Would prices fall if the I.M.F. came in?

Filan

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

MaceFace

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

Well to start with there is no chance the IMF will be invited into a Eurozone country.

ei.sdraob

would there be more deflation?

P. Breathnach

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.

What has the IMF coming in got to do with your question? It's not a real likelihood, anyway.

Incomes generally are falling, and so are prices. That's probably, on balance, a good thing. The problem is that they are not falling evenly. Some groups are maintaining their incomes, while others are taking a terrible hammering. That is what is euphemistically labelled a "period of adjustment", but we can also see it as a period of conflict: the private sector/public sector disputes are the most obvious example.

Imagine that we get through our period of adjustment and that average incomes settle at 15% less than they were at their peak. It is very unlikely that prices will fall to the same extent, because so much of what we buy involves imports or imported content. Further, because of the mess our public finances are in, we will probably be paying more tax in the future.

What it boils down to is that our standard of living is likely to fall. we do not have to see that as the end of the world: a 10% fall in the standard of living we have been enjoying would still leave us at a very high level.

optocynic

P. Breathnach wrote: »

What has the IMF coming in got to do with your question? It's not a real likelihood, anyway.

Incomes generally are falling, and so are prices. That's probably, on balance, a good thing. The problem is that they are not falling evenly. Some groups are maintaining their incomes, while others are taking a terrible hammering. That is what is euphemistically labelled a "period of adjustment", but we can also see it as a period of conflict: the private sector/public sector disputes are the most obvious example.

Imagine that we get through our period of adjustment and that average incomes settle at 15% less than they were at their peak. It is very unlikely that prices will fall to the same extent, because so much of what we buy involves imports or imported content. Further, because of the mess our public finances are in, we will probably be paying more tax in the future.

What it boils down to is that our standard of living is likely to fall. we do not have to see that as the end of the world: a 10% fall in the standard of living we have been enjoying would still leave us at a very high level.

WOW. I fully agree...

dan_d

Well, the IMF would probably slash pay in the public sector, among other measures. Prices would fall as a result, as the cost of living is relative to people's salaries as a general rule.
They wouldn't necessarily fall the day after the IMF arrived, BECAUSE of their presence.They would fall over time as a result of whatever actions the IMF may take.

Filan

Is there really no chance of the IMF entering a Eurozone country?. Is the E.C.B. in effect doing there job now anyway?

nesf

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.
Alan

It's not overly simplistic, it's essentially true. It's complicated in that prices are dictated by wages in other countries not just our wages and prices and wages are both "sticky" and don't adjust very quickly but over a medium time span yes if wages drop prices drop.

Prices for food, beer and what have you are dictated by how much the staff selling it to you are paid as much as any intrinsic price the item itself has.

Filan wrote: »

Is the E.C.B. in effect doing there job now anyway?

No, the ECB can't dictate budgetary policy to us, it can only give suggestions. There are some things it has to be consulted on but this is only when policy would affect other EU countries (i.e. we can't adopt policy that would give our banks an unfair advantage against other banks from other EU countries and similar).

Alcatel

No, the ECB can't dictate budgetary policy to us, it can only give suggestions. There are some things it has to be consulted on but this is only when policy would affect other EU countries (i.e. we can't adopt policy that would give our banks an unfair advantage against other banks from other EU countries and similar).

True that, but in reality they're having much the same effect, with less of an overt "Do as your told" approach. We're running all our economic policies by our European partners - as I think we should, as it happens.

Anyways, IMF, ECB, it's gonna be the same outcome - and yes, prices will be driven down, we're going nowhere but down at the moment. I see unilever taking ads all across the place about how Ireland is 'voting yes' for lower prices on their product portfolio. It's a clear trend that's even being stuck on the side of busses, so it must be true

SkepticOne

Prices would down either way. The IMF gets called in at the point where Ireland can't meet its commitments otherwise. These commitments would include the public sector wage bill, social welfare, etc. The IMF helps keep those going so in a sense it could be seen as propping up prices!

nesf

Alcatel wrote: »

True that, but in reality they're having much the same effect, with less of an overt "Do as your told" approach. We're running all our economic policies by our European partners - as I think we should, as it happens.

Anyways, IMF, ECB, it's gonna be the same outcome - and yes, prices will be driven down, we're going nowhere but down at the moment. I see unilever taking ads all across the place about how Ireland is 'voting yes' for lower prices on their product portfolio. It's a clear trend that's even being stuck on the side of busses, so it must be true

Nah, the difference is that the ECB is only interested in the overall picture of our Economic policy, i.e. are we trying to reduce our deficit and get things under control. The IMF would be looking at things in far closer detail and dictating how wages/social welfare payments should pay out at which is quite different to the ECB who don't care what these are so long as we can balance our budget and keep it that way.

NewDubliner

Filan wrote: »

If everyone had less money, as would be the case, would prices fall? After all money is only worth what it can purchase? If we had less money but less money went further it wouldn't be so bad. is this overly simplistic?.Alan

Well since most of what we consume is imported, I'd say not by much except for the part of the cost represented by local input - distribution and sales staff. If they're paid less, the saving might be passed on to you.

Taxes wouldn't come down either as we still have a national debt and a bank & property speculator bail-out to pay for.

Public services would either cost more or be cut back as staff are fired or costs passed on the the public. You might have to pay for stuff you presently get for free.

And as we'd be encouraged to sell off water, roads, gas and electricity distribution. The new owners would raise charges as far as the market can bear.

SkepticOne

NewDubliner wrote: »

Well since most of what we consume is imported, I'd say not by much except for the part of the cost represented by local input - distribution and sales staff. If they're paid less, the saving might be passed on to you.

I'm not sure I would agree with that. A huge amount we spend money on is the likes of housing, insurance, services of one sort or another, taxes etc. Then you have the markup that retailers charge in Ireland above that which even the same chain in other countries charge.

NewDubliner

SkepticOne wrote: »

I'm not sure I would agree with that. A huge amount we spend money on is the likes of housing, insurance, services of one sort or another, taxes etc

Housing has certainly dropped in price. Plenty of cheap 2nd hand cars too. Interest rates can only go up though.

Insurance might remain the same while replacement costs might go down, the number of claims might go up due to more crime as a consequence of unemployment and lower benefits.

SkepticOne wrote: »

Then you have the markup that retailers charge in Ireland above that which even the same chain in other countries charge.

Maybe, maybe not. They've got problems in their own countries and if oil goes up, production and transport costs do too.

But the question was if the IMF was to come in, would prices go down? I think that there's no reason at all to expect this. There's no reason why taxes would automatically come down. Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

P. Breathnach

NewDubliner wrote: »

... Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

No. Any savings in public expenditure will serve to reduce the amount the exchequer needs to borrow to fund public expenditure. That's a big problem, and quite separate from the problems for the banks and the property speculators.

The funding for NAMA and for bank recapitalisation are handled in a completely different way. There is no system in place to rescue property speculators. NAMA is designed to cushion the banks from the damage they suffered by lending to investors in property.

nesf

NewDubliner wrote: »

Any savings in public expenditure would just go to bailing out the distressed banks and their mates, the unfortunate property speculators.

No. And this kind of crap is what's going to bankrupt this country. We need to balance our budget. Spending propping up our banks isn't part of this budget, it is separate borrowing pool that funds this.


If we don't balance our budget the country will go bankrupt. It is that simple.

NewDubliner

nesf wrote: »

No. And this kind of crap is what's going to bankrupt this country. We need to balance our budget. Spending propping up our banks isn't part of this budget, it is separate borrowing pool that funds this.

Youre just engaging in a game of 'find the lady'.

Some of that magical 'pool' was money (a trifling 7bn euro) taken from the NPRF which was collected via taxes and PRSI and set aside and ring-fenced to pay pensions. Because the NTMA wouldn't invest in dodgy banks, a law was passed to allow the fund to be pillaged. The short-fall in pension funding, caused by the bank bail-out raid will have to be made up from cuts or more taxes.

Where does the money come from to pay interest on the other money borrowed to fund the banks and NAMA: another magical pool?

There's a deliberate attempt by banking and property interests to keep their bailout off the table.

It's all public money.

P. Breathnach

NewDubliner wrote: »

Youre just engaging in a game of 'find the lady'...

No matter how often, and in how many ways, you say something that it is wrong, it remains wrong.

The National Pensions Reserve Fund is a capital fund. NAMA is effectively off-balance-sheet funding. These are important distinctions.

We have a critical problem with our current account. That is the reason why we need to reduce exchequer spending. It's as simple as that. Saying that it is something different is mischief-making.

nesf

NewDubliner wrote: »

Youre just engaging in a game of 'find the lady'.

Some of that magical 'pool' was money (a trifling 7bn euro) taken from the NPRF which was collected via taxes and PRSI and set aside and ring-fenced to pay pensions. Because the NTMA wouldn't invest in dodgy banks, a law was passed to allow the fund to be pillaged. The short-fall in pension funding, caused by the bank bail-out raid will have to be made up from cuts or more taxes.

Where does the money come from to pay interest on the other money borrowed to fund the banks and NAMA: another magical pool?

There's a deliberate attempt by banking and property interests to keep their bailout off the table.

It's all public money.

Look, seriously why do you bother talking about something that you don't understand. It's all public money but borrowing for capital investments (i.e. NAMA/bank propping up/building roads, schools and whatever) is dealt with in a completely different fashion (both by the Government and the investors that lend this country money) than our current spending on the day to day running of the country. There is a reason why they are two separate entities in the Budget!

Look I'll use the household example (even though it is a poor analogy).

Borrowing to buy a house, or to pay for very unusual medical bills or a college education for your kids is viewed very differently by banks to you borrowing to cover your month to month expenses. A bank might be perfectly willing to give you money to fund the former but it will be far less likely to give you money for the latter (and generally only as an overdraft facility). Banks treat both as separate entities because one is a once off and the other isn't. Borrowing for current spending is bad because unless you cut your current spending or get a pay raise you'll face the exact same problem the month after. Borrowing to cover a big once off expense is different because you won't be looking for the same money again the next month. Can you see the difference here?

NewDubliner

nesf wrote: »

Borrowing for current spending is bad because unless you cut your current spending or get a pay raise you'll face the exact same problem the month after. Borrowing to cover a big once off expense is different because you won't be looking for the same money again the next month. Can you see the difference here?

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

gurramok

Do you want to add the yearly deficit shortfalls to the national debt instead? :eek:

MaceFace

NewDubliner wrote: »

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

NAMA will result in a cost for the taxpayer regardless of what people are saying. How much that cost will be is impossible to tell.

However this conversation is bordering on the merits of NAMA now and I don't think we want to get into that in this thread which is about the IMF coming in.

So, will prices fall if we invited outsiders into the country?
Yes - as this would result in less money in peoples pockets (through cuts or taxes) and therefore the demand for many things would decrease, thus improving competition.

NewDubliner

MaceFace wrote: »

N
So, will prices fall if we invited outsiders into the country?
Yes - as this would result in less money in peoples pockets (through cuts or taxes) and therefore the demand for many things would decrease, thus improving competition.

I think there is no one single answer to the question.

Which prices would fall? Whice prices would remain the same and which prices woulld go up?

nesf

NewDubliner wrote: »

It's interesting that you use the word 'expense' to describe the bank and property speculator bail-outs. It honestly reveals that these are not 'investments' and we're never going to get that money back.

The bail-out borrowing might be non-recurring, but the interest repayments are recurring expenses.

If we have to fund interest repayments on loans to bail out developers and banks from current spending, doesn't that increase the public-sector deficit?

If we cannot fund state pensions from the NPRF because 7bn has been taken out of it and given to the banks, doesn't that mean the shortfall have to come from current spending and increase the deficit?

Eh, ok. For the sake of other people reading this, since I give up on trying to convince you of anything..

a) We bought the assets. The interest payments are now to NAMA. The interest rate payment idea of yours is a fallacy. Any future bank funding, i.e. capital injections, will not come from the current budget.

b) We pay for state pensions out of the current budget already. Zee shortfall already comes out of the budget etc.

c) We lose all the money? Seriously, just no. We can make a substantial loss but we will receive income from the performing loans that make up around half of the total. So we're not going to lose all the money.

NewDubliner

nesf wrote: »

Eh, ok. For the sake of other people reading this, since I give up on trying to convince you of anything..

If we don't make a profit on NAMA, how do we pay the interest on the money borrowed to purchase the assets? Where does that money come from?

If income from investments, intended to help fund Social Welfare pensions is down because the NPRF was forced to hand over money to the non-performing banks, how does that shortfall get made up. Does it come from taxes?

Do you agree that taxation charges won't come down if the IMF moves in?

The only argument I can see for prices coming down is reduced demand. That argument could be undermined by reduced economies of scale and also by new taxes and charges introduced by IMF or whatever the nemesis of the day is.

jimmmy

If + when the IMF comes in I would assume the minimum wage will be cut. It should never have been raised to its current level anyway, I remember even saying that at the time, and raising it raised the price of everything, directly or indirectly . Its about 50% more than that north of the border.
Once govt expenditure + the minimum wage is cut then prices will fall, as the govt raising them was one of the main factors leading to price inflation in the economy during the tiger.

NewDubliner

jimmmy wrote: »

Once govt expenditure + the minimum wage is cut then prices will fall, as the govt raising them was one of the main factors leading to price inflation in the economy during the tiger.

If government expenditure on services falls, the savings will be diverted into paying off the bank and property speculator bailout. The public themselves will also have to pay for services that were previously subsidised out of borrowings.

jimmmy

NewDubliner wrote: »

property speculator bailout.

???? Have any property speculators got a bailout out of public or bank funds ? Methinks not - the bank or Nama holds the deeds to any properties and the speculator / developer is not entitled to them or any proceeds of any sale unless the loan is paid off in full. Most developers have lost a fortune on the deposits on the property they bought, as the banks typically got 20% deposit. Banks generally did not gove 100% loans - they were stupid but not that stupid.

MaceFace

jimmmy wrote: »

???? Have any property speculators got a bailout out of public or bank funds ? Methinks not - the bank or Nama holds the deeds to any properties and the speculator / developer is not entitled to them or any proceeds of any sale unless the loan is paid off in full. Most developers have lost a fortune on the deposits on the property they bought, as the banks typically got 20% deposit. Banks generally did not gove 100% loans - they were stupid but not that stupid.

I wish you are/were right jimmy but I see a couple of problems:
The government will not go after the developers as aggressively as the b anks would have. There will be a lot of hush hush going on I fear.

As for the deposits - many investors did not pony up 20% in cash but simply put up collateral in the form of their existing land banks/sites many of which are practically worthless. The banks were that stupid!

Oh and for everyone else - the IMF will NOT come into Ireland. Never ever ever will it happen - Europe would not allow it. So forget it.

jimmmy

MaceFace wrote: »

I wish you are/were right jimmy but I see a couple of problems:
The government will not go after the developers as aggressively as the b anks would have. There will be a lot of hush hush going on I fear.

As for the deposits - many investors did not pony up 20% in cash but simply put up collateral in the form of their existing land banks/sites many of which are practically worthless. The banks were that stupid!

And in many cases the banks had whatever profit the developers already made on previous developments, and hung on to it as deposit on new sites. It meant the developer was paying less interest too, so it suited him / her. Nobody expected the market to crash as much as it has. Now the banks / Nama have the deeds + whatever deposit the developer initially invested.

MaceFace wrote: »

Oh and for everyone else - the IMF will NOT come into Ireland. Never ever ever will it happen - Europe would not allow it. So forget it.

You know something Mary Harney does not know ? She mentioned the distinct possibility within 2 years. Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever - would you ?

MaceFace

jimmmy wrote: »

You know something Mary Harney does not know ? She mentioned the distinct possibility within 2 years. Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever - would you ?

This is just scare tactics by our leaders to force through unpopular changes.

Remember that the IMF have to be invited in and we would invite the EU in before them. They would run this country like a country as opposed to the IMF who would just run the country like a private company and do whatever is necessary to break even.

jimmmy

MaceFace wrote: »

This is just scare tactics by our leaders to force through unpopular changes.

You have'nt answered the question : Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever? Would you ( if you were an EC banker or a Chinese or Middle Eastern banker, and had lots of safer places to invest in ? )

irish_bob

jimmmy wrote: »

You have'nt answered the question : Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever? Would you ( if you were an EC banker or a Chinese or Middle Eastern banker, and had lots of safer places to invest in ? )

considering the ECB is dominated by germany , i cant see germany lending us **** loads of money indefinatley so we can spend it paying consultants double what they earn in the fatherland , our piss taking will only be tollerated for so long , the germans must have a good sense of humour that they tollerated us this long

Liam Byrne

NewDubliner wrote: »

Housing has certainly dropped in price. Plenty of cheap 2nd hand cars too. Interest rates can only go up though.

Therein lies the problem....

Say someone has a house loan (and let's forget about those people who bit off more than they could chew, and say that they're repaying €900 a month).

If their wages - say €3,000 a month - fall by one-third, and "all prices" fall by one-third, then on the face of it they'd be no worse off.

HOWEVER, in reality their disposable income has been more than HALVED, because the €900 is still off-limits, along with their insurance outlay.

So basically, anyone who hasn't any commitments YET will be no worse off, but anyone who - in good faith - borrowed within their means is screwed, with the knock-on effect of not being able to spend as much (despite falling prices) and therefore in turn impacting on shops and services.

jimmmy

Liam Byrne wrote: »

anyone who - in good faith - borrowed within their means is screwed, with the knock-on effect of not being able to spent as much (despite falling prices) and therefore in turn impacting on shops and services.

Depends on when they borrowed. For people who borrowed say 20 or 30 years ago, they were + are laughing, esp those on guaranteed ( defined benefit ) pensions.

NewDubliner

jimmmy wrote: »

???? Have any property speculators got a bailout out of public or bank funds ? Methinks not

Think again.

The NPRF is a public fund. 7bn was taken out of it and given to the banks. Where do you think the money to pay interest on these loans will come from? And if we end up paying more for the 'naughty' loans than they are worth, where will the money come from to pay off the money we borrowed to buy them? (Clue: Look in a mirror.)

jimmmy wrote: »

- the bank or Nama holds the deeds to any properties and the speculator / developer is not entitled to them or any proceeds of any sale unless the loan is paid off in full.

Which may be 'never'...have you heard of 'limited liability'?

MaceFace

jimmmy wrote: »

You have'nt answered the question : Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever? Would you ( if you were an EC banker or a Chinese or Middle Eastern banker, and had lots of safer places to invest in ? )

Of course not, just like the IMF will not lend us 25 billion per year and counting.
The EU will do the job of the IMF but in a much different way. They will be more humanitarian in their approach but will get the savings required.
They will tie it in with us altering our tax system to be less attractive to big business :-)

NewDubliner

MaceFace wrote: »

The EU will do the job of the IMF but in a much different way. They will be more humanitarian in their approach but will get the savings required.

So, will prices come down? And for what goods/services? What prices might go up?

Rockshamrover

NewDubliner wrote: »

So, will prices come down? And for what goods/services? What prices might go up?

Are there no examples of other countries who have gone through what we are going through now? What happened to them when the IMF showed up?

The post about people having massive mortgage repayments is very valid. Not just for people purchasing their own homes but for investors too. There must be tens of thousands of people in this situation.

They will have a massive drop in their standard of living in having to service massive dept with a reduced income.

darkman2

MaceFace wrote: »

Well to start with there is no chance the IMF will be invited into a Eurozone country.

oooh I think that is incorrect. I can see Ireland being turfed out of the Euro soon enough if we don't get our act in gear. The ECB is not going to just fund Ireland's existence because it is in the Eurozone indefinately.

P. Breathnach

darkman2 wrote: »

oooh I think that is incorrect. I can see Ireland being turfed out of the Euro soon enough if we don't get our act in gear. The ECB is not going to just fund Ireland's existence because it is in the Eurozone indefinately.

We'll get our act in gear. The ECB is our friend. I don't believe in the bogeyman.

nesf

MaceFace wrote: »

I wish you are/were right jimmy but I see a couple of problems:
The government will not go after the developers as aggressively as the b anks would have. There will be a lot of hush hush going on I fear.

Actually one of the major problems reported was that the banks weren't pursuing the developers enough about repayment of their loans.

eddiehobbs

MaceFace wrote: »

Well to start with there is no chance the IMF will be invited into a Eurozone country.

First time for everything and unless the government come up with something special in the budget they could well be here in less than 6 months time

NewDubliner

eddiehobbs wrote: »

First time for everything and unless the government come up with something special in the budget they could well be here in less than 6 months time

And if they did, would prices come down & which ones?

MaceFace

Can people calm down and stop with the sky is falling in crap.

Do people even have the slightest clue of what the IMF actually are, bar the bogeyman stories that are so popular these days?

If things to uterly pear shaped in this country (no, we are nowhere near that yet), then we can ask the IMF for a loan of money. They will agree as long as we reform according to their guidelines.

However this will not happen as we will first go to our European neighbours and ask them for help. They will agree for two main reasons:
1. they will get a lot of benefit from our misfortune.
2. What will it say about the Euro if the IMF has to rescue one of its members?

And as for us being booted out of the Euro - thats total crap. I don't know where even to start with that except refer you to your local library. Seriously, if the discussions are going to be at such a basic level, then whats the point.

nesf

MaceFace wrote: »

Do people even have the slightest clue of what the IMF actually are, bar the bogeyman stories that are so popular these days?

No but then there are still a very very large number of people who don't seem to grasp why you can't run a 25 odd billion deficit with 35 odd billion tax receipts so I wouldn't hold your breath. :P

eoinbn

Do not think the ECB will lend 25 billion per year - and increasing - to the Irish govt forever? Would you ( if you were an EC banker or a Chinese or Middle Eastern banker, and had lots of safer places to invest in ? )

I have said this a number of times already. The ECB is not funding our deficit. The ECB cannot lend a country 1 cent, it's illegal. What it can do is lend to banks and that money can then be borrowed by governments. This year our banks borrowed €7bn from the ECB, which was then borrowed by the government to make up the deficit. The other €18bn was borrowed from international markets.

If things to uterly pear shaped in this country (no, we are nowhere near that yet), then we can ask the IMF for a loan of money. They will agree as long as we reform according to their guidelines.

I don't think you understand how close we are to the edge. All it would take is a change of mind by investors. Very little has to change for that to happen.