Calling on Joe the Plumber!

After the Oil Crisis in the 1970"s it was postulated that there was in fact more petrol stored in Ireland and the UK during the Crisis than had been the case prior to that.The theory was that under normal circumstances about half of all motorists" cars were full of petrol, and half near-empty - meaning that cars held, on average, half a tank.During the Oil Crisis however, more motorists took to ensuring their cars were full - and even to storing containers of extra petrol. This activity was encouraged by the policy of selling a maximum of three gallons to any single motorist at a time thereby allowing motorists to keep their petrol tanks full or near full.With hindsight it was argued that were motorists compelled to purchase a full tank of petrol, they would first have had to let their tanks empty, thus reducing the amount in each car to an average of half a tank - in which case the same amount of petrol throughout the system would have avoided the Oil Crisis in its entirety.Today"s is not an oil crisis but a cash crisis. Last Friday"s Irish Times reported that Jean-Claude Trichet, President of the ECB had issued 'repeated warnings to financial markets at the Davos economic forum to stop pressuring banks to hoard more capital, stressing that it was exacerbating the worldwide recession'.What we have are banks - who with hindsight were previously running on fumes - now looking to fill their 'tanks' with cash.That is the answer to the question 'Where has all the money gone?'. Previously bank reserves were at a minimum, cash and loans were pushed onto businesses and consumers alike and we were all encouraged to spend. That"s what drove our economy and our feeling of wealth and prosperity.The banks have changed: they"re now seeking to create reserves. They have sucked cash from the world financial systems, restricting the flow of cash to businesses and consumers, which in turn has put pressure on the rest of the world"s financial and economic systems. Companies in turn have cut jobs and spending, and those made unemployed no longer have the cash flow to support their spending. We have moved from a virtuous circle to a vicious circle.Consider the economic system as a high pressure water system which has a number of reservoirs attached to it. Previously the system operated with those reservoirs (banks, businesses and individuals) holding little of the water in reserve allowing it instead to flow into the system. Since last October those reservoirs have increased their demand for reserves. As a result the system now has no water left to circulate.The answer is not in the recently elected President of the USA, but rather is a character that emerged along side John McCain and Sarah Palin: Joe the Plumber. What we need now is a good plumber who can get the water flowing through the system again, get us spending, stop the leaks and reduce the need to hold vast quantities in reserve.Those of us fortunate to have some cash in these times need to put our hands in our pockets, take our money out of the banks and spend wisely. There has never been a better time to buy a car, build an extension, or to go on a holiday (try Ireland this year). Retailers are falling over themselves to do business with us, crying out to offer us a good deal. Take the opportunity for a bargain now with both hands and know that when spending you are helping to maintain that infrastructure and that increase in our standard of living that we saw through the Celtic Tiger years, and that you are making an effort to get the country through these times and back on its feet.Public sector pension levyMost economic commentators welcome last week"s government cutbacks as a first step towards setting our house in order. We have a borrowing requirement of €20 billion and lenders are reluctant to provide those borrowings to us. Right now the world doubts our credibility.The introduction of a public sector pension levy will cause individual hardship to many public sector workers - but equally there is individual hardship across the private sector where workers face short time working or redundancy and a consequential loss of income.The public sector benchmarking exercises undertaken during the boom, delivered above-PPF increases to public sector workers to the extent that average public sector pay is now €49K per annum and average industrial wages €41K per annum. Benchmarking did not include a comparison of pension benefits. The cost of public sector pensions is estimated at up to 30 per cent of salary. A good private sector pension - where offered, might include a 5 to 10 per cent company contribution.In this time of crisis, that sort of commitment by Government, to the pensions of one set of the nation"s 'children' is not sustainable.It"s an issue that has long needed addressing. On the positive side, with a more even playing field, there may be less resentment in future among those in the more precarious private sector, looking with envy at the job security and gilt-edged pension assured those working for the state.When the dust settles we may even come to the conclusion that we, public and private sector, are all in this together and we may consider more realistically how we can all come through this, together.