the average gold reserves of all countries in the euro that is important. So it is more important that the big countries like France and Germany have adequate gold reserves. Of course this shows up another potential weakness of the euro. If there was to be a financial crisis would France and Germany use their gold reserves to back up the euro. I think that if such a scenario arose nationalism would come to the fore and it would be every country for themselves. I also think Ireland is now way to dependant on decisions taken in other countries be they American Multinationals or the European Central Bank.
 
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