€10 a week for years or €1000 up front and go bust..

IM0

which is better to have. Someone owe you €2000 and be paid a consistent €10 a week until repaid or get €100 a week for ten weeks, then they go bust and cannot repay the remainder?

That is a little powerphrased summary of how I see what is happening to Ireland at the moment and the pressure and cuts needed to pay back the ECB/IMF loans of 100bn~

Why will they not accept a reduced interest rate so we dont have to cut so much from our health and welfare budgets?

its just madness everyone loses, those who are giving the loan and those who are supposed to recieve it, WHY do it that way?

Godge

me@ucd wrote: »

which is better to have. Someone owe you €2000 and be paid a consistent €10 a week until repaid or get €100 a week for ten weeks, then they go bust and cannot repay the remainder?

That is a little powerphrased summary of how I see what is happening to Ireland at the moment and the pressure and cuts needed to pay back the ECB/IMF loans of 100bn~

Why will they not accept a reduced interest rate so we dont have to cut so much from our health and welfare budgets?

its just madness everyone loses, those who are giving the loan and those who are supposed to recieve it, WHY do it that way?

What ECB/IMF loans of 100 bn?

Scofflaw

me@ucd wrote: »

which is better to have. Someone owe you €2000 and be paid a consistent €10 a week until repaid or get €100 a week for ten weeks, then they go bust and cannot repay the remainder?

That is a little powerphrased summary of how I see what is happening to Ireland at the moment and the pressure and cuts needed to pay back the ECB/IMF loans of 100bn~

Why will they not accept a reduced interest rate so we dont have to cut so much from our health and welfare budgets?

its just madness everyone loses, those who are giving the loan and those who are supposed to recieve it, WHY do it that way?

Er, they just have. Also, Godge's point - you may be confusing the liquidity loans from the ECB to our banks (at an interest rate of around 1%) with the EFSM/EFSF/IMF bailout loans.

On the bailout loans, the EU Commission has just announced that their margin has been reduced to zero, meaning the loans on the EU (EFSM) part (€22.5bn) are effectively at about 2.5-3%, which is less than we've ever had from the open market. The EFSF are expected to follow suit, and the IMF can't.

cordially,
Scofflaw

anymore

me@ucd wrote: »

which is better to have. Someone owe you €2000 and be paid a consistent €10 a week until repaid or get €100 a week for ten weeks, then they go bust and cannot repay the remainder?

That is a little powerphrased summary of how I see what is happening to Ireland at the moment and the pressure and cuts needed to pay back the ECB/IMF loans of 100bn~

Why will they not accept a reduced interest rate so we dont have to cut so much from our health and welfare budgets?

its just madness everyone loses, those who are giving the loan and those who are supposed to recieve it, WHY do it that way?

I amk afrid that paying the capital is the real problem.

IM0

Godge wrote:

What ECB/IMF loans of 100 bn?

the 100bn used to bail out the banks and eh the money may have been for the banks, but its the irish citizen who carries that debt and has to pay it now isnt it, and as a result of which has to cut health and welfare budgets among other things and is in general crippling the country and causing the harsh austerity measures and firesales currently on the table and to come in the short term future

Rented Mule

If i am going to be paid €10 per week, then I would expect there to be a nice little bit of interest added on at the end.

Why should my money not be making me money ?

Scofflaw

anymore wrote: »

I amk afrid that paying the capital is the real problem.

Not really - governments generally don't pay down debt. They usually just borrow again to pay off the original lender, and again, and again, until the growth of their economy and inflation make the principal negligible.

Our national debt in 1990 was €34.2bn, and that was very big - 95% of our GDP, and interest payments that absorbed quarter of our tax take. By 2006 our national debt was €44bn, which is a bigger principal, but by that stage that was only 25% of our GDP, and interest payments were similarly small.

cordially,
Scofflaw

Merch

Scofflaw wrote: »

Not really - governments generally don't pay down debt. They usually just borrow again to pay off the original lender, and again, and again, until the growth of their economy and inflation make the principal negligible.

Our national debt in 1990 was €34.2bn, and that was very big - 95% of our GDP, and interest payments that absorbed quarter of our tax take. By 2006 our national debt was €44bn, which is a bigger principal, but by that stage that was only 25% of our GDP, and interest payments were similarly small.

cordially,
Scofflaw

I cant understand why in times of plenty countries dont aim to reduce or aim to clear their debt? surely then the interest they pay could be used to contribute to national development and infrastructure?

AlmightyCushion

Merch wrote: »

I cant understand why in times of plenty countries dont aim to reduce or aim to clear their debt? surely then the interest they pay could be used to contribute to national development and infrastructure?

Same here. I remember when I was 15 I heard Ireland was about 30 Billion in debt and only servicing the debt or reducing it by very little. I thought it was madness that we weren't aiming to get rid of it. I guess it boils down to politics. If a government wants to get re-elected then spending that money or giving everybody a tax cut is going to work more in their favour than getting rid or reducing the national debt will.

@ me@ucd - Even if the EU and IMF decided to write off all irish debt and the country was debt free, we'd still need to make these cuts as currently the Irish government needs about €18 billion a year more than it takes in in tax revenue just to balance the books.

IM0

AlmightyCushion wrote: »

@ me@ucd - Even if the EU and IMF decided to write off all irish debt and the country was debt free, we'd still need to make these cuts as currently the Irish government needs about €18 billion a year more than it takes in in tax revenue just to balance the books.

I understand that, its just they are cutting the wrong areas I feel, listening to primetime tonight they were saying there is 302,000 civil servants/public service and those closely realted, and this was down from 320,000 in 2006 I think was the peak. wow a whole 18,000 . Thats not much and needs a significant haircut of not needed administrators, but when asked Pat Rabite gave a wooly answer of "quite a few" I hope he means tens of thousands by that and not 5 to ten thousand

Scofflaw

Merch wrote: »

I cant understand why in times of plenty countries dont aim to reduce or aim to clear their debt? surely then the interest they pay could be used to contribute to national development and infrastructure?

Sure - but look at it like this. If the government chooses to pay down the national debt, it's taking money out of the economy, and taking money out of the economy reduces your growth. Here's a horrible looking table:

|Growth/GDP|Debt|Debt|Interest|Payments
|2.00%|0|% GDP|4.00%|% GDP
2011|204.3|196.54|96.20%|7.86|3.85%
2012|206.78|196.54|95.05%|7.86|3.80%
2013|209.29|196.54|93.91%|7.86|3.76%
2014|211.83|196.54|92.78%|7.86|3.71%
2015|214.4|196.54|91.67%|7.86|3.67%
2016|217|196.54|90.57%|7.86|3.62%
2017|219.64|196.54|89.48%|7.86|3.58%
2018|222.3|196.54|88.41%|7.86|3.54%
2019|225|196.54|87.35%|7.86|3.49%
2020|227.73|196.54|86.30%|7.86|3.45%
2021|230.5|196.54|85.27%|7.86|3.41%
2022|233.3|196.54|84.24%|7.86|3.37%
2023|236.13|196.54|83.23%|7.86|3.33%
2024|238.99|196.54|82.24%|7.86|3.29%
2025|241.9|196.54|81.25%|7.86|3.25%
2026|244.83|196.54|80.28%|7.86|3.21%
2027|247.8|196.54|79.31%|7.86|3.17%
2028|250.81|196.54|78.36%|7.86|3.13%
2029|253.86|196.54|77.42%|7.86|3.10%
2030|256.94|196.54|76.49%|7.86|3.06%
2031|260.06|196.54|75.58%|7.86|3.02%
2032|263.21|196.54|74.67%|7.86|2.99%
2033|266.41|196.54|73.77%|7.86|2.95%
2034|269.64|196.54|72.89%|7.86|2.92%
2035|272.91|196.54|72.02%|7.86|2.88%
2036|276.23|196.54|71.15%|7.86|2.85%
2037|279.58|196.54|70.30%|7.86|2.81%
2038|282.97|196.54|69.46%|7.86|2.78%
2039|286.41|196.54|68.62%|7.86|2.74%
2040|289.88|196.54|67.80%|7.86|2.71%


What that says is, OK, we have a GDP of €204.3bn, national debt of €196.54bn, growth rate of 2%, interest rate of 4%. We make no payments on the principal of the national debt, so the principal remains the same. As you can see, we make interest payments of €7.86bn a year, and that starts as 3.85% of our GDP, and drops to 2.71% of our GDP by 2040. In that time, we've paid over €235.85bn in interest.

One little wrinkle, though, which is that because taking money out of the economy reduces growth, the actual year on year growth rate is knocked down from 2% to 1.21% (ie, by a tenth of the payments in billions).

Do the same layout, but with the government determinedly paying back the principal at €5bn a year:

|Growth/GDP|Debt|Debt|Interest|Payments
|2.00%|5|% GDP|4.00%|% GDP
2011|204.3|196.54|96.20%|12.86|6.30%
2012|205.76|191.54|92.63%|12.66|6.12%
2013|207.27|186.54|89.13%|12.46|5.95%
2014|208.83|181.54|85.70%|12.26|5.79%
2015|210.45|176.54|82.34%|12.06|5.63%
2016|212.12|171.54|79.05%|11.86|5.47%
2017|213.84|166.54|75.82%|11.66|5.31%
2018|215.63|161.54|72.67%|11.46|5.16%
2019|217.47|156.54|69.57%|11.26|5.01%
2020|219.37|151.54|66.54%|11.06|4.86%
2021|221.33|146.54|63.58%|10.86|4.71%
2022|223.35|141.54|60.67%|10.66|4.57%
2023|225.44|136.54|57.82%|10.46|4.43%
2024|227.59|131.54|55.04%|10.26|4.29%
2025|229.8|126.54|52.31%|10.06|4.16%
2026|232.09|121.54|49.64%|9.86|4.03%
2027|234.44|116.54|47.03%|9.66|3.90%
2028|236.86|111.54|44.47%|9.46|3.77%
2029|239.36|106.54|41.97%|9.26|3.65%
2030|241.93|101.54|39.52%|9.06|3.53%
2031|244.58|96.54|37.12%|8.86|3.41%
2032|247.3|91.54|34.78%|8.66|3.29%
2033|250.11|86.54|32.48%|8.46|3.18%
2034|252.99|81.54|30.24%|8.26|3.06%
2035|255.96|76.54|28.05%|8.06|2.95%
2036|259.02|71.54|25.90%|7.86|2.85%
2037|262.16|66.54|23.80%|7.66|2.74%
2038|265.4|61.54|21.75%|7.46|2.64%
2039|268.72|56.54|19.74%|7.26|2.54%
2040|272.15|51.54|17.78%|7.06|2.44%

As you can see, the payments are of course much higher - which means that growth is lower. In fact, this method only starts to yield growth rates higher than the no-payments method in 2038, and GDP doesn't pull ahead until 2056 (not shown here). Interest payments (plus principal in the second case) don't equalise until 2036 - and if you look at the amounts the two governments have spent by 2050 (when the debt is paid off in one case), you'll find that the rollover guys have paid out €314.46bn in interest, while the repayment guys have paid out €358.46bn.

So, while the repayment government has paid down its debt as a proportion of GDP, it did so at the expense of growth over the course of an entire generation. And even at that, I've left out inflation, which would reduce the value of the payments of both governments, but of the non-repaying one by more, because the repaying government front-loads the pain.

See, if you're immortal and with an expectation of a constantly growing income, debt calculations work a little differently.

cordially,
Scofflaw

Armin_Tamzarian

Scofflaw wrote: »

What that says is, OK, we have a GDP of €204.3bn, national debt of €196.54bn, growth rate of 2%, interest rate of 4%. We make no payments on the principal of the national debt, so the principal remains the same. As you can see, we make interest payments of €7.86bn a year, and that starts as 3.85% of our GDP, and drops to 2.71% of our GDP by 2040. In that time, we've paid over €235.85bn in interest.

cordially,
Scofflaw

Thanks for the explanation.
Can you tell me what are our projected and actual interest repayments are?

Scofflaw

Armin_Tamzarian wrote: »

Thanks for the explanation.
Can you tell me what are our projected and actual interest repayments are?

That's a bit of a moving target at the moment, unfortunately. We've had three reductions recently, and there seems to be a good bit of disagreement over what the interest payments are!

cordially,
Scofflaw