Sinn Féin's Economic Plan Question..

macgrub

I am hoping somebody can shed some light to answer a couple of questions I have on Sinn Féin's economic policies.

First,am I the only one who feels their sums don't add up?
I heard Pearse Doherty state that they want to burn the bondholders. Next, they want to go back into the international bond market to reinvest the pension reserve to generate nearly 20billion, every year! So, they want to punish the gamblers (which is fair enough), but want to gamble themselves in the bond market? Even if they do, it's too speculative to say they could yield the amounts they hope.

Second, why are they restricting themselves in the bond markets?
Why is Pearse Doherty saying they want to reinvest in the International bond markets? There are financial products out there, for example, derivatives. However I never hear them mention anything but bond markets.

I don't want any SF bashing please. They are genuine questions.

zig

Couple a things, first it wouldn't be every year, they also have a deficit reduction plan , its just over a longer period of time, 6 years afaik.
Their plan is much different to the rest of the parties because they want to go down the stimulus route rather than the cutting route, they want to use money that would be otherwise going into banks(pension reserve fund) to invest in the country, creating jobs, thus reducing the deficit.

Not sure what you mean about him wanting to reinvest in the international bond markets, what he means is they want investors to invest in Ireland. The gambles of banks/investors on Irish banks and the Irish tax payer footing the bill is his problem.

Their plan isnt as 'loony' as people tend to make out, granted it has flaws but it seems that the route were taking at the moment will result in some form of default anyway.

Their main argument is that you cant reduce a deficit by holding back economic activity.

macgrub

zig wrote: »

Couple a things, first it wouldn't be every year, they also have a deficit reduction plan , its just over a longer period of time, 6 years afaik.
Their plan is much different to the rest of the parties because they want to go down the stimulus route rather than the cutting route, they want to use money that would be otherwise going into banks(pension reserve fund) to invest in the country, creating jobs, thus reducing the deficit.

Not sure what you mean about him wanting to reinvest in the international bond markets, what he means is they want investors to invest in Ireland. The gambles of banks/investors on Irish banks and the Irish tax payer footing the bill is his problem.

Their plan isnt as 'loony' as people tend to make out, granted it has flaws but it seems that the route were taking at the moment will result in some form of default anyway.

Their main argument is that you cant reduce a deficit by holding back economic activity.

I understand that their policy is a long term plan. I do not dispute that. However, if they pull out of the bail-out that currently exists, funds will not exist to provide capital to vital sections of the economy including social welfare and civil service duties. If both of those sections go without payment (especially social welfare) for a week or two, people are going hungry. So, in this case the 'now' is very important.

Pearse Doherty said that "we get back into the international bond market". In fact, he said that phrase numerous times last week on PT on RTE 1. (07-02-11)
So, to re-ask the question..why get back? into the bond market? Also, he doesn't say he will get back into a government bond market (which would be a 'safer' option than regular bonds). He just mentions bonds, thus gambling.
But the ultimate question, why the bond market??? He did not say the governmental bond markets, so he is taking high risk with regular bond markets.
Why not other financial products ?

I think Pearse Doherty is good in the field of debating. However, his policy doesn't make sense and seems very restricted and uninformed.

Pete_Cavan

zig wrote: »

Couple a things, first it wouldn't be every year, they also have a deficit reduction plan , its just over a longer period of time, 6 years afaik.
Their plan is much different to the rest of the parties because they want to go down the stimulus route rather than the cutting route, they want to use money that would be otherwise going into banks(pension reserve fund) to invest in the country, creating jobs, thus reducing the deficit.

Not sure what you mean about him wanting to reinvest in the international bond markets, what he means is they want investors to invest in Ireland. The gambles of banks/investors on Irish banks and the Irish tax payer footing the bill is his problem.

Their plan isnt as 'loony' as people tend to make out, granted it has flaws but it seems that the route were taking at the moment will result in some form of default anyway.

Their main argument is that you cant reduce a deficit by holding back economic activity.

Ah yes, the stimulus package. They want to take €7bn from the National Pension Reserve Fund for this. The only problem there is that they have already earmarked that money to cover the deficit. Paying for the deficit will see the NPRF used up entirely so no money left for the stimulus package they are relying on to kick start the economy, which their entire plan is based on.

Another problem with using the NPRF for the deficit is that when it is gone, it is gone. The NPRF has to be invested to see a return. That money has been set aside to pay future pensions, so any money invested has to at least be repaid back to the NPRF or else we will have big problems paying for an older population in the future. Throwing at the deficit will not see the money repaid.

SFs plan is based on the NPRF being a bottomless pit of money. They have no clue about economics, which is nothing new. This shows an inability to do basic addition and subtraction. SF know their plan wont work but are just trying to appeal to the gullible with their populist rants. They know they will not be in government to implement any of it so they can put forward these unfeasible policies.

zig

Pete_Cavan wrote: »

Ah yes, the stimulus package. They want to take €7bn from the National Pension Reserve Fund for this. The only problem there is that they have already earmarked that money to cover the deficit. Paying for the deficit will see the NPRF used up entirely so no money left for the stimulus package they are relying on to kick start the economy, which their entire plan is based on.

Their plan to cover the deficit is through other means, please dont get me wrong, im not saying their plans are flawless but to deny them a look in and still go along with the other parties plans as if they are on track is fairly scandalous:
a/ 1% wealth tax
b/ third level tax for anyone above 100k
c/ getting rid of tax reliefs
d/ the stimulus , in theory, is supposed to generate revenue also, by creating approx 160k jobs(dont get me wrong id be sceptical there myself, but even half that would generate serious revenue)

you must remember, that when someone is working, it has a 2 fold result
1: tax generated
2: 1 less person on social welfare and benefits.
http://www.sinnfein.ie/sinn-fein-10-point-jobs-plan
In 2008, employment in this State fell by 84,000. This was associated with a decrease in tax revenues of €6.5billion and an increase in social welfare payments of at least €2.5billion, a total deterioration in Government finances of €9billion.
Also afaik arent we not funded for a few months as well without using the Pension fund?

Jobs are the key, they are the only ones truly addressing that fact.

Pete_Cavan wrote: »

Another problem with using the NPRF for the deficit is that when it is gone, it is gone. The NPRF has to be invested to see a return. That money has been set aside to pay future pensions, so any money invested has to at least be repaid back to the NPRF or else we will have big problems paying for an older population in the future. Throwing at the deficit will not see the money repaid.

As I said, they are not throwing it at the deficit, but your other point about future pensions is true, and thats the risk.

macgrub wrote: »

Pearse Doherty said that "we get back into the international bond market". In fact, he said that phrase numerous times last week on PT on RTE 1. (07-02-11)
So, to re-ask the question..why get back? into the bond market? Also, he doesn't say he will get back into a government bond market (which would be a 'safer' option than regular bonds). He just mentions bonds, thus gambling.
But the ultimate question, why the bond market??? He did not say the governmental bond markets, so he is taking high risk with regular bond markets.
Why not other financial products ?

What he means by "we get back into the international bond market" is we get people investing in government bonds, not us investing in other bonds.
The argument that himself and the likes of McWilliams/Kelly put forward is that by making our country not ridiculously debt ridden we are more invest-able. The counter argument is that no one is going to want to invest in us if we are capable of defaulting on loans.

Its worth noting that Doherty doesnt talk about defaulting on sovereign debt just debt that the banks have incurred.

Its also worth noting that by "burning the bondholders" ,and not going with the IMF deal we wont be burdened with insane interest over the next 10/15 years. this will be worth several billions a year.

Im very open to corrections on all of the above btw.

Pete_Cavan

zig wrote: »

Their plan to cover the deficit is through other means, please dont get me wrong, im not saying their plans are flawless but to deny them a look in and still go along with the other parties plans as if they are on track is fairly scandalous:
a/ 1% wealth tax
b/ third level tax for anyone above 100k
c/ getting rid of tax reliefs
d/ the stimulus , in theory, is supposed to generate revenue also, by creating approx 160k jobs(dont get me wrong id be sceptical there myself, but even half that would generate serious revenue)

All of the above are ways of reducing our budget deficit over time (although it could be argued that the kind of tax regime SF are proposing could result in more money leaving the economy which would reduce the tax take and increase the deficit). None of those will affect our deficit for this year.

The gap between government income and expenditure at the end of this year is forecasted to be over €17bn. It is too late in the year to reduce this by any meaningful amount. We will need to raise this amount of money in order to pay public servants, pay social welfare and all other government expenditure. That is where the NPRF comes in under SFs plan (after they have told the IMF we dont want their money). They will have nothing left for their stimulus package.

zig wrote: »

you must remember, that when someone is working, it has a 2 fold result
1: tax generated
2: 1 less person on social welfare and benefits.
http://www.sinnfein.ie/sinn-fein-10-point-jobs-plan
In 2008, employment in this State fell by 84,000. This was associated with a decrease in tax revenues of €6.5billion and an increase in social welfare payments of at least €2.5billion, a total deterioration in Government finances of €9billion.
Also afaik arent we not funded for a few months as well without using the Pension fund?

Jobs are the key, they are the only ones truly addressing that fact.

I dont think SFs planned stimulus will have a long term effect. They want to build schools and hospitals which will only create construction jobs (most of the teachers and health care jobs exist already) which are 100% reliant on government funding. Once that funding stops those jobs will be lost. If they want to create sustainable jobs they should build infrastructure which will allow jobs to be created, such as in broadband, energy and water. SFs stimulus would not see a long term economic return.

zig wrote: »

What he means by "we get back into the international bond market" is we get people investing in government bonds, not us investing in other bonds.
The argument that himself and the likes of McWilliams/Kelly put forward is that by making our country not ridiculously debt ridden we are more invest-able. The counter argument is that no one is going to want to invest in us if we are capable of defaulting on loans.

Its worth noting that Doherty doesnt talk about defaulting on sovereign debt just debt that the banks have incurred.

Its also worth noting that by "burning the bondholders" ,and not going with the IMF deal we wont be burdened with insane interest over the next 10/15 years. this will be worth several billions a year.

First of all, the interest rate on the bailout money averages out as 5.8%, the yield on government bonds before the IMF came in was around 9%. If we reject the IMF money and burn bondholders, I cant see the bond markets being to willing to give us money at a lower rate than the bailout is at. Why would they, would you be willing to lend someone billions of euro 12 months after they defaulted on billions of euros worth of loans and told the people who tried to help them to p*ss off? We would be very risky to lend to so the rates they charge would be very high.

As for the whole idea of separating banking debt and sovereign deb, Iceland defaulted on banking debt and still needed the IMF to bail them out. Unless Pearse Doherty has an iron clad, water tight contract with the people who buy government bonds saying they will buy Irish government bonds at yields of less the 5.8% next year, then we are better off with the IMF.

zig

Pete_Cavan wrote: »

I dont think SFs planned stimulus will have a long term effect. They want to build schools and hospitals which will only create construction jobs (most of the teachers and health care jobs exist already) which are 100% reliant on government funding. Once that funding stops those jobs will be lost. If they want to create sustainable jobs they should build infrastructure which will allow jobs to be created, such as in broadband, energy and water. SFs stimulus would not see a long term economic return.

Granted Im not pushed on the idea of relying on more construction work but what you wrote there is a classic example of blindly writing off Sinn Fein because of presumptions, have another read of what you said and then read this from their site, why do you think they want to build better insfrastructure,(not schools/hospitals btw)
http://www.sinnfein.ie/sinn-fein-10-point-jobs-plan
Our stimulus is about providing immediate and direct employment in key sectors such as infrastructure in the immediate term. But in the longer term the impact of our stimulus plan would see the State’s competitiveness increase as we become a world leader in green energy, IT and research and development, in addition to having world-class infrastructure to attract Foreign Direct Investment and support indigenous enterprise for longer-term employment creation.
Furthermore, the completion of key strategic infrastructure projects, such as the National Broadband scheme, and the improvements in the education and health services, will make Ireland more competitive and put us in a better position for economic recovery in the years ahead. In addition to these proposals, Sinn Féin has a strategy to boost the tourism sector including developing tourist attractions and amenities and a plan to create a new generation of co-operatives. This sustainable, long-term employment would broaden the tax base and secure it.

Pete_Cavan wrote: »

First of all, the interest rate on the bailout money averages out as 5.8%, the yield on government bonds before the IMF came in was around 9%. If we reject the IMF money and burn bondholders, I cant see the bond markets being to willing to give us money at a lower rate than the bailout is at. Why would they, would you be willing to lend someone billions of euro 12 months after they defaulted on billions of euros worth of loans and told the people who tried to help them to p*ss off? We would be very risky to lend to so the rates they charge would be very high.

Well this is the great argument isnt it, one person thinks that no one will want to invest in a country that has previously defaulted on loans, the other person thinks that the only reason that % is so high is because of the way we got ourselves caught up in the bank problems.
Bond Holders are investors, there are stories coming out where some of them very very lucky that they are getting any money back, never mind all of it. To them its purely business and if they see that we have become a country that its actually possible to invest in again they may very well not want to miss that opportunity. But none of us know the real answer, its all speculation.

Pete_Cavan wrote: »

As for the whole idea of separating banking debt and sovereign deb, Iceland defaulted on banking debt and still needed the IMF to bail them out. Unless Pearse Doherty has an iron clad, water tight contract with the people who buy government bonds saying they will buy Irish government bonds at yields of less the 5.8% next year, then we are better off with the IMF.

Anyway, I dont want to come across as ignorant and behaving as if their solution is the perfect one, its far from it, because there is no perfect one. Yes there is flaws, yes there is gaps in their deficit plan, yes they will probably have to make cuts that they are denying they must make now.
But I think the current route we are taking leaves us in absolute insane debt in years to come, paying off massive amounts of interest every year, ,and very likely deepening our recession (I mean in job figures) and possibly making it last alot longer than any of us will have anticipated.

I believe that as this gets more and more heavily burdened on people and the likes FG/Lab have to make far worse cuts than previously expected they will then start seeing the bigger picture and begin to take a somewhat similar path to SF, perhaps a compromise between the two.

Its not sustainable, if I owe you 1000 euro and im earning 200 euro a week, and can barely afford to live, you dont give me another 1000 euro in the hope that ill somehow weasel my way out of it.

Chucky the tree

The only party taking the advocating taking the current route is FF.

later12

macgrub wrote: »

So, to re-ask the question..why get back? into the bond market? Also, he doesn't say he will get back into a government bond market (which would be a 'safer' option than regular bonds). He just mentions bonds, thus gambling.
But the ultimate question, why the bond market???

The bond markets offers lower returns but sovereign bonds like Bunds, Gilts and US Treasury bonds are the safest investment vehicles that exist for governments. They are priced as risk free.

I think the NPRF has already invested in international sovereign bonds - most national treasuries do. The NPRF also invested in some higher risk ventures like equities and property assets - all the money that was in the NPRF was not there from deposit, it was also earned on gambling, essentially. It's not unlike a massive hedge fund.

wyndhurst

France have a wealth tax.
550,000 people pay it generating 3billion euro of tax income.

SF think a similar one in Ireland will generate billions to plug the major holes in their 'plan'. What a joke.

BTW....Sarkozy said the wealth tax is causing capital to flow out of the country and companies to delocalise. He is planning on scrapping it.

It kills competitiveness and therefore kills jobs.

poppyvalley

macgrub wrote: »

I am hoping somebody can shed some light to answer a couple of questions I have on Sinn Féin's economic policies.

First,am I the only one who feels their sums don't add up?
I heard Pearse Doherty state that they want to burn the bondholders. Next, they want to go back into the international bond market to reinvest the pension reserve to generate nearly 20billion, every year! So, they want to punish the gamblers (which is fair enough), but want to gamble themselves in the bond market? Even if they do, it's too speculative to say they could yield the amounts they hope.

Second, why are they restricting themselves in the bond markets?
Why is Pearse Doherty saying they want to reinvest in the International bond markets? There are financial products out there, for example, derivatives. However I never hear them mention anything but bond markets.

I don't want any SF bashing please. They are genuine questions.

cos that's the way they operate,Pearse is dead right, it's just money. They will negotiate because they have no other option.

Pete_Cavan

zig wrote: »

Granted Im not pushed on the idea of relying on more construction work but what you wrote there is a classic example of blindly writing off Sinn Fein because of presumptions, have another read of what you said and then read this from their site, why do you think they want to build better insfrastructure,(not schools/hospitals btw)
http://www.sinnfein.ie/sinn-fein-10-point-jobs-plan
Our stimulus is about providing immediate and direct employment in key sectors such as infrastructure in the immediate term. But in the longer term the impact of our stimulus plan would see the State’s competitiveness increase as we become a world leader in green energy, IT and research and development, in addition to having world-class infrastructure to attract Foreign Direct Investment and support indigenous enterprise for longer-term employment creation.
Furthermore, the completion of key strategic infrastructure projects, such as the National Broadband scheme, and the improvements in the education and health services, will make Ireland more competitive and put us in a better position for economic recovery in the years ahead. In addition to these proposals, Sinn Féin has a strategy to boost the tourism sector including developing tourist attractions and amenities and a plan to create a new generation of co-operatives. This sustainable, long-term employment would broaden the tax base and secure it.

As pointed out earlier, funding for their stimulus is based on the myth that the NPRF is a bottomless sack of money. As SF will have already used it all to pay for the budget deficit, the stimulus doesnt come into it. They will not have any money for broadband, schools or anything else. Their stimulus package is irrelevant because they simply will not have the money for it.

zig wrote: »

Well this is the great argument isnt it, one person thinks that no one will want to invest in a country that has previously defaulted on loans, the other person thinks that the only reason that % is so high is because of the way we got ourselves caught up in the bank problems.
Bond Holders are investors, there are stories coming out where some of them very very lucky that they are getting any money back, never mind all of it. To them its purely business and if they see that we have become a country that its actually possible to invest in again they may very well not want to miss that opportunity. But none of us know the real answer, its all speculation.

The rate on bonds is determined by the precieved risk of the investment. A country that has defaulted on billions of euro worth of loans less than 12 months earlier and with an extreme left wing government would be seen as a very risky investment, therefore the rates will be very high. Also, as has been previously pointed out, Iceland couldnt get money on the bond markets after they defaulted on bank debt and needed the IMF to bail them out. What evidence is there to suggest that we will be able to get money on the bond markets (Pearse Dohertys word is not good enough)?

zig wrote: »

Anyway, I dont want to come across as ignorant and behaving as if their solution is the perfect one, its far from it, because there is no perfect one. Yes there is flaws, yes there is gaps in their deficit plan, yes they will probably have to make cuts that they are denying they must make now.
But I think the current route we are taking leaves us in absolute insane debt in years to come, paying off massive amounts of interest every year, ,and very likely deepening our recession (I mean in job figures) and possibly making it last alot longer than any of us will have anticipated.

I believe that as this gets more and more heavily burdened on people and the likes FG/Lab have to make far worse cuts than previously expected they will then start seeing the bigger picture and begin to take a somewhat similar path to SF, perhaps a compromise between the two.

The interest rate on the bailout money has been set quite high so that there is an incentive for us to pay it off asap. After 2014 when we can go back to the bond markets we will be able to borrow at a lower rate than on the bailout money so we use that money to pay off the bailout. Most countries have to borrow from the bond markets, the only difference is we are doing so to pay the IMF.

Diarmuid

wyndhurst wrote: »

France have a wealth tax.
550,000 people pay it generating 3billion euro of tax income.

SF think a similar one in Ireland will generate billions to plug the major holes in their 'plan'. What a joke.

BTW....Sarkozy said the wealth tax is causing capital to flow out of the country and companies to delocalise. He is planning on scrapping it.

It kills competitiveness and therefore kills jobs.

Washington Post

Eric Pinchet, author of a French tax guide, estimates the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.

A wealth tax is a dumb idea that has proven a failure. No shocker that it's a central plank to SF policies then.

jimmycrackcorm

There is some sense in SF's attitude to burning the bond holders and going back to the markets. However it's not practical. Essentially by telling the IMF /ECB to F off they want to take a huge gamble that the markets would welcome us back after a year when we had spent all our reserves.

However the markets, while lauding us for seperating the debt would regard us as being chancers, look at our still continuing unemployment, social welfare and public services burgeoning costs and conclude as before that we were still a risk and penalize us with a high interest rates as they have done already. So we'd have nothing in reserve, no EU / IMF friends and effectively be going to loan-sharks.

Had we no budget deficit or even a minimal deficit, it might be worth a punt but hell it would be risky even then.

rumour

jimmycrackcorm wrote: »

There is some sense in SF's attitude to burning the bond holders and going back to the markets. However it's not practical. Essentially by telling the IMF /ECB to F off they want to take a huge gamble that the markets would welcome us back after a year when we had spent all our reserves.

Had we no budget deficit or even a minimal deficit, it might be worth a punt but hell it would be risky even then.

I'd have to agree with you here. Frankly despite years of rhetoric the realisation is dawning on everyone that we can't pay this debt. The terms economically are worse than the treaty of versailles(hyperbole;))

Fundamentally I think it is also dawning on people that as much as our banks were loosely regulated and irresponsible, follow the money and you find a wide range of european banks at the 'heart of europe' were also at it. Ireland being the culprit No 1 is fine if the problem were isolated here, but do the same structural problems exist in Greece, Spain, Portugal & somewhat Belgium and Italy?

Now SF may be clever and realise that we are heading for default as most of the senior economists are. Knowing we will default and knowing it is not currently a realistic political action, they are setting out their stall for the aftermath.

In tandem they will appeal to the masses, the sun and star readers with simple messages, 'citizen' 'republic' 'rights' how can any of those be wrong?

There is an interesting artice here which I believe is a good indication of what is heading our way. The section on the 1930's is very very familiar now. If this is a possibility and with default breathing down our necks we will find ourselves alone excuse the pun.

If this transpires the budget deficit becomes a non issue because there will be no funding. SF having never addressed the issue will say they were right all along and point the finger, worse people will probably believe them.

Anyway this all conjecture on my behalf and makes SF more strategic than I would have otherwise thought. But as the old saying goes never underestimate your enemy.

paul71

Having read the last post SF policy is actually making sense to me now. Knowing that they are not going to be elected to power they are presenting a highly populist but completely unrealistic plan, when ultimatley we are forced into a partial default situation they will in five years time be able to say we were right all along, without having had their plan tested and fail.

jimmycrackcorm

Quite correct. SF are playing the long game that they have been doing in the north. Adams is being parachuted in because they have determined a new enemy to replace the British which is the ECB / bond holders etc. Their support base was built from disenchanted catholics that were denied jobs and housing; now they've just discovered a new equivalent in the form of people railing against the injustice of the bank oppression.

What SF says appeals to people - that fact that all the other parties with any chance of being in Government are not following with the same line says everything about the realism of their policy.