“And we pray for Ireland’s financial situation…and all the people who suffer because of it.”
Priests do not usually get involved in political economics. But among the prayers for the dead, the sick, the unhappy and the incompetent at St. Patrick’s cathedral on Sunday was an entreaty to the Almighty to intervene on behalf of Irish bond yields.
Many times have we criticized Ben Bernanke for ‘playing God’ with the economy. Will we now get a chance to criticize God for playing Ben Bernanke?
Whether or not God intercedes in such matters, we cannot say. But had we been in charge of the program at St. Patrick’s cathedral yesterday we would have saved our breath. Ireland’s financial problems were caused by man. They can be solved by man too.
But not without some pain. And not by central bankers’ clumsy attempts to avoid it.
Friday’s market news from America showed a continuation of the trends we’ve been watching for weeks. The Dow fell more than 100 points. Gold took a big dive too…and ended the day’s trading at $1,500. Oil remained at $91 a barrel.
We know it’s not necessary to tell you, dear reader, but we will tell you anyway. These things do not signal a recovery. They do not signal inflation. They do not signal an end to the ‘lost decade’ America has suffered since 2000.
Last week, we focused on the strange happenings of the 21st century. Despite the most promising initial conditions in human history, the century so far has been a dud.
Nobody knows. Perhaps it is just a normal cyclical pullback after years of credit expansion. Or, maybe it is much more than that – a regression to the mean, in which developed countries slow down for decades so that emerging countries can catch up. Or maybe it marks the end of the Fossil Fuel Revolution, in which we confront the declining marginal utility of further (more expensive) inputs of oil. If so, we may be looking at a Lost Century, not just a lost decade.
All we know for sure is that the Internet, and related communications technologies, have not performed as advertised. They’ve improved efficiency, but they’ve left billions of people measuring out their lives on email and tweets, while real growth has declined.
So, let’s put that in the back of our minds and return to the here and now…that is, to Ireland.
“Ireland is screwed,” said our local expert. “Our property developers are broke. And they owe a lot of money to the banks. So they’re broke too. And the banks owe a lot of money to the government, so the government is broke too. And now they’re taxing pension funds and our houses aren’t worth anything, so we’re all broke.”
By way of example, we went to look at a lovely Georgian house…set on 400 acres…with its own ocean beach. It had been fixed up and was offered for sale for 12 million euros. Then, the crisis hit. Now, the asking price is 7.5 million.
“That’s the asking price,” said the realtor. “Naturally, in this market, the actual sales price might be a bit lower.”
How much lower is anyone’s guess. Houses in Dublin are selling for about half what they fetched a few years ago. And there are abandoned projects all over the country. We looked at a group of houses built near the coast. They were the equivalent of Irish McMansions…large houses with thatched roofs on small lots. There were about 12 of them…offered for sale at about $800,000 each.
“Well, that was bad timing. The developer had to cut the price in half. They’re now selling for about $400,000,” the agent explained.
“How many have been sold?”
Not that your editor is really interested in acquiring more property. He has too much already. But he likes to keep an eye on the property market. It helps him understand what is going on.
Besides, he’d like to have a stately Irish mansion to house his family office…if he could get it cheaply enough.
“Oh yes, that would make sense. The Bonners are an Irish family. From Donegal. Everybody knows that. But if I were you, I’d hold my fire,” said our local expert, who offers financial management services to rich Irish families.
“There’s still a lot of momentum in the property market here. I mean, people still think that property will go back up. Speculators are still buying places that they think they are getting at bargain prices. But did you see the bond market on Friday? Irish debt fell again. And if there is any more trouble in Greece, bond investors are going to re- appraise all their European debt. There will be no way Ireland will be about get out of this without a default.
“It also seems likely to me that Ireland has gone into a long, long slump, much like Japan. What we’ve seen so far could be the very beginning. We could see property prices continue to fall, as people are unable to finance or re-finance mortgages…as the banks go broke…and as people come to realize that Irish property is not going to bounce back. Property values are down about 50% so far. They could go down 80% or 90% before this is over.”
And more thoughts…
We thought we were attending mass at St. Patrick’s. If you can’t have a mass at St. Patrick’s in Dublin…where can you?
But there was no mass. St. Patrick’s is not a Roman catholic church. It’s Anglican. Which was very familiar to us, but not what we were looking for.
“People are always surprised,” said an Irish friend. “But Ireland is not what they think…especially not what Americans think.
“Americans imagine that Ireland is an almost mythical island full of Irish people who are all descended from Celts, speak Gaelic at home and go to mass every Sunday.
“It’s not like that. It’s a melting pot too…with many different peoples and cultures more or less homogenized. You know, in Ulster (Northern Ireland) they say you can tell a protestant from a catholic by the way he walks. It’s partly true. Because when people talk about the Catholics fighting the Protestants they are missing the point all together. It really doesn’t have much to do with religion itself. The real difference is cultural and political. And almost genetic…that’s why you can tell them apart by the way they walk.
“Of course, you understand…I’m exaggerating to make a good story…I’m Irish after all. But there’s a lot of truth to it. I’ll give you a little history. Nobody knows who the original settlers of Ireland were. But we know the Celts came early, from Spain and France. Then, there were invasions from the Vikings. In fact, Dublin was a Viking settlement. So was Waterford. Towns didn’t exist in Ireland until the Norsemen established them. And then, in 1169 came the invasion of the Normans…actually an assortment of Flemish and Welsh soldiers led by Norman knights. The Norman knights were soon as more Irish than the Irish, as we say…but they were still vassals to the crown of England, which set up Ireland for further struggles with the English and episodes of colonization from Scotland and England, many of whom came to be called ‘Scotch-Irish’ who settled in Ulster.
“You can see the confusion about who the Irish really are in the term ‘Scotch-Irish.’ It can mean almost anything. They may be Scots. They may be Irish. Or they may be neither. They may be protestant. They may be catholic. Or neither. The original ‘Scotch-Irish’ were Gaelic speaking peoples who went back and forth between Scotland and Ireland. They invaded England after the Romans left. And then, they called the settlers in Northern Ireland, many of whom were actually descended from Normans, ‘Scotch Irish,’ because they tended to come from the border areas in England. And then, when many of these people later immigrated to America, they were called ‘Scotch Irish’ just to disguise the fact that they came from Ireland. The ‘wild Irish’ were never very welcome, either by the Virginian aristocrats or the Massachusetts Puritans. They drank a lot. They were papists. So, when they got to America they would often redefine themselves as ‘Scotch Irish.’
“And then, there is a whole different class of Anglo-Irish, who are not protestant, but not Roman Catholic either. They’re Anglican, not at all like the Presbyterians of Ulster.
“Now, this is not a scientific fact, but I think it is true. You can tell where an individual Irishman fits into this mixture just by looking at him. The descendants of the Gaelic-speaking Celts, whom St. Patrick converted to Catholicism, are shorter, with dark hair and roundish faces. The taller, blonder people, with more angular features, are either descendants of the Vikings or of the Normans. Anyone whose name is Fitzgerald, for example. They are more likely to be protestant, or Church of England. That’s why you see more blonds and red-heads in the Dublin area, because it was a Norse stronghold for many centuries, than you do in the West, in County Mayo, for example. And John Kennedy, your president, you could look at him and you knew he had a lot of Norman blood in him. Of course, his mother’s name was Fitzgerald. It all made sense.
“And of course, St. Patrick’s is Church of England, not Church of Rome.”
For Daily Reckoning Australia