Crystal Ball Gazing: Economic Forecasts and Commentary for Ireland and Beyond

We apologise for the absence of forecasts and commentary recently. Unfortunately, our financial and human resources are very limited and have been severely stretched by the need to invest in critical infrastructure and carry out essential maintenance at our premises in Westport. This has left less resources available for research and website updates.

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Economic Forecast 2010

1st January 2010 . Next forecast 6th February 2010

Commentary

The second half of 2009 saw an apparent leveling out of the global economic recession, as the effects of some $2 Trillion of newly created money very gradually fed it's way into the world's principal economies. In the case of the US, the amount of money injected was equivalent to some 5 percent of GDP. It had the effect of halting a slide into economic depression, although the impact was rather small for the sums involved. Perhaps more pertinently, none of these measures attempted to get to the root causes of the problem.

These causes have been variously identified as an excess of cheap credit (leading to the excessive and irresponsible purchase of assets of dubious worth), the commoditisation of debt (whereby debt could be parceled up and sold onto another investor, who in turn was using borrowed money to underwrite the deal), unsustainable levels of private debt, poor or nonexistant financial regulation by bodies responsible for overseeing the financial sector, and speculative trading in energy derivatives (particularly oil). The latter helped the global price of crude oil reach $147 a barrel in July 2008, undoubtedly contributing to the destabilising of a global economy already maxed out on credit.

The depletion of finite resources, most notably the oil that fueled the whole system, was rarely mentioned.

The narrative that has been offered since, by those at the helm of the major global economies and central banking institutions, is that the period of immense financial turmoil of 2008/2009 was a "once in a century event" (to quote former Fed Reserve chief Alan Greenspan) that seemingly could not have been foreseen. The narrative goes on to argue that once the necessary adjustments have taken place, business as usual will continue much as before. The overriding message is that the market knows best, as it always did, and should be largely left to its own devices, albeit with a token gesture of new regulation and the odd sacrifice to appease those clamoring for accountability.

Upon reflection, it should come as no surprise that this is the outcome, as history shows that those in positions of power rarely admit to error, incompetence or vested self-interest. The first seven years of this century continued where the previous century left off. The God of unrestricted, everlasting economic growth reigned supreme, in spite of growing reservations at all levels of society about the ability of the planet to sustain increasing natural resource depletion and environmental degradation.

The free-marketeers, whom a more unforgiving world might quickly consign to the guillotine or to hard labour camps without the inconvenience of trial, have survived this crisis remarkably well. Their task now: to reassure the world that all is well, while simultaneously ensuring no other narrative finds common currency. For a short while, it looked as though sanity might prevail in the world, that a different economic doctrine might banish the market supremacists, and instead make possible the global agreements necessary to curb atmospheric greenhouse gas emissions, clean up the biosphere, distribute resources more equitably and generally ensure that the project of civilisation may continue much beyond the middle of this century.

So what will happen now?

Now that global economic collapse has been (very narrowly) averted, there will indeed be a semblance of normality again for those not already struggling for their very survival. Massive efforts will be made by the Western economies, with varying but generally very limited degrees of success, to reinflate the economic bubble of recent times. An almost perfect example of this may be found in Ireland, where legislation has been passed to bail out the very same financial institutions and large corporate developers who collectively devised the pyramid scheme that underwrote the Irish economy. The bail out package (known as NAMA) involves the near-bankrupt Irish state incurring additional debts of up to 50 percent of GDP. The narrative offered by the engineers of this Frankenstein package is that the toxic assets (predominantly failed speculative commercial and domestic residential developments) thus purchased by the state represent a sound financial investment, and will even turn a handsome profit once property prices can be levered back to and above their previous [unsustainable] levels.

This is the 'Head in the Sand' scenario identified in the Mayo Audit of December 2008. This scenario was presented as a probable outcome to the then unfolding economic crisis. Among the specific measures listed in this scenario was the offering of low interest rate loans to financial institutions and developers: eerily close to the measures now contained within NAMA.

The alternative scenario outlined in the Mayo Audit was the 'Lean Economy'. This scenario assumed that the ultimate depletion of finite global energy resources was fully acknowledged at all levels of society, and the necessary energy reduction mitigation measures implemented quickly and efficiently. Essentially, this would allow provide the means to make the transition to a stable state economy in a relatively orderly fashion. Even as the Mayo Audit went to press, there was a growing concern by authors Paul Lynch and Andy Wilson that global energy availability could decline more precipitously than forecast, leading to a far more rocky road to energy descent. However, at the time it was believed that a managed transition was still achievable.

Meanwhile the 'Head in the Sand' scenario envisaged that bubble-reinflating actions would temporarily halt economic contraction, and would even archive a short lived period of growth in consumer activity sometime around 2012 or 2013. At this point Peak Oil would suddenly rear its head once again, when declining oil production finally crossed below the line representing global oil demand, never to return. The inevitable bidding wars on global markets in turn causes massive shocks in global economies and a cascade of major supply chain disruptions. This is the scenario also outlined in a document written by David Korowicz in December 2008, in which he states "our civilisation will crash against the earth's limited resources"

Our Civilisation will Crash

This is where we are heading unless the high priests of economic growth are quickly deposed.

Mayo Energy Audit

Preliminary Economic Forecast 2011

1st January 2010. Next forecast 6th February 2010

Further commentary will follow shortly

2009 Commentary

2008 Commentary

Surviving and Thriving in Economic Recession

Negotiating a Financial Emergency

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