Who are we getting the money from

30-09-2014 09:33AM #1

Ireland borrowings, I have often wondered this... who are we borrowing the money from,... Ireland, the UK in fact all major western economies have large public debts so who are they borrowing from.

At this stage is any of it real as none of it is every going to be paid back except for the interest, its lost all sense of reality as a debt and as the whole world is involved that's fine its never going to affect anyone in reality?

Zubeneschamali · 30-09-2014 09:44AM

All of Ireland's debt is always paid back on time.

The thing is, we pay it back by borrowing even more. But as long as we keep paying it back, the lenders make money, so everyone is happy.

This is why there is such a lot of talk about our credit-worthiness, the risk of default, the interest rate on 10 year bonds etc etc. If the day came where we could not borrow to pay off our debts on the due date, we would be utterly screwed.

eigrod · 30-09-2014 09:46AM

mariaalice wrote: »

Ireland borrowings, I have often wondered this... who are we borrowing the money from,... Ireland, the UK in fact all major western economies have large public debts so who are they borrowing from.

At this stage is any of it real as none of it is every going to be paid back except for the interest, its lost all sense of reality as a debt and as the whole world is involved that's fine its never going to affect anyone in reality?

It was the same in the 80s but time + inflation has meant that what seemed like massive figures back then, became smaller and much more manageable over time.

30-09-2014 09:53AM

eigrod wrote: »

It was the same in the 80s but time + inflation has meant that what seemed like massive figures back then, became smaller and much more manageable over time.

But Ireland or any where else cant inflate its debts away this time as interest rates are low and likely to remain so. I still think the whole thing has the appearance of the kings new clothes, if every one pretends its not happening it wont happen.

Godge · 30-09-2014 10:00AM

mariaalice wrote: »

But Ireland or any where else cant inflate its debts away this time as interest rates are low and likely to remain so. I still think the whole thing has the appearance of the kings new clothes, if every one pretends its not happening it wont happen.

Our debt to GDP ratio peaked last year and will drop this year.

It is not the level of interest rates that decides whether we can inflate our debt.

Once we keep our budget deficit as a percentage of GDP below the total of inflation plus growth, our debt to GDP ratio will decline and the effect seen in the 1990s will return. That is the aim of our current fiscal policy.

So if we have 5% growth and 1% inflation this year as many independent commentators are predicting, then a budget deficit even as high as 4% will see a decline in our debt to GDP ratio.

Repeat every year until the early 2020s and we could have one of the most manageable debt situations in the EU.

micosoft · 30-09-2014 10:15AM

mariaalice wrote: »

But Ireland or any where else cant inflate its debts away this time as interest rates are low and likely to remain so. I still think the whole thing has the appearance of the kings new clothes, if every one pretends its not happening it wont happen.

Why do you assume that the end of history has occurred? There is no objective reason to suppose that inflation will never increase? Secondly the economy is growing far faster then the debt is, therefore making it more manageable. I'm not a fan of reckless spending but neither am I a fan of the sort of fiscal straitjacket of no debt. A reasonable balance must be struck.

As for your final comment. Believe it or not, it does have an element of truth that if we all pretend it will be good, it actually will turn out to be better. The world economy is run on sentiment as well as cold hard fact - whether consumer sentiment leading to higher sales of goods or investors willing to buy Irish bonds because they believe they will be paid off in the future. The reason for this is that the future is unknowable the further out you go. Therefore people rely on their confidence that either a better or worse future lies ahead of us. So yes, if we pretend, we could actually make it succeed. Conversely if we talk down our economy people will stop spending and investors will stay away.

If it makes you feel better the Irish currently have 150 billion on Deposit. That means immediately accessible to consumers and excludes other things like pensions or stocks etc. That would pretty much pay off our National Debt in one go. So I don't buy this argument that we are broke.

FreudianSlippers · 30-09-2014 10:15AM

mariaalice wrote: »

Ireland borrowings, I have often wondered this... who are we borrowing the money from,... Ireland, the UK in fact all major western economies have large public debts so who are they borrowing from.

At this stage is any of it real as none of it is every going to be paid back except for the interest, its lost all sense of reality as a debt and as the whole world is involved that's fine its never going to affect anyone in reality?

This is a gross oversimplification, but a fairly good start. The government goes to the bond market and issues a bond, which is effectively a loan agreement - they have a set interest rate and maturity date (for example a 10 year bond).

The borrower (government) agrees to make semi-annual payments to the creditors until the maturity date, where the remainder is repaid. Treasury bonds are a particularly good investment because you can effectively guarantee your return. Obviously if a country is a risky investment, the interest rate goes up (eg Ireland during the crash) - where the interest rate goes too high for the borrower, they will probably need to seek alternative creditors (i.e. the IMF and ECB) who will give conditional loans at a 'better' interest rate.

You are probably aware that we are now borrowing from the normal market again because our interest rates have come way down.

The answer to your other question is less straightforward. The US government is the biggest borrower on the bond market by a long shot. By their nature, all bonds are repaid, but in reality the government issues new bonds to fund repayment of the old bonds (again, oversimplification).

It's the nature of the world really. It doesn't make money inherently less 'real' than it already is.

Frank Lee Midere · 30-09-2014 12:42PM

Godge wrote: »

Our debt to GDP ratio peaked last year and will drop this year.

It is not the level of interest rates that decides whether we can inflate our debt.

Once we keep our budget deficit as a percentage of GDP below the total of inflation plus growth, our debt to GDP ratio will decline and the effect seen in the 1990s will return. That is the aim of our current fiscal policy.

So if we have 5% growth and 1% inflation this year as many independent commentators are predicting, then a budget deficit even as high as 4% will see a decline in our debt to GDP ratio.

Repeat every year until the early 2020s and we could have one of the most manageable debt situations in the EU.

Thats correct, if optimistic. We are just not going to do what we did in the 90's when inflation was also very high. Inflation + growth, as you said, is the double whammy for debt/DGP ratios.

If, this time Euro wide inflation increases, then interest rates go up and thats going to be a looming disaster for the Irish Economy.

Godge · 30-09-2014 12:49PM

Frank Lee Midere wrote: »

Thats correct, if optimistic. We are just not going to do what we did in the 90's when inflation was also very high. Inflation + growth, as you said, is the double whammy for debt/DGP ratios.

If, this time Euro wide inflation increases, then interest rates go up and thats going to be a looming disaster for the Irish Economy.

Yes, we need high growth in the next 2-3 years before inflation and then interest rates go up.

This year is exactly what we need, growth of 4-5%, inflation just under 1%, meaning people get back to work, others get wage increases and personal debt is brought under control.

Frank Lee Midere · 30-09-2014 12:50PM

Godge wrote: »

Yes, we need high growth in the next 2-3 years before inflation and then interest rates go up.

This year is exactly what we need, growth of 4-5%, inflation just under 1%, meaning people get back to work, others get wage increases and personal debt is brought under control.

I think you are mistaking GDP growth with growth in personal income. Wage earner's personal income is probably going down this year and next. Although the absurd "wealth effect" in the housing market is seeing a lot of spending, and saving ratios have fallen.

Godge · 30-09-2014 01:03PM

Frank Lee Midere wrote: »

I think you are mistaking GDP growth with growth in personal income. Wage earner's personal income is probably going down this year and next. Although the absurd "wealth effect" in the housing market is seeing a lot of spending, and saving ratios have fallen.

Don't think so, the majority of private sector employees will see pay increases of around 2% this year. The rest of the growth will see extra people at work.

Zamboni · 30-09-2014 01:09PM

mariaalice wrote: »

I still think the whole thing has the appearance of the kings new clothes, if every one pretends its not happening it wont happen.

Welcome to the concept of money and interest.
The whole thing hinges on global delusion :eek:
Now stop looking behind the curtain and get back to work.

Geuze · 30-09-2014 01:28PM

mariaalice wrote: »

Ireland borrowings, I have often wondered this... who are we borrowing the money from,... Ireland, the UK in fact all major western economies have large public debts so who are they borrowing from.

The Govt borrows from savers.

Savers save their funds in credit unions, pension funds, banks, managed funds, etc.

These financial institutions then lend funds to the State by buying Govts bonds.

hmmm · 30-09-2014 05:24PM

Geuze wrote: »

Savers save their funds in credit unions, pension funds, banks, managed funds, etc.

These financial institutions then lend funds to the State by buying Govts bonds.

It's such a simple concept you'd wonder about the simpletons who can't seem to get their minds around it and resort to conspiracy theories. Governments borrow off savers, primarily pension funds and life assurance companies who need to find guaranteed and steady returns for the hundreds of millions of "ordinary" people who have invested with them.

And yes, they do expect it to be paid back.

Godge · 30-09-2014 05:28PM

hmmm wrote: »

It's such a simple concept you'd wonder about the simpletons who can't seem to get their minds around it and resort to conspiracy theories. Governments borrow off savers, primarily pension funds and life assurance companies who need to find guaranteed and steady returns for the hundreds of millions of "ordinary" people who have invested with them.

And yes, they do expect it to be paid back.

And you know what was funniest of all over the last few years. I saw people posting complaining about the levy on pension funds which was a small percentage yet also at the same time wanting the government to burn the bondholders instead which may have wiped out their pension fund completely if it was badly invested.

30-09-2014 05:47PM

hmmm wrote: »

It's such a simple concept you'd wonder about the simpletons who can't seem to get their minds around it and resort to conspiracy theories. Governments borrow off savers, primarily pension funds and life assurance companies who need to find guaranteed and steady returns for the hundreds of millions of "ordinary" people who have invested with them.

And yes, they do expect it to be paid back.

I don't believe in conspiracy theories in fact it always irked me that the burn the bondholder in Anglo rhetoric by sinn fein and the like, would not and did not acknowledge that most of the bond holder were likely to be pension funds and credit unions and the like.

Paying back debt and immediately re bowering/refinancing it again is not the same as paying off the debt, except maybe in a strictly pedantic sense.

Frank Lee Midere · 30-09-2014 06:17PM

Godge wrote: »

And you know what was funniest of all over the last few years. I saw people posting complaining about the levy on pension funds which was a small percentage yet also at the same time wanting the government to burn the bondholders instead which may have wiped out their pension fund completely if it was badly invested.

Except the bond holders were mostly external to Ireland.

BoJack Horseman · 30-09-2014 06:42PM

Frank Lee Midere wrote: »

Except the bond holders were mostly external to Ireland.

True.

I believe German & French & to a lesser extent US pension funds were heavily & disproportionately invested in Anglo.

The pressure on the government to cover those losses was considerable.

Godge · 30-09-2014 06:45PM

mariaalice wrote: »

I don't believe in conspiracy theories in fact it always irked me that the burn the bondholder in Anglo rhetoric by sinn fein and the like, would not and did not acknowledge that most of the bond holder were likely to be pension funds and credit unions and the like.

Paying back debt and immediately re bowering/refinancing it again is not the same as paying off the debt, except maybe in a strictly pedantic sense.

But how it works is like this. Borrow €100m in 2000 when GDP is €500m. Pay interest for 20 years. Borrow €100m in 2020 to pay it back when GDP is €500bn and it is a pittance.

30-09-2014 06:50PM

BoJack Horseman wrote: »

True.

I believe German & French & to a lesser extent US pension funds were heavily & disproportionately invested in Anglo.

The pressure on the government to cover those losses was considerable.

I am not saying that maybe the bond holder should not have been burned who knows at this stage it was more he spinning of the story by the left that irked me its making our the electorate to be stupid.

I would be left(ish) in my views but not to the point of sloganeering .

Zubeneschamali · 30-09-2014 08:09PM

mariaalice wrote: »

Paying back debt and immediately re bowering/refinancing it again is not the same as paying off the debt, except maybe in a strictly pedantic sense.

But it explains why folks lend to the Government. I buy a Government bond, I will get my money, with interest, on time, no messing. Then the Government has new debts, maybe to the same people, maybe different.

Rightwing · 30-09-2014 10:26PM

Zubeneschamali wrote: »

But it explains why folks lend to the Government. I buy a Government bond, I will get my money, with interest, on time, no messing. Then the Government has new debts, maybe to the same people, maybe different.

This has worked up until now. But Governements have acquired so much debt, risk is becoming increasingly a concern. This is why the EU are right to get the budget deficits down asap. We will see defaults in the not too distant future.

Godge · 01-10-2014 10:38AM

Rightwing wrote: »

This has worked up until now. But Governements have acquired so much debt, risk is becoming increasingly a concern. This is why the EU are right to get the budget deficits down asap. We will see defaults in the not too distant future.

That was the concern in 2010, hence bond yields soared.

In 2014, bondholders have learned that the ECB will print money to pay off the debt if it has to and as a result bond yields are way down and countries like Ireland are being revised upwards by the ratings agency.

Your fears are somewhat out of date.

As for defaults in the not too distant future, which country are you thinking will default?

Rightwing · 01-10-2014 11:40AM

Godge wrote: »

That was the concern in 2010, hence bond yields soared.

In 2014, bondholders have learned that the ECB will print money to pay off the debt if it has to and as a result bond yields are way down and countries like Ireland are being revised upwards by the ratings agency.

Your fears are somewhat out of date.

As for defaults in the not too distant future, which country are you thinking will default?

These yields will soar again, it's all about perception.

Godge · 01-10-2014 11:56AM

Rightwing wrote: »

These yields will soar again, it's all about perception.

Of course they will rise again, they go up and down all the time, maybe some global crisis will set them off. But when? Next week, next year, next decade?

Barring a global crisis, I can't see them rising much for 2-3 years. That is a long way from your "defaults in the not too distance future" which is not supported by any economic indicator.

Rightwing · 01-10-2014 12:03PM

Godge wrote: »

Of course they will rise again, they go up and down all the time, maybe some global crisis will set them off. But when? Next week, next year, next decade?

Barring a global crisis, I can't see them rising much for 2-3 years. That is a long way from your "defaults in the not too distance future" which is not supported by any economic indicator.

Well isn't that exactly the problem. I think all would be agreed they won't rise much without a financial crisis.

When, most certainly within the next decade there will be a bigger crisis than the 08 one.

Godge · 01-10-2014 12:06PM

Rightwing wrote: »

Well isn't that exactly the problem. I think all would be agreed they won't rise much without a financial crisis.

When, most certainly within the next decade there will be a bigger crisis than the 08 one.

Chicken Little said the sky was falling down. To suggest that a bigger crisis than 2008 in the next decade is inevitable, we kind of need more evidence from a reliable source.

Rightwing · 01-10-2014 12:08PM

Godge wrote: »

Chicken Little said the sky was falling down. To suggest that a bigger crisis than 2008 in the next decade is inevitable, we kind of need more evidence from a reliable source.

Another basic mistake. You don't.

You make your own decisions, and then live by them. Can't be blaming other for your poor decisions. As the saying goes: DYOR.

Godge · 01-10-2014 12:18PM

Rightwing wrote: »

Another basic mistake. You don't.

You make your own decisions, and then live by them. Can't be blaming other for your poor decisions. As the saying goes: DYOR.

Grand, you make an outlandish claim, you fail to back it up, debate over.

Rightwing · 01-10-2014 12:20PM

Godge wrote: »

Grand, you make an outlandish claim, you fail to back it up, debate over.

When I hear someone talking about a 'chicken little' I've already come to that conclusion.

Zubeneschamali · 01-10-2014 12:38PM

Rightwing wrote: »

You make your own decisions, and then live by them.

Quick! Buy gold!

Who are we getting the money from

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