Time to accept criticism and read the signs
My interpretation of this comment is that those people he refers to must know something about something. Paranoia now seems to be gripping our body politic, a fact that has also been borne out by the extreme reaction to some very sensible comments made by the German ambassador to Ireland last week. It is a dangerous omen for this country if we are not prepared to take criticism, recognise realities and deal with them. Some of our leaders are obviously unwilling to do that.
There are undoubtedly serious issues facing the Irish economy. While on the face of it, the economy is still doing reasonably well, there are serious challenges. It is quite clear that over the past couple of months, general confidence among the public has been seriously tested. Rising interest rates, record high oil prices, a dreadful Irish equity market performance, falling house prices, the subprime debacle, and the issues surrounding Northern Rock have all combined with the negative commentary that has been all-pervasive since February, to generate a feel-bad factor that has not been apparent for over a decade.
The housing market situation is not good. Prospective house buyers are clearly of the view that if prices are set to fall further, it makes no sense to buy today.
Unfortunately, such expectations become self-fulfilling, proving difficult to stop.
A resolution of the ongoing subprime crisis would help for a start, but that still appears to be some distance away. The fact that the US central bank cut its key interest rate by an aggressive half a percent on Tuesday is indicative of just how seriously it believes the current crisis is. Up until recently, the Fed was much more concerned about inflation than growth, but its actions this week are indicative of a remarkable about turn.
The reasons for the concerns about inflation have not gone away and could in fact be compounded by the weakness of the dollar and the strength of oil prices. However, the powers that be in Washington are now very much of the view that the risks to economic growth far outweigh any concerns about inflation. Perhaps they also know or fear that further damaging revelations in relation to the subprime debacle could be coming down the track.
One way or another, it is highly unlikely that this crisis is over and that the aggressive actions of the Federal Reserve will be sufficient to solve the crisis and restore market confidence.
One of the biggest concerns for the US central bank is that its actions are effectively bailing out bankers and other financial institutions who have acted totally irresponsibly over the past couple of years. Rescuing those who behave like that is a recipe to repeat the trick at some future date. Such “moral hazard” is very dangerous.
Meanwhile, there is not too much on the ground in Ireland to restore confidence anytime soon. We will have to continue to live with domestic concerns such as extreme house market uncertainty, a struggling equity market, and high levels of debt. Externally, we will have to cope with stubbornly high oil prices, the ongoing ascent of the euro and a global economy that is now looking more vulnerable than at any time in recent years.
The job announcement at Intel also sends a strong signal, which should not be ignored. Our politicians would be better off recognising the challenges and responding to them, rather than berating those who dare question the orthodoxy.
