Cash economy will create black market, says ISABEL MORTON

IT’S ALL ABOUT cash these days. In fact, it has been a cash-crazy year, as it has dawned on the nation that our banks are not lending, nor have they any intention of doing so any time soon.

So a siege mentality has set in with some, as they squirrel away emergency cash, in the event that Ireland goes completely under water. Sterling bank accounts and “centres of commercial interest” are being created in the UK, “just in case”, and others, who are by now, sick of years of inactivity, have suddenly decided to spend what little they have and to hell with the consequences.

It’s survival of the fittest these days, with lending institutions liable to pull the rug from under customers at any moment. People are digging bunkers and building air-raid shelters.

But at least our banks are no longer even bothering to lie to us any more, about the extent of their lending. In fact, this week the IBF (Irish Banking Federation) came straight out with it and told us that mortgage-lending figures have halved since last year and are now down by 94 per cent since the peak in 2005.

And, in the event that we didn’t quite grasp the significance of that 94 per cent figure, it was clarified, that the last time the number of mortgages issued in one year was this low, was 40 years ago, in 1971.

Also this week, as an entirely separate news story (as if it were in no way related to the fact that banks are on a lending strike), was the Central Statistics Office report on the ongoing and accelerating fall in Irish property sale prices.

Were we surprised? Hardly, but it took Dermot O’Leary, chief economist of Goodbody Stockbrokers to join up the dots and tell us that we wouldn’t see a stagnation of property prices until the banks start lending again.

Somehow, it doesn’t appear to have registered with the government and the banks, that the chances of distressed homeowners being able to sell their properties are slim to none, unless potential purchasers have the money to buy them. Most are no longer even bothering to look for a mortgage, knowing that they haven’t a hope of getting one.

To those who claim that Irish citizens have recently gone clean off homeownership; let me remind them that distressed-property auctions, such as those held by Allsop, are proof that this is certainly not the case. But, as Allsops admits, the vast majority of those who snap up property bargains under the hammer are, yes, you’ve guessed it, cash buyers.

Cash is also the only way in which homeowners are likely to be able to extend or renovate their property, as banks will not countenance lending money for home improvements these days. The result of this total lack of credit, is that homeowners, now dealing with bundles of notes, no longer feel disposed to pay VAT on goods and services and avariciously seek out the “best price for cash” on everything from tiles to toilet bowls.

This is fuelling the black-market economy, creating a chain reaction and driving us deeper into debt. Instead of sorting out the root cause of the problem, by forcing the banks to start lending again, the government is concentrating its efforts on threatening its citizens and trying to catch them out on tax evasion.

So here we are again, within weeks of ringing in a New Year, and despite being given a gold star for being the best behaved pupil in the European class of reprobates, everyone is studiously ignoring the fact that, while staying apparently quiet, we are busily getting on with making trouble under our desks.

The Greeks may be protesting openly in the streets but the Irish are quietly going about undermining the foundations of their country, block by block. And, as they believe they’ve nothing more to lose, they’ll do whatever it takes to survive.

Like our politicians and bankers, many will take a short-term selfish view on everything and disregard the potential long-term results of their actions.

As cash replaces credit, standards will slip, expectations will fall and we will become a nation of cute hoors once again, nodding, winking and stuffing brown envelopes into our back pockets as we purchase goods from the backs of lorries. Soon, we will be buying property with a percentage of the purchase price being paid “under the table”.

The end result will be just as damaging to our economy and people, as the worst excesses of the Tiger years and, again, the responsibility will lie with our government and bankers.

Must we swing so violently from one extreme to the other? Is there no middle ground? Must it be so dramatic: boom or bust; credit or cash; black or white? For once, I’d be happy to settle for a nice boring grey.

* Isabel Morton is a property consultant