Dead Cat Bounce

August 25, 2014

We have a rail strike on at present that is countrywide. Rail ticket prices are already ridiculously expensive. Both bus and rail tickets are ridiculously expensive though intercity coach tickets are competitive. In Dublin a single journey by bus of a couple of miles from suburb to center city is getting closer to €3 compared to say Nice to Cannes for €1 not long ago.blackCat

Transport subventions are the norm in other countries. In Ireland austerity is reducing same with a hidden agenda to break up and privatise both the rail and bus systems. A more efficient rail system makes sense to take passenger traffic off the road system and save energy costs. It makes sense to expand the rail system and make it cheaper and more attractive for users but government privatisation policies would appear to be heading for a situation where the only government employees still in ‘full time’ jobs will be politicians. They won’t be rail workers.

The slice and dice of employment statistics continues unabated. Most of the public service has a recruitment ban. If a job comes available and every effort to avoid replacing the individual has failed, there is now imposition of a rule that the full-time job is divided into 2 part-time jobs. There are many such opaque rules that define what is a job or define lack of a job.

Perhaps the ESRI can publish a report defining what these rules are. It would allow us to see through false employment statistics. Even a report based on a statistically meaningful random selection of people classified as both having a job and another cohort unemployed focusing on the definition of the term ’employed’ would throw light on the current unreliability of analytical tools used currently.

http://www.esri.ie/about_us/the_institute/independence/?

“About the ESRI’s Independence

From its foundation in 1960 the Institute’s role has been to provide a strong, independent source of research evidence for policy and civil society in Ireland. That it would be funded by government and yet independent of government was precisely the mandate it was given.”

ESRI is long overdue an audit to decide if it has failed the mandate it set itself. A lot of its cash comes from government-funded research and one wonders if this has swayed independence into being a propaganda arm of the state. Recent growth forecasts of 4% have yet to be bettered by any other institution in the state’s financial sector.

As Ireland descends into a long painful depression fueled by austerity, rising taxes and higher charges for utilities, water, waste and property, its time to give considered thought to the prospect of Ireland leaving the euro. Even growth rates of 4% are not good enough to stave off the deflationary inevitability of economic decline based on our link to the euro. Wishful thinkers in the financial sector who have form in fuelling the boom in Celtic tiger years are cited regularly fuelling the propaganda of economic recovery.

Our link to the euro has produced a flight of euros from Ireland as Ireland’s import bill has risen alongside a progressive loss of industrial infrastructure and employment. Our recent property boom collapse was largely fed by efforts to stimulate construction to take up the slack of unemployment fed by lack of real growth in the economy.

“In 1992, members of the European Union signed the Maastricht Treaty, under which they pledged to limit their deficit spending and debt levels. In the early 2000s, some EU member states were failing to stay within the confines of the Maastricht criteria and turned to securitising future government revenues to reduce their debts and/or deficits, sidestepping best practice and ignoring international standards.[5] This allowed the sovereigns to mask their deficit and debt levels through a combination of techniques, including inconsistent accounting, off-balance-sheet transactions as well as the use of complex currency and credit derivatives structures.[5]

http://en.wikipedia.org/wiki/Eurozone_crisis

In Ireland private debts were transferred to sovereign debt led by politicians celebrating their actions in so doing, or otherwise claiming blindness or poor advice. The real problem for the euro zone is that banks in the euro zone own a significant portion of sovereign debt; these banks are themselves  closely allied to the solvency and liquidity of the states in which they reside. Thus it is in the absence of a true fiscal union, that the inner core members of the euro zone are now in a master slave relationship with countries such as Greece, Ireland, Portugal.

The european union is now a divided currency zone holed beneath the water. The repatriation or some would say extortion of odious debt from the outer core is now the main aim of fiscal policy across the EU. The problem is that the goods and services previously purchased in these debtor nations no longer fuel their economies and they are in a slow path downward. The negative reinforcement of deflation and slowing growth rates in the inner core especially Germany is evidence of this:

From http://en.wikipedia.org/wiki/Dead_cat_bounce

A “dead cat bounce” price pattern may be used as a part of the technical analysis method of stock trading. Technical analysis describes a dead cat bounce as a continuation pattern that looks in the beginning like a reversal pattern. It begins with a downward move followed by a significant price retracement. The price fails to continue upward and instead falls again downwards, and surpasses the prior low.[7]”

““Richard Bruton promised us that this would not happen when he was here three years ago,” said Foley. “Look around you. There are eight units in this business park and the other seven are empty. Leitrim and Roscommon have been forgotten about and we expected more from a west of Ireland Taoiseach.”” 160 recent job losses by MBNA from previous peak circa 2000 jobs in Carrick On Shannon from http://www.irishtimes.com/news/social-affairs/carrick-on-shannon-mourns-loss-of-mbna-call-centre-1.1898596

Same story replicated across the country, “Since the start of the current recession in 2008, almost 2,500 local jobs have been cut at IDA Ireland-backed companies, according to Independent TD for Waterford John Halligan, while about 500 have been created.” http://www.irishtimes.com/business/economy/waterford-believes-job-losses-have-hit-it-harder-than-most-1.1814327

Property taxes, water charges, and pay cuts with another €2 bn next budget earmarked for more austerity cuts pillage the countryside accompanied by deteriorating public services. In a ludicrous piece of statistical hermeneutics that stretches the imagination, the ESRI has published a forecast predicting in the face of the above growth of 4% in the economy next year.

Let’s get back to dead cat bounce:

Growth rates projected come from a very low base and are on foot of losses in negative equity, unemployment and property transfers to vulture capital in NAMA already sustained, along with other losses

http://www.economist.com/blogs/freeexchange/2007/01/dead_cat_bounce

Recently FF have mooted renegotiation of the IMF portion of our bailout levied at odious 5% repayment rates but cold water was thrown on this with assertion the rest of our EU bailout  partners would object as this would increase their exposure to sovereign risk.

A more productive engagement with the IMF would be to press for an extend/pretend arrangement  http://en.wikipedia.org/wiki/1998%E2%80%932002_Argentine_great_depression

Notice the devastation caused in Argentina by “In June 2000, with unemployment at 14% and projections of 3.5% GDP growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases.” Austerity did not work for them; it will not work for us.

Consider the following:

“When a short-lived boom in the early 1990s of portfolio investment from abroad ended in 1995, Argentina became reliant on the IMF to provide the country with low-interest access to credit and to guide its economic reforms. When the recession began, the national deficit widened to 2.5% of GDP in 1999 and its external debt surpassed 50% of GDP.[29] Seeing these levels as excessive, the IMF advised the government to balance its budget by implementing austerity measures to sustain investor confidence. The De la Rúa administration implemented US$1.4 billion in cuts in its first weeks in office in late 1999. In June 2000, with unemployment at 14% and projections of 3.5% GDP growth for the year, austerity was furthered by US$938 million in spending cuts and US$2 billion in tax increases.[30] Following vice president Carlos Álvarez‘ resignation in October 2000 over bribery suspicions in the Upper House,[31] the crisis accelerated.[citation needed]

GDP growth projections proved to be overly optimistic (instead of growing, real GDP shrank 0.8%), and lagging tax receipts prompted the government to freeze spending and cut retirement benefits again in November 2000.[32][not in citation given] In early November, Standard & Poor’s placed Argentina on a credit watch, and a treasury bill auction required paying 16% interest (up from 9% in July); this was the second highest rate of any country in South America at the time.[33]

……..

Cavallo also attempted to curb the budget crisis by instituting an unpopular across-the-board pay cut in July of up to 13% to all civil servants and an equivalent cut to government pension benefits—De la Rúa’s seventh austerity round[40]—triggering nationwide strikes,[41] and, starting in August, it paid salaries of the highest-paid employees in I.O.U.s instead of money.[42] This further depressed the weakened economy. The unemployment rate rose to 16.4% in August 2001[43] up from a 14.7% a month earlier,[44] and it reached 20% by December.[45]

In October 2001, public discontent with the economic conditions was expressed in the nationwide election. President Fernando de la Rúa‘s alliance lost seats in both chambers of the Argentine National Congress, leaving it in the minority. Over 20% of voters chose to enter so-called “anger votes”, returning blank or defaced ballots rather than indicate support of any candidate.[46] “

The parallels are self-evident with austerity measures tracing out in Ireland and across the euro zone outer core. But an important difference is that Ireland is tied to the euro and there is a belief in the bond markets that ECB will print money and do whatever it takes to prevent Ireland and fellow outer core default threats collapse.

Such belief is inconsistent with the facts. The euro zone is a bucket with a large hole in it. Printing money will lead to inflation and perhaps hyper inflation. Inflated bond markets are not having the desired effect in Japan or the US. Eventually, the more fiat is printed, the more it is likely to fall under the weight of its own gravity.

1. John Bruton, former Taoiseach, has spoken of the funding difficulties of pensions across the EU suggesting such obligations may not be realised.

2. Budget cuts are already causing chaotic repercussions in Ireland.

3. Ireland has already entered its own anger pattern of voting with a backlash due to broken promises awaiting the present government in the next round.

4. Ireland has made miserable  progress  in dealing with the troika on question of reducing Ireland’s debt repayment of €67.5 bn of odious bailout, €30bn of this should have been torn up promissory note funding of Anglo bailout, instead this was secured into long-term bond repayment schedules with the compliance of government falsely persuading the public it had an achieved ‘savings’ under this ruse.

5. Ireland in education and now in transport is embarking on a policy of pay cuts.

Property Sector Mess

Ireland’s property sector remains a mess with a plethora of remedies including promised 54000 units to be constructed to kickstart supply of residential demand. Government with years to do this already have dismally failed to do anything but let the sector get into a worse mess.

It’s a curious business illustrating the tectonic plate difference between the real economy and the managed economy. On the one hand, we have the managed economy led by the banks. The banks face imminent stress tests and the requirement that their capital base is sound. Much of this capital base is lending based on the property sector.

If property prices fall further this can damage the security of such lending driving up the number of defaulters as their portfolio falls into negative equity. If prices rise by way of property bubble or other means, this takes pressure off the banks.

However, in the real economy the rising price of property has put the concept of a home beyond the ability of young people to obtain or invest in this pricing that is beyond the safety valve of 3 times the main salary of couples contemplating setting up a home.

Propaganda can therefore be cut both ways by Enda Kenny who can say there is no property bubble at present, a lie; but point to a raft of solutions to the housing crisis that will be a litany of broken promises over the coming years.

Ireland is an economy managed by the banking sector, by the banks, for the banks, of the banks.

However, in a curious twist to this uncompromising reality, it doesn’t much matter as banks are not lending and construction is at a very low-level. It behoves the banking sector to claim on the basis of a small dead cat bounce fed by cash investors seeking to capitalise on a bottoming out of the property sector, that property prices are not only sustainable, but due to rise again, an illusion fed by propaganda.

Ireland faces other headwinds, reduced corporation tax as our tax haven status is tackled; a weakened financial sector as Financial TransactionTax is mooted; a world requiring a global financial reset as rising debt levels overwhelm even leading economies.

The consequence of all of this is a more divided Europe, a more divided society in Ireland, a greater difference between the have’s and the have-nots; a looting of the Irish public sector led by banks in Ireland and Europe.

Its long past the time for Ireland for Ireland to consider leaving the euro. Ireland’s main population centers, its cities are being looted of their public services in health, education, transport, water, energy and property. Now the countryside, Ireland’s agricultural  based rural economy is beginning the realise their future in Europe is to be a Neill Blomkamp’s District 9 http://www.imdb.com/title/tt1136608/.

 

till Next Time.

 

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