Debt Slaves

February 23, 2014

One of the hallmarks of the current government is its servile obedience to the financial sector. Currently up for sale are 13000 mortgages of Irish Nationwide(1) on sale to the highest bidder. Families are terrified they will lose any remaining consumer protection they have under Irish Law, that they will instead face instant eviction in a go tough policy.

In contrast (2)every household in Iceland will have €24,000 worth of debt written off.

“The move was part of the election manifesto of the Progressive Party, led by Prime Minister Sigmundur David Gunnlaugsson.

This will cost the country €1.2 billion and will begin in mid-2014. Iceland has been burdened with debt since the 2008 financial crisis, which saw the krona collapse.”iceland-unemployment-rate

Iceland hopes this will kickstart consumer spending . Iceland has an unemployment rate heading for 4% while Ireland’s unemployment rate in spite of large-scale emigration is heading for 14%.

Lack of consumer spending combined with dangerous levels of personal and public debt lead to deflation.

(3)”Question: What Is Deflation?

Answer: The standard deflation definition is when asset and consumer prices continue to fall. This may seem like a great thing to consumers, except that the cause for widespread deflation is a long-term drop in demand. Unfortunately, a drop in demand means that a recession is probably already underway, with job losses, declining wages, and an ongoing decline in the value of your home and your stock portfolio. Deflation is a result of businesses dropping prices in a desperate attempt to get people to buy their products.”

VAT receipts for the year 2013 show a drop in consumer demand though this is obscured by the esoteric CSO measurement of giving results measured against expected receipts rather than actual receipts measured against those of previous years.

Government would appear to be adopting the strategy of under spending by circa €400m in capital investment as a buffer against declining tax returns.

Nearly 20% of the total mortgage stock according to the Central Bank are now in arrears (5). Job losses, declining wages, businesses under growing pressure mean debt is more difficult to service in Ireland.

Additionally, growing direct and indirect taxation through property charges, water charges and increasing pressure from Europe to close exemptions and loopholes in the collection of VAT, mean deflation in Ireland is on the increase with consequent further damage and loss to the economy.

The magic figure of 3% growth is held out as a panacea that will allow Ireland to escape its straight jacket of debt, escape the negative effects of deflation and halt economic decline.

The US heading for a debt burden of $60trillion faces the difficult task of unwinding from its current QE commitments. As soon as it withdraws support for QE, as it must, the global economy shivers and signals a fall.

The decline of the middle class alongside the growing divergence between rich and poor in the US show that the burden of deflation has been imposed on the majority of americans while counterbalancing inflation has been exported into stocks and shares making the rich richer and the poor, poorer, a sign of economic decline to come.

QE has benefited the rich with much of that wealth exported out of the US some of it finding its way to Ireland with vulture funds and hedge funds looting the property portfolios of NAMA and Irish Nationwide above.

So, where will worldwide economic growth come from helping Ireland to reach its magic 3% ( in reality it requires 3.8 -4% growth for economic sustainability, but lets work with 3%.

Europe hovers on deflation and 0-1% growth. See last blog “The ECB’s non-standard monetary policy measures amount to the similar print and burn money operation of the US, a feature of EU and ECB policy required to dodge explicit laws at European Treaty level to prevent QE or direct financing of sovereigns.”

This policy is now being challenged in the European Court having been referred there by the Bundestag (7). Clearly ordinary Germans are worried the cost of bailout of members of the EMU may become their burden at some point.

If the response of the ECB and EU and IMF are anything to go by, they clearly have nothing to worry about. The original vision of the EU to bring the outer core members up to the level of economic performance and output and standard of living of the inner core has been abandoned in favour of a new 2 tier Europe with inner core member states transfusion of the lifeblood of outer core members to further economic growth of Germany.

This puts the European project at risk of imminent failure.

Can worldwide engine of growth be kickstarted by China? China’s aims for 7% growth targets have been put at risk recently by moves to curb the explosion of dodgy lending through its shadow banking industry.

Statistics from China are less than reliable in many respects but fears abound re ghost cities that echo apocryphal ghost estates in Ireland with their backdrop of corrupt officials and planning laws.

Can growth come from India, the world’s third largest economy(9)?

“(Reuters) – The World Bank sharply lowered its forecast for India’s economic growth to 4.7 percent from 6.1 percent for the current fiscal year, citing a sharp slowdown in manufacturing and investment as well as negative business confidence.”

Can growth come from Japan, the world’s fourth largest economy?

Japan has succeeded in downplaying the consequences of the Fukushima nuclear plant disaster for its economy. Media reports on the disaster as in the case of Chernobyl usually consist of a single reporter with a webcam describing the devastation. Empirical evidence of a scientific nature is obscured and obfuscated by TEPCO, but we do know they are currently embarked on decommissioning the fourth reactor and that overall decommissioning will take another 40 years.

The cost of this is largely unknown, while empirical data on the cost of the damage from an environmental and human health and plant is speculatively soft, the economic damage of the disaster is even harder to come by.

(10) “100 tons radioactive contaminated water leaked last August from Japan’s Fukushima Nuclear Power plant. Last Wed 19th Feb another 100 tons leaked latest in a long line of problems since the meltdown of March 2011. Doubts are being raised on how sloppy the response has been to this nuclear disaster and questions on its long-term impact still remain difficult to assess.”

Mistrust of TEPCO Tokyo electric Power Company is high. Removal of 1500 spent fuel rods in the dangerous reactor 4 is ongoing entering its most dangerous phase yet. Decommissioning will take another 40 years.

Restarting the silent 50 other reactors subject of safety checking that power Japan’s power grid is a matter of heated debate.

The 9th magnitude earthquake suffered by Fukushima has led Japan to abandon its nuclear program and its having devastating effects on its economy.

“At the moment Japan is entirely without nuclear energy, but that is unlikely to last for long. Shinzo Abe, the prime minister, is pushing for as many of the country’s 50 usable reactors to restart as soon as possible after passing safety checks by the NRA. The need to import energy has pushed up the price of electricity and added to a series of trade deficits since 2011.

………..Most of the public are broadly against restarting nuclear plants even once they pass new checks. ”

Japan’s economy, fourth largest  in the world, is in trouble.

The Lost Decade

Before Fukushima Japan had endured its Lost Decade. Its economic collapse in 1992 had many echoes and similarities to Ireland’s  economic collapse from 2008 onward to today though being the world’s 4th largest economy, economies of scale are different. Japan has circa 30ml living on its 4 main group of islands.

Non performing assets with difficulties in financial institutions and non performing loans did not have the brake of hedge fund and vulture fund activity and troika bailout we currently see hiding meltdown in Ireland and creating a false bottom to its commercial and residential property industry.

“The Japanese asset price bubble (バブル景気 baburu keiki?, lit. “bubble economy”) was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices were greatly inflated.[1] The bubble episode has been characterized by rapid acceleration of asset prices, overheated economic activity as well as uncontrolled money supply and credit expansion.[2] More specifically, over-confidence and speculation over asset and stock prices has been closely associated with excessive monetary easing policy at that time.[3]

“As of December 2013, Japan’spublic debt was more than 200 percent of its annual gross domestic product, the second largest of any nation in the world. In August 2011, Moody’srating has cut Japan’s long-term sovereign debt rating one notch from Aa3 to Aa2 inline with the size of the country’s deficit and borrowing level. The large budget deficits and government debt since the 2009 global recession and followed by earthquake and tsunami in March 2011 made the rating downgrade.[102] The service sector accounts for three-quarters of the gross domestic product.[103]

“”Imports have been pushed up by the weak yen and strong demand for fossil fuels to make up for nuclear power lost since the 2011 Fukushima crisis.”

“There are worries in some quarters that the trade shortfalls could pull the current account into the red in coming years, meaning that Japan may start chipping away at its vast pool of domestic savings and increasing the need to rein in its huge public debt.”

Current plans to increase sales tax in Japan in April will further dampen the economy leading to dangers of a stall.

This comes on 2013 Japan’s QE doubling the money supply in the economy that led to weakening of the yen against other currencies and subsequent objections by China threatened by Japan’s competitive edge(16).

QE has not worked for Japan though it may have covered up the economic effects of Fukushima and its rising cost of energy imports and loss of competitive edge.

It would appear economic growth in the world’s global village economy that led to the expansion of fiat money and derivative expansion of the unregulated shadow banking sector is now beginning to contract with such a contraction having unknown repercussions.

QE has made the rich richer and the poor poorer. Austerity has made the divide even deeper.

The world is becoming more entrenched in an Egyptian Pharoah replicant society of Too Big To Succeed pyramid banks.

The maxim being followed in Ireland is AUSTERITY to make sure the show goes on for as long as possible with the losses gained by the rich 1% passed onto the 99%. This may work in the short term, but it wont work in the long term.

Modern day pharoah builders of today’s Too Big To Succeed Investment banks should ruminate on Shelley’s epitaph to their forebears

“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.

QE finance is more permeable and porous than rock or ancient stone.

Ireland’s 1/5 mortgage debt serfs their bondage and servitude exacerbated by government inaction deserve better:

(19)Serf “A member of the lowest feudal class, attached to the land owned by a lord and required to perform labor in return for certain legal or customary rights..”

End.

1. http://www.irishmirror.ie/news/vultures-scavenge-struggling-families-aine-3163186

2. http://www.thejournal.ie/iceland-goes-against-international-concern-writes-off-debt-1203320-Dec2013/

3. http://useconomy.about.com/od/pricing/f/Deflation.htm

4. http://www.finfacts.ie/irishfinancenews/article_1026937.shtml

5. http://www.centralbank.ie/press-area/press-releases/Pages/ResidentialMortgageArrearsandRepossessionsStatisticsQ32013.aspx

6. http://www.nationaldebtclocks.org/

7. http://www.nytimes.com/2014/02/13/business/international/court-challenge-is-a-test-for-ecb-and-for-europe.html?_r=0

8. http://www.theguardian.com/world/2014/jan/06/china-crackdown-risky-lending-economic-growth

9. http://in.reuters.com/article/2013/10/16/india-economy-growth-world-bank-idINDEE99F07420131016

10. http://www.weather.com/news/science/environment/fukushima-power-plant-leak-20140220

11.  http://en.wikipedia.org/wiki/Lost_Decade_(Japan)

12. http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

13. http://www.economist.com/news/asia/21589912-riskiest-part-yet-fukushima-clean-up-soon-begin-high-alert

 14.http://en.wikipedia.org/wiki/Japan

15. http://in.reuters.com/article/2014/02/20/japan-economy-trade-idINDEEA1J02Y20140220

16. http://www.reuters.com/article/2014/02/21/us-japan-economy-poll-idUSBREA1K0LW20140221

17. http://en.wikipedia.org/wiki/Japan

18. http://www.tepco.co.jp/en/index-e.html

19. http://www.thefreedictionary.com/serf

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