Primary Objective: Back to Markets

Bits_n_Bobs

Every politician interviewed cites this as a 'primary objective'. How can borrowing more money from 'the market' versus 'the troika' be a countries prime economic objective? It makes no sense whatsoever to me.

Geuze

The "troika" won't lend to the State forever.

Even with no deficit, the Govt still need to borrow to rollover past debt.

So we must borrow from somewhere.

So we must (eventually) return to the bond markets.

Sponge Bob

On a technicality, we become "The Troika" from 01 July.

We don't borrow from the Troika. Never did.

Farmer Pudsey

Bits_n_Bobs wrote: »

Every politician interviewed cites this as a 'primary objective'. How can borrowing more money from 'the market' versus 'the troika' be a countries prime economic objective? It makes no sense whatsoever to me.

It is too late now to be going back to the markrts we have paid back the bondholders to the banks so we cannot impose cuts on them. We will not be able to return to the markets until 2016 at the earliest. A lot of economist are saying it is when not if the Piigs default.

The Germans are carrying out an economic war with the rest of Europe and it is about time that our politicans coped on. There refusal to allow the ECB to cut the intrest rate last week was a bad sign they are willing to send all the eurozone into recession for there own gain. The Euro project is no longer in Ireland's intrest and if we had enough ball we would do a runner on our terms before we are forced out by the Germans in the next 12-18 months.

FreudianSlippers

Geuze wrote: »

The "troika" won't lend to the State forever.

Even with no deficit, the Govt still need to borrow to rollover past debt.

So we must borrow from somewhere.

So we must (eventually) return to the bond markets.

We have to face the fact that prior to 2009, most people had no clue how states funded themselves.

Bits_n_Bobs

I realise that we will have to borrow more money at some future state from the markets. However that does not constitute a policy, it is a financial fact. Saying it constitutes a prime economic policy is patently not true, yet this is what ministers etc routinely trot out as the 'vision' thing when being interviewed.

It's lazy thinking and it's a bald attempt to misdirect people from what I believe is an economic policy vacuum.

The markets 'demand' a (slightly more) balanced set of books. Therefore we will cut spending and increase taxes in a manner that is least likely to offend most people, hope that we will not run into diminishing returns while also hoping that growth will 'happen'. Then we will meet our primary economic objective of being able to borrow money from the markets. None of that is cohesive and it is not a policy. It's the same crap lack of thinking that got us into this mess.

FreudianSlippers

Markets have a distinct lack of memory, they "care" about the now: now. I agree that we need a more structured framework of how we aim to return to the markets by 2016 or sooner, but in reality a policy to effect economic change to achieve a return to the markets is still a policy - a loose and silly policy but still a policy.
The government's method of achieving this? Seems to be tax, tax, tax but don't touch social welfare, government spending or public sector pay.

Delancey

Hopes to return to the bond markets hsave been predicated on reasonable levels of economic growth , levels which we now know have been wildly optimistic - it will be years before Ireland can borrow as ' normal ' countries do.
In the meantime the Government inability to tackle vested interests like Public Sector unions means that the tax , tax and more tax policy will further depress whatever weak growth there is - the government seem unaware that you don't tax your way out of a recesssion.

antoobrien

Bits_n_Bobs wrote: »

I realise that we will have to borrow more money at some future state from the markets. However that does not constitute a policy, it is a financial fact. Saying it constitutes a prime economic policy is patently not true, yet this is what ministers etc routinely trot out as the 'vision' thing when being interviewed.

It's lazy thinking and it's a bald attempt to misdirect people from what I believe is an economic policy vacuum.

The markets 'demand' a (slightly more) balanced set of books. Therefore we will cut spending and increase taxes in a manner that is least likely to offend most people, hope that we will not run into diminishing returns while also hoping that growth will 'happen'. Then we will meet our primary economic objective of being able to borrow money from the markets. None of that is cohesive and it is not a policy. It's the same crap lack of thinking that got us into this mess.

I have to disagree with your analysis of the situation. The strategy has been is to trade for time to right the ship.

We've tried to cut in a way that won't do permanent damage to the economy (which looking at GDP figures appears to be working - despite the cuts & taxes it's stabilized, even increased slightly). The taxes we've added have been relatively modest.

The alternative is to take a scythe to spending and heap on taxes. Whatever about the argument on cutting spending (i.m.o. a really bad idea - the shock caused by cuts in spending, taxes & job losses between the end of 2008 & 2010 took €25 billion out of the economy), the indications from our own history is that raising taxes does not raise the desired revenue.

Climber

The Government want you to beleive that when Ireland “returns to the markets“ all our suffering will disappear overnight because the Troika will not be dictating to us anymore, we will have regained our economic sovereignty.

This is simply not the case.

We will not plug the hole in our budget by borrowing from the market. Not one budget cut will be reversed, not one tax increase will be reversed. The problems with Ireland does not end with our access to credit. Our problems run much deeper than that.

Sure in another time we were told that our suffering would end if we left the British Empire, cause all our suffering was the fault of the Brits. AS it turns out, our suffering is OUR fault. Not being able to run our own affairs being the chief culprit.

kennyb3

antoobrien wrote: »

I have to disagree with your analysis of the situation. The strategy has been is to trade for time to right the ship.

We've tried to cut in a way that won't do permanent damage to the economy (which looking at GDP figures appears to be working - despite the cuts & taxes it's stabilized, even increased slightly). The taxes we've added have been relatively modest.

The alternative is to take a scythe to spending and heap on taxes. Whatever about the argument on cutting spending (i.m.o. a really bad idea - the shock caused by cuts in spending, taxes & job losses between the end of 2008 & 2010 took €25 billion out of the economy), the indications from our own history is that raising taxes does not raise the desired revenue.

The problem being that our debt to GDP ratio has gone through the roof in the mean time and continues to grow staggeringly. How is adding more and more debt righting any ship? Yes we may balance our budget some time in the next 4/5 years but at what cost?

Current expenditure has increased 15.5% since 2007 - that side of austerity is a myth. The only cuts have been to capital expenditure - you know the type that actually make the country a better place to live in - and the removal of once off bank recaps and the like.

The extra taxes raised are largely being wasted. See here - When you take out the promissory note we are only 200m better off than this time last year to the end of May. Are we not meant to be 4bn better off by the end of the year? Note the 2% overspend. Also note the the 17.8% increase in CT - due to a deadline change. Just another skew of the figures.

Your version of buying time and theirs is different. The government are just happy to keep the status quo - avoid the difficult decisions like public sector pay cuts, compulsory redundancies etc etc. They are playing politics not economics.

Bits_n_Bobs

antoobrien wrote: »

I have to disagree with your analysis of the situation. The strategy has been is to trade for time to right the ship.

We've tried to cut in a way that won't do permanent damage to the economy (which looking at GDP figures appears to be working - despite the cuts & taxes it's stabilized, even increased slightly). The taxes we've added have been relatively modest.

The alternative is to take a scythe to spending and heap on taxes. Whatever about the argument on cutting spending (i.m.o. a really bad idea - the shock caused by cuts in spending, taxes & job losses between the end of 2008 & 2010 took €25 billion out of the economy), the indications from our own history is that raising taxes does not raise the desired revenue.

The majority of cuts have primarily been from the capital side of expenditure. I would argue that this does permanent damage to the economy. The alternative cuts (in social welfare, public servants salaries etc.) would almost certainly result in damage to society, in the form of strikes, social upheaval etc etc. It may be possible to argue that society has been protected at the cost of the economy when it comes to spending cuts. However capital cuts have permanently damaged the economy.

What has decreased the size the economy has been the contraction of the construction industry from it's boom time high. I have not seen any analysis of this, but I would wager the majority of the €25b contraction you mention is due to this rather than spending cuts and was probably unavoidable.

I don't understand how extending balancing the books to 2015 not raising taxes and not cutting spending which you seem to be advocating, is an option?

antoobrien

kennyb3 wrote: »

The problem being that our debt to GDP ratio has gone through the roof in the mean time and continues to grow staggeringly. How is adding more and more debt righting any ship? Yes we may balance our budget some time in the next 4/5 years but at what cost?

Continues to grow staggeringly? The debt figures are a bit misleading due to the fact that Eurostat forced us to do an accounting exercise which lumps debts that we haven't actually accumulated yet (the promissory notes) onto the debt figures. The debt as of last year was €169 bn. €28bn of that we haven't actually "borrowed" yet.

It's exacerbated by not counting correctly the capital requirements of the other banks. E.g. when talking about the cost of the bailouts how many commentators point out that BOI have fulfilled their obligations under the second stress test and funded the extra capital from private sources - meaning the capital does not appear on the government balance sheet? None that I've noticed - they're still all claiming €62.bn as the cost, when it's now closer to €58.5 bn.

kennyb3 wrote: »

Current expenditure has increased 15.5% since 2007 - that side of austerity is a myth. The only cuts have been to capital expenditure - you know the type that actually make the country a better place to live in - and the removal of once off bank recaps and the like.

Take out the increases in the SW budget, which is directly a result of the unemployment increases, how does that effect the figures? The public services is a tough nut to crack, I'm not sure how to do it without damaging employment rights across the economy.

kennyb3 wrote: »

The extra taxes raised are largely being wasted. See here - When you take out the promissory note we are only 200m better off than this time last year to the end of May. Are we not meant to be 4bn better off by the end of the year?

There's a reason why the exchequer results have a profile in there, showing what spending is expected to be at each stage of the year. In this case a lot of taxes (not just income taxes) get paid in October & November. It's a bit early to be breaking out the life rafts.

kennyb3 wrote: »

Note the 2% overspend. Also note the the 17.8% increase in CT - due to a deadline change. Just another skew of the figures.

It wasn't a deadline change - the reporter that described it as that is being disingenuous at best -it was a late payment (hopefully with penalties attached). I suggest you go to the DoF website and find the exchequer returns, which have the benefit of written rather plainly, sans reporters bias.

At end-May, total tax revenue is €1.6 billion (12.5%) above the same period in 2011. However after adjusting for the impact of delayed corporation tax receipts and the PRSI/income tax reclassification issue this year, the year-on-year growth rate is estimated at 8.9%.

kennyb3 wrote: »

Your version of buying time and theirs is different. The government are just happy to keep the status quo - avoid the difficult decisions like public sector pay cuts, compulsory redundancies etc etc.

I wonder just how much of an understanding you have of the legal & perceptual difficulties involved. They can't just announce cuts to teachers pay in order to meet targets. They're seen as almost innocent in the economic problems (utter crap imo, the teachers are the root cause because our builders and accountants clearly can't count - where did they not learn that from I wonder?).

• Would I like the government to do more? Yes
• Do agree with CPA? No.
• Do I think they've gone far enough. No.
• Can they impose redundancies? Yes - they have identified a number of areas that are overstaffed. They can make these roles redundant.
• Should they? Yes, they should use it as a chance to get rid of the most unproductive workers.
• Are the government doing anything that the private sector don't do? No. I work for a multi-national, who have recently laid off a few people. As part of the severance procedure HR are required to offer suitable alternative positions (in much the same way as the government are offering redeployment between departments).

However I also don't want them to do things that will affect wider employment rights, or we can just sign ourselves up to slavery. The rules can't be changed without affecting wider employment rights e.g. pay cuts have to be managed very carefully or all companies will decide that it's legal to reduce pay without consultation (which is currently very illegal).

It's a tricky balance they have to run, one that I don't envy. I may not agree with all the aspects of the approach taken, but I do understand the reasoning behind it. If they bungle it, a strike could ensure (great no wages paid out that week), that could cripple the economy (oops not such a good idea).

kennyb3 wrote: »

They are playing politics not economics.

There's no difference between the two. Each political decision made has an economic consequence and each economic action has a political ramification. Unless of you'd like them to ignore such things. Europe have a history of producing "leaders" like that. They generally don't last long and cause the country some amount of damage before they are gotten rid of.

kennyb3

antoobrien wrote: »

Continues to grow staggeringly?

Yes adding 8.3% of your GDP to your debt is pretty staggering. More last year and slightly less next year and will be a number of years before we get close to a balanced position. The amounts involved arestaggering . In addition every single growth forecast has been missed/subsequently downgraded to date - no doubt 2012 and 2013 will follow suit (especially given the economic outlook for the eurozone). The government are still living in fairy land.

antoobrien wrote: »

The debt figures are a bit misleading due to the fact that Eurostat forced us to do an accounting exercise which lumps debts that we haven't actually accumulated yet (the promissory notes) onto the debt figures. The debt as of last year was €169 bn. €28bn of that we haven't actually "borrowed" yet.

Yet being the appropriate word.

antoobrien wrote: »

It's exacerbated by not counting correctly the capital requirements of the other banks. E.g. when talking about the cost of the bailouts how many commentators point out that BOI have fulfilled their obligations under the second stress test and funded the extra capital from private sources - meaning the capital does not appear on the government balance sheet? None that I've noticed - they're still all claiming €62.bn as the cost, when it's now closer to €58.5 bn.

Whahey 4bn less - so is that only 60bn instead of 64bn?

antoobrien wrote: »

Take out the increases in the SW budget, which is directly a result of the unemployment increases, how does that effect the figures? The public services is a tough nut to crack, I'm not sure how to do it without damaging employment rights across the economy.

Why would it be taken out? It's still expenditure - its an item they have control over. They can cut it as required.

Social protection is up 10% on 2011 despite unemployment rising only modestly.


Anyway if you look at May's figures (just as an example) there are increases in quite a few departments including defence, transport, public expenditure and reform (ironically), arts, education.

antoobrien wrote: »

There's a reason why the exchequer results have a profile in there, showing what spending is expected to be at each stage of the year. In this case a lot of taxes (not just income taxes) get paid in October & November. It's a bit early to be breaking out the life rafts.

Exactly the 2.8% increase in revenue is offset by a 2% increase in expenditure. And remember the 2% is applied to a bigger figure.

I'm perfectly aware of revenue income streams however we are 5 months into the year and effectively 200m better off. October and November better be whopper months!

antoobrien wrote: »

It wasn't a deadline change - the reporter that described it as that is being disingenuous at best -it was a late payment (hopefully with penalties attached). I suggest you go to the DoF website and find the exchequer returns, which have the benefit of written rather plainly, sans reporters bias.

Sorry late payment not deadline change.

But again you fail to also note in terms of the income side there is a timing issue related to the receipt of €958 million in Central Bank surplus income is the primary reason underpinning May’s Exchequer surplus. Last year, the Central Bank surplus income of €671 million was received in June.

You'll have to excuse me for ignoring all the Croke Park and political stuff as I've little interest in this end of things. I didnt intend to debate the ins and outs of this stuff, my above post was only meant as an economic overview of where we are.

i.e.

- Very high debt to GDP ratio
- Significant budget deficit with a number of years away from a balanced budget
- Tax increases being offset by gross overspending
- Huge mortgage arrears crisis which has yet to be fully recognised
- Still rising unemployment (despite emigration)
- A pensions timebomb in the background (for around 2030)

Why will the markets lend to us at sustainable levels around 4% again? Our 10 year yield (the gold standard) is at 8.2%. Our debt to GDP ratio is well over 100% and rising. The markets don't like that, that's the bottom line all the rest is just me and you flaffling around the ins and outs. Our debt is unsustainable.

We both know the government will make some attempt to offer the shortest possible instrument at less than 6% as a political stunt and call it a victory. At the end of the day until our 5 and 10 year yields drop its all just a show.

ardmacha

teachers are the root cause because our builders and accountants clearly can't count - where did they not learn that from I wonder?).

So accountants, people who do multiple professional exams, cannot count and this is the fault of teachers? Is it not possible to have a single thread here without this kind of juvenile nonsense?

antoobrien

ardmacha wrote: »

So accountants, people who do multiple professional exams, cannot count and this is the fault of teachers? Is it not possible to have a single thread here without this kind of juvenile nonsense?

Well if they can't count, they weren't though very well then were they.:rolleyes:

Accountability, that doesn't apply to us: we're teachers.

Bits_n_Bobs

kennyb3 wrote: »

You'll have to excuse me for ignoring all the Croke Park and political stuff as I've little interest in this end of things. I didnt intend to debate the ins and outs of this stuff, my above post was only meant as an economic overview of where we are.

i.e.

- Very high debt to GDP ratio
- Significant budget deficit with a number of years away from a balanced budget
- Tax increases being offset by gross overspending
- Huge mortgage arrears crisis which has yet to be fully recognised
- Still rising unemployment (despite emigration)
- A pensions timebomb in the background (for around 2030)

Why will the markets lend to us at sustainable levels around 4% again? Our 10 year yield (the gold standard) is at 8.2%. Our debt to GDP ratio is well over 100% and rising. The markets don't like that, that's the bottom line all the rest is just me and you flaffling around the ins and outs. Our debt is unsustainable.

We both know the government will make some attempt to offer the shortest possible instrument at less than 6% as a political stunt and call it a victory. At the end of the day until our 5 and 10 year yields drop its all just a show.

I would have to agree with that synopsis.

Given the state of affairs in Europe (and elsewhere) an export led growth solution is not realistic. The state of banks everywhere and particularly here negates any possibility of a domestic led growth solution.

So - assume that the government does achieve its primary economic target of returning to the market, it will only be achievable through serious decreases in spending (across the board with big and sore hits in social welfare, education, salaries, pensions and health). There may be some corresponding increases in taxes, however I suspect they are into diminishing returns on the large pots of taxable income.

So the plan is to cut the crap out of everything, tax everything, run up a bigger debt and then triumphantly return to 'the markets' to borrow more money at a hopefully ok rate? This is the primary economic objective? Or have I misunderstood some nuance that is obvious to the intellectual powerhouses that pepper the Dept. of Finance???

antoobrien

kennyb3 wrote: »

Yet being the appropriate word.

Very appropriate given:

kennyb3 wrote: »

Whahey 4bn less - so is that only 60bn instead of 64bn?

Well actually €58bn but hey a billion here a billion there, pretty soon we're talking real money"

Btw that €4bn is money that the taypayer doesn't have to raise.

kennyb3 wrote: »

Why would it be taken out? It's still expenditure - its an item they have control over. They can cut it as required.

Social protection is up 10% on 2011 despite unemployment rising only modestly.

You'd leave it out becuase it's the on thing you'd expect to see a rise in a recession. In 2008 the (net) total spent was €9.4 bn, last year €13.3 (add 7 for PRSI, which is paid directly to the department). Interestingly the voted expenditure (department spending) is up about €250m over the four years, so there have been cuts to cover the extra €4bn spend in social protection.

kennyb3 wrote: »

Anyway if you look at May's figures (just as an example) there are increases in quite a few departments including defence, transport, public expenditure and reform (ironically), arts, education.

Seasonal issues perhaps? How do they compare to profile - are they higher or lower than budget?

kennyb3 wrote: »

Exactly the 2.8% increase in revenue is offset by a 2% increase in expenditure. And remember the 2% is applied to a bigger figure.

I really don't follow your logic here. You're totally ignoring the nature of revenue collection to get at what exactly?

You're also ignoring the potential practicality of making payments early. It's worth noting that we've made payments into the sinking fund (off the debt) earlier than they're usually made. This has the effect of reducing interest payments later in the year.

kennyb3 wrote: »

I'm perfectly aware of revenue income streams however we are 5 months into the year and effectively 200m better off. October and November better be whopper months!

Perhaps you should dig out the projections and see where they should be before going off on one

kennyb3 wrote: »

Sorry late payment not deadline change.

Yes and the language used really does not help. It makes it look like an intentional change to inflate figures, as opposed to something that wasn't actually under the government's control.

kennyb3 wrote: »

But again you fail to also note in terms of the income side there is a timing issue related to the receipt of €958 million in Central Bank surplus income is the primary reason underpinning May’s Exchequer surplus. Last year, the Central Bank surplus income of €671 million was received in June.

Wow, we got some (non tax) income a month early. We're still about €300m up on it. Btw wasn't your earlier problem with the tax income?

kennyb3 wrote: »

You'll have to excuse me for ignoring all the Croke Park and political stuff as I've little interest in this end of things. I didnt intend to debate the ins and outs of this stuff, my above post was only meant as an economic overview of where we are.

Can't ignore it either because it's like looking at the bailout figure without understanding that it's a maximum figure, allowing for the banks not raising a single cent of capital on their own. Without looking at all the ramifications of CPA & the politics behind it, we can't have a full picture of what's going on and what we might change.

As I said I don't agree with it, but CPA there for a reason - to try to keep GDP at a certain level

kennyb3 wrote: »

- Very high debt to GDP ratio

But not as bad as it was in the 80s

kennyb3 wrote: »

- Significant budget deficit with a number of years away from a balanced budget

We can examine the alternative - cut €18 billion in spending next year.

kennyb3 wrote: »

- Tax increases being offset by gross overspending

Given the figures involved we're talking a minor statistical blip

kennyb3 wrote: »

- Huge mortgage arrears crisis which has yet to be fully recognised

There's a bit of scaremongering going on about that. The banks are recapitalized based on 40% losses through 2013. Interestingly this never gets mentioned (and when it does it but sure that'll never be enough). We're currently running at what about 10% arrears of 90 days? We've a bit of leeway before panic stations.

kennyb3 wrote: »

- Still rising unemployment (despite emigration)

Actually it's stabilized and has started falling.

kennyb3 wrote: »

- A pensions timebomb in the background (for around 2030)

Good job there's been two baby booms in the past 20 years then

kennyb3 wrote: »

Why will the markets lend to us at sustainable levels around 4% again?

Sustainable for us is about 6%. The last bonds we sold were 6.5%. The swap done in February was 4.5%.

kennyb3 wrote: »

Our 10 year yield (the gold standard) is at 8.2%.

Actually we don't have any 10 year bonds out there currently, so the 9 year is the next best thing. That is currently 7.24%

kennyb3 wrote: »

Our debt to GDP ratio is well over 100% and rising. The markets don't like that, that's the bottom line all the rest is just me and you flaffling around the ins and outs.

The debt to GDP ratio is 108% and expected to peak at 118% in 2015 (imf figures). I wonder why the yields on our debt have fallen since the extreme highs of last July. The Markets must think we're doing something right methinks if last year they were charging us 15.5% but are now charging us less than half for the same bonds.

kennyb3 wrote: »

Our debt is unsustainable.

That's a point of debate that depends on your point of view. The IMF thinks it is, that's good enough for me.

kennyb3 wrote: »

We both know the government will make some attempt to offer the shortest possible instrument at less than 6% as a political stunt and call it a victory. At the end of the day until our 5 and 10 year yields drop its all just a show.

Actually I know the NTMA aren't that stupid. They had the chance to pull that stunt in February, immediately after the bond swap and didn't do it.

ardmacha

Well if they can't count, they weren't though very well then were they.

If they couldn't count, they could not have become accountants.
But then again, as your sentence shows, there may be problems with English teaching.

Farmer Pudsey

ardmacha wrote: »

If they couldn't count, they could not have become accountants.
But then again, as your sentence shows, there may be problems with English teaching.

This sounds like a typical teacher correcting errors, but failing to teach and deal with the issues.

ardmacha

This sounds like a typical teacher correcting errors, but failing to teach and deal with the issues.

Some people do not wish to be taught.