A new type of governement bond

Justin Collery

Justo's economic solution:

Step 1: Call in the countries bond holders and exaplain what you are about to do, and what you expect them to do in return, explained below

Step 2: From the 1st of next month, all bills issued and paid for by the governemnt will be reduced by 30%. All salaries and social welfare payments will be reduced by 30% (read deficit reduction). All supplier invoices will be reduced by 30% (read sharing of pain across public and private sector). All bills issued by the government will be reduced by 30% (read increased competitiveness). This is not so mad, it's the same as a currency devaluation.

Step 3: All bonds are now worth 70% of their face value. Interest payments will be made on the new value. This value will be reviewed every December 31st until maturity, and the value reset against 70% of 2010 GNP. i.e. if GNP goes up 5% in 2011, so does the value of the bonds and the interest payable.

It seems to me the internal devaluation will happen anyway over the coming years. We can make it quick and painful, or slow and painful, the only difference is the amount of debt at the end of the process. What is missing it seems to me is the debt side of the equation. For this to work we need to deflate the debt side also. To make this acceptable we need to give the bond olders some upside, linking them to GNP does this. Thus we need this new type of government bond.

Discuss.

MrDarcy

And do you think we could reduce commercial rates by 30% while we're at it??? Nope, didn't think so...;)

Justin Collery

Yes I do, key for competitiveness, everything drops by 30%.

ei.sdraob

jcollery wrote: »

Yes I do, key for competitiveness, everything drops by 30%.

any business reliant on outside inputs (like oil) will be out of business in no time since they cant ask their suppliers to take such a cut too :rolleyes:

what you propose is similar to what would occur in a currency devaluation

Justin Collery

ei.sdraob wrote: »

any business reliant on outside inputs (like oil) will be out of business in no time since they cant ask their suppliers to take such a cut too :rolleyes:

what you propose is similar to what would occur in a currency devaluation

Agreed. The cut would have to apply to services only, physical goods could not be chopped.

I am aware of it's similarities to a devaluation. I believe that between here and the middle of the decade it will happen anyway, with two major differences. Going the route we are going:

- we will have €60bn more debt as a country (thats €34k for every worker, 1 years gross average industrial earnings, fancy taking out a loan to the value of your gross wage?)

- Even though the basic economy has gone through a devaluation, out debts will have not. We would be the only country ever to be mad enough to *try* this. I emphasize try, as there has been talk over the weekend about not turning Ireland into a lab rat and doing things which have not been done before. We are already lab rats, normally when a country devalues its currency, the debt also gets devalued.

The result will be that once the correction / devaluation has taken place a country is normally in a position to grow rapidly again due to its increase in competitiveness. We are throwing that opportunity away by saddling ourselves with debt. We are ensuring that once the pain of the next 5 years has been completed there will be no gain in the following 5 years.

I see a lot of lemmings walking off cliffs, and not many innovative solutions. We are in dire need of new thinking. Most countries during this and other crises have not followed our path. If they did, they would be worse off. In my book, thats a bad course of action and need to be changed.

Amhran Nua

Here's the only type of bond that will make any difference to this government: