What is happening?

Chuchoter

I am completely confused and I'm probably going to sound really stupid for this. I know what happened with the banks and NAMA and how we got here, but in the last two to three weeks things seem to be falling through the floor. What is this 60 day thing they are all talking about and why have our bond rates suddenly gotten so high? What is a bond to begin with? What is this upcoming new crisis involving mortgages? Why is there suddenly a move towards debt forgiveness, because I would have always considered that a fairly bad move in most instances. Where will we be in a years/6 months time? I listen to the radio, I watch the news and I read the papers...but all I seem to get is various disjointed facts and the general message that we are doomed. Are we actually doomed or is that people exaggerating?

baldbear

I'm asking myself the same thing!

A bond is the money our government got in loans from the international markets, i think!

Also who are the bondholders that we are afraid of? Could we not just say listen we can only pay back 70%. They seem to have us screwed, could we not do a deal? (Debt forgiveness?)

I'd say alot of our politicians don't understand what's going on.

baldbear

baldbear wrote: »

I'd say alot of our politicians don't understand what's going on.

I`d say your right :mad::(

A bond is issued (by the Irish Government/Central Bank).....its is a form of borrowing. In return for a bond (imagine a piece of paper or a promise to repay something) you are given money. The bond is issued for a set time frame......hence you`ll be hearing on the News Irish government 5 year bonds or 2 year bonds and 10 years bonds etc etc.

When the bond reaches the set time (i.e a 2 year bond will reach maturity in 2 years from its issue) the money must be paid back with interest.

As a country we earn so many billion but we spend approx 20 billion more than we earn so we must borrow this amount for the year. In order to borrow this money Irish government bonds are put on "the market". Basically investors can bid here for bonds. If you think the government will pay it back its a "safe bet" and the interest rates on the bond will be lower - lets pretend its 2%. This means that as an investor you could give the Irish government money and on "maturity" of the bond get your money back and earn 2% interest on your investment.

Today we have to offer over 9% return on the investment in order for people to take the risk of lending to Ireland. This is because investors no longer believe the Irish government/taxpayer can afford to repay the loans. Reasons being cited on bloomberg are the banking guarantee. We have pumped so much into the banks that we cant afford it. I worry about this because it means no matter what we do with the deficit we are screwed. This is what Morgan Kelly means in his article. The banks are what will sink us.

9% is an unaffordable rate for us to borrow at and really anything 6% and above is too much. I`ll put it this way......if we have a debt of 100 billion and the interest payments on this to the investors who lent us it is 9 % then thats 9 billion a YEAR on just the interest repayments alone

With that sort of an interest repayment we have no chance.

http://www.financedublin.com/debtclock.php

http://www.independent.ie/national-news/national-debt-set-to-double-to-8364150bn-latest-figures-reveal-2017465.html

Ireland's national debt is set to double to €150bn,

Now you do the maths

SkepticOne

One of the interesting things about the situation is the inherent instability of the situation. As the bond yields go higher, Ireland's ability to service its debt is called further into question which in turn pushes the yield higher still.

Chuchoter

So if we had 150 billion worth of debt what would happen and when would it happen? Why has it all kicked off in recent weeks?

Amhran Nua

crayolastereo wrote: »

So if we had 150 billion worth of debt what would happen and when would it happen?

We would have to seperate out that debt which should not be the responsibility of the Irish state and inform the ECB or whoever holds it that it will be exchanged for equity (a share) in Irish banks.

crayolastereo

crayolastereo wrote: »

So if we had 150 billion worth of debt what would happen and when would it happen? Why has it all kicked off in recent weeks?

We probably wont be able to borrow that much but it would mean spending 14/15 billion a year on interest only payments on the debt, a figure comparable to the deficit, a figure that you can make cutbacks on.

In recent weeks more figures about the state of our banks and distressed mortgages has come out , even politics influences bond holders. Maybe I should say especially politics.

I think we will need to borrow from Europe or the IMF or some combination before we reach 150 billion. Essentially borrowing money in exchange for guarantees of book balancing under a time frame. Its not beyond that realms of possibilities that there would be a direct influence on policy decisions.

The best thing is to look at what has happened over in Greece/Latvia since their "bailout"

Chuchoter

Deleted User wrote: »

We probably wont be able to borrow that much but it would mean spending 14/15 billion a year on interest only payments on the debt, a figure comparable to the deficit, a figure that you can make cutbacks on.

In recent weeks more figures about the state of our banks and distressed mortgages has come out , even politics influences bond holders. Maybe I should say especially politics.

I think we will need to borrow from Europe or the IMF or some combination before we reach 150 billion. Essentially borrowing money in exchange for guarantees of book balancing under a time frame. Its not beyond that realms of possibilities that there would be a direct influence on policy decisions.

The best thing is to look at what has happened over in Greece/Latvia since their "bailout"

Whats happened there since the bailout and the riots?

Scofflaw

crayolastereo wrote: »

So if we had 150 billion worth of debt what would happen and when would it happen?

If we had €150bn of debt for which we'd issued 10 year bonds all at the same time (say November 2006), then the whole €150bn plus interest would fall due ten years later.

Obviously, it doesn't happen like that. Instead, we've issued a mixture of 2, 5, and 10 year bonds at various times, so bonds are constantly falling due. If the government doesn't want to repay them, then it borrows the money to repay the bond by issuing another bond. So the debt is constantly being rolled over - however, if the interest rate on bonds climbs to the sort of levels Irish bonds are at, then you're borrowing at really punitive rates to pay for bonds that are coming due, and which were at a lower rate of interest. There comes a point when it's simply not worth it.

crayolastereo wrote: »

Why has it all kicked off in recent weeks?

There's no simple answer to that, because bond markets are made up of thousands and thousands of individual investors, who all watch each other like hawks, because the way you make money in trading is trying to outguess everybody else. As a result, if one trader sees another getting out of Irish bonds, he may well figure the guy knows something he doesn't, and dump his own Irish bonds, even though he has no particular reason to do so.

In this case, though, the general feeling seems to be that when the Germans started talking a couple of weeks back about the new bailout fund (remember the Merkel-Sarkozy deal?), they insisted that it had to include an 'orderly default procedure' - in other words, a way for states within the eurozone to declare bankruptcy. The markets took the mere existence of such a facility or process to mean that someone was going to need it, and soon - before 2013. The most likely candidate is us, and the markets are now convinced that we're going to declare bankruptcy soon.

What do markets do when they believe you're not going to be able to pay your debts? They raise the interest rates, which makes it, of course, less likely that you will be able to pay your debts - banks do exactly the same. So uncertainty in the markets - fear of a default - can easily be turned into a real default.

The fickleness of financial markets, as well as the fact that they're a systemic part of modern economies, has always meant that governments have a vested interest in regulating them. About 20 years ago, though, the paradigm of regulation changed to allowing them as much freedom as possible, which brought on a huge wave of prosperity. When they work well, money markets are the best way of matching investment to opportunity. Unfortunately, it's also possible for the movements of money, and the opportunities within the market itself, to become an industry in their own right - and one which very quickly resembles nothing so much as a huge casino.

cordially,
Scofflaw

ah the big bad markets...., if there was money to be made in Ireland people would invest here simply as