Morgan Kelly, UCD Professor of Economics, has been given the sobriquet of "Doctor Doom" by sections of the Irish media. While other economists were predecting "soft landings" for the Irish property market - and the wider economy - Kelly was predicting 70% price drops.
As things stand, it looks like he was right on the money. So far from being Ireland's "pessimistic" economist, he is its most realistic.
Another thing about Kelly is that he is not tied to the interests of any commercial or financial group. His only motivation, I should imagine, is to get his predictions correct - therefore confirming his own competence and analysis.
So what he has to say is always worth a read. Such as the following in today's Irish Times.
"Irish property prices have yet to hit bottom and as a result the final bill for bailing out the banks is likely to be in the region of €90 billion to €100 billion, economist Morgan Kelly said last night.
In his Hubert Butler Lecture to the Kilkenny Arts Festival, Mr Kelly said: "we are very far from the bottom" of the property market and added it would take a decade for the economy to recover from the fallout.
While prices had fallen by 50 per cent, he said “almost no transactions were taking place at that price” and with unsold properties starting to accumulate, Mr Kelly said “we are very far from the bottom of the market”.
He also estimated Ireland’s national debt would rise to between €240 billion and €250 billion by 2015, far higher than the current Government estimates of €200 billion. He said that there was no way the country could repay this.
The UCD economist said the Irish economy would require a decade to recover from the current crisis.
Addressing the extent of property price inflation, Mr Kelly said that by 2007, “we were building half as many houses as Britain which is 15 times our size”. A consequence of this building boom was that the price of an average Dublin home cost “15 times the average industrial wage”.
Mr Kelly also said banks had become aware of the problems in the Irish property market in 2006 when there was a fall in the number of people taking out mortgages. Despite this, he claimed many bank economists were telling people at the time that there would be a “soft landing” so they would continue buying houses.
Mr Kelly described the bank guarantee that followed as “Cowen and Lenihan’s idea of shock and awe,” which, designed to frighten speculators, turned out to be “shocking and awful” for the country.
He said the real mistake, however, was not passing the guarantee, but sticking with it.
The economist said Central Bank governor Patrick Honohan could have walked way from the deal but decided that the losses were manageable.
Mr Kelly said the next problem Irish banks were likely to face was “organised opposition to repayment” with the possibility of some “Michael Davitt-type figure” emerging.
Referring to the euro zone debt crisis, Mr Kelly said: “I think eventually it will be solved” as it was in Germany’s benefit to remain in the euro.
Predicting “very large ECB loans to Ireland, Spain and Italy,” Mr Kelly said even if Ireland were to receive favourable terms the country faced very deep problems.
Mr Kelly described as “catastrophic” the recent US spending deal that allowed the debt ceiling to be raised, but avoided raising taxes to try and plug the widening deficit, and said "as the US goes under that will hit Ireland very, very badly."
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