The Great Wall of Debt

This is extracted from an excellent article on debt in Ireland ( overall) by Richard Douthwaite and published in Construct Ireland magazine

The article is here, in full . Its a must read for everybody who pays any heed to what the Pin is about

constructireland.ie/Articles/Opi … rvive.html

after that it gets interesting , Douthwaite uses the correct GNP measure not the incorrect GDP measure to calculate the overall debt in Ireland and who owes it.

*Let me explain something important .
*
In 1987 at the very nadir of the 1980s depression we remember or at least heard of …Ireland’s total debt was about 180% of GNP at most which was made up of 140% public sector debt and 40% private sector debt

( I am in anything a bit high rather than a bit low, it could have been as little as 160% of GNP but it was mainly government debt , yet it was all debt. We were taxed to bejaysus to pay the interest on it. It never went down you know …today we owe all of what we owed in 1987 with a bit added on on occasion )

The article contains two tables. You owe it to yourselves to read the rest of the article in full.

https://constructireland.ie/images/stories/magimages/Vol03-Iss12/0312-BreakingthebankTABLE2.gif

On the back of that article and based on Country Tom’s assertion that each 10k of houses = 1% of GDP, I thought I’d try and figure out how much our GDP and GNP* has been inflated by building all the empties - i.e. what was the ‘real’ economy doing in all that time. I’ve assumed we should have been building about 40k units a year - 4% of GDP (the European average, I seem to remember):

Year	GDP	GNP		Houses	% GP	If 4%	Adj GDP	Adj GNP
2003	4.5	5.9		62,686	6.2	 2.2	   2.3	    3.7
2004	4.7	4.5		71,808	7.1	 3.1	   1.6	    1.4
2005	6.4	5.8		75,398	7.5	 3.5	   2.9	    2.3
2006	5.7	6.3		93,415	9.3	 5.3	   0.4	    1
2007	6.0	4.1		78,027	7.8	 3.8	   2.2	    0.3

Apologies in advance for the formatting (I still can’t find the post where Verbatim explains how to do those lovely green tables) and the inaccuracies in assumptions.

  • I’ve presumed that 10k houses also equals 1% of GNP?

Anyway, my point is that without the bubble annual growth looks pretty anaemic.

  • Completions are from ESB for total private units
  • GDP and GNP from the ESRI

edit: Thanks 2Pack!

Year . . GDP . GNP . . Houses . . % GP . If 3% . Adj GDP . Adj GNP
2003 . . 4.5 . . 5.9 . . 62,686 . . . . 6.2 . . 2.2 . . . 2.3 . . . . . 3.7
2004 . . 4.7 . . 4.5 . . 71,808 . . . . 7.1 . . 3.1 . . . 1.6 . . . . . 1.4
2005 . . 6.4 . . 5.8 . . 75,398 . . . . 7.5 . . 3.5 . . . 2.9 . . . . . 2.3
2006 . . 5.7 . . 6.3 . . 93,415 . . . . 9.3 . . 5.3 . . . 0.4 . . . . . 1.0
2007 . . 6.0 . . 4.1 . . 78,027 . . . . 7.8 . . 3.8 . . . 2.2 . . . . . 0.3 

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then

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Can you simply extract the “empties” bump to GDP 1% of GDP would be 1% of GNP for this exercise )

we have built about 20k empties each year for the last 8 years .

I’ve sort of assumed that there was some requirement for modern housing stock in many parts of the country, so that we only began building significantly too many houses over the last five years. Just taking 2% off each number doesn’t account for the fact that in 2006 & 2007, say, the real economy didn’t grow at all.

Of course, if you take housing out of the equation altogether, lets say we just count what the rest of the economy did over the period, in GNP terms it shrank every year for the last five… no?

edit: clarification

Sadly YM much of the ‘modern housing stock’ is of piss-poor quality & actually inferior long term to stuff built 100 years ago.

If anyone thinks I’m exaggerating consider what houses 100 years ago had, like Agga’s, outside storage, coal cellars, wells etc.

The only thing putting me off is that Richard Douthwaite was a part-time lecturer on my Masters degree and to say the least he is a bit of a fruit cake. He is big into local banking /bartering systems for goods and services, a kind of shadow currency for local areas which he hypothisised leads to greater wealth creation locally. He is also a big Green Party person, he ran for them in Mayo in general election and also in the Euros I think, none of which is a crime or anything but gives a perspective on where he is coming from.

I am fully aware of his background but I cannot find his ‘tendencies’ coming through in the linked article.

I am open to correction of course but he seems to have stuck to basic principles of M0 M3 and Fractional Reserve Banking in the article.

He has also tabulated against GNP which is most useful . GDP in Ireland (and * particularly* in Ireland) is a very misleading measure.

I do not have this “Effective Debt Burden” figure for 1987 though .

Ignoring the “Effective Debt Burden” figure and simply summing the private and public debts for 2007 we have a Debt burden of 270% of GNP which is at least 50% higher than in 1987 .

we’re number one yet again someone fetch the champers!!!

I don’t have the numbers for 1987 either, but I believe if you were able to tabulate both price and public ratios to GNP back to 1977 say, you would see the private ratio decline with the public ratio ballooning during the 1980s recession.

Restricting the view to the last ten years means losing the interplay between both ratios as the economy switches from bust to boom and back again.