EU Commission expects Irish return to financial markets later this year

Scofflaw

The Commission's quarterly report (presumably for the troika review) apparently expects that Ireland should return to the markets later this year:

The Commission said for the first time in one of its quarterly reports on the bailout programme that it assumes Ireland will return to the markets this year, thanks partly to a successful 3.5 billion euro debt swap in January and to the fact that it avoided a ratings downgrade last month, unlike many other euro zone countries.

However, it highlights various downside risks:

"Yet the incipient improvement in market sentiment vis-à-vis Ireland remains fragile, and could evaporate in case of adverse developments elsewhere, putting at risk a return to market funding."

The banks are also noted as a potential problem, but the report was written before the government decided to call a referendum on the Financial Stability Treaty:

A 'no' vote would prevent Dublin from using the European Stability Mechanism, the permanent successor to the euro zone's current rescue fund, which Ireland is tapping as part of its current bailout.

With such tall borrowing requirements in 2014, most acutely with an 8.3 billion euro bond redemption due at the start of the year, most analysts believe Dublin will need more official funding to meet some of these commitments.

http://www.reuters.com/article/2012/02/29/uk-eu-ireland-report-idUSTRE81S1HT20120229

cordially,
Scofflaw

pacquiao

Perhaps you could explain to your audience. What the markets are, how they work, and why we need them?

Permabear

This post has been deleted.

Danimal

pacquiao wrote: »

Perhaps you could explain to your audience. What the markets are, how they work, and why we need them?

- There are designated primary dealers who buy government bonds on auction from sovereigns. They then resell these bonds to whomever.

- Primary dealers get a commission.

- You don't need the bond market if you don't have to borrow money. e.g. if a sovereign builds up a surplus during good times, then spends it during bad ones, you could stay away from the bond market.

pacquiao

Danimal wrote: »

- There are designated primary dealers who buy government bonds on auction from sovereigns. They then resell these bonds to whomever.

- Primary dealers get a commission.

- You don't need the bond market if you don't have to borrow money. e.g. if a sovereign builds up a surplus during good times, then spends it during bad ones, you could stay away from the bond market.

A sovereign what? America doesn't need to borrow anything from any bond market.

Danimal

pacquiao wrote: »

A sovereign what? America doesn't need to borrow anything from any bond market.

I'm not sure what you mean? The US has been running a huge budget deficit for ages and they have to issue new bonds all the time.

pacquiao

Danimal wrote: »

I'm not sure what you mean? The US has been running a huge budget deficit for ages and they have to issue new bonds all the time.

The word deficit has no meaning at all. They print their own currency. They don't need to go to any bond markets.They're citizens don't even need to pay tax.

Scofflaw

pacquiao wrote: »

The word deficit has no meaning at all. They print their own currency. They don't need to go to any bond markets.They're citizens don't even need to pay tax.

pacquiao, you're either trolling or completely clueless here. Give it a rest.

moderately,
Scofflaw

pacquiao

Scofflaw wrote: »

pacquiao, you're either trolling or completely clueless here. Give it a rest.

moderately,
Scofflaw

How am i clueless exactly?

Danimal

pacquiao wrote: »

The word deficit has no meaning at all. They print their own currency. They don't need to go to any bond markets.They'recitizens don't even need to pay tax.

You can't just print money to pay lenders like that. Not even the US does it.

If ireland was to increase the money supply by printing a €150bil bill to pay their bondholders in full, the value of the currency in circulation would decrease accordingly.

It's defo possible to do this assuming you leave the common currency. Problem is then that you're liable to run into hyperinflation i.e. people lose faith in the currency.

Scofflaw

pacquiao wrote: »

How am i clueless exactly?

US Treasury bonds are in the news roughly every day, all day. For example:

China, the largest foreign U.S. creditor, reduced its holdings of U.S. government securities last year for the first time since the Treasury Department began compiling the data in 2001.

The world’s second-largest economy held $1.15 trillion Treasuries as of Dec. 31, down from $1.16 trillion at the end of 2010, according to Treasury data released yesterday. The U.S. revised the figures to show that China held about $51 billion more than reported earlier last month. The revision shows nation’s holdings peaked at $1.3149 trillion in July.

China, then, holds over a trillion dollars of something you claim doesn't exist. A 2-second Google search would have revealed this to you. I find it hard to believe that you could possibly have missed it.

moderately,
Scofflaw

pacquiao

Scofflaw wrote: »

US Treasury bonds are in the news roughly every day, all day. For example:



China, then, holds over a trillion dollars of something you claim doesn't exist. A 2-second Google search would have revealed this to you. I find it hard to believe that you could possibly have missed it.

moderately,
Scofflaw

China imports dollars. America doesn't need to issue bonds.They have a printing press. So does china.

Scofflaw

pacquiao wrote: »

China imports dollars. America doesn't need to issue bonds.They have a printing press. So does china.

There's a problem with simply printing money, which is called inflation. Say the US has, for the sake of argument, $40 trillion in circulation. Say it decides to print $4 trillion to meet its government needs, instead of either taxing for it or borrowing it. That would mean that the US then had $44 trillion in circulation in the same economy.

That seems both obvious and easy - and has done so as long as governments have controlled currency - but that $44 tn as opposed to $40 tn in the same economy means that for every dollar previously available to purchase goods and services there are now 1.1 dollars instead. Prices adjust to that, which is to say there's 10% inflation.

So simply printing more currency produces inflation, which erodes the purchasing power of people's savings and of the currency's purchasing power abroad (more dollars -> dollar is cheaper for foreigners to buy). The former means that essentially the government is actually taking the money from the savings of its citizens, companies, etc - the latter means that imports become more expensive. And, in turn, that means that prices rise - more inflation.

So simply turning on the printing presses is like keeping your economy going with drugs rather than food - it's short term, it has nasty side effects, and the comedown is ugly.

cordially,
Scofflaw

Kurz

Yikes this thread took a very weird tangent.

Anyways, what do you all think of a return to the markets at an earlier than planned time? I know this would be a good thing from a populist point of view but wouldn't it be cheaper to keep taking the eu money at the lower rate for now? At least until the originally projected return date which would have been late 2013/early '14 if I remember correctly.

Scofflaw

Kurz wrote: »

Yikes this thread took a very weird tangent.

Anyways, what do you all think of a return to the markets at an earlier than planned time? I know this would be a good thing from a populist point of view but wouldn't it be cheaper to keep taking the eu money at the lower rate for now? At least until the originally projected return date which would have been late 2013/early '14 if I remember correctly.

I don't think the government would succeed in a large bond issue, which means that there's no real current likelihood of leaving the troika program. It's more of a psychological issue - but it's good for the government, in that it increases their bargaining power against the troika and improves the prospect of a real return, and it's good for the troika, because it validates their program.

So, on balance, whatever happens I don't think we'll be exiting the troika program early...which, again on balance, I'm in favour of happy with, because the ability to return to the bond markets/leave the program has no real bearing on the necessary fiscal adjustments, but makes it more likely the government will prefer vested interests over reform.

cordially,
Scofflaw

pacquiao

Scofflaw wrote: »

There's a problem with simply printing money, which is called inflation. Say the US has, for the sake of argument, $40 trillion in circulation. Say it decides to print $4 trillion to meet its government needs, instead of either taxing for it or borrowing it. That would mean that the US then had $44 trillion in circulation in the same economy.

That seems both obvious and easy - and has done so as long as governments have controlled currency - but that $44 tn as opposed to $40 tn in the same economy means that for every dollar previously available to purchase goods and services there are now 1.1 dollars instead. Prices adjust to that, which is to say there's 10% inflation.

So simply printing more currency produces inflation, which erodes the purchasing power of people's savings and of the currency's purchasing power abroad (more dollars -> dollar is cheaper for foreigners to buy). The former means that essentially the government is actually taking the money from the savings of its citizens, companies, etc - the latter means that imports become more expensive. And, in turn, that means that prices rise - more inflation.

So simply turning on the printing presses is like keeping your economy going with drugs rather than food - it's short term, it has nasty side effects, and the comedown is ugly.

cordially,
Scofflaw

Basically you're saying if a government over spends more than it's productive capacity inflation gets out of control. That's obvious.
As i said. America doesn't need to borrow from any bond market.
Answer me this.Why would you need to have a budget surplus if you create your own currency?

Scofflaw

pacquiao wrote: »

Basically you're saying if a government over spends more than it's productive capacity inflation gets out of control. That's as obvious as a heart attack.
As i said. America doesn't need to borrow from any bond market.
Answer me this.Why would you need to have a budget surplus if you create your own currency?

Did you even read what I posted? It's not "if a government over spends more than it's productive capacity inflation gets out of control" - it's if the government prints money to meet spending that inflation gets out of control.

patiently,
Scofflaw

antoobrien

Scofflaw wrote: »

I don't think the government would succeed in a large bond issue, which means that there's no real current likelihood of leaving the troika program.

I think it'd be helpful if you could define what a "large bond issue" is in the Irish context.

My reading of this would be something like refinancing/extending the bonds die for payment in 2014 (approx €8 billion) or heading towards funding the deficit we expect to have in 2014 - neither of which anybody is likely to go for in a straight up bond issue.

BeeDI

Scofflaw wrote: »

The Commission's quarterly report (presumably for the troika review) apparently expects that Ireland should return to the markets later this year:



However, it highlights various downside risks:



The banks are also noted as a potential problem, but the report was written before the government decided to call a referendum on the Financial Stability Treaty:



http://www.reuters.com/article/2012/02/29/uk-eu-ireland-report-idUSTRE81S1HT20120229

cordially,
Scofflaw

Fantastic. Therefore we can vote NO in the referendum, as we will not need a second bailout, and hence access to the ESM fund:cool:
I really, really want to vote no, but have been concerned about access to cash, if we needed a second bail out, outside of the fiscal compacy.

You have put my mind at ease. It's definitely NO, Non, Nein! Ja:cool:

Scofflaw

antoobrien wrote: »

I think it'd be helpful if you could define what a "large bond issue" is in the Irish context.

My reading of this would be something like refinancing/extending the bonds die for payment in 2014 (approx €8 billion) or heading towards funding the deficit we expect to have in 2014 - neither of which anybody is likely to go for in a straight up bond issue.

That's a reasonable definition. Realistically, I'd expect us to get away with a billion or two - assuming, that is, that the running of a referendum doesn't send things too far north.

cordially,
Scofflaw

pacquiao

Scofflaw wrote: »

Did you even read what I posted? It's not "if a government over spends more than it's productive capacity inflation gets out of control" - it's if the government prints money to meet spending that inflation gets out of control.

patiently,
Scofflaw

I read your post.Government spending doesn't create dollars. Banks create dollars. I said America doesn't need to go to any bond markets. But we do.

Pict

Scofflaw wrote: »

So, on balance, whatever happens I don't think we'll be exiting the troika program early...which, again on balance, I'm in favour of happy with, because the ability to return to the bond markets/leave the program has no real bearing on the necessary fiscal adjustments, but makes it more likely the government will prefer vested interests over reform.

cordially,
Scofflaw

I share your view on this, however the lack of 'reform' is utterly perplexing. My own thoughts on the arrival of the IMF were more or less 'oh bugger, but at least they will tackle x,y and z'.

Leaving aside the PS debate (on the basis that its been done to death on other threads) we are still waiting on the following areas to be 'reformed';

- banking where failure has been rewarded not only by vast financial assistance but also the killing of any sort of competition in the market

- legal industry where there is some watery looking proposals in the distance for 'reform' but nothing all that meaningful

- whistleblowing legislation - zip as far as I can see

- bankruptcy reform which seems to be the most tortuous and contradictory piece of legislation ever

- government reform in terms of freedom of information, local governance, tax, privatisation, quangos etc

From the bit I do know about the IMF I thought one of the first things it did with 'client' countries was to tackle areas just like these??

antoobrien

pacquiao wrote: »

I read your post.Government spending doesn't create dollars. Banks create dollars. I said America doesn't need to go to any bond markets. But we do.

Banks can't create dollars without the permission of the state (or we wouldn't be complaining that we can't print money we'd be doing so).

To abuse Alexis de Tocqueville

The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money.

Coverage of Americas bond issues (aka Government debt) from bloomberg: http://topics.bloomberg.com/u.s.-government-debt/

Current estimate of the US national debt: $15.488 TRILLION (that's $15,488 billion)

Coverage of the US debt ceiling - which caused more havoc last year than Greece & Italy combined.

Scofflaw

pacquiao wrote: »

I read your post.Government spending doesn't create dollars. Banks create dollars. I said America doesn't need to go to any bond markets. But we do.

Government deficits can either be funded by bonds, or by printing money. If the US government printed money instead of borrowing on the bond markets, it would be creating dollars.

If it creates dollars, it creates inflation. So the US borrows on the bond markets like everyone else. However, they do get better bond rates because if all else failed, they could print money, so the bond buyers are more assured of repayment.

cordially,
Scofflaw

Scofflaw

Pict wrote: »

I share your view on this, however the lack of 'reform' is utterly perplexing. My own thoughts on the arrival of the IMF were more or less 'oh bugger, but at least they will tackle x,y and z'.

Leaving aside the PS debate (on the basis that its been done to death on other threads) we are still waiting on the following areas to be 'reformed';

- banking where failure has been rewarded not only by vast financial assistance but also the killing of any sort of competition in the market

- legal industry where there is some watery looking proposals in the distance for 'reform' but nothing all that meaningful

- whistleblowing legislation - zip as far as I can see

- bankruptcy reform which seems to be the most tortuous and contradictory piece of legislation ever

- government reform in terms of freedom of information, local governance, tax, privatisation, quangos etc

From the bit I do know about the IMF I thought one of the first things it did with 'client' countries was to tackle areas just like these??

There's a fair bit of detail on those in the troika reviews, if memory serves me correctly. I'll have a look.

cordially,
Scofflaw

Scofflaw

Heh. The Commission aren't happy about the review documents being leaked in advance:

Clarification regarding leaked Commission's staff report on Ireland

The European Commission is deeply concerned about the apparent leaking of its most recent staff report on Ireland's progress under the financial assistance programme. Commission staff strive to ensure that reports are prepared with the utmost accuracy and that confidentiality is preserved in advance of publication. The Commission has a mandate from the Member States to report on the contents of the quarterly review and share all the relevant information with member states' governments, so that they are in a position to endorse the conclusions and decide to proceed with the disbursement of the next instalment of the financial assistance programme. Breaches of confidentiality undermine this process, and are harmful to the efforts that are being made in countries under programmes to comply with the conditionality required of them.


The Commission would like to underline once again the good track record of programme implementation established in Ireland so far.

cordially,
Scofflaw

pacquiao

antoobrien wrote: »

Banks can't create dollars without the permission of the state (or we wouldn't be complaining that we can't print money we'd be doing so).

To abuse Alexis de Tocqueville


Coverage of Americas bond issues (aka Government debt) from bloomberg: http://topics.bloomberg.com/u.s.-government-debt/

Current estimate of the US national debt: $15.488 TRILLION (that's $15,488 billion)

Coverage of the US debt ceiling - which caused more havoc last year than Greece & Italy combined.

Scofflaw wrote: »

Government deficits can either be funded by bonds, or by printing money. If the US government printed money instead of borrowing on the bond markets, it would be creating dollars.

If it creates dollars, it creates inflation. So the US borrows on the bond markets like everyone else. However, they do get better bond rates because if all else failed, they could print money, so the bond buyers are more assured of repayment.

cordially,
Scofflaw

http://moslereconomics.com


When the government “spends,” the Treasury disburses the funds by crediting bank accounts. Settlement involves transferring reserves from the Treasury’s account at the Fed to the recipient’s bank. The resulting increase in the recipient’s deposit account has no corresponding liability in the banking system. This creation is called “vertical,” or exogenous to the banking system. Since there is no corresponding liability in the banking system, this results in an increase of non-government net financial assets. When banks create money by extending credit (loans create deposits), this occurs completely within the banking system and results in a liability for the bank (the deposit) and a corresponding asset (the loan). The customer has an asset (the deposit) and a corresponding liability (the loan). This nets to zero.


Thus vertical money created by the government affects net financial assets and horizontal money created by banks does not, although its use in the economy as productive capital can increase real assets.
The mistake that is usually made is comparing what happens in the horizontal system with what happens at the level of government accounting. At the horizontal level, debt is the basis for horizontal money creation. Therefore, it is often assumed that debt must be the basis for the creation of money by government currency issuance. This is not the case.
Reserve accounting uses the standard accounting identities, but the meaning of “liability” is not “debt.” The husband-wife analogy for Central Bank-Treasury accounting relationships is apt. Since a husband and wife are responsible for each others debts, neither can be indebted to the other. That is to say, reserve accounting is a fiction that does not represent real relationships, such as exist between a creditor and debtor in the horizontal system.


Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Treasury’s. That is, when a Treasury is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating Central Bank and Treasury as “government”).


When the Treasury’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.


Therefore, the key to understanding Modern Monetary Theory is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase non-government net financial assets, and taxation withdraws net financial assets from non-government. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the Central Bank to hit its target rate.


These principles are then applied to Y=C+I+G+NX to balance nominal aggregate demand with real output capacity in order to achieve full capacity utilization, hence, full employment, along with price stability. This is based not on theory requiring assumptions but on operational reality that can be represented using data, standard accounting identities, and stock-flow consistent macro models.”