http://www.independent.ie/opinion/a...e-just-a-german-economic-outpost-2288830.html
I saw this headline on the news stand on Sunday morning and decided to look up the article online. In a way I wish I hadn't. Anyway, after a long rant to myself I decided to dissect the text and shed some light. Maybe Mr. Fanning even reads this forum and realises what load of rubbish he has made his readership endure. It's a bit long-winded, and I didn't want to veer off topic by giving a more in-depth explanation of what inflation actually is, so I added another thread on inflation here:
http://www.askaboutmoney.com/showthread.php?t=141913
It is also ridiculous to say now that a low inflation, strong euro policy is to be blamed for Ireland's troubles. If there had been low inflation, there wouldn't have been the massive increase in prices of nearly everything. Now I don't believe that monetary policy alone was to blame; fiscal policy in this country has a huge burden to share.
As for the human price, yes, wages and costs have to come down, and they have to come down a lot, otherwise ireland will not be able to compete internationally. There is no easy way out.
And yes, the Bundesbank and ECB are in the same place, because Germany wanted to make sure that non-inflationary, strong currency policies are maintained after it gave up full control over monetary policy making. But this is no secret or conspiracy, it was the only way Germany was going to share a currency with inflationary counterparts in especially Spain and Italy.
Germany became such an economic "power-house" because of a stable currency. How can anybody possibly contend that inflationary, currency debasing policy, instead of hard work and production, could be a solution to recovery?!?! I actually think the author answers this well with his self-judgment of "the depths of my pitiable ignorance"; his ignorance truly is deep!!! Higher consumer demand and house prices would be the result of monetary inflation, as it was in the past decade.
As already mentioned, inflation transfers wealth from creditors to debtors. And to say that savers losses would be "softened by rising interest" is positively insulting to savers.
Calling the relationship between Ireland and Germany, or the EU for that matter, some "dysfunctional co-dependency" is insulting to Germany and any other country that has been net contributor to the EU. Ireland enjoyed an inflow of billions of euros, thanks in large part to the German economy. I cannot believe he actually chose to try and paint a negative picture of this relationship. Maybe he thinks Ireland would be better off without the inflow of EU/German funds. Maybe he should ask Mr. Lenihan to send back any new cheques coming this way.
Ireland could only be so lucky as to be a German economic colony. Ireland would greatly benefit form some German fiscal policy and attitude to saving and work, although even Germany has lately shown its imprudent intentions with the handling of the Greek debt crisis.
Ireland does not need government to intervene or stimulate the economy through currency debasement or fiscal imprudence; the best way to stimulate the economy is for government to reduce the level of interference through taxation, licencing, regulation and protectionism. The last decade is a picture perfect example of what happens when governments interfere.
I saw this headline on the news stand on Sunday morning and decided to look up the article online. In a way I wish I hadn't. Anyway, after a long rant to myself I decided to dissect the text and shed some light. Maybe Mr. Fanning even reads this forum and realises what load of rubbish he has made his readership endure. It's a bit long-winded, and I didn't want to veer off topic by giving a more in-depth explanation of what inflation actually is, so I added another thread on inflation here:
http://www.askaboutmoney.com/showthread.php?t=141913
I agree, the story being fed by this government's PR machine is utter nonsense; the reason the public does not feel any better is because there is no recovery. However, it is not the "consumer economy", as if it were somehow sensible to look at this in isolation, that is still sinking, it is total productivity. The past decade has show, that an economy based on debt fueled consumption inevitably collapses. In order yo get the economy back on track Ireland has to be more productive, and pay off debts; under no circumstances should there be any further fueling of debt based consumption.Aengus Fanning: We're just a German economic outpost
An overseas obsession with near-zero inflation and a strong euro is devastating this country and its economy, writes Aengus Fanning
The story we are being told is that we are technically out of recession but we won't feel that things are getting any better for a long time. If you believe that, you'll believe anything. The consumer economy is still sinking, yet nobody seems to care.
I assume he mainly refers to the newly created commuter towns surrounded by many of the now infamous ghost estates. I can't say that I have visited any commuter town recently, but I think this assertion could resemble some accurate observation. But these retailers and other businesses that are closing down are a direct result of malinvestments of the boom, and there is no point in doing anything to keep businesses alive just for the sake of it. Many businesses came into being because all sense went out the window during the boom's consumption binge; the only way to keep some companies in business would be to create a new consumption boom; again, this is the last thing we want to happen.Streets in towns and cities are becoming more derelict by the day as beaten retailers shut their doors for the last time, leaving behind a shabby wasteland that is increasingly peopled by beggars and junkies.
Still, nobody seems to care.
House prices are more or less at zilch and look like they will stay that way.
Does anybody care?
Apparently not. But what's even worse is the suspicion that this is how they want it to be.
Now this is where he is completely out of bounds of any reality. The last ten years saw a long period of extremely low interest rates. Then a brief period of a slight increase in rates was reversed as soon as the financial crisis struck, return to 1% interest rates. This very low interest rate policy, of most of the world's central banks, was inflationary, NOT deflationary. Was the housing and equity bubble anything but the result inflationary policy? Consumer prices in this country also went through the roof. It is these low interest rates that made the total abundance of cheap credit possible, which in turn caused the increase in prices, with some sectors turning into massive bubbles.It is my belief that the brutal deflationary policies of the past few years are not the desire of our Government but are dictated to us by Frankfurt.
Near-to-zero inflation and a strong euro are the monetarist gods and the associated dogma is that Ireland must drive down wages and costs, no matter what the human price
It is also ridiculous to say now that a low inflation, strong euro policy is to be blamed for Ireland's troubles. If there had been low inflation, there wouldn't have been the massive increase in prices of nearly everything. Now I don't believe that monetary policy alone was to blame; fiscal policy in this country has a huge burden to share.
As for the human price, yes, wages and costs have to come down, and they have to come down a lot, otherwise ireland will not be able to compete internationally. There is no easy way out.
Central banks should under no circumstances be looking at economic matters of individuals or businesses. As bizarre as it may be, monetary stability is what central banks should focus on. And monetary stability means price inflation as low as possible.Men and women who have lost their jobs or have had their wages cut and good companies which have closed are regarded as no more than the casualties of war.
Thousands of Irish men and women have had their lives blighted, but the ECB and the Bundesbank (it is no coincidence that both have their headquarters in Frankfurt) are insulated from their pain.
And yes, the Bundesbank and ECB are in the same place, because Germany wanted to make sure that non-inflationary, strong currency policies are maintained after it gave up full control over monetary policy making. But this is no secret or conspiracy, it was the only way Germany was going to share a currency with inflationary counterparts in especially Spain and Italy.
Yes, inflation is the biggest evil there is, as it is a form of taxation (transfer of wealth from savers do debtors). Even Keynes (NB I disagree with almost every part of his theory) understood it when he said: "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."Their doctrine says that our recovery must be export-led, we must be more competitive and that any growth in consumer demand or property prices would be inflationary.
Inflation, to the Frankfurters, is the greatest evil known to humanity. From the depths of my pitiable ignorance, I beg to differ.
Germany became such an economic "power-house" because of a stable currency. How can anybody possibly contend that inflationary, currency debasing policy, instead of hard work and production, could be a solution to recovery?!?! I actually think the author answers this well with his self-judgment of "the depths of my pitiable ignorance"; his ignorance truly is deep!!! Higher consumer demand and house prices would be the result of monetary inflation, as it was in the past decade.
Wow, this is an even better example of his "pitiable ignorance", it genuinely is pitiable. He is actually saying that those in society that due to prudence, good fortune, or whatever other reason have savings, large or small, should pay in order to reduce debts of others!!!A little bit of inflation, in my uneducated opinion, would be no bad thing. It would ease the debt burden of nations, corporations, small companies and individuals, and might help to get things moving again.
Not good news for savers, perhaps, but not the end of the world either -- and their losses will be softened by rising interest rates.
As already mentioned, inflation transfers wealth from creditors to debtors. And to say that savers losses would be "softened by rising interest" is positively insulting to savers.
Actually it is not heresy, as most central banks (Fed, ECB, BoE) are on an inflationary warpath. History is littered with men shouting pro-inflationary dogma: French hyperinflation of 1720s and 1780s; American hyperinflation of civil war; Weimar republic of 1920s; the list goes on! Mr Fanning is not some sort of isolated, lone proponent, but merely another pro-inflationary in the neo-Keynesian, inflationary world we live in.I realise that this is heresy, though I remind myself that history is littered with heretics who spoke the truth or near enough to it.
Of course Ireland has a say, the Irish Central Bank can bring up any monetary policy suggestions at the ECB meeting. Whether they can convince others is a whole different matter, but his is exactly what Ireland signed up for!!!The worst of it is we have no say in fiscal things, we are little better than an economic colony of Germany -- the end result of nearly 80 years of Anglophobic economic nationalism in the Department of Finance -- and we think we have no option because we might need Angela Merkel to bail us out some day.
German guilt was mobilised after the Second World War and we, who had not fought the war, were well up in the queue for money transfers. We did well out of it for 35 years, and now it seems we're stuck with it. Like a bad marriage, it became a dysfunctional co-dependency, in which Germany was the dominant paymaster and we were the doormat spouse. Such docility, I am sure, is not good for our minds or our spirits.
Calling the relationship between Ireland and Germany, or the EU for that matter, some "dysfunctional co-dependency" is insulting to Germany and any other country that has been net contributor to the EU. Ireland enjoyed an inflow of billions of euros, thanks in large part to the German economy. I cannot believe he actually chose to try and paint a negative picture of this relationship. Maybe he thinks Ireland would be better off without the inflow of EU/German funds. Maybe he should ask Mr. Lenihan to send back any new cheques coming this way.
Ireland could only be so lucky as to be a German economic colony. Ireland would greatly benefit form some German fiscal policy and attitude to saving and work, although even Germany has lately shown its imprudent intentions with the handling of the Greek debt crisis.
No, Ireland is not paralyzed due to some external powers. And it was not some external powers that caused Ireland's problems, like Bertie Ahern constantly repeats by saying "it was Lehman Brothers". Ireland has full control over its future, not form a monetary point of view, but from a fiscal point of view. The solution: increase savings, pay down debts and become more productive. Not easy, but the only way to a long term recovery.This sense of impotence is at the heart of the prevailing feeling that we are paralysed and drifting helplessly. As Mark Fielding of ISME said on Thursday: "Government policy is wait and hope for growth."
There is nothing more demoralising for normal human beings than the idea that they have no control over their lives.
He has a point here. I think unemployed people should be told that they have to do some community or charity work in order to receive full benefits. This would go a long way to incentivise people receiving €200 per week for zero hours of work, to take a job paying minimum wage (€340 per week) for 40 hours.After all, apart from some mystics, we are all control freaks and the illusion of being in control is crucial to most of us. Stripped of that illusion, we have become demoralised and apathetic. As an antidote, we need action, such as the cleaning up of streets that are slowly decaying, the tidying up and painting of closed shop fronts and the moving on of beggars and junkies.
If the Army was able to fix the lifts in Ballymun, then surely there are other useful things it could do. And there are many unemployed who would relish the prospect of doing something worthwhile.
The only action that can pull this country out of the mess is a reduction in consumption and increase in production. Germany was in a far worse situation after WWII, with 20% of all buildings destroyed, huge loss of life and massive war and reparation debt. Within 2 years of creating a solid currency (Deutsche Mark), reducing marginal tax rates, abandoning minimum wages and abolishing price controls, Germany was booming.The alternative to action is inertia, hopelessness and self-protective cynicism.
And that is no way to live.
Ireland does not need government to intervene or stimulate the economy through currency debasement or fiscal imprudence; the best way to stimulate the economy is for government to reduce the level of interference through taxation, licencing, regulation and protectionism. The last decade is a picture perfect example of what happens when governments interfere.