“One of the great populist myths of the recession is that the good times left ordinary folk behind. Analysis of the pace and pattern of public spending growth through the boom years paints a different picture. Between 2000 and 2007, for example, most social welfare payments increased by a cumulative 70 per cent to 90 per cent in cash terms, or by 40 per cent to 60 per cent in real terms. The rate of child benefit for first and second children rose from €54 to €160, equivalent to a real increase of 144 per cent.
Public servants also benefited greatly from fiscal largesse. Recent research by the ESRI indicates that between 2003 and 2006, the margin by which public servants earned more than their private sector equivalents, calculated on a like-for-like basis, increased from 10 per cent to 22 per cent. This huge boost to an already large premium (comparable estimates for other countries are in the range 4-8 per cent) came about on foot of a boom-time benchmarking exercise.
Current levels of expenditure on social welfare and public sector pay are a boom-time legacy. They could only be sustained by boom-time tax revenues. They cannot be sustained by the kind of tax receipts the Government can reasonably expect to garner from the existing system even when the economy returns to full employment, much less the depressed revenue stream of 2009.”
The Financial Times has its say on the government’s proposed bad bank, NAMA, here.
It also asks and answers the question as to why Anglo is being bailed out when its lending is not important for business or the economy.
“why exactly has Anglo Irish Bank been included in the scheme?
Anglo Irish does not have a retail branch network — and has no intention of establishing one — and is not a significant source of financing to small Irish businesses. Rather, about half of its business is as a lender to middle-market companies and high net worth individuals, while the other 50 per cent comprises secured lending to property investors.
But despite the lack of a small business focus, Anglo Irish will be the biggest beneficiary of Nama”.
“So what is behind this massive rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates – as low as negative 10 or 20 per cent annualised – as the fall in the US dollar leads to massive capital gains on short dollar positions.
Let us sum up: traders are borrowing at negative 20 per cent rates to invest on a highly leveraged basis on a mass of risky global assets that are rising in price due to excess liquidity and a massive carry trade. Every investor who plays this risky game looks like a genius – even if they are just riding a huge bubble financed by a large negative cost of borrowing – as the total returns have been in the 50-70 per cent range since March.”
Given that Ireland is also involved in the failed war on drugs, it is interesting how not only is scientific evidence now dismissed, but it is now abused and effectively banned. It sort of has echoes of the row between the Pope and Galileo over the validity of science versus religion, the enlightenment and all that. One of the scientists criticises the government’s moral panic over canabis.
We know how the US backed war on drugs is laying waste to whole countries like Mexico, because a military solution is the answer. When will the madness stop?
