Categories
economics

Budgetting for a generation of fear and loathing

Brian Lenihan has committed the political equivalent of armed robbery. Now that the sham of the celtic tiger economy has been exposed. While the budget is to “target all sectors of society” according to today’s Irish Times article, it’s difficult to see what good that will do.
“Radical direct and indirect taxes” mostly affect the middle and upper middle classes. Think of families with 2 working parents earning between 70 and 110k in total. That seems like a lot of money until you realised they’re saddled (or perhaps shafted) with massive debts to buy mediocre accomodation and are possibly in negative equity. The bigger their salaries the greater the debt on their massively overpriced accomodation that this same government encouraged them to buy. Their fuel bills, travel costs and medical bills will now rise.
Their children’s allowance will be cut. Their mortgage relief has been cut. Any to cap it all.. a move of utter stupidity a half percent rise in the high rate of VAT.
I suppose we can console ourselves that by using less fuel and catching pneumonia we’ll be delivering a double benefit to the environment. I miss the principled outspoken PD’s when all I see are these ingratiating tax apologists hanging onto the monster’s coat tails. I’m talking about the greens of course πŸ™‚
As a retailer I can tell you I’m feeling the pinch together with everyone in “trade”. Consumer spending has been moving steadily down the past 2 christmas as rising interest rates and massive house prices reduced the disposable income and hence spending. The sheer pointlessness of raising the high rate of VAT to 21.5 percent. Retailers around the country will have an extra bit of their margins eroded and will have to adjust prices. Has Minister Lenihan noticed the whole country is on sale?
Throw in overpriced childcare and this budget has pulled the trigger of the long gun barrel the middle classes have been looking down since our economy went into free fall. This group are the engine of most retail in Ireland and on their spending many businesses will fall, creating more unemployment, poverty, emigration and all the negative aspects of Irish life for decades. It was well known economist Morgan Kelly who suggested that the boom was so great because successive generations of governments had managed to insulate the Irish people from the effects of a boom for years. Cometh they hour, cometh Lenihan!
The government are suggesting the poor have been protected. What about the friggin middle classes or the “new poor” as I like to call them? I know a few families of modest incomes that are already struggling. Finances are tight and jobs are uncertain. This budget won’t help them or ease their concerns one bit. Instead, it slaps them across the face for bothering to work as opposed to living on benefits.
It seems the super rich (the oligarch class as David McWilliams describes them) will escape relatively unscathed with tax incentives in place and a relatively modest hike in income tax. It would be such a shame to hurt the stud farm industry. I wonder do they escape the 1% levy?
We already some of the world’s highest levels of indirect taxation masking a low-ish direct tax regime. Far from reform we’ve moved farther away with, in reality, nordic levels of personal taxation for inadequate service provision.
Raising taxes across all sectors has been proven time and time again to exacerbate the effects of a recession. While the reckless trading of credit derivatives in the US might have created this crisis, there’s a cogent argument to suggest that raising taxes brought about the recession that together with US bankruptcy laws led to the meltdown in the sub prime market.
The following piece from the Cato Institute makes some valid points about the effect of increasing tax burden during a downturn. By reducing growth and actually causing bankruptcies such measures increase the burden on the exchequer. Raising taxes only bails out the state for poor economic planning. It HAS NEVER and NEVER WILL ameliorate a recession as it reduces the available income for industry, spending etc.
Richard Bruton also made some neat points about this “take away” budget.

β€œThis is a Budget that is all about extra taxes for ordinary families, about extra charges for people, and about cutting capital spending,’’ said Mr Bruton.
β€œYou are looking to make it tougher for people who are struggling to get by,’’ he added.
“There is no sign that you are aware of the pressure on people from fuel bills, the pressure on people who have lost their jobs.”

There are signs he may actually know what he’s doing and it’s a shame that Enda’s shiny suit distracted from what could have been a very capable minister for finance. There’s still time!
It’s difficult to be shocked that a Belvedere-educated, former Trinner-lecturing, barrister (Lenihan) is a bit out of touch with the general electorate. Oh, of course we needed to do this to remain within our EMU parameters. That’s some incentive to the overstretched single parent who’s had their child support for college-going kids slashed. How will they pay the registration fees which just doubled. Equal opportunities indeed.
If the management of a public company had performed so badly they’d be ousted at an A/EGM. Yet the cabinent are congratulating themselves on their principled 10% wage cut. They got reelected by telling the people of the country an economic fairytale that several economists rubbished and which precipitated a crisis in almost the exact way they predicted. There’s a clear attempt at political misdirection where they try to confuse the issue in the public’s mind. The credit crunch hasn’t lowered consumer spending NOR did it lower a few weeks ago. This is a fallacy and any attempt to suggest this budget is entirely the effect of “worldwide economic conditions” is horseshit. George Hook dealt with this very nicely when Miniature Cullen tried this tack on his radio show yesterday evening.
What can we really expect when we don’t have a cabinet member who has any experience of running an SME? If we keep electing these monkeys we SHOULD EXPECT to live on peanuts.

Categories
economics

bullish-shit

Ever wondered why we’re in this economic pit of cess despair. Well the following clip from Fox News discussing “Bulls and Bears” makes it all pretty clear.
It’s pulled from a comment on the David McWilliams website. One guy, Peter Schiff, points out what is just now taken to be the realistic view of the extravagance of the past few years and is ridiculed by everybody around him.

It’s funny that bullish analysts are obsessed with talking about the so-called “fundamentals of the economy”. How about a discussion about the “fundamentals of the economists” who don’t understand basic supply/demand theory and talked themselves into believing in a never-ending upward spiral.

  • bull1: How’s those fundamentals today fred?
  • bull2: Pretty good fannie. If you ignore the inflation, competitiveness, balance of trade and all that old-fangled econometric shit of course.
  • bull1: Yep, I’m feeling pretty fundmental-ist my self.
  • bull2: Boom boom fred

I know.. a bull called fannie. It flies in the face of everything we know about bulls which is kinda appropriate πŸ™‚ If that’s not close enough to the bone then watch this.

With a 7 Billion Euro budget deficit the Irish government could do worse than spend some consulting money on the EuroPacific Capital president. Perhaps listening to economists closer to home like McWilliams and Morgan Kelly who were reasonably bearish on the housing market.. Now that Bertie’s gone we can finally admit the emperor is butt naked without being labelled as scare mongering. Unfortunately for Schiff’s Euro Pacific it’s difficult to figure out where to put the money even if the “get the hell out of the US message” seems compelling right now.
China’s amassing a significant dollar credit to the US. If the USD is devalued then that’s a problem. Russia is … strike all this. Despite the conservatism of German banks they were over exposed on sub-prime. Oh how they must wish we’d just voted Yes to Lisbon. It seems like there’s a new stock market casualty in Europe and the US every week. There are the emerging arab markets, in particular the growth in the emirates region where trillion dollar investment plans across Abu Dhabi and Dubai are creating new “designer economies” from oil wealth. You’d have to feel these are sustainable on the back of the huge price of oil and the significant decreases in the value of bluechip US and European assets.

Categories
economics

on the brink of madness

As we’re on the brink of the biggest nationalisation in world history with the US preparing is $700Bn bailout of many of its major financial institutions in return for equity and tighter regulation it’s probably a good time to consider whether it needed to be this bad.
Here are a few suggestions that could have capped the “irrational exuberance”

  • Maintain a full record of stock and commodity market short positions as is maintained for longs
  • Either ban the practice of naked shorting or impose reasonable and proportionate fines on the fauilure to execute the “puts” in the event the stock rises. Without fines in reasonable proportion to the “naked” position then the risk to hedge funds is simply not great enough and mayhem will reign
  • The ECB should raise and enforce requirements for bad debt provisions by banks based on their balance sheet.
  • No unsecured bailouts for banks. When a bank is bailed out due to what is impolitely described as reckless lending the government providing the rescue package should take a reasonable stake. It seems highly unfair to the rest of the economy that some financial services companies should be immune to the consequences of their actions.
  • Require banks to purchase government bonds to support the deposit guarantees (now 100k in Ireland)
Categories
economics

used car prices

I’ve posted before about the Revenue’s Open Market Selling Price (OMSP) which I and many others feel is complete nonsense. With the economy faltering, many dealers are selling used cars for cost or little margin. As the time to clear a lot for new stock and, hopefully, profit increases with every passing month a strange situation has been created. The OMSP’s for larger-engined used cars are in many cases substantially above the estimates of the finance companies. My personal experience is that a well known finance company has refused to offer finance on 2 cars priced 20% (and more) less than the OMSP as they felt “the prices were way too high based on their adjusted forecourt valuations”. I’d rather not give the details of each car but suffice to say they hadn’t been crashed or clocked according to cartell.ie
My experience has been backed up by anecdotal comments by the country’s best known car salesman, Bill Cullen who has acknowledged that finance companies are now very concerned that the luxury cars on their books will be nearly worthless after a few years.
So why, in the face of this undeniable recession, have the Revenue Commissioners not adjusted their OMSP’s? Also, the “forecourt valuations” used by the finance companies to decide the maximum permissible HP or lease on a vehicle should be published. How is the consumer supposed to magically figure this out when there’s such a spread of second hand prices, few sales and official revenue OMSP’s which are lies misleading.
As it stands, it’s a waste of the consumer’s time and money.