Joined up thinking for the Irish Left
New Books Worth Reading Mon Sep 19, 2016 23:25 | Seán Sheehan
13 Billion ? Lucky for some? Mon Sep 05, 2016 13:04 | Tony Phillips
Rebuilding Ireland: Long on Promise, Short on Detail Mon Aug 29, 2016 22:20 | Eoin O'Mahony
Brexit and Other Issues: Comments on the Current Situation Mon Aug 29, 2016 21:52 | Brendan Young
Bin Charges: From Private Circus to Public Service Tue Jun 21, 2016 12:38 | Michael Taft
Irish Left Review >>
Fake News: The Epistemology of Media Wed Jun 07, 2017 11:52 | Gavin Mendel-Gleason
Officials and Provisionals Sat Apr 01, 2017 22:54 | James O'Brien
Interview with Cathal Goulding Mon Dec 26, 2016 17:11 | Cathal Goulding
Trump, Russia and the CIA Sat Dec 10, 2016 18:23 | Gavin Mendel-Gleason
Why is my rent so high? Mon Oct 31, 2016 18:51 | Gavin Mendel-Gleason
Spirit of Contradiction >>
Interested in maladministration. Estd. 2005
State failing in its duty to enforce law
Elaine Byrne/Fergus Finlay: Afraid to condemn their own? Anthony
Jobstown trial exposes mainstream bias Anthony
RTE: Blatant censorship and manipulation of news Anthony
In the event of a terrorist attack…in Ireland Anthony
Public Inquiry >>
Farewell from NWL Sun May 19, 2013 14:00 | namawinelake
Happy 70th Birthday, Michael Sun May 19, 2013 14:00 | namawinelake
Of the Week? Sat May 18, 2013 00:02 | namawinelake
Noonan denies IBRC legal fees loan approval to Paddy McKillen was in breach of E... Fri May 17, 2013 14:23 | namawinelake
Gayle Killilea Dunne asks to be added as notice party in Sean Dunne?s bankruptcy Fri May 17, 2013 12:30 | namawinelake
NAMA Wine Lake >>
People's News: Another housing bubble building!
Monday February 27, 2017 22:18 by 1 of Indyy
News Digest of the People’s Movement - No. 162 15 February 2017
The latest issue of People's News -for 15th Feb carries a lead article on the current housing bubble.
The free movement of capital has become one of the maxims of global capitalism. Along with the free movement of people, goods and services it is also one of the “four freedoms” of the EU’s single market.
But the removal of the policy instrument of capital controls has probably contributed to a succession of financial crises. Three decades ago, many people in the EU invested their hopes in a combination of free trade, free mobility of capital, a fixed exchange rate, and an independent monetary policy — dubbed an “inconsistent quartet.”
The combination is logically impossible. If Ireland, say, fixed its exchange rate to the German mark — which in effect it has done by adopting the euro — and if capital and goods move freely across borders, the Central Bank would have to follow the policies of the German central bank, the Bundesbank — or, in effect, the EU Central Bank in Frankfurt.
So we sacrificed monetary independence when we adopted the common currency. What has changed since then is the increasing importance of cross-border finance. Many emerging markets do not have a sufficiently strong financial infrastructure of their own. Companies and individuals therefore take out loans from foreign institutions denominated in euros; and that’s what the Irish banks were doing a decade ago.
Theoretically, it is the job of the Central Bank to bring the ensuing havoc to an end, which standard economic theory suggests it should be able to do so long as it follows a domestic inflation target. But if large parts of the economy are funded by foreign money, its room for manoeuvre is limited.
In the good times, credit flows into peripheral markets, fuelled by the massive German surplus, where it fuels local asset price bubbles, as we have experienced to our detriment. When, years later, liquidity dries up and the hot money returns to safe havens in Europe, the country is left in a mess.
Unless you accept financial instability as inevitable — and it increasingly seems an intrinsic part of the system as the time between crises grows shorter — you may soon be thinking about imposing capital controls that involve telling foreign investors that you don’t want their cash. The point is to prevent hot money flowing in during the good times and to stop it from draining out in the bad times.
This is not yet a subject of polite conversation among policy-makers. Central bankers have instead been peddling a concept known as macro-prudential regulation, a version of capital controls. The idea is to tweak incentives: when a housing bubble seems to be building up, the Central Bank imposes some ceiling on lending, for example by capping loan- to-value ratios. It might also ask its government to raise stamp duties or other transaction taxes.
Spain tried such measures during the precrisis years, and Ireland is trying it now. But it did not stop the buildup of one of the biggest housing bubbles in history.
More drastic action, such as leaving the euro or imposing controls on capital, might prevent the next calamity as rents and house prices soar. Spain did neither, but before long someone will — and it looks increasingly like it should be Ireland. Free movement of capital cannot be sustained as a point of principle when the economic costs are so devastating.
Some of the other articles in this issue are:
Two-speed EU back on the agenda!
Is there a trade war on the way?
Could the EU provide a solution to Ireland’s housing crisis?
EU banks have more than €1,000 billion in bad debt!
More euros to lend at low interest rates ?
The security industry is shaping EU legislation: lobbyists in action!
More austerity for the Greeks
What to do in Europe? Proposals from the left