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2010-01-18T16:53:00.000Z

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Icelanders can't afford Big Macs anymore

2009-10-28T17:17:00.003Z

McDonald's is to close its business in Iceland because the country's financial crisis has made it too expensive to operate its franchise. The fast food giant said its three outlets in the country would shut - and that it had no plans to return.

Besides the economy, McDonald's blamed the "unique operational complexity" of doing business in an isolated nation with a population of just 300,000. Iceland's first McDonald's restaurant opened in 1993. The franchises are run by a firm called Lyst, with owner Jon Gardar Ogmundsson saying the decision was "not taken lightly". He said that the restaurants imported the goods from Germany, but that costs had almost doubled, with the falling krona making imports prohibitively expensive.

Mr Ogmundsson said the restaurants had "never been this busy before... but at the same time profits have never been lower". "It just makes no sense. For a kilo of onion, imported from Germany, I'm paying the equivalent of a bottle of good whisky," he added. He now plans to run the restaurants under another name so that he is able to buy cheaper Icelandic products.

Iceland's banks collapsed at the height of the global credit crisis - wrecking the country's economy and forcing it to rely on an $10bn (£6.1bn) international aid package.

David McWilliams discusses the pullout here.

Recession ending for some

2009-09-12T12:24:00.001+01:00

Brazil has come out of recession after its economy grew in the April-to-June quarter. The largest economy in Latin America expanded by 1.9% in the second quarter from the previous three months.

Data also showed Sweden emerged from recession on Friday, a sign that economies are starting to recover from the global economic downturn. Other countries that have come out recession include the eurozone's largest economies, Germany and France. Japan, the world's second-largest economy, also grew by 0.6% in the second quarter, less than the 0.9% growth the government initially estimated.

Stupid bankers!

2009-07-16T16:55:00.005+01:00

Q: What's the question most bankers are asking these days?
A: "Do you want fries with that?"

Q: What's the difference between a bank manager and a pigeon?
A: A pigeon can still put a deposit on a Ferrari.

Q: How do you get a banker out of a tree?
A: Cut the rope.

Q: What’s the definition of optimism?
A: A banker who irons five shirts on a Sunday evening.

A banker said he was going to concentrate on the big issues from now on. He sold me one in the street yesterday.

Q: What is the difference between a banker and a large pizza?
A; The pizza can still feed a family of four.

Q: What's the difference between a banker and a couch?
A: The couch can support a family of four.

Q: What do you call a banker without a girlfriend?
A: Homeless

An Bord Snip Nua report is out

2009-07-16T16:28:00.002+01:00

As a result of Ireland's financial crisis there were calls before Christmas for the formation of a new body to identify areas for cut-backs in public expenditure. A group of experts was called together at the behest of the Minister for Finance Brian Lenihan. The group's formal title is "Special Group on Public Service Numbers and Expenditure Programmes". It is a four person group, headed by University College Dublin economist Colm McCarthy (pictured above). Colloquially, it is referred to as "An Bord Snip Nua".

Today, the Department of Finance published An Bord Snip Nua's recommendations for around €5.3bn worth of public spending cuts. The 80-page report includes hundreds of proposals, including the abolition of the Department of Community, Rural and Gaeltacht Affairs.

It recommends a reduction of up to 5% in social-welfare rates, an increase in the retirement age, a reduction in the number of Irish embassies and increases in hospital charges. Other proposals include a cut of 500 in Defence Forces personnel, an amalgamation of small primary schools, means tests for home-care packages and reduced spending on road maintenance. An Bord Snip is also recommending the abolition of Sports Campus Ireland and the Irish Film Board, a 33% reduction in the number of VECs and the discontinuation of the rural transport scheme.

Euro cities cheaper to live in

2009-07-07T16:00:00.003+01:00

A new survey released today has shown that Dublin has dropped out of the top 20 most expensive cities in the world, due to lower rents and the euro's fall against the US dollar. The cost of living survey for 2009, carried out by consultants Mercer, puts Dublin as the 25th most expensive of the 143 cities covered. This compares with 16th last year. Tokyo has knocked Moscow off the top spot.

In Mercer’s survey, New York is used as the base city for the index and scores 100 points, all cities are compared against New York and currency movements are measured against the US dollar.

Standing room only?

2009-07-07T15:55:00.001+01:00

Ryanair Holdings may offer free flights to passengers willing to stand up during flights of less than 90 minutes, Sky News reported, citing chief executive Michael O'Leary.

Ryanair is asking Boeing about converting planes or delivering a new fleet with a section of “vertical seating”' that would allow passengers to stand or to sit on bar stools similar to those in trains' dining cars, Sky reported Mr O'Leary as saying in an interview.

July Quiz!

2009-07-05T11:38:00.005+01:00

Today is the day we start our monthly competition. Still not sure of the prize but rest assured, it will be decent. All you have to do is answer the following five questions correctly. Send your answers along with your name (and address if I don't teach you) to bleconomics@gmail.com. Closing date is Friday, 31st July. The answers are all on the site somewhere! Good luck!

1. Which famous British economist, currently back in fashion, believed the way to stimulate an economy in a recession (or depression) was for the government to reduce interest rates and also to invest in infrastructure?

2. NAMA is to be run under the control of which body?

3. Which economist, known affectionately as Dr. Doom, coined the term 'stagdeflation' in 2008?

4. Where and when was the IMF founded?

5. Which company announced in February that it is entering the residential electricity market, with a guarantee to customers that its prices will be at least 10% lower than the ESB?

2009-07-05T11:37:00.002+01:00

Is privatisation dead?

2009-07-05T11:09:00.004+01:00

There is an excellent article by Richard Wachman and Tim Webb in this morning's Guardian, which asks whether the idea of privatisation is now dead. I have abridged it as it's quite long but you can read the full piece from the link at the bottom.

Have we reached the end of the line for privatisation?
First it was the banks, now the government is taking over a key rail service. But it may not be enough to reverse the process begun by Thatcher.

Nationalisation used to be a dirty word, but now it's back in vogue. The government's move last week to nationalise the east coast rail franchise comes in the wake of the state's takeover of parts of the UK banking system, all of which has raised fundamental questions about the success of market-driven capitalism. That may seem strange given that over the past quarter of a century, it has been a one-way street with the transfer of assets from the public to private sector, a process that was the centrepiece of Margaret Thatcher's governments in the 1980s. For years, no one questioned the prevailing orthodoxy that the running of companies was best left to the market and that managers would perform better if they were answerable to shareholders rather than civil servants.

...

But since the collapse of the banking system and the state rescue of capitalism itself by government and central banks, the wind is blowing from a different direction. That doesn't mean that British industry is about to undergo wholesale nationalisation, but many believe that the pendulum has swung too far the other way. Blind faith in global market forces over three decades is viewed as just as short-sighted and dangerous (more so, it seems) as over-dependence on the discredited socialist ideologies that played out in the 1970s. No one should be under any illusion that the world has changed a great deal since Margaret Thatcher left Downing Street 20 years ago. Nationalisation, raising taxes and Keynesian economics are back in fashion. And many of the virtues that she claimed for the market place have been shattered by the greed and stupidity of bankers, and the short-sightedness of politicians on both sides of the divide.

Source: The Guardian 05 July 2009

Why Study Economics?

2009-07-04T21:35:00.002+01:00

Obviously, because it's the best subject out there and the Leaving Certificate course is very manageable. But apart from the obvious, I saw this on YouTube this evening and liked it. Nice video!

Dragons' Den is back

2009-07-03T12:27:00.002+01:00

The BBC has confirmed that the new series of Dragons’ Den will start on Wednesday 15th July at 9.00 p.m. on BBC2.

Live register up again

2009-07-03T10:08:00.004+01:00

The seasonally adjusted Irish Live Register total increased from 402,100 in May to 413,500 in June, an increase of 11,400 in the month. This is the smallest monthly increase since last September (see graph above). The standardised unemployment rate in June was up to 11.9% - the highest rate since April 1996.

Remember, the Live Register is not designed to measure unemployment. It includes part-time workers (those who work up to three days a week), seasonal and casual workers entitled to Jobseekers Benefit or Allowance. Unemployment is measured by the Quarterly National Household Survey and the latest seasonally adjusted figure, for January to March 2009, is 223,400 unemployed.

Taoiseach Brian Cowen on Wednesday forecast that the number of dole claimants will rise to 500,000 by Christmas and grow further into 2010. It's clear, given the expected international backdrop of years of slow growth, that Irish unemployment will remain elevated for an extended period.

Ramsay's own kitchen nightmare

2009-07-03T06:26:00.001+01:00

Profits at Gordon Ramsay's UK restaurants fell by 87% in the last year, forcing the chef to inject £3.5m of his own money into the business. His father-in-law and partner Chris Hutcheson also pumped in £1.5m to help cope with mounting debts and tax bills.

The latest accounts showed that in 2007-08 pre-tax profits plummeted £3.05m to £383,325. At the same time, net debt soared from £4.06m to £9.48m.

The closure of two of Ramsay's London restaurants alone accounted for a £9.5m drop in revenue. The Savoy Grill was shut because of refurbishment of its host hotel, while the Connaught's lease expired. A third venue, La Noisette, ceased trading in January this year, and was said to have been a "consistently underperforming site".

Ramsay has told how he had to sell his Ferrari to help raise funds, blaming the company's problems on his own over-ambition. Some 25 staff also lost their jobs as part of the restructuring efforts.

Universal phone charger on the way

2009-07-01T10:02:00.003+01:00

Life could soon be easier for millions of mobile phone users across Europe. A deal's been done between industry bosses and the European Commission in Brussels to work towards a 'one size fits all' charger. It would mean an end to users having to hunt around for the right type of charger for their handset and should help cut waste.

The deal isn't legally binding though and, at this stage, is only voluntary. But it means a universal charger, which will use a micro-USB connection, should be available by next year. Under the accord, the companies, including Nokia, Sony Ericsson, Apple, Motorola, Research in Motion and Samsung, are committed to developing the charger.

This is an excellent example of why more choice is not always good, but actually less choice does benefit the consumer at times.

80 jobs go in Belmullet

2009-06-30T22:00:00.001+01:00

Up to 80 full-time and part-time job losses have been announced in the Mayo Gaeltacht with the closure of a major call centre. Eurotel Marketing Limited, which is based in the Udarás Na Gaeltachta Industrial Estate in Belmullet (above), has informed its workforce by letter that it will have closed down completely by October I.

The economic crisis and the increasing use of automated technologies is being blamed by the company for the difficulties which are leading to the shutdown. At its peak, Eurotel employed over 100 full-time workers in Belmullet but this has decreased significantly in recent years because of problems caused by the weakening dollar. Recently, the company closed its customer contact centres in Dublin and Athlone.

The 2009 Q1 results are in...

2009-06-30T21:47:00.003+01:00

Official figures show that there was a dramatic contraction in the economy in the first three months of this year.

The Central Statistics Office said economic output, as measured by GDP (gross domestic product), fell at an annual rate of 8.5%. The decline in GNP (gross national product) - which excludes profits from multi-national companies based here - was even bigger at 12%. The CSO describes these figures as 'unprecedented' and they are weaker than economists had expected.

Consumer spending was more than 9% lower than the same period in 2008, while capital investment plummeted by 34%. Industrial output dropped 10.5% over the year, including a fall of 31.4% in construction output. New housing was down by 47%, and there was a 20% fall in other building and construction projects.

Other CSO figures showed a fall in the Balance of Payments current account deficit in the first three months of this year. The deficit was €2.53 billion, down from €4.18 billion a year earlier. The surplus on goods surged to €8 billion, mainly due to a slump in imports. The balance of payments measures flows of trade and income into and out of the country.

China getting worried about the strength of the US Dollar

2009-06-28T10:50:00.004+01:00

China has renewed its call for the creation of a super-sovereign currency to reduce the US dollar's domination of the world's monetary system. It is believed they want the Special Drawing Right, the International Monetary Fund's unit of account, to eventually displace the dollar as the principal reserve currency.

In its annual financial stability report, China's central bank did not mention the dollar by name but said it was a serious defect that one currency should tower over all others.

'An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis,' the People's Bank of China said.

In a veiled call for the US not to erode the value of the dollar through excessively loose monetary and fiscal policies, the PBOC urged closer supervision of those countries that issue the main reserve currencies.

China is no doubt getting worried about the $1.95 trillion in official currency reserves it has in US dollars. Any further big US budgetary and monetary stimuli may well generate inflation, in turn lowering the purchasing power of the US dollar and handing Beijing big losses on its large portfolio of dollar-denominated bonds.

IMF releases its report on the Irish economy

2009-06-25T06:22:00.000+01:00

A new report released yesterday on the Irish economy says that it was perhaps the most overheated of all advanced economies. The detailed analysis by the International Monetary Fund says the collapse of tax revenue could push the budget deficit up to 12% of national income this year, compared with a Government target of 10.75%.

The IMF says Ireland's seemingly unstoppable economic growth of recent years masked serious problems - including the fragility of the public finances. It says generous rises in public sector wages pushed up wages elsewhere, making Ireland less competitive. In recent years, the IMF says, Ireland became the most expensive economy in the euro zone with the possible exception of Luxembourg.

The report says losses now faced by the banks could be about €35 billion by 2010 - although the bulk of that would be absorbed the banks' reserves. The IMF is broadly supportive of the Government's NAMA project to buy back bank debt. But it says setting a price for the purchase of those assets could be easier if the banks are nationalised. Not paying the right price, it says, opens the taxpayer to huge risks. The report says nationalisation could also be used to effect necessary mergers.

The IMF is projecting that the Irish economy will shrink by 8.5% this year, with another 3% drop in 2010. It says unemployment will reach 15.5% of the workforce next year.

Setanta Sports closes down

2009-06-24T09:21:00.005+01:00

The long-running battle to save Setanta's substantial UK business finally collapsed yesterday as administrator Deloitte moved in and shut down the business. The move triggered the loss of 200 jobs across Setanta's bases in England, Scotland and Wales, while another 19 jobs were shed in Dublin after new media wing Setanta Media was wound up.

But there was a reprieve for the sports giant's Setanta Sports Ireland, which employs 160 locally, and Setanta Sports International, which has 50 staff.

This is how Setanta Sports News closed down yesterday evening at 6.00 p.m.

More cost saving measures by Ryanair

2009-06-24T09:09:00.003+01:00

According to this morning's Irish Independent, Ryanair is considering banning check-in luggage as part of a new system where passengers would have to carry their bags all the way to the tarmac beside the aircraft. Yesterday, chief executive Michael O'Leary detailed proposals where customers would pass all of their bags through security checks, currently used just for hand luggage, and then carry them through terminals to their flight.

The budget airline says the plans could save €20m, through not paying baggage handlers, which would be passed on to consumers. The airline claims 70pc of its passengers do not check in any baggage when travelling. However, there is no timeline on when the plans could be introduced, nor what airports the system could operate in.

Mr O'Leary sold €19m worth of shares in the company less than three weeks ago. Ryanair also said it is suspending expansion at its nine UK bases as part of its lengthy campaign against government-imposed passenger taxes. The no-frills airline claimed that a combination of a stg£10 passenger tax introduced in the UK and what it described as high airport charges levied by airport operator BAA have resulted in 4.5 million fewer passengers at UK airports within the past five months.

WHAT IS... NAMA?

2009-06-24T06:40:00.005+01:00

What is it?

NAMA stands for the National Assets Management Agency and its creation was first announced in the April 2009 Budget. It is to be run under the control of the National Treasury Management Agency. The Governmant line is that NAMA is firstly an asset management company dealing with assets transferred from banks. NAMA will not be a bank as it will not be taking deposits from the public and will not have a banking licence. The idea is that the NAMA will buy all of the land and property development loans of the six Irish banks of covered by the State guarantee. In May, the Government approved the appointment of Brendan McDonagh as interim managing director of NAMA.

Why was it created?
By taking problem property loans off the hands of the banks, the Government hopes to put those institutions in a position where they can resume lending with a clean bill of health, their balance sheets strengthened and uncertainty over their bad debts reduced. NAMA will probably become the biggest landowner in Ireland. Developers might not yet realise it - but every single land and investment property they own which has outstanding debt could end up in the new National Asset Management Agency.

So, the banks give over their bad debts. What do they get in return?
NAMA will give the banks government bonds, which it is hoped will result in a freeing up of credit within the economy. NAMA will then manage the bank’s bad loans over a considerable period of time.

How big will the transferred loans be?
The total potential value of the loans which will be taken on by NAMA will be between €80 billion and €90 billion. It is expected that the top 50 borrowers will account for some €40bn–€50bn of the expected total due to be taken over by the new state agency.

Even if the total debts are bought by Nama at two-thirds of their face value – the bill could be in the region of €60 billion. (Ireland’s national debt is currently €54 billion).

What is the time-scale for NAMA?
It could be 12 to 18 months before NAMA gets going properly - although it is expected to be legally rubber-stamped in the autumn. It may need to exist for another 10 to 15 years - it is definitely no short-term fix.

No change in interest rates for the rest of 2009?

2009-06-23T05:33:00.000+01:00

There will be no change in interest rates before next year, the Austrian member of the ECB Governing Council said yesterday. "While there are first signs that the pace of economic weakening is decelerating, we must remain alert. Banks know the ECB is following a policy of the steady hand, so they don't expect rapid changes in the interest rate. And I think banks more or less also share our expectations regarding the economic outlook."

The unusually clear statement from Bank of Austria Governor Ewald Nowotny backed up a similar message from ECB President Jean-Claude Trichet in more careful tones, as the ECB official said the bank was likely to keep interest rates steady for at least the rest of the year. "We are in uncharted waters, and there are still risks of a sudden emergence of unexpected financial turbulence," Mr Trichet said at a weekend conference in Madrid.

Thousands of jobs in the food industry at risk

2009-06-23T05:24:00.000+01:00

Today, a body representing food and drink companies says 2,000 jobs have been lost in the industry so far this year and 'many thousands more' are at risk. Food and Drink Industry Ireland (FDII), part of employers' group IBEC, said firms' competitive position had been damaged by high business costs and the sharp fall in the value of sterling.

It called for Government action to reduce business costs, particularly energy. The body also urged the Government to seek EU approval to set aside its rules on state aid in order to provide grant aid to firms hit by the fall in sterling. FDII also wants an export credit scheme with a state-backed guarantee.

Now that's a vending machine!

2009-06-22T15:16:00.002+01:00

Shoppers in Germany will soon be able to buy gold as easily as bars of chocolate after a firm announced plans to install vending machines selling the precious metal across the country.

TG-Gold-Super-Markt aims to introduce the machines at 500 locations including train stations and airports in Germany. The company, based near Stuttgart, hopes to tap into the increasing interest in buying gold following disillusionment in other investments due to the economic downturn.

Gold prices from the machines – about 30 per cent higher than market prices for the cheapest product – will be updated every few minutes. Customers using a prototype "Gold to go" machine at Frankfurt Airport on Tuesday had the choice of purchasing a 1g wafer of gold for €30, a 10g bar for €245, or gold coins. A camera on the machine monitors transactions for money laundering controls.

Thomas Geissler, who owns the company behind the idea, said: "German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons. They have twice lost everything. "Gold is a good thing to have in your pocket in uncertain times."

McJobs back on the menu

2009-06-22T15:01:00.004+01:00

Sean Poulter in the Daily Mail writes on how jobs in McDonald's are in demand again.

In the UK, fast food giant McDonald's is being swamped by more than 2,200 job applications every day, including from bank workers, graduates and teachers. The level of applications suggests the stigma surrounding the 'McJob' has been swept aside by people who are desperate for work and an income.

Among the few sectors that are bucking the recession and rising unemployment are fast food chains and some supermarkets. While these sectors can provide useful, flexible jobs and income, they are not the international wealth creators such as manufacturing and financial services that will drive the UK out of the economic mire.

McDonald's said that it is currently hiring 140 people a day to flip burgers, cook fries, serve customers and run its restaurants. In the past month alone it received 305 trainee manager applications from people with a wide variety of backgrounds in finance and banking, education, hospitality and the retail sector.

David Fairhurst, senior vice president McDonald's UK & Northern Europe, said: 'Given the current levels of unemployment, it's no surprise that we are attracting thousands of applications each day. We are hiring up to 140 people each day, and those employees are choosing to remain with us for considerably longer thanks to the range of opportunities we offer.'

Mcdonald's has struggled to overcome a negative stereotype of the jobs it offers, which have been labelled in the past as the 'McJob'. The Oxford English Dictionary currently describes a McJob as 'an unstimulating, low-paid job with few prospects, especially one created by the expansion of the service sector'. Mr Fairhurst has slammed this definition as 'out of date and insulting' and has campaigned, unsuccessfully, to have it changed. He said: 'The current definition is extremely insulting to the 67,000 people who work for us within the UK.

Source

Ten million log on to Facebook to claim their own 'vanity' web addresses

2009-06-21T14:18:00.002+01:00

Insomniac entrepreneurs stand to profit handsomely from Facebook's "vanity URL" giveaway, after millions snapped up the choicest profile addresses in the hours after they became available in the middle of Friday night.

While most people who logged in made a beeline for their own names, before any rivals could take them, many enterprising users took URLs such as facebook.com, /digitalcameras, and /besthotels in the hope of selling them on to others with related businesses. Already these profile pages are turning up for sale on online marketplaces such as Assetize in the hope of attracting bids in the hundreds of thousands of dollars.

Facebook said personalised addresses will make it easier to find people. Users can direct friends to a simplified web address, such as http://www.facebook.com/username. Previously, those addresses had strings of letters and numbers. The change also makes it easier to find Facebook members through search engines such as Google. Although the URL giveaway only brings Facebook into line with MySpace, which has long allocated users their own distinctive addresses, the move generated substantial new traffic to the social networking leader. Within 15 minutes of the addresses becoming available, over a half million users had signed them up. The number clicked over 10 million within five days. Facebook is understood to have contemplated auctioning the addresses, but worried that the move would infuriate those who lost out to more wellheeled namesakes.

Source

What to expect when the recession ends.

2009-06-20T19:55:00.005+01:00

Time magazine has a very interesting piece this week, written by Justin Fox. In it he wonders how life will be different after the current recession. He pins it down to five major areas.

* Bear in mind, the article is written very much from an American viewpoint.

1. Frugality
This is an extremely fashionable topic at the moment. Some cultural observers even think Americans are due for a prolonged shift away from the consumption obsession of the post–World War II era. That strikes me as an iffy bet, but it is clear that the debt-fueled consumer spending binge of the past couple of decades is over. The household debt-to-income percentage more than doubled, from 65% in 1982 to 135% in 2007. That turned out to be way too much for us to handle, and now the leveraging process has gone into reverse. The latest household debt-load reading from the Federal Reserve is 128%, and while nobody knows exactly where the percentage will end up, a lot lower seems like a safe prediction. Which means that for years to come, American households will be spending less than they take in.

2. Bear Markets
The long boom in stock prices from 1982 to 2000 and the shorter one in housing prices from about 1997 to 2006 were fueled by rising debt. Ever easier mortgage terms and falling interest rates provided a brisk tailwind for home prices. In the stock market, higher profits pushed along by bigger consumer and corporate debt loads brought higher stock prices. Start ratcheting the indebtedness down and throw in slower growth, and both of these processes go backward. For the long-term health of the economy, that's good — as we've learned, debt-fueled growth is not indefinitely sustainable. It means, though, that both the stock market and the housing market will be confronting headwinds for years to come.

3. Volatility
The Great Moderation was a name economists gave to a post-1982 era marked by only two mild recessions and long stretches of uninterrupted growth. That's over, and the transition to whatever comes next will, if history is any guide, be messy. From 1970 to '82, the U.S. economy was hit by four downturns, two of which (1973-75 and 1981-82) until recently competed for the title of "worst since the Great Depression." The current recession has undisputed claim to that title. And while we may be about to climb out of it, don't be surprised if we endure more downturns. Think of a W shape — maybe multiple Ws — not a V.

4. High energy prices
Saying energy prices would stay high was one of the great forecasting errors of the late 1970s and early '80s — so it's a little scary to predict that they will stay high this time around. But the fact that even the slightest hint of a turnaround in the global economy has sent oil prices skyrocketing from $35 a barrel to more than $70 ought to be a sign that the upward price cycle that started a decade ago isn't played out yet. The crucial element may be that the struggling U.S. no longer drives the global demand cycle — China and India do.

5. Higher taxes
There's just no way to square the cost of current recession-fighting efforts, future Medicare commitments and the various goals of the Obama Administration with the current level of taxation. Taxes are going to have to go up, and raising rates on just the very richest won't be enough. The only alternative is what some call the inflation tax — reducing the relative size of the country's debts by letting prices rise across the board. But that has its costs too. The free-lunch era is over.

Full article

Setanta to go into administration?

2009-06-20T12:12:00.004+01:00

An administrator (probably Deloitte) is expected to be appointed to sports broadcaster Setanta as early as Monday after talks with a white knight investor broke down and the company failed to stump up a £10m payment due to the English Premier League. Setanta strongly denied reports in the UK last night that their talks with US billionaire Len Blavatnik had collapsed due to significant tax liabilities, both in the UK and in Luxembourg.

Setanta employs 200 people in Ireland and the ownership structure here is different to the UK. It is 20% owned by promoter Denis Desmond while the remaining 80% of the company is owned by the parent firm Setanta Sports Holdings Limited. Unlike the parent group, the Irish company made a small profit last year.

Setanta boasts around 1.2 million subscribers — but that is still short of the reported 1.9 million it needs to break even and customer numbers have been hit by the recession. The Premier League will now go ahead and market the three-year rights which Setanta had to 46 UK Live Matches per season from the 2009/2010 season. While BSkyB can purchase some of the matches it cannot buy them all thanks to EU law. ESPN, the sports cable channel owned by Walt Disney, confirmed yesterday it is sitting in the sidelines and will take up the rights if "it makes business sense" in a move that would pitch it against BSkyB. It is understood that Britain's leading football clubs could lose at least €30m if Setanta fails and the League is forced to sell on the 46 games.

WHAT IS... the IMF?

2009-06-19T06:34:00.001+01:00

This is the start of a new series called "WHAT IS...?" in which I'll explain some term, event, institution in simple terms. We will begin with the International Monetary Fund (IMF).

What is the IMF?
The International Monetary Fund is a global organisation founded in 1944 at Bretton Woods. It aims was to help stabilise exchange rates and provide loans to countries in need. Nearly all members of the United Nations are members of the IMF with a few exceptions such as Cuba, Liechtenstein and Andorra.

What does it do?
It has three central activities:

1. It monitors national, regional and global economic and financial developments. It advises members countries on their economics policies. This is termed their 'surveillance role'. A list of IMF reports on member countries can be viewed here.

2. It lends members strong currencies to help them design programmes to redress any Balance of Payments problems.

3. It offers technical assistance - such as training for government and Central Bank officials.

Where does it get its money?
The IMF is financed by member countries who contribute funds on joining. They can also increase this throughout their membership. The IMF can also ask its member countries for more money. IMF financial resources have risen from about $50 billion in 1950 to nearly $300 billion in 2007, sourced from contributions from its 183 members. This initial amount depends on the size of the countries economy, e.g. the US deposited the largest amount with the IMF. The US currently has 16% of voting rights at the IMF, a reflection of its quotas deposited with IMF. The UK has 4% of IMF Voting rights. Loans are also available to developing countries to 'deal with poverty reduction.'

Is there any criticism of the IMF?
There are many critics of the IMF. Most of the criticism centres on the following:

1. Conditions of Loans -
On giving loans to countries, the IMF make the loan conditional on the implementation of certain economic policies. These policies tend to involve:

Reducing government borrowing - Higher taxes and lower spending
Higher interest rates to stabilise the currency.
Allow failing firms to go bankrupt.
Structural adjustment. Privatisation, deregulation, reducing corruption and bureaucracy.

The problem is that these policies of structural adjustment and macro economic intervention often make the situation worse.

2. Lack of Transparency and involvement -
The IMF have been criticised for imposing policy with little or no consultation with affected countries.

3. Exchange Rate Reforms -
When the IMF intervened in Kenya in the 1990s, they made the Central bank remove controls over flows of capital. The consensus was that this decision made it easier for corrupt politicians to transfer money out of the economy (known as the Goldman scandal). Critics argue this is another example of how the IMF failed to understand the dynamics of the country that they were dealing with and insisting on blanket reforms.

4. Free Market Criticisms of IMF -
Some criticise the IMF for being too interventionist. Believers in free markets argue that it is better to let capital markets operate without attempts at intervention. They argue attempts to influence exchange rates only make things worse - it is better to allow currencies to reach their market level.

5. Moral Hazard Criticism -
There is a criticism that bailing out countries with large debt only creates 'moral hazard', i.e. the possibility of getting bailed only encourages those in debt to borrow more.

Will the Irish Government ask the IMF for help?
It is unlikely. Over the New Year there was much speculation (reported by RTÉ amongst others) that Taoiseach Brian Cowen had been talking about IMF intervention with the social partners - Cowen immediately dened this. In January 2009 the IMF said it did not think Ireland needed such financing.

IMF Report is downbeat

2009-06-19T05:17:00.002+01:00

The Irish Independent is reporting this morning that an imminent report on Ireland from the International Monetary Fund (IMF) is likely to stress the unprecedented nature of the economic challenge the country faces.

Sources say the IMF's projections on the budget deficit and medium-term recovery in the economy may be somewhat gloomier than those of the Government. Official figures put the underlying deficit at around 8pc of output (GDP) this year, but budget projections see a return to growth of more than 3pc in 2011.

The IMF is believed to have calculated that the "structural" deficit could be as much as 10pc of GDP, or €18bn, and that correcting this will require very difficult choices on public spending. It will endorse the widespread view that most of the correction must now come on the spending side, rather than through more tax rises. This would include serious examination of public sector wages.

The IMF's report is likely to repeat previous views that Ireland needs to target its welfare benefits more precisely, in view of the pressures on public spending. Even if it is not spelt out directly, this will be taken to include the universal payment of untaxed child benefit.

The report does not find fault with the Government's approach to the crisis, or its controversial plans to set up the National Asset Management Agency (NAMA) to remove development loans from the banks' balance sheets. But the report does emphasise the amount of effort it will take to solve these problems. The Government's plans see a return to borrowing of less than 3pc of GDP by 2013, from this year's level of around 11pc. Such an ambitious plan will require sustained action on the Government's part, the analysts in Washington say.

On bank rescue, it is likely to emphasise that it is essential that NAMA pays the correct value for the banks' development loans. This has been a political bone of contention, with opposition politicians claiming the Government is planning to bail out the banks and developers, by paying too much for the loans. Taoiseach Brian Cowen has insisted the loans will be valued by experts on an independent basis.

The IMF recognises that the Government has moved quickly on the banking crisis in comparison with some other countries, and that guarantees, re-capitalisation and removal of bad assets must all be part of any re-structuring. Such is the scale of the twin budgetary and banking challenges that the report is expected to state clearly the risks that the Irish economy still faces and the lack of any certainty that the ambitious recovery targets can be met.

Source: Irish Independent 19-Jun-2009

Effects of youth unemployment

2009-06-18T13:49:00.004+01:00

There's a good article by Ian King in this morning's London Times dealing with the impact of youth unemployment. Here's a slightly abridged version. You can read the full version in the source link at the bottom.

While all forms of unemployment are bad, youth unemployment is probably the most searing because of its corrosive effects throughout society. Research by organisations such as the Prince’s Trust and the Joseph Rowntree Foundation have proved that “young adulthood” is a period of heightened vulnerability in a person’s life. Unemployment adds to the risk of drug abuse, criminality and, ultimately, incarceration. Work by the Institute of Criminology at Cambridge University, which has been studying the subject for nearly 50 years, established long ago that young people are more likely to commit crime when they are out of work. That crime is often petty but it can turn into something more serious. The summer riots of 1981 in inner-city areas were strongly linked to high rates of joblessness among young people.

For school-leavers or university graduates, going straight on to the dole queue is damaging psychologically, because of the harm it does to self-esteem at a key age. It can also have a lasting effect on careers because a gap on a person’s CV, particularly straight after school or college, can raise awkward questions about their employability. Just ask people aged 48 to 50 who, as new graduates, struggled to find jobs between 1980 and 1982. Youth unemployment is not just a problem in Britain, though. According to official statistics, 20.4 per cent of people aged 15 to 24 in France were unemployed at the end of last year, compared with 16.5 per cent in Britain. In Qatar and Saudi Arabia it is almost 25 per cent. If this all sounds very bleak, it is. There is only one consolation. Much of the great popular music of the past 35 years has been born in eras of unemployment and frustration.

Source: London Times, 18 June 2009

Sample Solutions: LC HL 2009 Short Questions

2009-06-17T16:58:00.016+01:00

Here are sample solutions to the nine short questions asked in this year's Economics exam. I'll try to get solutions to the long questions up as soon as I can.

Remember, these are sample solutions only. Some questions here could have many different answers, so if you wrote different points than I did in answering some of these questions you may still receive full marks

Q.1. Outline two uninsurable risks faced by entrepreneurs?

- Strikes
- Entry of rival firms

Q.2.
The demand curve is perfectly elastic.

Reason: The firm can sell all of the output that it wants at this price because it is a relatively small part of the market. As a price taker, the firm cannot charge a higher price or demand will drop to zero and has no reason to charge a lower one. The market price facing a perfectly competitive firm is also average revenue and marginal revenue.

Q.3. Ireland has a mixed economy. What do you understand by this term? State one economic advantage and one economic disadvantage of this type of economic system.

This is an economic system in which both private enterprise and a degree of state monopoly coexist.

Economic Advantage: There are many freedoms in a mixed economy. People may go into business for themselves, decide what they will produce or sell, and set their own prices.

Economic Disadvantage: The state may have a monopoly in some industries and be unwilling to give up power by opening the market to competition.

Q.4. Define 'Cost push inflation'. Identify two sources of this form of inflation in the Irish economy.

Cost push inflation occurs when firms suffer a rise in their costs of production and they then pass on these higher costs to the consumer through increased prices.

Source 1: Increased labour costs (e.g. wages)
Source 2: Increased cost of raw materials

Q.5. The demand for land is 'derived demand'. Explain this term with reference to land.

- The demand for all factors of production is derived demand. This means the demand is not for the factor of production in itself but rather because the factor is necessary for the production of some good/service which people want.
E.g. a property developer will not buy land because he likes to watch the grass growing on it - he will use the land to build houses etc.

Q.6. Outline two possible economic effects of UK Sterling (£) falling in value relative to the euro (€) for the Irish economy?

Effect 1: Consumers may travel to Northern Ireland to buy products which are cheaper there because of the fall of Sterling. This can have grave consequences for producers in the Republic whose sales are likely to drop as a result.

Effect 2: It becomes more difficult to export Irish products to the UK as their prices rise. This can lead to a general lack of competitiveness by Irish firms in that export market.

Q.7. (a) State the Law of Diminishing Marginal Utility.

Diminishing Marginal Utility states that as increasing amounts of a good/service are consumed, the extra utility (satisfaction) received by the consumer from each extra unit will eventually reduce.

(b) The point where DMU sets in is when the third unit is consumed.

Q.8. Define ‘economic development’. Explain two social costs of economic development.

Definition: Economic development is an increase in output per worker accompanied by a change in the structure of society.

Social Cost 1: Increased pollution. The most economically developed countries are often also the ones placing the heaviest environmental burden on society. USA has 4.5% of world population yet emits 22% of the world's carbon dioxide.

Social Cost 2: Large scale migration. Moving away from rural to urban areas in search of work will cause some upheaval in peoples' lives and may mean the loss of the traditional way of life to which they had become accustomed.

Q.9. Economists have commented on Ireland’s ‘greying population’, i.e. the structure of Ireland’s population is getting older. Outline two economic effects of this development for the Irish economy.

Effect 1: Increase for the state in health care costs.
Effect 2: Increase for the state in the cost of state pensions.

Latvian economy on the brink

2009-06-16T09:13:00.005+01:00

Latvia is in danger of becoming the first European Union member to face total economic ruin, experts have warned. Their economy, driven by consumer demand, was hit hard last year amid the global economic downturn. In December the International Monetary Fund approved a 7.5bn euro rescue package for Latvia. Now, the tiny Baltic state has been urged to devalue its currency or risk the collapse of its economy - despite fears such a move could cause turmoil elsewhere in Europe.

Although devaluation would damage Latvia's ambitions of joining the euro, analysts said it was the only hope of avoiding a catastrophe after an international bailout failed to reverse the country's fortunes. One economist said Latvia's economy shrank 18pc in the first three months of the year. "The IMF medicine hasn't worked," he said. "Without a devaluation, you end up in the same place. It just takes longer to get there."

When Latvia joined the EU, expectations were high that the country could soon join the euro and living conditions would improve. It fixed the lat to the euro, allowing it to move within a small band. A small and open country, Latvia quickly attracted investment. The big Swedish banks established subsidiaries and an influx of foreign capital helped sustain a real estate boom.

Rising domestic consumption, a thriving property market and capital inflows all helped spur growth. But says Ed Parker at Fitch Ratings, "one of the problems was that a lot of this foreign capital was directed to real estate development and mortgages rather than building an export oriented manufacturing base. This was in contrast to countries like Poland, where a lot of FDIn(foreign direct investment) was used to set up manufacturing plants. A lot of the development in Latvia went into the real estate sector."

At the same time, its fast growth and a fixed exchange rate pushed prices higher. Latvia became an expensive place to do business. "This excessive optimism plus the entry and aggressive lending policies of foreign banks, led to a huge credit boom and huge current account deficit," said Fitch's Parker. When the capital stopped flooding in, as the credit crunch forced banks to tighten lending, the economy froze.

Swine flu destroys Mexican tourism

2009-06-15T17:57:00.006+01:00

Mexico is going through what is the biggest drop in its tourism revenue since records began in the 1980s because of the swine flu scare. Tourism officials are speaking of a "lost summer" after visitors, particularly from the US and Canada, cancelled their holidays.

They are not expected to return in large numbers until December. Some airlines have dramatically reduced flights to Mexico, and cruise liners are still avoiding Mexican ports. Luxury hotels in the capital said just 4% of their rooms were occupied at the height of the crisis, which broke in April.

Tourism represents 8% of Mexico's GDP and directly employs two million people. Analysts say the slowdown is an additional challenge for the country, which has been hit badly by the global economic recession. The drop in tourism will be sorely felt as a drop in U.S. demand for Mexican manufactured goods has pushed Mexico into its most severe recession since a 1995 financial crisis. Tourism is one of Mexico's top sources of foreign currency, accounting for about 8% of the economy. The sector employs about 2m people across the country. The Mexican government is preparing a major campaign to entice visitors back. Privately, officials say that the fact swine flu has now spread around the world might benefit Mexico because potential tourists will realise they risk catching the virus whether they stay at home or travel to Mexico.

Desperate to lure back vacationers, hotels in Cancun and down the Caribbean coast have cut rates by up to 70 percent. Some are even offering three years of free vacations to any visitor who catches the new flu from a visit to Mexico!

Aer Lingus Cuts

2009-06-14T10:15:00.002+01:00

Aer Lingus has announced it is scrapping some transatlantic services from its winter schedule.

The airline says the moves are being made to address 'significant losses' generated over the winter period on some routes. Aer Lingus says these are now being exacerbated by 'extremely weak' demand and lower fares. It comes just one month after Aer Lingus said it was suspending flights from Belfast International Airport.

The airline is stopping Shannon flights to Chicago from September 1, while services from Dublin to Washington and San Francisco are being dropped from October 25. It says the restart of these services in summer next year will be 'subject to review'.

John Morris on RTÉ

2009-06-13T12:47:00.002+01:00

Those of you doing the Leaving Cert are no doubt aware the 2FM had an ongoing series every evening dealing with the Leaving exams. Last Wednesday evening, John Morris spoke about preparing for the Economics exam.

The podcast is here.
John's notes are here.

Final Class Saturday Morning 11a.m.

2009-06-12T22:26:00.002+01:00

In preparation for the Economics examination on Wednesday morning, the final Leaving Cert class will be held this Saturday morning at 11.00 a.m. in Mr. Reynolds' room. It should last approx. 2hrs and we will go over certain topics again and discuss exam technique.

Economic Indicators for the L.C.

2009-06-11T22:40:00.004+01:00

Here are a list of some up-to-date economic data, which Leaving Cert Economics students usually want at this time.

Unemployment May: 11.8% (2nd highest in 'Eurozone' after Spain)
GDP 2008: €184bn (a drop of 6.9% forecast for 2009)
GNP 2008: €154bn (a drop of 7.1% forecast for 2009)
Inflation May: -4.7% (or term it as Deflation = 4.7%)
Interest Rates currently: 1%
Exchequer deficit: €12.71bn

How can Real really afford him?

2009-06-11T21:37:00.008+01:00

This morning, Manchester United accepted a monumental bid 0f £80m from Real Madrid for their star Portuguese player, Cristiano Ronaldo. The fee will be a new football transfer world record. The question though is, how can Real Madrid afford to outlay such an amount on a player - especially considering they bought another star, Kaka, on Monday for £56m?

It's a combination of a number of factors: namely, growing match-day revenues, increasingly shrewd and global marketing, healthy commercial income, and a ground-breaking domestic TV deal, which have all catapulted the club to the peak of the Deloitte's Football Money League this year. In fact, they have topped it for the past four straight years. For the 2007/08 season, the club saw its revenue hit £290m. Whilst Real Madrid's 4% revenue growth in 2007/08 was more modest than in preceding years, it meant that across a six year period the club had doubled its annual revenues since 2002.

Matchday revenue has also increased significantly in the past couple of years thanks to the reconfiguring of areas of the club's stadium to increase corporate hospitality capacity and hence revenues.

After the purchase of David Beckham from Manchester United in 2003, Real Madrid cleverly projected their brand into East Asia, on the back of the England star's appeal. Real are targeting the world's best players - who are also the world's most marketable players. In emerging markets fans may swap allegiance, from - for example - Manchester United to Real Madrid, simply because they prefer to support star players rather than clubs. But it is not about Real looking to sell more merchandising in places like China, in fact they would not make a great deal from doing that. They are looking to make money from these signings by maximising their future overseas TV rights.

Since 1997 Spanish clubs have sold their own TV rights individually. Real Madrid signed its latest deal in 2006 - for a reported record 1.1bn euros - with Spanish film and TV company Mediapro for seven seasons of broadcast rights. That works out at a huge 150m euros a year.

But overseas merchandising, domestic and TV rights, and matchday earnings are not Real's only income streams. It also has a number of high profile sponsorship partners - Bwin.com, Adidas, Coca-Cola, Audi, and Spanish beer brand Mahou. An image rights deal with Adidas alone in early 2007 garnered them 762m euros. Another benefit, one that helps attract top name players, is the fact that tax legislation allows their foreign players to pay tax at about 23% for the first five years that they are in the country.

In its latest report, Deloitte said it would be difficult to see anyone topping Real Madrid at the top of the money league next year, but added "it will be interesting to see how the club copes with the loss of the Brand Beckham effect." It appears Real are now answering that question by plugging that gap with the purchases of Kaka and Ronaldo.

Source: BBC

Zero Coca-Cola in Venezuela

2009-06-11T21:29:00.003+01:00

Venezuela has banned the sale of the calorie-free Coke Zero, calling it harmful to people's well-being. "The product should be withdrawn from circulation to preserve the health of Venezuelans," said Health Minister Jesus Mantilla. Mr Mantilla did not say what the specific problem with Coke Zero was. Coca-Cola said it would stop production of the drink in the country, but also added that Coke Zero contained no harmful products.

Venezuela's President Hugo Chavez is a vocal critic of the US, and is in the process of nationalising much of the economy. Venezuela is the world's ninth largest oil producer and has already ationalised much of its oil and gas sector since Mr Chavez came to power. Recently he took over its third largest bank, Banco de Venezuela.

Deflation runs deeper

2009-06-11T21:17:00.004+01:00

The annual rate of deflation in Ireland fell to 4.7% in May. The figures released by the CSO relate to the period June 2008 - May 2009. This was the biggest fall since 1933 and compares with an annual deflation rate of 3.5% in April. Directly compared with April prices fell by 0.5%. The main reasons for this were falls in mortgage repayments (due to as April's interest rate cut by the ECB). Rents also fell, while there was a reduction in electricity and gas costs.

We're back!

2009-06-11T21:10:00.001+01:00

First of all, sorry for the long absence. I intend to get back to posting every day over the summer. There will also be a section next Wednesday on the Leaving Certificate paper. Time permitting I will try to get as many solutions up to the questions as I can.

An economist is something to be...

2009-03-17T11:24:00.006Z

The Irish Independent has an interesting article where they report that the current recession is making economics a cool subject again (wasn't it always?!) and how the numbers studying it will increase substantially. Fourth Years - I told you, you chose well when you joined Economics! :o)

There has never been a better time to be an expert in the subject once known as the "dismal science''. Economists are in constant demand in the media, and some faces -- most notably David McWilliams and George Lee -- are now as well known in Ireland as film stars and footballers. But will their popularity, and the constant discussion of the country's beleaguered economy, rub off on a new generation of students?

Colm Harmon, professor of economics at UCD, predicts a boom. "In my experience, enrolments in economics go up as the economy goes down,'' says Professor Harmon. "In the '80s, they had to use two lecture theatres for the subject in UCD, because there were so many doing it. "Our worst time for enrolments was early in this decade, at the height of the boom.'' It is too early to say whether there has been a significant growth in CAO applications for economics courses in universities, but college authorities report a surge in interest in the subject, particularly at graduate level.

Dr Alan Ahearne (pictured above), lecturer in economics at NUI Galway, has emerged as one of the most respected commentators during the current recession. He has noticed a big increase in the number of applicants to NUI Galway's masters degree in international finance. "The course covers a lot of the issues around international economics and banking. These have been constantly in the news over the past few months, and that is having an effect. "We are getting a lot of interest from students with backgrounds in business studies, law and engineering.'' Dr Ahearne almost stumbled upon economics as a subject when he was studying for his Leaving Cert at St Clement's College in Limerick. "When I was doing my Leaving, it was a choice of physics and economics. Economics was the least worst option. "Then, when I actually started the Leaving Cert course, I became fascinated by the subject and I carried that into college. "At school, we learned early on about micro-economics, such things as supply and demand. You could be looking at apples or bread. I loved the rigour of the subject.'' Ahearne studied business studies at the University of Limerick, and only specialised in economics as a post-graduate. His career thus far shows where studying economics can lead. As a PhD student at the US-based Carnegie Mellon University, one of his mentors was Finn Kydland, winner of the Nobel Prize for Economics in 2004. After stints teaching at a number of universities and working for accountants Coopers and Lybrand, and Bank of Ireland Treasury, he worked for the US Central bank -- the Federal Reserve. Among his tasks was the preparation of research notes for Alan Greenspan, one of the most influential global financial figures of the past 20 years.

Jim Power, economist at Friends First and lecturer at DCU and the Smurfit Business School, came to the subject by a similar haphazard route at the Leaving Cert. "After my Inter (now Junior) Cert, I was studying three science subjects but after a month I decided to drop one of them. I chose economics over biology and I grew to love the subject.'' The graduate of economics and politics at UCD believes the subject will grow in popularity in the near future. "We have a problem of economic illiteracy at the moment. You only have to look at the Government to see it. So, the skills of economists are likely to be in greater demand in the near future. "People are fascinated by the death of the Celtic Tiger, and how it happened. There was a similar surge in interest in economics during the currency crisis of the early '90s. That was a turning point for economics in this country. "Students are realising how useful economics is as a training. With few jobs out there at the moment it is a good general discipline.'' Most of those who study economics do not actually become economists. "It can be used as a stepping stone into many different careers, including politics, journalism and accountancy," says Mr Power.

Many economics graduates work in financial services. "It is a very broad subject that applies to different areas,'' says Professor Colm Harmon of UCD. "It is relevant to health, education and transport. When you think of a single mother deciding to join the workforce, that is an economic issue.'' While a new generation of economists is likely to emerge from the current global recession, Thomas Conefrey of the Economic and Social Research Institute, said that his interest was sparked, in part, by the Celtic Tiger boom. The Trinity College graduate says: "Just as there is immense interest now in analysing our difficulties and how we can overcome them, similarly, at that time, there was great interest in finding out what had caused this economic boom and how long it was going to last.''

Full article

Toys.com R Us

2009-03-04T20:10:00.006Z

Toy retailer Toys R Us has paid $5.1m (£3.6m) for the Toys.com domain name. The amount has surprised onlookers and hints at a deeper commitment to online retailing for the toy giant. Trading online is a way to buck the downturn. The severe recession is forcing businesses to look for the most cost effective, efficient way they can possibly operate and for many that means establishing or reinforcing a web presence. This is especially true of brick and mortar retailers. There is much less overhead involved in selling toys for example online than through hundreds of cash-draining big box retail stores.

The Toys.com price is believed to be the biggest payout for a domain this year but has some way to go to beat the $14m paid for sex.com in 2007 or the $9.5m paid for porn.com. UK domain name seller Sedo said it had seen prices halved for .co.uk domain names since the economic downturn started to take hold.

Live register crashes through the 10% mark

2009-03-04T16:55:00.003Z

The latest figures from the Central Statistics Office show that 354,437 people were on the Live Register last month. This represented an increase of 26,576 from the January figure, which was a record. The Live Register has now risen by 87% over the past 12 months, also a record. The CSO said the unemployment rate rose to 10.4% from 9.6% in January.

Bloxham Stockbrokers' Alan McQuaid says that as with January, the Live Register figures are 'simply horrendous'. He says they underline the fact that the Irish economy is now in severe crisis mode with the labour market heading for meltdown. 'It is essential in our view that the forthcoming mini-Budget includes some measures to stimulate demand in the economy and project jobs. Focusing on just simply stabilising the public finances and not targeting economic growth will not work, and indeed is likely to do more damage than good', the economist says. In a note today, Davy predicts that the unemployment rate will pass the 12% level by October. That would mean a near 8% increase in two years - the rate was only 4.5% in October 2007. The stockbrokers said that the last eurozone country to see an equivalent jump was Finland during the period from 1990 to 1992.

The Live Register is not designed to measure unemployment. It includes part-time workers (those who work up to three days a week), seasonal and casual workers entitled to Jobseekers Benefit or Allowance. Unemployment is measured by the Quarterly National Household Survey and the latest seasonally adjusted figure, for September to November 2008, is 170,700 persons unemployed.

The Bank of England to start 'quantitative easing'?

2009-03-04T16:46:00.005Z

The Bank of England is expected to reduce interest rates to yet another record low tomorrow lunchtime; but with their rate-cutting ammunition all but exhausted, they are expected to press the button on a much more drastic policy — quantitative easing. As the recession deepens, weakening wage growth, plunging oil prices and consumer demand are threatening to drag inflation well below the Bank's 2% target.

With interest rates already at a historic low of just 1%, the monetary policy committee (MPC) believes further cuts will not be enough to kick-start the economy. Quantitative easing is popularly known as "printing money," but it doesn't actually involve turning on the presses. It actually means that the Bank will buy billions of pounds of assets, usually government bonds, from cash-strapped banks, in the hope that they will push the money back out again in loans to the public. In recent years the tool has been used by Japan to stimulate their economy and to fight inflation. Much of the global economic crisis is caused by frozen credit markets. Many companies find themselves unable to secure loans necessary for day to day operations. The credit crunch has adversely affected the interbank market - meaning banks have been unwilling to lend to each other.

Roubini

2009-03-03T18:32:00.005Z

Every couple of months we publish what Dr. Doom, Nouriel Roubini is saying/predicting about the economic mess we find ourselves in. This week's TIME Magazine has an interview with him where he mentions Ireland. Here is some of it:

Where is the global economy heading from here?
My concern right now is that this U-shaped recession we are in could turn into something much uglier, meaning a Japanese-style L-shaped recession: near stagnation or stag-deflation. We're in the worst global synchronized recession in the last 60 years. Unless we take the right policy actions we'll end up in a near-depression. I did not want to use that term six months ago. At that time I said the chances of a near-depression were only 10%. But today those chances are 33% or so.

How can this be avoided?
You have to have a set of concerted, coherent policies done not just by the U.S., but Europe, Japan, China and everyone else. The credit crunch is just massive. One thing that's needed is much more aggressive monetary easing. The second dimension is that you need much more fiscal stimulus — in the countries that can afford it — that is front-loaded. The U.S. [stimulus package] is $800 billion but only $200 billion is front-loaded. Of that $200 billion [in stimulus] this year, half of it is tax cuts. That's going to be a waste of money because people are not going to spend it.

Why hasn't the banking mess been cleaned up?
You have to do triage between banks that are illiquid and undercapitalized but solvent, and those that are insolvent. The insolvent ones you have to shut down. You need more aggressive credit creation by the government or you have to force the banks to lend. We're in a war economy. You need command-economy allocation of credit to the real economy. Otherwise the incentive individually for every institution is to pull out, not extend credit. Not enough is being done.

Is there a part of the world you are especially worried about right now?
I'm worried about every part of the world. People thought the rest of the world would decouple from the U.S. That was nonsense. Emerging Europe is on the verge of a fully fledged sovereign debt, banking and currency crisis. I think China is in a near-recession right now. Many emerging markets, even those that are in better shape, are in severe trouble. I don't think there is any economy in the world right now that is safe.

Is a breakup of the European monetary union possible?
I don't see that as being likely but the probability of that eventually happening is rising. Right now we are facing a situation in which many countries now have banking systems that are too big to fail and also too big to be saved. Now if Ireland or Greece go bust, then there is already a commitment from the Germans and French to, one way or another, bail them out — because they know that otherwise the monetary union is going to collapse. But if you have to rescue on top of them Austria and Italy, Portugal and Spain and Belgium and the Netherlands, then that is not going to be possible. I am still of the view that we can avoid a collapse of the monetary union, but this is really the very first true test of its stability.

Many people are pinning their hopes on the Chinese government to stimulate demand. Is that justified?
I have to give credit to the Chinese. Their fiscal stimulus will contain the degree of economic contraction. But China is radically dependent on U.S. growth. Forcing state-owned enterprises and banks to spend more when you have overcapacity, or to lend more when there are already large [amounts of bad debt], is going to postpone a problem, maybe by a few months. But it will lead to a harder fall down the line. A hard landing is unavoidable given what has happened to the rest of the world.

60% of the world has a mobile

2009-03-03T10:05:00.005Z

The speed and scale of the world's love affair with mobile phones was revealed yesterday in a UN report that showed more than half the global population now pay to use one. The survey, by the International Telecommunications Union (ITU), an agency of the UN, also found that nearly a quarter of the world's 6.7 billion people use the internet.

But it is the breathtaking growth of cellular technology that is doing more to change society, particularly in developing countries where a lack of effective communications infrastructure has traditionally been one of the biggest obstacles to economic growth. By the end of last year there were an estimated 4.1bn mobile subscriptions, up from 1bn in 2002. That represents six in 10 of the world's population, although it is hard to make a precise calculation about how many people actually use mobile phones.

Africa is the continent with the fastest growth, where penetration has soared from just one in 50 people at the turn of the century to 28%. Much of the take-up is thought to have been driven by money transfer services that allow people without bank accounts to send money speedily and safely by text messages, which the recipient - typically a family member - can cash in at the other end. Vodafone's M-Pesa money transfer service was launched in Kenya in 2007 and now has 5 million users. Developing countries now account for about two-thirds of the mobile phones in use, compared with less than half of subscriptions in 2002. A single mobile phone may have several users in poorer countries, where handsets are sometimes shared or rented out by their owners.

The report also recorded a marked increase in internet use, which more than doubled from 11% of people using the net in 2002 to 23% last year. Here the report identified a clear gap between the rich and poor world: fewer than one in 20 Africans went online in 2007, for instance, and less than 15% in Asia, whereas Europe and the Americas recorded penetration of 43% and 44% respectively. Across the world just 5% of people have broadband internet at home, although this rises to 20% in the developed world. Sweden was the world's most advanced country in the use of information and communications technology, in an index of 154 countries that took various factors into account such as access to computers and literacy levels. .

AIG bailed out... again

2009-03-03T09:52:00.003Z

Stock markets around the world crashed yesterday as American International Group (AIG), the embattled US insurer, panicked investors by announcing a loss of $61.7 billion (£44 billion), the largest quarterly loss in corporate history. The FTSE 100 tumbled 204.26 points, or 5.3 per cent, to close at 3,625, its lowest level since April 2003.

The company could cost $250 billion (£178 billion) to repair, experts said yesterday as it received a further $30 billion from taxpayers via the US Government. The government has now made four separate efforts to save the company, totaling more than $170 billion. The White House dare not allow the company to fail because of the complex web of insurance and investment products that AIG sold to individuals and companies in 130 countries as it raced to become the world's largest insurer. AIG's collapse could affect 100 million Americans, according to government estimates. It is so big and sprawling, so intertwined with institutions around the globe, that its downfall could set off a vicious chain reaction. Upheaval on such a global scale would plunge the U.S. economy deeper into recession, drive up unemployment and stifle hopes for an economic rebound any time soon.

Paddy Power defies the odds

2009-03-03T09:46:00.002Z

Bookmaker Paddy Power yesterday reported a 4pc increase in pre-tax profits to €79m for 2008 thanks mainly to growth in its online business. The bookmaker saw profits hold in the face of a sharp downturn and said there would be no job cuts or closures. All its rivals have announced such cuts. On the contrary, chief executive Patrick Kennedy reported that the group is well placed to grow the business as it is now able to secure prime high street retail slots previously closed off to bookmakers.

House prices continue to fall

2009-02-28T08:41:00.002Z

New figures show that the pace of the fall in house prices accelerated in January. Average house prices dropped by 1.4% in the month, according to the house price index compiled by Permanent TSB and the ESRI. This compares with a 0.9% fall in December and 0.5% in November. Over 12 months, the decline was 9.8%. The average price paid for a house in January was €258,006.

However, these findings are not a true reflection of the current situation in Ireland. Dermot O'Leary, Chief Economist of Goodbody Stockbrokers, said in November 2007, that three reasons can be cited for a discrepancy between its expectations of house price falls and the permanent tsb / ESRI House Price Index:

1. The data are reflective of prices at the mortgage payment stage of the house-buying process. This can be some 3-4 months after a sales price is agreed, and, in a slower market, this lag could get extended further. Therefore, there is a significant lag between market prices and the official house price data.

2. The type of properties in the ptsb database may be concentrated towards the lower price range in the market. While recognising the fact that the ptsb data takes account of the different characteristics of the house, the average price in the country is well below the estimates contained in the dataset from the Department of the Environment.

3. Price incentives, which have become common for new scheme developments, would not get reflected in the data.

Bord Gáis enters the electricity market

2009-02-18T09:36:00.003Z

Bord Gáis has announced that it is entering the residential electricity market later today, with a guarantee to customers that its prices will be at least 10% lower than the ESB for the next three years. The company's chief executive, John Mullins, said it would be a simple process for ESB customers to switch to Bord Gáis, and this would be open to all 1.8 million registered households who use electricity.

This announcement amounts to a huge shake-up of the residential electricity market and, Bord Gáis claims it will result in immediate and substantial savings for customers. From midday today, any ESB customer will be able to switch over and get their electricity from Bord Gáis by either phoning the company or going online. It hopes to expand its customer base to more than a million people in three years, by promising its bills will always be at least 10% lower that the ESB. On gas prices, Mr Mullins said he believed that they would go down considerably this year - with prices more than 25% lower next December than they are today.

Domino's to get a bigger pizza the action!

2009-02-18T09:20:00.003Z

Recessions are not bad for everyone. Some industries thrive in a downturn. Many qualms and quibbles go out the window as needs triumph over desires. Fast-food outlets are a case in point. Their food is generally seen as being 'recession-proof'.

Yesterday, the London-listed arm of Domino's Pizza announced it is planning a sizeable investment in Ireland in order to cope with growing demand for its products here. The company's plans include 10 new Irish stores in 2009. This follows on its seven new outlets last year. Each new store creates an average of 30 jobs.

The company, which operates the franchise for the global brand in the UK and Ireland, currently has a commissary facility in Naas, Co Kildare. It was built for €15m and produces and distributes pizza bases and other products to the chain's stores across Ireland.

Domino's Pizza UK & Ireland said yesterday that full-year sales jumped 18.4pc last year to £350.8m (€397m), while pre-tax profit rose 24.7pc to £23.4m (€26.5m). Like-for-like sales in 450 outlets were up 10pc. At the end of December, the firm had 553 stores between the UK and Ireland, with 41 in the Republic of Ireland and 13 in Northern Ireland. Its store in Tallaght is one of the busiest Domino's outlets in the world.

Four Star Pizza, the wholly Irish owned franchise based pizza company, announced last month it will create 200 jobs over 2009, with the opening of ten new franchise locations here.

It'll be the debt of us!

2009-02-15T22:39:00.003Z

Fears are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about the troubled banking sector.

The cost of buying insurance against our government bonds rose to record highs on Friday. Debt-market investors now rank us as the most troubled economy in Europe. Pledges made by the Government to support the banking sector now amount to 220% of our annual economic output. The total loans held in Irish banks are more than 11 times the size of our economy.

Following the scandal at Anglo Irish Bank over undisclosed loans, the market fears there are more hidden problems that could ultimately fall to the state to resolve. With the Government set to borrow an additional €15 billion (£13.4 billion) this year, the national debt pile will hit €70 billion. The cost of insuring Irish debt hit 350 basis points on Friday, meaning that for every €100 of debt, it would cost €3.50 to insure against default. A year ago it would have cost 10cent to insure every €100 of our debt.

One possible solution might see Germany buy billions of euros of Irish government debt through a fund set up by the European Central Bank.

Football's Richlist

2009-02-15T22:31:00.001Z

Manchester United have come second in the list of the world's richest clubs, while Real Madrid stay top for the fourth year in a row. Deloitte's Football Money League, based on financial information for the 2007/08 season, features seven English clubs in the top 20 positions. The authors said that United would have been top of the Money League if the pound was still at June 2007 levels. Chelsea, Arsenal and Liverpool are fifth, sixth and seventh respectively.

"If the exchange rate value of the pound had not depreciated, there would have been nine, rather than seven English clubs in the top 20 and Manchester United would have topped the Money League ahead of Real Madrid," said Dan Jones, partner in the Sports Business Group at Deloitte.

United won the English Premier League and UEFA Champions League in 2008, posting a significant 21% pound-denominated revenue growth. The list had been headed by Manchester United for eight years until Real Madrid deposed them. "Whilst Real Madrid's 4% revenue growth in 2007/08 is more modest than recent years, the club has now doubled its revenues since 2002 and enjoys a lead of 41m euros [£32.5m] over Manchester United," said Mr Jones. "With the club having announced that it is budgeting for revenues of 400m euros in 2008/09, it will be difficult for rivals to replace Real at the top of the Money League next year."

The other English clubs in the top 20 are Tottenham Hotspur (14th), Newcastle United (17th) and Manchester City (20th). All the top 20 clubs represent Europe. Germany and Italy have four clubs each in the top 20, Spain and France have two clubs each.
Fenerbahce became the first Turkish club to enter the top 20 since the creation of the list of the world's richest clubs in 1996/97.

WORLD'S WEALTHIEST CLUBS BY REVENUE:
1) Real Madrid: £289.6m
2) Man Utd: £257.1m
3) Barcelona: £244.4m
4) Bayern Munich: £233.8m
5) Chelsea: £212.9m
6) Arsenal: £209.3m
7) Liverpool: £167m
8) AC Milan: £165.8m
9) AS Roma: £138.9m
10) Inter Milan: £136.9m
Source: Deloitte: 2007/8

New corporate logos for the recession?

2009-02-09T18:40:00.003Z

What is an economic depression?

2009-02-09T03:08:00.001Z

The London Times is running regular briefings to coincide with Target Two Point Zero, the Bank of England's contest for sixth-formers in the UK run in conjunction with the newspaper. The competition challenges students to play the role of the Bank's Monetary Policy Committee (MPC) and recommend the best level for interest rates. This week: After Gordon Brown talked of a new Depression, they explain the phenomenon.

How is an economic depression different from a recession? First of all, it is important to understand that there is no precise or agreed definition of a depression. Even now, 70 years after the last experience of the 1930s economic slump that became know as the Great Depression, the world's leading economists are still wrangling over what caused it and what it meant. Defining the term is made more difficult since the last experience of anything like a depression was in this period, more than seven decades ago, which is well beyond many people's living memory. In general, it is accepted by most commentators and experts that a depression is a very severe form of recession: one involving a deeper decline in GDP and most other measures of economic welfare, including employment, and which probably lasts for significantly longer than the typical recessions experienced in modern times.

How different is the scale of a depression from a recession? Very different. In modern times, the typical experience of recession in big Western economies has been a period of declining GDP that has lasted perhaps three to six quarters, and the typical fall in GDP over the period of recession has been in the order of 1 to 3 per cent. Some recessions have been even briefer and less deep, but all of these have still been bad enough to cause considerable hardship and to alter the business landscape significantly. By contrast, the Great Depression in the United States stretched from 1929 to 1933, and involved a collapse in the economy that saw national output and income shrink by 29.6per cent. GDP dropped by 8.6per cent in 1930 alone, by 6.4 per cent in 1931 and by 13 per cent in 1932. Recovery in 1934 to 1937 was followed by a relapse into recession. It was only the huge rise in industrial production in the US war economy of the early Forties that ended this profound period of economic woes in America.

What was the toll from this slump? The impact was brutal. The proportion of the workforce without jobs surged from 2 per cent to a quarter of those of working age. Output from US factories was halved, consumer prices fell by a quarter as the economy slid into deflation, four-fifths of the value of the US stock market was wiped out, from the Wall Street crash onwards, and house prices fell by nearly a third.

What about Britain in the Depression? Britain's experience of the Thirties was grim and painful, but far from as searing as that of the US. British GDP plunged by about 5 per cent, compared with the 2.9 per cent drop suffered in the worst modern recession in the early Eighties. During the early Thirties, British unemployment doubled from 7 to 15per cent of the workforce. However, this experience was much less severe than the slump that the UK suffered in the early Twenties. Although that is not part of what we know as “the Great Depression”, it clearly was a depression on the same scale. In the wake of the First World War, UK GDP plummeted by 23 per cent, mirroring the experience of America a decade later.

www.timesonline.co.uk/economics
www.timesonline.co.uk/targettwopointzero
www.bankofengland.co.uk/education/targettwopointzero

Increased unemployment lowers oil prices even further

2009-02-08T21:01:00.002Z

Oil prices have fallen by more than $1 a barrel as rising US unemployment has led to further fears of weakening demand for oil among US consumers. US light, sweet crude settled down $1 at $40.17 a barrel while London Brent slipped 25 cents to $46.21.

The US unemployment rate rose to 7.6% in January, up from 7.2% in December, according to official figures - the highest level since 1992. The rapid rise in unemployment suggests the US recession is deepening. Companies as well as individuals are cutting back on spending.

Officials from the producers cartel, the Organization of the Petroleum Exporting Countries (Opec) have said that current price level is too low for its members to make enough revenue or encourage investment in new supply.

P0rn Again

2009-02-08T14:33:00.003Z

Despite NBC banning sexually explicit ad content from the Super Bowl broadcast, Comcast somehow goofed with 2:47 left in the game and broadcast a 30-second, X-rated clip—from the adult channel Club Jenna—to about 80,000 subscribers watching the game in the Tucson area. According to The Huffington Post, Comcast suspects the work of hackers.

The company is paying each of its affected customers a $10 refund. Freakonomics asks “How did they decide $10 was the correct amount?”

Furthermore, if $10 is Comcast’s estimation of the damage 30 seconds of porn incurred on the average viewer, should it have paid more to families watching the game with small children, or — since the porn clip interrupted the game right after Larry Fitzgerald’s last touchdown in the game — Cardinals fans? And most importantly, what about the people who enjoy porn? Should they send back the refund — perhaps with an extra dollar or two? :o)

Increased disposable income to go into savings?

2009-02-08T13:43:00.004Z

David Smith, Economics Editor with the Sunday Times has a well written article today dealing with how the reduction in interest rates amongst other factors will mean an increase in consumers' disposable income - which people will save rather than spend.
(I have abridged the article slightly).

Wandering round Poundland, as one does, is a bit different from the rarefied atmosphere of Davos but is an experience to be recommended. In this Aladdin's cave, which has everything from the latest Rupert annual, six-packs of rare incandescent light bulbs and mini tool kits to household goods, toiletries and non-perishable foods, there is a sense of wonder that anybody can make this stuff for £1, let alone sell it.

The Poundland effect underlines how tough things are for higher-priced retailers, which is why it is expanding while many of them are shrinking. That, however, is not the only message. Just down the road is a 99p shop and, unless my eyes were deceiving me, it was busier. To economists, if not to Poundland, that is gratifying. It shows price signals work, even at low prices and that the fashionable "left digit effect" is alive and well.

This is the effect that makes us more likely to buy at £9.99 than £10. By the same token, 99p is more appealing than £1. I am tempted to open a 98p shop, though experts say that to make a real difference you might have to go to 89p, if not 49p. The real point is that one of the stories of 2009 will be that consumers can buy cheaply, if they choose to, and not just at the discounters. We are moving into a period where inflation will be negligible, and for periods negative, in spite of sterling's fall.

This, and what will be a very gloomy economic forecast, prompted the Bank to cut interest rates from 1.5% to 1%. As I wrote last week, I would not have done so at this time. But how strange it is that such low rates have become almost commonplace. Low rates are providing a bonus for borrowers, bringing big reductions in mortgage payments. More generally, low inflation — helped by the government's temporary Vat cut — will provide a boost to real income growth. Just how big was underlined by the National Institute of Economic and Social Research in its latest review.

It predicts real household disposable income will jump 3.3% this year, well up on last year's increase of 1.5% and 2007's zero growth. If this is right, it will be the best year for income growth since 2001. We will not have had it so good for a long time. The question is: what will people do with it? Simon Kirby and Ray Barrell, economists at the institute, are pretty sure they will not spend it. Alongside that 3.3% rise in incomes they predict a 3.8% slump in consumer spending. Saving, not spending, will be the watchword this year, they say, with the saving ratio predicted to jump from 1.3% last year to 7.1% this year.

It is an interesting forecast and a brave one. Lots of unprecedented things are happening but that would be an unprecedented divergence between income growth and spending. Barrell points out that something similar happened in the early 1990s, but spread over three years. This time, he said, the effects were coming through much quicker, with falling housing wealth and lack of availability of credit being the two main factors pushing spending lower.

...

Surely, you will say, this recession is all about households deleveraging — paying off debt — and a sharp drop in consumer spending will be a natural consequence of that. But, as I have pointed out before, consumer spending has been rising at a slower rate in recent years and was, in any case, mainly financed out of income growth.

...

There will be a two-way debt battle in the coming months, rising unemployment making it hard for a minority to service their home loans, while lower interest rates will make it easier for the majority.

Where will this leave spending? Nationwide's consumer confidence index is at a record low, though the proportion of people saying now is a good time for a big purchase has risen again. That is important. Official figures show retail sales held up pretty well through to the end of last year, but that spending on big-ticket items was very weak. Ask any car dealer.

In the end, confidence is the key. Consumer recessions are not caused by people cutting back who have to. They happen when those who are not badly squeezed decide it is prudent not to spend. This is Keynes's paradox of thrift; we would like a higher level of savings but not right now.

It could go either way. But if the institute is right in its calculation of the rise in real incomes this year, I would be quite surprised if it is also right on spending.

Full article

Live register hits 9.2%

2009-02-04T18:09:00.004Z

Official figures have confirmed that the number of people on the Live Register hit a record high of almost 328,000 in January. The Central Statistics Office said the numbers signing on rose by almost 36,500 from December to 327,861. The Taoiseach told the Dáil this morning unemployment could reach 400,000 by the end of the year.

The Live Register figure has now surged by more than 80% over the past 12 months. The seasonally adjusted figure rose by 33,000 to 326,100, while the unemployment rate jumped to 9.2%. up from 8.3% in December.

Bloxham's Alan McQuaid described the data as 'horrendous', and underlined the fact that the Irish economy was now in crisis mode. 'Apart from the sharp fall in construction employment, other sectors like manufacturing, retail, transport, and financial services are starting to significantly feel the pinch too,' he added. Davy said welfare payments would rise by at least €350m based on the last month alone, though the Government will get some of this back through taxes as that money is spent. The stockbroker expects the unemployment rate to reach 13% by the end of 2010.

The current 9.2% rate is the highest rate since December 1997. This is up from a low of 3.7% in February 2001, but remains below the average unemployment rate of 16% in the eighties.

Given that we expect the weakness in the labour force will accelerate in coming months, double-digit rates of unemployment will likely come sooner than we previously thought, and we now see the rate hitting 10% in coming months. This estimate takes into account a downward revision to the Live Register estimate of unemployment when the official unemployment figures are released in the Q4 Quarterly National Household Survey, as this measure does not include part-time workers who are eligible for unemployment benefits.

Central Bank predicts 4.7% drop in Irish GDP in 2009

2009-01-29T18:11:00.002Z

The Central Bank says it expects the economy to contract by 4.7% this year. The country continues to be impacted by global recession and falling demand in what the bank called 'an exceptionally difficult period for the Irish economy.' In its latest economic forecast - the first of 2009 - the Central Bank says the contraction will lead to significant job losses with 100,000 fewer people working at the end of the year. The bank also says that unpalatable short term measures are needed if the economy is to stabilise in 2010. The Central Bank says that GNP will slow by 4.7% in 2009, while GDP will contract by 4%. This compares to estimated figures of negative GNP growth of 2.6% for 2008 and negative GDP growth of 1% for 2008. The figures are a marked slowdown from the GNP growth of 4.1% seen in 2007, while GDP growth registered 6% then. The Central Bank also says that consumer spending will slow by 2.5% this year while inflation will fall to an average rate of -1.9%.

'We are in an exceptionally difficult period for the Irish economy,' commented Central Bank Governor John Hurley as he published today's economic bulletin. 'Our forecasts published today indicate a further serious downturn in the coming year,' he added. He said that to support a return to a more stable economic activity in the medium term, difficult decisions have to be taken and implemented now.

'In particular, it is vital that we move to correct the sizeable deficit in the public finances and that we improve our competitiveness position, which is all the more important in the light of the global downturn,' he said. In the housing market, blamed for many of the country's current ills, the Central Bank says completions could fall to as low as 22,000 units this year compared to 52,000 last year. Last year saw the first drop in employment in many years. The Central Bank says that trend is set to accelerate and assuming some emigration, unemployment is likely to average 9.4% of the labour force this year. However, the bank also believes that Ireland has the potential to grow strongly again if productivity can be improved. But it adds that the potential is not a given and it warns that unpalatable measures are needed. The bank says the largest item of Government expenditure - the public sector pay bill - is 'beyond the scope of current resources'. It says the public sector needs to use its purchasing power to drive hard bargains with the services sector.

How do the unemployed spend their time?

2009-01-24T09:42:00.004Z

An interesting article written by Daniel Hamermesh appeared on Freakonomics during the week.

Last night Jay Leno joked that only 500,000 people attended Bush’s second inauguration, while 2 million were at Obama’s. The reason, so he claimed, is that we now have so many more unemployed people. Good joke, but is it correct? How do unemployed people spend their time? How does unemployment affect time use in the entire economy? What is the lost output from unemployment, and what is the utility loss?

Several of these questions couldn’t be answered until now due to lack of data. A new paper provides some surprising answers. The unemployed use the time freed up from work for pay almost entirely in leisure and personal maintenance; they do no more household work than employed people. Similarly, in areas where unemployment is perennially high, there is less work for pay, more leisure, but no more household production.

But when unemployment suddenly rises, as in a recession, people shift from work for pay to household production; people don’t take more leisure time than before. So if we would measure output to include production at home, we would infer that a recession doesn’t reduce total output by as much as we thought; and perhaps the utility burden of a short recession is not as severe as one might imagine.

Original article

Pros and cons of nationalising banks

2009-01-24T09:18:00.004Z

As you know, last week, the Government nationalised Anglo Irish. There is now considerable speculation that they may nationalise the other Irish commercial banks. The Irish Times had an excellent article yesterday examining the pros and cons of nationalising banks from a global perspective.

For
The Swedish example: the blueprint for successful handling of a financial crisis is provided by Sweden’s centre-right government in the early 1990s. It forced banks to write down their bad loans and then injected equity, nationalising the country’s two biggest banks. The banks were detoxified and later re-privatised, with taxpayers getting back much of the money they had contributed.

Bailouts and partial nationalisations don’t work, according to influential economics professor and FT blogger William Buiter. Partial state ownership and the threat of future state control incentivises banks to stop lending. Banks look to pay back government money “as soon as possible” to “get the government out of its hair”, causing them to “hoard liquidity”. This helps them avoid outright nationalisation but cripples the economy. German economics professor Hans-Werner Sinn agrees, saying that government proposals to cap corporate salaries mean most banks would prefer to cut back on business lending and stumble along, zombie-like, rather than accept government interference. AIB CEO Eugene Sheehy, who said in October that “we’d rather die than raise equity”, comes to mind.

The alternative to the “unfortunate halfway house” prevailing at the moment, Buiter says, is temporary nationalisation.There’s no point trying to nurse banks back to health – it’s a case of “dead men walking”. Nouriel Roubini estimates that US financials will ultimately suffer credit losses of $3.6 trillion. The US banking system, with capital of $1.4 trillion, is “effectively insolvent”. Roubini’s estimate is high, although losses in excess of $2 trillion are commonplace today. In Britain, RBS analysts Ian Smillie and Cormac Leech describe British banks as “technically insolvent” on the basis that they are suffering from a £36 billion shortfall and are facing an additional £143 billion in writedowns.

Opting for more sweetheart deals means throwing good money after bad. In November, the US government injected an amount into Citigroup than exceeded its entire market capitalisation. It also guaranteed the firm’s toxic assets to the tune of $306 billion. Despite that, it ended up with a mere 7.8 per cent equity stake while management was left in place. Recently, Bank of America received $20 billion of government money on top of the $25 billion it received months earlier. It was also given guarantees of $118 billion on potential losses.

It’s not just a waste of money, it’s a case of “moral hazard” – heads you win, tails I lose. Taxpayers are taking all of the risk but none of the reward. Hedge fund manager Whitney Tilson says that current US plans will lead to “the greatest heist in history”. Poor decision making is rewarded if shareholders and debt holders are not wiped out.

Markets are saying that nationalisation is inevitable anyway, as this week’s collapse in Irish and British bank share prices show. Banks cannot receive the monies they need from the private sector, as AIB and Bank of Ireland are finding out. Governments have been behind the curve throughout the crisis – they must grasp the nettle and listen to what the markets are telling them.

“Creeping nationalisation”, as it’s been called, has already set in. Better be done with it sooner rather than later. Ideological hang-ups mean too many see nationalisation as a last resort. In truth, the financial sector has been kept on life support though massive government intervention for over a year now. Recognising that fact through nationalisation and preparing the sector for eventual re-privatisation is a victory for pragmatism, not ideology.

Against:
The Swedish example is simplistic. It nationalised just two banks whereas more than 300 US institutions received TARP money, many of them healthy and solvent. Nationalising en masse is wrong. Also, the Swedish example was local in nature whereas today’s problem is global. Were Britain to nationalise RBS (or others) and follow the Swedish example of writing down assets to nuclear levels, the knock-on effect on other global financial players would be catastrophic.

Governments are not the best people to run banks. A couple of years of crisis in the financial sector does not negate the long-held idea that the private sector manages resources more efficiently. Former RBS chief executive Sir George Matheson said the government should instead guarantee the bank’s deposits and “let it trade out of difficulties”.

Fear of nationalisation has driven financial shares below their true value. For example, AIB is currently valued at around €500 million, even though its has stakes in US bank MT and Poland’s Bank Zachodni WBK valued at €800 million and €1.1 billion respectively. Falling share prices are being used to justify nationalisation, even though the fear of nationalisation has caused the falling share prices. Shareholders have the right to hold on for eventual recovery.

Recent UK measures should help enormously. Besides the £250 billion credit guarantee scheme, regulatory changes mean that banks are being given additional latitude in terms of their capital ratios, with regulators accepting core equity of 4 per cent and Tier 1 capital of 6-7 per cent.

The RBS analysts who said banks were “technically insolvent” added that this is not unusual “at this stage in the economic cycle”, which is why the regulators have given banks breathing space. As Goodbody’s Eamonn Hughes said, similar regulatory moves in Ireland would make nationalisation fears “overstated”.

The cost would be enormous. Despite share price falls, buying up the banks would not be cheap (JP Morgan alone is worth almost $85 billion). Also, the risk of individual states defaulting on their debt is hugely increased by increasing their exposure to the banking system via nationalisation.

The odds of a British debt default hit record levels after it took a 70 per cent stake in RBS. The UK is at risk of losing its AAA credit rating and markets estimate that it stands a one-in-10 chance of debt default in the next five years – something that hasn’t happened since the Middle Ages.

The cost of insuring Ireland’s debt against default also hit record highs in the wake of the Anglo nationalisation, soaring by over 100 basis points to 297bps in little over a week. That’s over twice the cost of insuring Tesco’s debt and more than five times that of Germany’s.

What’s wrong with the “creeping” nationalisation approach? “The good thing about creeping, as opposed to sprinting, is that it’s easier to stop and reverse course if obstacles are in the way,” as Financial Times city editor Andrew Hill put it.

The notion that nationalised banks could be quickly returned to private ownership is facile. Such a process would inevitably be drawn out, during which time all the disadvantages of public ownership would become obvious.

George Matheson said nationalisation would bring “pressure” to do things “according to government practice rather than commercial banking practice”. In particular, politicised lending. “The focus isn’t going to be on the needs of banks,” said Obama economic adviser Larry Summers. “It’s going to be on the needs of the economy for credit,” a point also hammered home by Gordon Brown. The last thing massively indebted societies need, however, is a return to the easy credit that triggered this crisis.

Government demands to increase mortgage lending, even though property values remain at historically elevated levels, are as misguided.

Original article

US banks insolvent?

2009-01-21T21:00:00.003Z

New York University Professor Nouriel Roubini is someone we at Leavonomics take very seriously because 'Dr. Doom's' economic predictions tend to be very accurate. Yesterday he said US financial losses from the credit crisis may reach $3.6 trillion, suggesting the banking system is "effectively insolvent". "I've found that credit losses could peak at a level of $3.6tn for US institutions, half of them by banks and broker dealers," Roubini said at a conference in Dubai yesterday. "If that's true, it means the US banking system is effectively insolvent because it starts with a capital of $1.4tn. This is a systemic banking crisis."

Losses and writedowns at financial companies worldwide have risen to more than $1tn since the US subprime mortgage market collapsed in 2007, according to data compiled by Bloomberg.

Oil prices will trade between $30 and $40 a barrel all year, Roubini predicted. "I see commodities falling overall another 15-20pc ," Roubini said. "This outlook for commodity prices is beneficial for oil importers, it's going to imply that economic recovery might occur faster, but for oil exporters this will be very negative."

Anglo Irish becomes fully nationalised

2009-01-16T00:33:00.007Z

Following its plan to inject €1.5 billion into Anglo Irish Bank, and to take 75% of the voting rights in the process, before Christmas, the Government tonight went further and totally nationalised Anglo Irish Bank. It is the first nationalisation of its kind in the history of the state. Since reaching a peak above €17 in mid-2007, shares in Anglo Irish have plummeted, and closed at just 22 cent in Dublin today. It is my opinion that the Irish government took the unprecedented measure in part because of fears that the bank's collapse would have a major impact on the our wider economy. Had Anglo Irish gone out of business a number of sectors of the economy could have found themselves under threat - particularly health insurance. The majority of people here pay insurance to get access to the country's health service. The bank's collapse could possibly have had dire consequences for Sean Quinn, a major shareholder in Anglo Irish, who also has major interests in the insurance industry.

Anglo Irish recently lost top executives over a secret loans fiasco, which the government described as "unacceptable practices" which had played a part in the nationalisation. The bank's chairman , Sean Fitzpatrick, resigned in December after a 87m euros loan controversy where he admitted he had transferred millions of euros out of the Dublin-based bank's accounts. Chief executive David Drumm announced his resignation shortly afterwards. The state tonight took on the bank's liablities which lies probably between €6billion and €20billion.

China becomes world's third largest economy

2009-01-15T01:22:00.004Z

Ashley Seager reports in Thursday's Guardian that China has overtaken Germany to become the world's third largest economy after revising its figures for output growth. The Chinese economy has grown tenfold in three decades and grew 13% rather than 12% in 2007, Beijing said, putting it behind only the United States and Japan in terms of gross domestic product.

The revision raised the Chinese gross domestic product to 25.7 trillion yuan, the national statistics bureau said, or $3.5tn at 2007 exchange rates. That would be ahead of Germany's 2007 GDP of €2.4tn, or $3.3tn. The fact that China has 1.3 billion people, though, means that GDP per head – a typical measure of individual wealth – remains well behind leading economies. Germany's 85 million people were far ahead of China in this category in 2007 at €28,200 euros per head ($38,800). China's per-person figure was 19,800 yuan ($2,800) in 2007, although many Chinese survive on a lot less than that. The Chinese government says 100 countries in the world enjoy a higher income per head than it does.

China expects to keep on growing in spite of the current economic turmoil. But economists have slashed 2009 growth forecasts to as low as 6%. That would be the highest for any major economy but is worrying for the country's leaders, who are concerned about public anger over recent job losses. Nevertheless, economists think it will take only three to four years for China, which recently overtook Britain, to surpass Japan ($4.4tn GDP) to become the world's number two economy. The United States is the world's biggest economy, at $13.8tn in 2007.

Pawnbrokers far from broke

2009-01-13T00:01:00.001Z

The Guardian has an article this morning about one of the winners in the recession - pawnbrokers.

Britain's biggest pawnbroker has cheered the City by predicting it will comfortably beat profit expectations after enjoying a surge in business last year. H&T Group reported this morning that its chain of 105 UK stores experienced strong growth during the last six months of 2008, a time when many families began to suffer from the downturn in the economy. With like-for-like sales up by 3% in December, H&T is confident that its pre-tax profits for the year will beat consensus forecasts of £10m by at least 10%.

H&T, whose website's slogan reads "Helping you get your hands on cash", opened 16 new stores last year. Much of its business involves making loans guaranteed against personal possessions such as gold jewellery, though the company, founded in 1897, also provides cheque-cashing services. Chief executive John Nichols said H&T was planning to open more stores and hire more staff in 2009. So far, H&T has not seen an increase in the number of customers failing to repay their loans. Nichols said this could change, though, if consumers were hit by rising prices and bills this year. The average loan made by H&T is £120, typically repaid after three months. H&T reported last summer that gross profit in its pawnbroking business grew by almost 36% in the first half of the year. The soaring gold price has also helped the company, as it buys broken jewellery which is sold on as for scrap metal.

Analysts at Daniel Stewart tipped pawnbrokers as likely winners of the financial crisis. Shares in H&T jumped by 13%, gaining 19.5p to close at 172p.

Deflation Q&A

2009-01-12T00:12:00.004Z

The London Times is running regular briefings to coincide with 'Target Two Point Zero', the Bank of England contest for English sixth-formers run in conjunction with the newspaper. The competition challenges students to play the role of the Bank's Monetary Policy Committee (MPC) and recommend the best level for interest rates. This week's topic is one we have already written a lot about - deflation. Unfortunately, we cannot enter the competition but the article is a good one and deals with an issue I mentioned in class to the Fourth and Fifth years last week.

What is deflation?
The dreaded “D” word, one of the most feared economic blights, refers to sustained falls in prices in the economy for goods and services.

Don't we already have falling prices for some products?
Yes. For goods such as many types of clothing, Britain has got used to steadily cheaper prices as a result of intense high street competition and cheap imports from Asia. But deflation is different, meaning falls in prices more or less across the board.

But that sounds good. What's the problem?
The trend can sound like a money-saving bonanza. A short-lived burst of deflation for only a few months might end up like that and need not be a disaster. Problems start when consumers collectively curb spending, constantly waiting for ever-cheaper prices. In turn, this sucks the lifeblood of demand from the economy. With spending falling sharply, businesses sell less and less and are forced to cut wages and lay off staff - leading to even less spending, lower demand and sharper falls in prices. A vicious, downward spiral takes hold that can spell deep and prolonged recession. Once deflation sets in, it can be tough to reverse it, as negative effects feed on themselves. For example, if interest rates have been cut sharply to try to rekindle spending, then once they fall to zero it is impossible to cut them further and, after factoring in falling prices, this means that real interest rates are still higher than zero.

Are there any other effects?
Unfortunately, yes. Debt is a headache. Where prices and incomes generally are falling in a bout of deflation, this means that the real value of peoples' debts, relative to falling incomes, is rising. So debts become an ever bigger burden, stretching the time that is needed to pay them off to longer periods. This is known as “debt deflation”. In an economy such as Britain's, where households have the highest burden of debt of any leading economy, it poses a particularly severe danger.

How can economies escape?
With great difficulty. Deflation is like quicksand. Once in it, it is very hard to escape the mire. Solutions to “reflate” the economy are found in flooding the financial system with ultra-cheap money. This can be done by governments printing money to give away in tax cuts, although this risks irreversible damage to a country's finances, or by a central bank buying up assets from banks, effectively handing them extremely cheap cash.

Is deflation likely to take hold now?
There is a significant danger. Headline inflation in the United States could turn negative as soon as this week, after a huge reversal of last year's surge in fuel prices. In Britain, the Bank has said that it expects inflation on some measures to fall into negative territory for at least a few months. This may fall short of full-blown deflation, but will magnify the danger of it.

www.bankofengland.co.uk/education/targettwopointzero www.timesonline.co.uk/targettwopointzero

Dell poleaxes us!

2009-01-11T22:54:00.007Z

* Sorry about the lack of posts in recent days. We had a new exam system in the school over Christmas which seems to have increased the scale of corrections substantially - for me at least! But leavonomists, rest assured, normal service resumes from today. *

Well, this week brought us one of the worst pieces of news since the recession hit when Dell in Limerick announced 1900 job losses over the next 12 months. The manufacturing plant is moving to Poland. 450 people will lose their jobs by the end of April, with the remainder gone by next Christmas. About 1,000 high-value jobs will remain in Limerick, but for the workers who were losing their jobs, the decision was final and would not be reversed.

The job losses are a huge blow for the mid-west region, but the knock-on effects may be far worse. Dell confirmed that 1,500 jobs in other locally based companies supplying it would be directly affected by the downsizing. Local business leaders have estimated that as many as 5,000 people could lose their jobs by the end of the year, as the shockwave from the announcement hit the city. With unemployment rates in Limerick among the highest in the country, and jobs going by the day across a range of industries, the chances of re-employment for many are slim, at best. In all, the events of this week are yet another reminder that the country's largest employers no matter what sector they're in - Waterford Crystal, Tara Mines and now Dell - are vulnerable to the vicissitudes of a wildly turbulent global economy.

Russian/Ukrainian gas crisis deepens

2009-01-07T23:50:00.004Z

Exports of Russian gas to Europe via Ukraine appear to have completely stopped amid a dispute over gas supplies between the two countries. Heating systems shut down in some parts of central Europe, as outdoor temperatures plunged to -10C or lower. Russia and Ukraine have blamed each other. Russia's gas company Gazprom has accused Ukraine of shutting off the final pipeline carrying gas to Europe, but Ukraine's Naftogaz said that would be impossible, since the taps are in Russia. The EU says it wants its own monitors to check the flow of gas. The EU depends on Russia for about a quarter of its total gas supplies, some 80% of which is pumped through Ukraine.

The list of countries that have reported a total halt of Russian supplies via Ukraine includes Romania, the Czech Republic, Slovakia, Bosnia-Hercegovina, Bulgaria, Croatia, Greece, Hungary, Macedonia, Serbia, and Austria. Italy said it had received only 10% of its expected supply. The row comes amid a cold snap across Europe that is likely to push up demand for gas. Bulgaria says it has sufficient supplies for just a few more days.

Europe's need for gas is likely to increase. Economic growth, when it resumes after the current recession, will mean more demand for electricity. Gas accounts for about a fifth of the EU's electricity and the share is likely to grow, partly because gas produces less by way of greenhouse gas emissions than coal or oil. The EU does have other suppliers, including Norway and Algeria by pipeline, and Qatar and Algeria, again, by ship. But Russia, with the world's largest gas reserves and an extensive network of pipelines to Europe, is likely to be increasingly dominant.

Where to invest now?

2009-01-04T23:23:00.002Z

The Sunday Independent has an interesting article by Dan White this morning asking which shares we should buy in a recession.

ISEQ Challenge Results December 2008

2009-01-01T21:37:00.008Z

The ISEQ finished up for the month and the year yesterday morning at 11. Here is the latest table for the ISEQ Challenge amongst the Fourth Years. Once again, our initial investments are being whittled away generally so well done to those whose companies improved in December (positive % in green). As for the big risers and fallers, much was a consequence of the pork crisis in December. Both the Kerry Group and Donegal suffered badly whereas Glanbia's decision to sell its pigmeat business in a management buy-out to Rosderra Meats last March helped it avoid any hit. However, more importantly, it was named as the Business & Finance Company of Year for 2008 before Christmas so its sudden increase is understandable. Aryzta's almost 10% jump follows an earlier drop in their December price, due to a downgrade to "sell" from "neutral" by Goldman Sachs which pointed to its over-reliance on the US market and on premium goods. Needless to say, the banks are the biggest fallers, which is to be expected in the current climate. At least nobody bought shares in Anglo-Irish!

We will add The FTSE Challenge when we return next Wednesday.

National debt on the up

2008-12-31T16:16:00.007Z

The National Treasury Management Agency (NTMA) was set up by the Government in 1990 with the specific purpose of managing the National Debt and borrowing on behalf of the state, jobs previously carried out by the Department of Finance and the Central Bank. Money is borrowed by the NTMA in a variety of ways. Some of it comes from personal savings invested in An Post. For instance, if you put money into Post Office Savings Certificates, you are actually lending the money to the Government through the NTMA. Other funds are borrowed from financial institutions on either a short or long-term basis. Most new funding is raised by the sale of Government bonds. These are not unlike IOUs. A financial institution lends the money and in return they get an IOU (the bond) that provides a promise to repay the money at a fixed date in the future known as the maturity date and to pay interest each year.

This afternoon, the NTMA said Ireland's national debt at the end of 2008 stands at €50.7 billion, up by €13 billion on last year. The Government had originally forecast in last year's budget that the national debt would rise by €4.8 billion. For next year, the Government had forecast borrowings of €18.4 billion but this does not include any additional funding required since Budget 2009 in October or the recapitalisation programme for the banks announced earlier this month. The NTMA also revealed today that the National Pension Reserve Fund fell in value by 29.5% last year, which the government plans to tap for the bank bailout. The National Debt GDP ratio also increased from 24.8% last year to 41.3% this year.

You can read their report here.

10% unemployment before Easter?

2008-12-31T16:04:00.003Z

Ireland's main body for personnel managers, the Chartered Institute of Personnel and Development (CIPD), predicted yesterday that redundancies will soar to about 2,270 a week in the period between New Year and Easter, sending unemployment above the 10% mark. CIPD Director Michael McDonnell said employees would feel the full effect of "the triple whammy" of the bursting property bubble, the global recession and the crisis in financial markets. "The ripple effects are already spreading out from the construction and property market epicentre to hospitality, retail, travel, personal and professional services firms", Mr McDonnell said. He believes some employers have held back from job cuts but lack of access to bank credit, falling consumer demand and the relative strength of the euro against a weakened sterling will force their hand.

2008-12-30T13:38:00.002Z

Supply of teachers up

2008-12-30T12:42:00.005Z

The number of people interested in becoming teachers in England has soared since the start of the economic downturn. The Training and Development Agency for Schools (TDA) has reported a 40% increase in inquiries to its website since March, the beginning of the credit crunch. The number of people eligible to teach maths is up 25% on the same period last year, and the latest figures show the TDA has beaten its overall recruitment target by 2%. A spokeswoman said the increased interest in teaching was a result of the tougher economic climate. The number of people registering an interest in changing career to become a teacher has also risen – by 13% year on year – as graduates and career-changers seek more secure career paths in the wake of financial instability, the TDA said. Graham Holley, chief executive of the TDA, said: "There's a lag between people who express an interest in teaching, and those going on to become teachers. But even a 1% increase at that end means 4,000 new teachers. "In my experience, the level of interest is completely unprecedented. I've never seen anything like it. "Teaching is already pretty popular and a top choice for career changers. If you add to that the credit crunch, it means there's an accelerated movements towards teaching."

Shanghai drops low

2008-12-30T12:12:00.003Z

A recent survey by the official Shanghai Securities News and Stock Star showed that over 60% of the 25,110 respondents had lost nearly 70% of the money they invested in the Chinese stock market in 2008. Only 6% of the respondents said they had made money in the past year, the China Daily reports. The survey also showed that more than half the respondents said they were "fully" invested in equities while 30% said they had kept on buying in the past several months in the false belief that the market had bottomed out. As financial opportunities in China are more limited than in the West, investments in shares are undertaken by a wider section of society than here.

2008-12-24T22:28:00.002Z

I should cocoa

2008-12-24T11:08:00.003Z

London cocoa futures have hit a 23-year-high as cocoa turned out to be the most lucrative commodity in 2008. Cocoa for delivery in May peaked at £1,820 per tonne in London, which was its highest price since October 1985. Cocoa traded in the US has also been rising, although not as strongly because of the strength of the dollar.

Most commodities are priced in dollars, even in London trading, but London cocoa is priced in sterling, meaning traders can benefit from the weaker currency. There are concerns about falling cocoa production in Africa, while demand for cocoa is holding up much better than other commodities in the downturn. The three largest producers of cocoa are Côte d’Ivoire, Ghana and Indonesia. Between them they account for over 70% of global production.

Anglo-Irish Bank nationalised in all but name

2008-12-23T14:41:00.009Z

The Government announced plans on Sunday to recapitalise the country's three biggest banks. A total of 5.5bn euro will be injected into the Allied Irish Bank, the Bank of Ireland and the Anglo Irish Bank in return for shares. Anglo Irish will receive 1.5bn euro in return for 75% shares with an annual fixed dividend to government of 10%. This means the bank is effectively being nationalised. The Government will give 2bn euro each to Bank of Ireland and Allied Irish Bank for an annual dividend of 8%. They will also receive 25% voting rights on their respective boards.

There have been widespread calls for the scheme to be dependent on changes to the management of the banks. However, Taoiseach Brian Cowen said that would not be a precondition.

Morgan Kelly, Professor of Economics, UCD, wrote an excellent critical appraisal of the government's recapitalisation of Anglo Irish in Tuesday's Irish Times. You can read it here.

On Tuesday evening, NUIG economist, Dr Alan Ahearne, was interviewed on RTE's Drivetime Show and he gave his view of the Anglo Irish recapitalisation. He asks if the markets think Anglo Irish is unsaveable why is our government putting money into it? You can listen to the 9 minute interview with Mary Wilson here.

Aer Lingus to fly Shannon-Heathrow again

2008-12-23T14:30:00.001Z

Aer Lingus has announced its intention to resume flights between Shannon and Heathrow Airport near London from March of next year. The airline attracted much criticism when it scrapped the flights earlier this year in favour of services between Belfast and Heathrow. However, it now says it will resume twice-daily flights to and from Shannon in March 2009. The decision follows the recent agreement by staff to accept work practice changes at Cork, Dublin and Shannon airports.

PS3 vs Xbox

2008-12-22T18:42:00.003Z

PS3 sales in the US declined in November, according to figures released by the NPD Group: Sony sold 378,000 consoles last month compared with 466,000 in November last year. In contrast, sales of Microsoft's Xbox 360 went up to 836,000 from 770,000. Nintendo outsold both by a wide margin - just over 2m Wiis sold, up from 1.35m a year earlier. The figures must concern Sony, though there are variations in market share around the world. Nintendo seems to be winning everywhere, but the PS3 is way ahead of the 360 in Japan, and also easily outsells Microsoft in countries such as Spain, Portugal and Italy, according to Ed Barton, games analyst at UK-based Screen Digest.

Sony's big problem is price, especially in the present economic climate. In the USA, the PS3 costs $399, compared with $199 for the cheapest 360, the hard-drive-less Arcade. In the UK, the 360 Arcade is £129.99 and has gone for as little as £99.99 at retailers such as Zavvi, while a PS3 costs from £280. The PS3's unique selling point, the Blu-ray drive for high-definition (HD) films, looks less compelling now that cheaper standalone players have emerged, and customers are reluctant to shell out for suitably large HD screens that they need to enjoy the full benefit. Microsoft cut 360 prices aggressively in September, but Sony did not follow its lead, telling analysts that it is putting profitability ahead of market share.

The 360's lead in North America will be difficult to overcome, but Barton thinks 2009 will be much better for Sony worldwide: he argues that Microsoft's deep price cuts for the 360 will be hard to repeat, that Sony has strong PS3-exclusive games in preparation, and that the PS3's strength as an HD source will help it in the long term. He is predicting a 60% increase in the PS3's worldwide sales next year, to 16m, more than double his projected Xbox sales of just under 8m units. Few would be surprised if Sony dropped PS3 prices next year, and there is scope for a cheaper version of the console.

The PS3 will probably always be more expensive than the 360, but it is worth looking beyond the headline price. The 360 you really want is not the low-end Arcade edition, but the Premium, which has a hard drive. If you then add the cost of a wireless network adapter and a rechargeable battery for the controller - both of which are standard in the PS3 - the price difference reduces. Bottom line: the console wars are not over yet. What is certain, though, is that Sony has lost the dominance of the market. It is also remarkable that Microsoft has been forced to undercut the Wii (around £180), yet still sells fewer units despite superior graphic capabilities. Microsoft has always argued that software matters more than hardware; ironically, it is Nintendo that demonstrates the truth of that point.($199) is closer to that of Sony's 8-year-old relic than its current-gen upstart.

Shhhh! We are having a sale - but don't tell anyone!

2008-12-20T19:16:00.003Z

Secret sales seems to be how some sellers of highly income elastic goods (or in some cases Veblen/snob goods) are dealing with the recession. Sarah O'Connor writes in today's Financial Times about luxury retailers who do not wish to put gaudy 'Sale' signs up in their business. Instead, they are are inviting customers to discreet events or selling stock cheaply through 'private sale' websites. The reason? They fear that if they explicitly reduce their prices through a conventional sale, the perceived high quality and more importantly the exclusive status their goods enjoy will be tarnished.

Luxury retailers resort to secret sales, Financial Times, 20.12.2008.

2008-12-20T01:25:00.002Z

P.R. stunt by Cowen & Co.?

2008-12-18T17:58:00.005Z

Up to €500m is to be invested by the Govt in a new venture fund, to be known as Innovation Fund Ireland, which will support early stage research and development. The announcement was made at the launch of what the Government calls 'Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal' . Under the renewal programme, multinationals will also be encouraged to engage in 'innovative high value activity and technological convergence' which will provide quality jobs.

Minister for Health, Mary Harney said the plan required a national effort like that in the mid-1980s when she said the country 'nearly went under'. The renewal programme also introduces a plan to drive entrepreneurship and business start-ups by introducing what the Government calls 'highly favourable taxation measures'. These include a three year exemption from Corporation Tax for these new businesses.

Responding to the announcement, business group ISME said it was dismayed, calling the plan 'vague, bereft of ideas; deficient in specifics, measurements and timeframe.' Fine Gael spokesperson on Finance Richard Bruton criticised the Government’s plan saying: ‘For all the benign aspiration in the document today it is worth recognising that you can’t build a smart economy based on dumb decisions.’ It was also dismissed as a PR exercise by Labour Party leader Eamon Gilmore. In the Daíl this morning Deputy Gilmore pointed to the fact that the announcement was not going to be made in the Houses of the Oireachtas, but in Dublin Castle. Referring to Transport 21 and the National Development Plan, he said that documents launched in the Castle are not worth the paper they are written on. Fine Gael leader Enda Kenny said that members have been left without any information on the plan, and that was contemptuous treatment of the House. He said his understanding of the framework is that it is 'high on vision and low on specific ideas'.

Massive losses for CIE in 2008

2008-12-17T19:41:00.002Z

The Minister for Transport, Noel Dempsey, has told the Dáil that CIE will make a loss of €39.5m this year, compared with a €1.47m loss last year! He said the loss was a 'significant deterioration' and was due to a drop in revenue, increased costs and higher fuel costs in the early part of the year. Mr Dempsey said CIE would have to reduce its frequency of service and withdraw some routes altogether.

A CIE statement said the group - Iarnrod Eireann, Dublin Bus and Bus Eireann - was facing a more difficult financial situation in 2009. It said the three companies were looking at 'a wide range of options' to address the deteriorating financial situation. 'All aspects of the cost base are being examined for potential cost savings,' CIE said. But it added that no decision had yet been made on the final measures to be taken.

Sir Richard Branson says the economy is 'f***ed'!

2008-12-17T19:15:00.004Z

Sir Richard Branson has delivered a characteristically blunt verdict on the state of the economy, describing it as "f***ed". But Britain's cheeriest billionaire said that he hoped that the downturn might only last a couple of years instead of becoming a repeat of the Great Depression of the 1930s as so many economists now fear. The Virgin boss was asked his views on the economy by Five News. “I was going to say, it’s f***ed, but I think I had better not have said that,” he replied. He added: “I think it is a terrible, terrible mess, which has been brought upon us by some very irresponsible people in the banking community, some very lax regulation and we are going to have to work hard to dig ourselves out of it.

“I think governments have moved quickly and hopefully it will be a two-year, two or three-year nightmare not a 1929 nightmare. But we are all going to have to work very, very hard to get things back on the even level.” A spokesman for Sir Richard said: “He’s only saying what everyone’s thinking, in a more forthright way. He was making the point that the economy is in dire straits. It’s nothing that hasn’t been said every day for the last three months.”

US interest rates now virtually at zero

2008-12-16T22:46:00.004Z

The US Federal Reserve has tonight slashed its key interest rate from 1% to a range of between zero and 0.25% as it battles the country's recession. Wall Street shares soared after the Fed, the powerful US central bank, stunned markets by cutting interest rates from an already 50-year low of 1% to virtually nothing. In its statement, the Federal Reserve predicted that rates would stay at the current exceptionally low levels "for some time". It added that it was considering ways it could spend money on supporting the economy and credit markets. Analysts said that the key rate is now virtually zero. "Whether it's zero or 0.25% actually does not make a huge difference," said Holger Schmieding at Bank of America. He added that the more important factor is what policymakers plan to do now that they cannot cut interest rates any further.

The Federal Reserve stressed that it was already planning to buy large quantities of additional debt based on mortgages and is considering whether it would be a good idea to buy long-term US government bonds. The strategy of a central bank buying government bonds mirrors the so-called 'quantitative easing' carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.

Prostitute with rice

2008-12-16T22:10:00.006Z

The Freakonomics site has a very interesting piece on giffen goods today, where it draws a similarity between prostitutes and rice! They're even running a competition before tomorrow for the best answer to 'what do rice and prostitutes have in common?'

Full article

You can't use that name here, Bud!

2008-12-16T19:14:00.002Z

Beechwood-aged or not, an EU court decided today that Budweiser-brewer Anheuser-Busch should not have rights to the "Bud" brand throughout the 27 nation bloc. It is a victory for the Czech brewer Budejovicky Budvar, which said it had registered the name in France, Austria and former Czechoslovakia in 1958. Anheuser will now have to rely on registering its trademark in each individual member state. It said it already had trademark protection in 23 of the EU states. Losing the right to a community-wide trademark can be a major blow for a firm, as gaining European Union-wide rights avoids the lengthy and costly process of going through the systems in individual countries and gaining separate trademarks in each of these.

It is the latest stage of a long-running trademark dispute between the two brewers. Budejovicky Budvar was founded in 1895 in Ceske Budejovice, which was known as Budweis by its German-speaking inhabitants. Beer had been brewed there since 1265. Budweiser was first produced in St Louis in 1852 and was America's first national beer brand. The name was taken because it was familiar to the German founders of the company.

With a consumer spending slowdown across the United States and Europe, it is not yet clear whether Anheuser-Busch will appeal today's ruling.

Scudamore dismisses EPL debt fears

2008-12-16T18:50:00.003Z

Lord David Triesman, chairman of the Football Association, said in October that English soccer was carrying a combined £3 billion of debt. UK Sports minister Andy Burnham called for measures to ensure debt doesn’t endanger the “very existence of one of our great clubs.” However, Richard Scudamore, the English Premier League’s chief executive officer, said today, "Top English soccer clubs have 'manageable' debt because revenue can be maintained even in the financial crisis". He went onto state, "the level of debt is not a huge concern". About half the debt at the twenty Premier League teams was “soft debt” in the form of loans from owners, who don’t expect to recoup the funds, Scudamore said.

Still, the operators of Manchester United and Liverpool took out loans to fund their purchases. The U.S.-based Glazer family has debt of more than £660 million linked to United following its purchase in 2005. George Gillett and Tom Hicks at Liverpool owe around £300 million after buying the Premier League leader last year. Bearing this in mind, it will be intersting to see if these words come back to haunt Scudamore if a leading club falls victim to the credit crunch.

Sterling takes another pounding

2008-12-15T18:42:00.002Z

The euro hit new highs against sterling today as the two currencies edged closer to parity. The euro hit 90.06 pence sterling this lunchtime, the latest in a series of record highs against the UK pound in recent days. It later fell back to trade at 89.35 pence this evening. Some holidaymakers travelling to Europe from Britain are reportedly already receiving less than one euro for their pound at bureaux de change, where commission is charged. It is thought short-selling - where investors sell assets such as shares or currencies in the hope of buying them back later at a lower price and pocketing the difference - is also behind the pound's slide.

2008-12-15T18:35:00.002Z

Irish banks to be recapitalised

2008-12-14T22:34:00.005Z

The Irish Government tonight announced support for a recapitalisation programme of up to €10 billion for credit institutions. The plan would see the Government support recapitalisation alongside private investors and existing shareholders. In a statement issued this evening, it said its objective was to ensure the long-term sustainability of the banking sector in Ireland. Minister for Finance Brian Lenihan confirmed that money from the National Pensions Reserve Fund will be used in the recapitalisation programme. State investment will take the form of preference and/or ordinary shares in the institutions receiving funds.

Mr Lenihan said State investment would be assessed on a case-by-case basis and all the institutions were being asked to submit their proposals by early next month. There is a growing acceptance among some banks of the need to accept fresh capital. Bank of Ireland is believed to have considered at one point holding a rights issue in the New Year, handled by Davy Stockbrokers and UBS in London. AIB is still insisting that it does not require an injection of state capital. As a proportion of its economy and banking sector compared to the UK, the Irish bailout represents a bigger capital injection than theirs.

What is 'Quantitative Easing'?

2008-12-14T17:26:00.008Z

Most nations are now reducing interest rates at a phenomenal rate to stimulate their economies and counteract a recession they are either in or are sliding towards. But what will happen if/when rates reaches 0%? What will they do then? One option is to actually break through the zero percent barrier and introduce a negative interest rate - which would basically be a tax on bank deposits. Perhaps savers would withdraw their deposits and spend them, however, it is probably more likely savers would withdraw the deposits and hoard their cash at home - thus reducing banks' liquidity. To counteract this, banknotes may even end up having 'best before dates' printed on them after which time they are deemed worthless! Thus forcing people to spend.

A different option which could be used to maintain interest rates at 0% is 'quantitative easing'. It is a monetary policy tool, which means the central bank prints new money, in order to increase the money supply. 'Quantitative' refers to the money supply; 'easing' essentially means increasing. So, the central bank floods the market with cash in an attempt to stimulate an economy in recession and, importantly for 2009, to stave off deflation. The idea is that if the central bank floods enough cash into the market, it will set off the following chain of events:

1. Banks and other financial institutions will build up larger and larger cash reserves.

2. Banks will finally decide to loosen their lending standards to utilize their excess cash.

3. Individuals and companies will start getting the loans they are seeking.

4. The economy will begin to recover as people and companies begin to spend again.

Quantitative easing was used notably by the Bank of Japan to fight domestic deflation in the early 2000s after its property and stock bubble bursts. It was a groundbreaking experiment and took a long time to work because the Bank of Japan was slow to employ all of its policy options and spell out its goals in a credible fashion. In recent weeks, both Ben Bernanke, Chairman, the US Federal Reserve, and British PM, Gordon Brown, have hinted at employing different monetary policies in the near futre for their respective economies. However, it should be noted, despite the almost certainty now that many Western economies will face deflation next year, the inherent danger of flooding the economy with cash can be very high inflation in the longer term. In fact, 95% of all historic cases of hyperinflation begin during either a deflationary depression or deep deflationary recession. (The other 5% is brought about by political stupidity as in Zimbabwe).

Call for new advertising rules in the UK

2008-12-14T12:23:00.004Z

A leading UK heart charity is today calling for a ban on junk food advertising on television before 9pm, claiming manufacturers are exploiting family shows to bombard children. Adverts for foods high in fat, sugar and salt are banned from the screen during children's programmes. But, in a new report published today, the British Heart Foundation (BHF) says as few as one in 20 shows most watched by children is covered by the ban and that most of children's viewing (68.9 per cent) is outside children's programming and around shows such as The X-Factor, Kids do the Funniest Things and the soap Emmerdale.

The report, prepared by the Food Commission for BHF, also claims advertisers have resorted to pressuring 'bewildered' parents with misleading health claims in the battle for a share of the lucrative breakfast cereal and lunchbox market. Companies use 'sophisticated marketing techniques to manipulate parents into thinking they are buying healthy food for their children', it states. 'It is clear that some food companies are preying on parents' concerns actively to market children's food that is high in sugar, fat and salt,' said BHF chief executive Peter Hollins. 'They are manipulating legislative loopholes to find new tactics to entice children and their parents.

The report highlights several products that, it claims, show how parents are manipulated. These include:

Kellogg's Coco Pops Cereal and Milk Bars says it is 'the best choice for a lunchbox treat', with images of grapes and wholemeal bread. 'In reality it contains a massive 41g of sugar per 100g and uses adult guideline daily amounts, which could further mislead parents,' says BHF.

Dairylea says it has 'no artificial colour, flavours or preservatives added'. 'But just one Dairylea Bite contains nearly a third of a child's daily recommended maximum saturated fat intake.'

A Nestlé and Nesquik magazine ad showing children eating Cheerios and sucking milk through a Nesquik flavoured Magic Straw claims to be 'full of goodness' helping to 'maintain strong healthy bones'. Yet with the mix of Cheerios and strawberry-flavoured milk a child 'would consume 37.4g of sugar,' says the report.

Burger King Aberdeen Angus Mini-Burgers with Cheese is advertised with a 'warrior' mother saying: 'The lunch battle is over.' Yet there is more than a fifth of a child's daily recommended maximum saturated fat intake in the product.

KFC Deluxe Boneless Box TV advert shows children who, after a family meal of KFC, volunteer to do the washing-up. This, says the report, uses the 'emotional insight' technique by sympathising with difficulty in getting offspring to do chores. Yet it says there is more than half of a child's daily recommended maximum salt intake in a serving of Popcorn chicken.

Manufacturers denied the findings. A spokesman for Kraft who produce Dairylea cheese said: "Parents tell us that no artificial ingredients are important to them, so that's what we highlight."

"Call to ban junk food ads during 'family' TV", The Observer, 14.12.2008.

2008-12-13T16:00:00.005Z

Frozen food is cool in everyway

2008-12-13T13:15:00.005Z

According to this morning's Guardian UK shoppers are cancelling their orders of organic food and are abandoning bottled water in favour of the tap. Premium-label heat-and-eat meals are left on the shelf, along with exotic fruits airlifted in from Africa. There is a new air of austerity in the aisles of supermarkets and a back-to-basics recession diet - which has made frozen food cool again. Until recently many shoppers regarded frozen food as a rather ghastly, downmarket option. Fresh was best, and stores cut back on freezer space to make room for more chilled products. But now frozen food is back in vogue as shoppers search for value and try to cut back on waste. Sales of Sainsbury's frozen peas and roast dinner platters have more than doubled since last year and its frozen garlic bread is ahead nearly 40%. The biggest increase has been sales of frozen raw prawns - up 400% year on year. According to TNS Worldpanel market research, the fastest growing grocers are discounters such as Aldi and Lidl - which devote more space to frozen food than their bigger rivals.

Brian Young of the British Frozen Food Federation puts much of the decline in frozen-food sales down to snobbery - and reckons Marks & Spencer started the rot. "M&S led on chilled food, particularly ready meals, and made great margins. But prices went up because there was so much wastage. The packs were open and visible and people believed it was better. The other supermarkets followed. It was just a form of snobbery, and that is now fading away."