The economy en masse ignored the advice, stampeding into property investment at an unsustainable rate. From a position of moderate growth, the economy was raised to heights from which a fall was inevitable. Now back at where it was in the summer of 2005, the fall is reassuring in one way. Summer of 2005 was just before a mortgage-related credit surge led to a property-related borrowing binge. As the effects of that binge unwind, share prices will hopefully settle at these levels for a while before growing again in line with more modest fundamentals. But we should ask why activity departed from fundamentals. It was partly due to irrational exuberance on behalf of private sector investors. But this is what private sector investors are paid to do – invest in what they think is on the up. They know that if they get it wrong then they – and no-one else – will get the due comeuppance. Now €20bn has been wiped off the Irish stock market’s value in the last weeks. The loss since January is almost €40bn.
For the government and its senior public policy advisors – people who are paid to work in the public rather than the private interest – the contribution to the current crisis is inexcusable. Had it done the right thing, it would have an emergency reserve of funds – of comparable magnitude to those share price losses – to deal with any crisis around the corner. But where it should have restrained the economy by cutting back spending, the government increased it by 25 per cent over 2005 and 2006 (and I’m not even mentioning SSIAs). Most of this money was, of course, totally wasted on bloated salaries and pensions.
Now house prices too are falling back to 2005 levels. Initially, this was due to rising interest rates. More recently the regime of stamp duty is killing activity, intensifying the downward price spiral. Already back to where they were at the end of last year, Goodbody stockbrokers predict they will fall back to 2005 levels before rising. Unemployment rates are going even further back in time. The latest Quarterly National Household Survey confirms that August’s unemployment rate was the highest in four years. And that’s before a string of more recent job losses are accounted for – Waterford Crystal, ESB and Thompson Financial. Sadly, I could go on.
Taking all this into consideration, it isn’t talking the economy down to admit that a global recession is a serious prospect. And as the severe falls in Irish share prices suggest, it could, if it happens, be more pronounced here than elsewhere. Now to the real question: What has the government prepared to deal with it if – God forbid – it happens? To answer the question, we have to go back in time, but quite not as far as 2005. >>>>
Despite evidence to the contrary, the Government still believes its own guff
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