Dead cat bounce or delusion? & the continuing deficit...

I was looking at the Irish House Hunter website - a good resource for keeping an eye on change in asking prices - when I noticed that some asking prices are increasing. 43 out of 699 (6%) price changes nationally are increases in asking price!

Looking at Co. Cork, 8 out of 40 changes (25%) are increases in asking price!!!


20% :-GC

Has happened all the way down… You’ll always have outliers…

Only in a nation of full on insane self flagellating masochists, the outliers tend to be outlierier… :blush:

Answer = dead cat bounce.

Further significant falls to come, 30,000 mortgages in default, etc.

hmm, not so sure anymore,
remember that we’ve a deficit this year of circa 20 billion, thats 20 billion more in the the economy this year than previous.

Also 2011 will see a deficit of similar magnitude, thats a hell of a lot of money being injected into a small economy EACH AND EVERY YEAR! Before 2008, a deficit rarely if ever went over 1 billion!

We can only hope that payments for imports and mortage repayments to foreign investors through securitised mortgages, take some of the money out of the system.

Ah… but that €20Bn existed all along - it was just hidden by bubble tax receipts.

No bubble tax receipts but bubble expenditure = €20Bn deficit just to keep the lights on. … attention/ … ficit.html

Thanks songster, my mental arithmatic is appalling but you get the gist.

I think ‘Ireland is different’ has a point but I disagree with his conclusions, it appears to be a little like double entry book keeping. Money borrowed from the bond market and that raised in taxes is listed as an asset. This is spent on PS pay, social welfare and capital projects which puts money in circulation and keeps things ticking over. The graph of total tax and spending submitted by ‘what goes up…’ would support the argument that there is more money being pumped into the economy.

Unfortunately, the borrowed money goes in the debit column as well. This has to be payed back at some stage. Everybody is talking about the pain, but the pain hasn’t really been inflicted yet. PS pay cuts have to a certain extent been matched by deflation. Repayment of bondholders will be put off for a few years. Interest on recent borrowings will probably kick in later this year or next.

All of these factors suggest that we are looking at a dead cat bounce but I await further illumination.

Deficit= shortfall. The opposite of surplus.

The deficit is borrowed money; as it largely comes from abroad, it is indeed extra money into the economy over the tax base. However, what must be remembered is that during the bubble years, that 20 bn that has gone awol was being paid in duties (stamp, CGT, VAT). It was largely coming from borrowed private sector money. To generate 20 bn in tax, let’s say a 20% tax rate, so 100 bn in borrowings. That’s a diminution of 80 bn of borrowed money into the economy each year.

Or something like that anyway; I’ve spent all day in the sun so am not fit to do or look up figures! (Increase in private sector credit annually will give the amount that was being borrowed to pump the bubble).

no as yoganmahew said, it comes from abroad.
I know what you’re thinking, if you have a deficit, then you have less money.

Look at it this way, take everyone’s income in the country including the Government,
now expenditure in the economy will be highly correlated with that income level - usually manifests itself in inflation or deflation.
When we run budget deficits as we are,
then we are “magically” increasing our CURRENT income, because in addition to our current income levels
foreigners give us cash when they buy our government bonds.

Now the thing with bonds is that the investor gives you the full principal upfront
and then for the next few years you repay a coupon, that is only 4-5% of that principal amount as interest.
Better again, the Government are taken out a mortgage every year for ¢20 billion and squandering it. Sound familiar?
Whats the effect, prices will rise in the short-term because you are getting the lump sum upfront,
the repayments are spread over a long period!
That is why we are getting a dead cat bounce, and quantitive easing on behalf of the ECB will not help either,
as it will see more money injected into the economy as borrowing rates are kept low!
So this dead cat bounce could go on for a good while yet - well until some Government defaults somewhere :cry:

Interesting points, but for the deficit to stimulate the economy it needs to be spent productively, not dumped into a blackhole bank and shipped back overseas, no?

It’s the Keynesian solution to recessions and always has been, get the state to borrow money that would have been lent to the private sector. The theory is that when governments spend borrowed money, this increases economic growth, because the government spends the money rather than private producers and borrowers.

The Keynesian system rests on two unstated assumptions, which are illogical.

  1. Government spending of borrowed money that supports unemployed workers or funds corporate bailouts is economically productive and will restore economic growth and end the recession.

  2. Private sector spending of borrowed money enables consumers to buy what they want and also enables businesses to purchase capital goods, labour, and raw materials in order to produce consumer goods and services. This is economically wasteful and extends the recession.

Why should government borrowing to pay people not to work and also to pay for government bailouts be productive, while at the same time allowing consumers and producers to choose their own level of debt is destructive and is how we got here?

The issue with the Keynesian solution (and the present situation in Ireland) appears to be timing. I think that the fundamental concept behind Keynesian spending is to damp the cyclical excesses of the business/economic cycle. When recession looms, government pumps in money to lessen the trough of economic activity. Supposedly, when the economy hots up, the government extracts money to cool the situation.

The present situation in Ireland appears to be that the government is still pumping money into the economy, although much of this is borrowed money. This money is being pumped in through all the usual government spending programmes, most of which generate no returns and to all intents and purposes is dead money. However this money keeps food on peoples plates, pays the mortgage relief/ rent allowance and for some people allows them to buy a new car. Life goes on. This implys that the amount of money in the system is being maintained for the present. This gives people the impression that things aren’t too bad and some are buying property.

The future is a different country. Unless the government introduce swinging cuts, they will not be able to raise money on the bond markets. Even if they are, they will have to pay an increasing yield. Unless there is some sort of credible gameplan with respect to paying this money back, this is little more than a Ponzi scheme, where the government has to borrow money to pay the interest.

Not much evidence of a bounce to me - or even a slowing in decline.

The latest data show that decreases outnumber increases by 26:1 (and remember that some of these reflect the correction of mistakes). … 2010-06-21

Its pretty straightforward, we have replaced private sector borrowing with public sector borrowing. Any kind of borrowing will prop-up house prices.

If memory serves me correctly at the height of the boom private sector borrowing (increase of) was running at up to 20% of gdp p.a. (anyone got better figures?).

Current public sector borrowing is less than this - therefore the effect on house prices is less. Also current public sector borrowing is due to wind down quickly over the next couple of years so the effect is going to tail off.

I.e. current borrowing is propping up prices but that effect will not last much longer.

The borrowed money is indeed extra cash into the economy but so was the massive credit expansion during the bubble years. All of this credit expansion (growth in bank lending) has now disappeared - credit is now contracting, ultimately that’s what’s driving the size of the economy downwards.

Yes Wahoo the majority of asking prices are decreasing, but the fact that some people are increasing their asking prices (1 increase for every 16 decreases last week) suggests that something may be going on or that there is an increase in delusional people who feel that their property is worth more than they were previously asking.

I think that Rarely is probably right:-

During the boom, private sector borrowing fuelled the massive increase in house prices. Government borrowing was minimal. Private sector borrowing has contracted significantly and has now been replaced to a major extent by public sector borrowing which is keeping the economy ticking over and putting a brake on the fall in house prices but at what a future cost. When public sector borrowing is curtailed, the brake will be off and the market will fall. Anybody who buys a house, especially one where the price has been ratcheted up recently will more than likely regret it.

Well, I don’t think the figures back up that view:

Households On balance sheet Securitised Non-financial corporations Total credit growth in year to end-Jan Jan-03 56,949 3,755 46,954 Jan-04 70,396 4,580 55,929 23,247 Jan-05 93,410 3,844 72,051 38,400 Jan-06 119,180 4,627 95,651 50,153 Jan-07 139,010 12,544 130,979 63,075 Jan-08 154,197 16,685 159,186 47,535 Jan-09 144,219 33,693 168,311 16,155 Jan-10 133,438 37,615 144,015 -31,155 … Credit.xls

So in the year to Jan-04 (I’ll shorten to just the date/year meaning the year leading up to the end of that month), credit in the economy grew by 23.247 bn euro. And you see the pattern leading onwards and upwards until the bust. So in the five biggest years of the bubble, current government borrowing isn’t nearly matching PSC growth.

Then look at the growth to Jan-10… Um, -31+20 = um. Bad number.

Add to this the fact that much of what the government is borrowing for is money it was spending previously, i.e. the overall budget spend is decreasing. So you can’t really add 20 bn to -31 bn… really it is just -31 bn in credit…

This one was at the top of the table for latest % change
but if you look at the price changes
21 June 2010
* Price changed: from ‘€500,000’ to ‘€550,000’
28 November 2009
* Price changed: from ‘Excess €500,000’ to ‘€500,000’ [Found by n/a]

  • Title changed: The Glebe, Killybegs, Co. Donegal - Detached House [Found by n/a]
    24 March 2009
    * Price changed: from ‘Region €735,000’ to ‘Excess €500,000’ [Found by n/a]
    06 February 2009
    * Initial entry found. [Found by n/a]

This would indicate to me that on November last year they went to 1/2 mill. With no hope of getting that 7 months later they raise the price a bit so as to 1. get back into the top of daft listings 2. be able to ‘offer a deal’

Also some interesting stuff here from the Central Bank: … 20Note.pdf

Scroll down to the ‘change in outstanding credit’ page (Table 2) :open_mouth:

Then in the summary info:

Now, I’ve looked at many Central Bank documents, but I haven’t seen one as clear as this in a long time. The information is well presented, it is relatively detailed (i.e. we do not just get a lump sum figure for mortgages), it is clearly laid out with crayon pictures too. Is this the start of the new era of transparency?