Jill Kerby

SUMMER DAYS…ON A WING AND A PRAYER

Ah the salad days of summer…long, warm, sunny days - if we are lucky. The kids are off school; it’s barbeque weather – so long as the rain holds off. There might even be a holiday to look forward to…but only if we can convince the sister’s husband’s cousin to lend us his caravan or we can find the fare to get to a nice cheap site in west Wales.

Everything we do these days in Ireland is punctuated by a ‘here’s hoping’, a ‘god willing’ or more popularly, a ‘finances permitting’. 

Gone are the days when the credit card(s) could be whipped out, or a home equity taken out, that could fund a 40 grand kitchen extension AND a month in Disneyworld Florida. 

The new normal in this country is that even those people still gainfully employed are checking their bank statements or the bottom line on their payslips before they make any purchases other than groceries, petrol, the cost of the kid’s school lunches and the rent or mortgage payment.

You can read all about the so-called economic ‘recovery’ in the United States until the proverbial cows come home, but even if you share my scepticism about that simulated and stimulated miracle, there ain’t no recovery here, not unless you’re exporting software or pharmaceuticals and can take full advantage of the 15% collapse of the euro against the dollar.

Our new reality is that we’re in this deflationary, deleveraging hole of our own making for the foreseeable future, that is, until job losses reverse and employment numbers grow by several hundred thousand; until those banks left standing are fully capitalised and are lending again and not until manufacturers and service providers are able to raise their prices.

‘Growth’ – aka recovery - only happens when surplus is turned into profit.  In Ireland’s case where incomes are still falling, taxes are on the way up and we’re paying off more debt that we are borrowing, it sounds like a big call.

Ah, there’s the rub. How exactly does one go about beating the Great Recession? 

As you sit around your smoking barbeque this month, you probably already know that throwing more fuel – in this case debt and credit at an out of control fire, is not a good way to put out the flames.

That is the cookery equivalent of the road to fiscal hell.  Anyone who purports to run a country with a population of four million (of which only 1.85 million are earners), a GDP of less than €50 billion, a budget deficit of €20 billion and a Nama excluded, national debt of €81 billion – should know, but clearly does not.

Career politicians and their creatures in the central banks have a single purpose in life:  to secure re-election and retain power. 

By some weird quirk of wiring, they collectively still think that they have correctly diagnosed the problem  - it’s the fault of the Chinese and incompetent regulators.  They propose the classic Keynesian solution: keep interest rates perpetually low, bail out insolvent banks and private corporations and beg, borrow, steal and print money out of thin air, so you can spend on behalf of and in lieu of your citizenry who knew the game was up when house prices and the stock markets first crashed.

Their conceit – that only they know what is best to do, and that includes robbing future generations blind before they are even born - is breathtaking.

Eighteen months into the Great Recession I have stopped shouting at the TV and radio; I no longer rip apart newspapers and magazines in frustration or pound my computer screen in rage at the stupidity and waste of it all.

What is the point?  Nama has re-introduced serfdom here: the Irish people will now have to labour indefinitely to preserve the apparatus of the banking industry and the state, not for ourselves and our families.

The scale of the western economic debt crisis is so disproportionate to our capacity to repay it, that the best any of us can do is to follow the Titanic’s example and declare that it is every man, woman and child for themselves.

Our overspending spree in the west, which pretty much began at the end of the second world war, means that there is probably better than evens chance that it won’t just be banks and big corporations that will default on their debts: it will be a string of countries too. 

Even the United States, with it’s mighty printing press, will eventually go the way of every overstretched empire, with a currency that becomes so devalued by all the printing, that the client states eventually see it for what it will become:  wallpaper.  

(Sound money would have stopped the barbarians at Rome’s gates in the fourth century but by then the emperor’s golf and silver coin…was nothing more than brass.)

So much for the history lessons. 

Our government thinks cutting public spending, but increasing the national debt AND raising taxation is a recession busting formula.  Good luck to them.

You need to take a very different path, say the non-mainstream commentators and financial advisors who have been warning their clients about the looming debt crisis since at least before the dot.com crash: 

• Cut your spending. Then cut it some more.  Live within your means, and ideally below it.
• Pay off your most expensive debts and consider fixing interest repayment rates. If inflation takes hold – as many of the world’s most successful investor expect it will - your debts will inflate away. 
• Preserve your capital.  Save every penny you can and diversify your savings and wealth into more recession and inflation-proof assets like world dominator shares that pay steady dividends; index linked bonds; precious metals and arable land; soft, food commodities plus oil and energy.  Invest in the stuff that the people in developing economies want and need and can pay for in cash.
• Do your own research and use experienced, fee-based advisors. Take personal responsibility for your money and actions.
• Don’t pay more taxation than you absolutely must.  Take full advantage of all remaining tax breaks and DIRT-free savings limits (in An Post savings certs and bonds.)  Consider wealth transfers (say, a house from parent to child) now, before inheritance and capital gains taxes go up.  Make maximum pension contributions before marginal tax relief is compromised, probably in the next Budget. 

And finally, be adventurous.  Live a full life. Consider moving to a lower cost country, especially if you are a pensioner, where the lifestyle is cheaper but services are accessible, affordable and top class.

A place where the sun shines for more than for a few weeks in July...with no ‘if’ and ‘buts’.