Archive for January, 2007

Addicted to Debt

Posted: January 31, 2007 in Finance

There’s a school of thought that says that much of the BOOM in recent years in Ireland hasn’t been driven so much by fundamental improvements in productivity and infrastructure as it has by borrowing.

Does it matter? Isn’t the Boom the important thing, not the source of it?

Well the difference is similar to the difference between a family that buys a new Merc and a big house because they get a big pay rise, and a family that buys a merc and a big house because someone gives them a big loan. To the neighbours the outward signs are the same, but the foundations of the apparent wealth are very different.

Almost certainly some of the boom in Ireland was down to the National Equivalent of a Pay Rise. Huge inward investment, a global IT Boom, in other wards at least in the early years of the so called Celtic Tiger there were fundamental factors that supported the growth.

By now it’s almost certain that the continuation of the boom far beyond the expectations of “experts” has been fueled to some extend by borrowing. In simple terms, Ireland has been like a family that got both a pay rise AND their house shot up in value and they released equity in it. They were swimming in Cash. They bought the big car, moved to a new house, bought every gadget they could find, holidays abroad, the works.

At some point they used up the cash they’d released from the house, but in the meantime house prices jumped further, and there was a whole new trough of equity to drink from.

It was a win win game because the spending itself drives the economy forward, drives up house prices more, It’s like a financial perpetual motion machine.

Except as everyone knows, perpetual motion isn’t possible. Some machines look like they achieve it, but ultimately on each turn of the motor they lose a little power until they eventually run to a halt, unless some fuel is added.

In terms of the Irish Economy the Fuel was debt, and the motor has started turning a lot slower. Even the Energiser bunny has to stop beating his drum eventually.

What should we expect when the fuel runs out? How should people start to behave? If the economy really is running on debt rather than prosperity then we should start to see a shift in the pattern of debt. When the House Equity ATM runs out of cash we should see a jump in other sources of credit. In other words when your Drug Dealer get’s locked up, you don’t quit drugs, you just find a new dealer.

According to this story it seems to be happening. The level of Credit Card debt has jumped almost 19% over the past year. That happened at a time when total lending growth (including mortgages) slowed from 27.9% to 25.9%.

If overall drug use was down slightly, but heroine use had shot up by 19% would you be happy? Neither would I. Hard Credit just like Hard Drugs sows seeds for an unhappy future.

The story ends with talk of sleight increases in mortgage lending towards the end of the year, but down overall from it’s peak. This isn’t good either. Again with the Drug metaphore, Weed use is down overall but there are signs that it crept up again towards the end of the year.

There’s no evidence that the Heroine addicts switched back to softer drugs, it looks more like a new crowd of customers were recruited. Perhaps the Weed dealer got released from Prison.

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The Future Is Here

Posted: January 25, 2007 in Random Thoughts

Every now and then I use a piece of technology that really stands out as a big step forward, something that makes you involuntarily say “this changes everything”.

The first time I saw HTML, used email, a mobile phone, a digital camera, skype. I’ve jsut noticed all of those things happened during visits to the US. I guess it’s true, they really are 5-10 years ahead of Europe.

Last night it happened again. Since September we’ve been using Netflix for our DVD rental needs. The discs arive in the mail, we watch them and drop them back in the mail box outside our door. A day or two later another disc arrives. We manage the list of disks we want through the netflix.com website.

It works, and I love it. There have been a few hiccups. 3 discs so far have been cracked, one or two more were scratched and unplayable. But they ship replacements fast, and the list of movies we’ve gotten through since September is impressive.

Last night, “The Corporation” arrived, cracked, unplayable. When I logged in to report the damage and request a replacement, I noticed that the new “Watch It Now” service had been launched.

I tried it out, and it works perfectly. A quick trip to Walmart for an SVGA cable and we watched “Clue” on our living room TV. The streaming started immediately, and there were no pauses or skips. The quality was excellent, although our TV isn’t a good machine for checking quality.

Now you might wonder why we would choose “Clue” of all the movies we could have chosen. Here’s the only problem. The selection is very very poor. Apart from the fact that there aren’t many movies and TV shows to choose from, those that are there are pretty pad. Clue is a fine movie and a good laugh, but it’s not great.

This is a pilot program, we are apparently one of the few to get early access to it, it will be rolled out to all Netflix subscribers over the next few months. I’m sure the selection of movies will improve.

It will need to. This move has been prompted by competition from Blockbuster who have been touting the fact that they have a network of stores which you can use in addition to their mail service. Netflix have hit back with instant gratification from downloads. The licencing costs of this are enough to wipe out almost all of their profits. So for it to work it needs to attract a lot of new customers.

But here’s the rub. Now that Netflix customers like me are being turned on to instant streaming movies, we might start looking at some of Netflix other competitors like Vongo who have streaming movies and a better selection of movies.

For now we’ll stick with Netflix, for the $15 a month we spend we get as many DVD’s a month as we can watch and ship back and forth, along with 15 hours of streaming viewing.

Regardless of who we settle on, instant movies and TV shows streamed over the internet is here. TV will never be the same again.

This changes everything.

I spent the New Year wandering around Washington DC in the shadows of the founding fathers (or their statues at least).

Those folks had some pretty radical ideas. “All men are created equal”, “endowed by their creator with certain un-alienable rights”.

In the preamble to the Declaration of Independence the authors managed to put into words a vision of a better way of living. They weren’t stating how things were. It would be almost 90 years before Lincoln would declare the freedom of slaves, so declaring the right to liberty in 1776 seems to have been more of a long term goal, than a proclamation of a great change in American society.

In truth even the Emancipation Proclamation in 1863 didn’t really mark the delivery of those long promised rights. 100 years later on the steps of Lincoln’s Memorial, Martin Luther King lamented that “America has defaulted on this promissory note, insofar as her citizens of color are concerned”.

Incidently, if you’ve never heard the full speach do yourself a favour. Clear some time and listen to it.

Life and Liberty have never been inalienable, despite what you may have heard. The vast majority of US states still permit the Death Penalty. Civil Liberties have been systematically eroded in the name of security. Benjamin Franklin’s comments about giving away liberty in return for security and ending up with neither have never been more true, or more dramatically illustrated.

But what of the pursuit of happiness?

On returning from Washington DC I learned that Massachusetts (the only state that currently allows gay marriage) is likely to vote somethime in 2008 to ban future same sex marriages.

Surely the most basic example of the pursuit of happiness is that a person should be allowed to choose who they spend their life with. Is that really too much to ask? Is there really any compelling reason why society should not recognise the relationship that two people have without gender checking to make sure we have one of each?

What difference does it make to you and I if somewhere there is a married couple that happens to be all male, or all female?

Does it make you feel less married? If so you need to look at the thin piece of thread that’s holding your marriage together. Do you fear that allowing same sex marriages might encourage people who would otherwise be straight to “turn gay”? I don’t know about you, but most of us aren’t on the fence on this issue, regardless of how many gay people get married, I’m still not going to be attracted to men.

I could go on at length about all the crazy reasons I’ve heard for why gay marriage, should not be allowed. You’ve probably heard them too. The bottom line is I’ve never heard a single reason, that even came close to making any sense.

There once was a time when it was illegal for people of different races to marry. But somewhere along the way we realised that people are people. Your skin colour, your religion, or your wealth shouldn’t preclude you from marrying the person you want to marry. All that matters is finding someone who feels the same way.

On the subject of mixed race marriage, the US Supreme Court has already had it’s say. In Loving v. Virginia, which focused on an anti-miscegenation statute. Justice Warren wrote:

“The freedom to marry has long been recognized as one of the vital personal rights essential to the orderly pursuit of happiness by free men.”

50 or 100 years from now, possibly sooner we’ll have learned that gender is no different to these other arbitrary reasons for discrimination. People are people, and they are all created equal. Any two who choose to marry each other should be allowed to.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

Over 200 hundred years ago a group of dreamers handed us a roadmap. It’s time to stop worshiping monuments to these men and instead start building a monument to the dream itself, by realising it.